Is the cost of Spotify’s ads on music equal to a penny for the music it generates, or is it worth as much as a nickel?
At one time Spotify’s annual marketing budget was $120 million, but as of 2016, it’s reportedly on the decline.
“In 2015 we were spending around $90 million on advertising,” says Jens Spiegler from Spotify, “the amount it generates now is around $50 million. As a percentage that’s around 16% of your total cost per stream.”
Spiegler says advertising is still a small part of the business and so it’s often paid by advertising partners. For instance, in 2015 Spotify was paying $500 million to its ad partners.
The average streaming service generates around 60 billion streams per month, so a stream of music that generates 20,000 paid tracks or 1 million streams is worth around 1 euro.
So how much does Spotify spend on ads on music?
Spotify claims to be spending on ad revenue about 10% above the industry average. But that’s up from the 3% that ad revenue accounted for in 2008 – when Spotify’s share of the advertising pie started declining.
Spotify also says that the amount of music it streams in Germany is rising, which it attributes to strong online play (although some experts estimate that streaming in Germany accounts for only 10% of music consumption).
“We’re seeing a strong growth of Spotify and the internet in general,” says Spiegler. “This is also a good thing for us.”
Does Spotify get paid extra for free streams instead of ads?
Although streaming in Germany doesn’t pay off the way in the US where Spotify is available in all 50 states it still helps Spotify get paid out for free plays.
Spotify will pay you the “advertisation cost” if you stream in Germany and that includes a fee of around $14 per song.
Do advertisers use Spotify to target ads at customers?
Spotify has not responded to claims that advertising is being used to target its advertising in order to get them to pay for streaming in the first place.
However, in an interview with The Atlantic last year Nick Hanauer, Spotify’s VP of advertising, said that advertising is used in ways that are “pretty close” to the way advertising is used in the US.
He says that advertising costs roughly $1 in Germany – “a tenth of the cost that’s paid in the US”
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