Spotify has mounted a strong defence of the commercial potential of its freemium tier, through a new Europe-wide study conducted by global market research firm TNS.
The new report, The New Audio, is effectively a stat-packed pitch to radio advertising agencies as to why they should find extra cash to buy audio ads on Spotify’s freemium tier.
Right now, some labels and artists are understandably frustrated with the paucity of cash generated by Spotify’s ad-funded tier: in 2014, ‘freemium’ made up just 1/10th of Spotify’s €1.08bn revenue.
The vast majority of Spotify income still comes from individual subscribers.
However, Spotify believes in the future commercial potential of its free service to a huge degree. And now we have evidence of just how huge.
The streaming company claims that the annual income of the EU ‘audio advertising market’ could easily reach $8bn – the same figure currently boasted by the US market across traditional radio, plus Sirius XM, Pandora etc.
But that will only happen if and when those EU media buyers currently relying on commercial radio exclusively start splashing real money on Spotify ads.
And, suggests The New Audio report, they’d be mad not to.
“WE BELIEVE THERE IS ENORMOUS POTENTIAL TO GROW THE EU AUDIO ADVERTISING MARKET TO THE SCALE OF THE US – WHICH IS WORTH AROUND $8BN.”
JONATHAN FORSTER, SPOTIFY
TNS study surveyed over 20,000 respondents across ten European countries, including the UK, about their listening habits.
The UK results, which you can see below, heavily suggest that Spotify provides incremental listener reach to every radio station in the UK.
Spotify concludes that across the 15-34 age group, it adds a minimum of 14% incremental reach to UK commercial radio stations, up to a maximum of 21%.
Perhaps most noteworthy for those in the music business is the fact that, according to the TNS survey, Spotify is the second biggest digital music service in the UK behind iTunes.
With a 14.4% reach, Spotify claims that its free tier is almost five times as popular as Deezer in the territory.
Google Play is at No.3 with an 8.7% reach.
Although The New Audio is broadly supportive of the reach of traditional broadcast companies, it does suggest that to advertisers that people are more likely to pay attention while listening on Spotify than they do to commercial radio.
When it comes to Europe’s most valuable recorded music territory, Germany, the TNS results are slightly less exciting for Spotify.
Market figures suggest that streaming is growing fast in Germany, but that physical music is by far the most popular format in the market.
That is born out in Spotify’s report, which shows that Spotify freemium currently reaches just 8.8% of consumers.
However, that makes it the most popular digital music service in the territory, ahead of iTunes (7.2%) and Deezer (2.9%).
Another interesting slide from the 16-page report, which you can download for free through here, is Spain.
It’s well-known in music biz circles that Spotify freemium is breathing new life into an economically-hit market where unemployment is over 20%.
The New Audio report tells us just how much this is true: not only does Spotify freemium reach 27.7% of the population, but the brand apparently enjoys a 94% awareness rating amongst 15-24-year-olds.
Once again, Spotify says it is providing incremental reach to radio – ie. not cannibalising listeners – in the region.
Jonathan Forster, Spotify’s VP EMEA, Advertising and Partnerships, said: “We believe that there is enormous growth potential in the audio advertising industry, not just in terms of the huge opportunity to connect with a hard-to-reach demographic through Spotify, but also in terms of the potential to grow the European market to the scale of the US audio advertising industry – which is worth around $8 billion; exponentially more than that of Europe currently.”
David Cooper, Spotify’s Director of Sales, UK, said: “This TNS study aims to help media buyers understand the quantity and quality of the Spotify audience, and the extent to which Spotify can complement and extend a broadcast media buy.
“By identifying when and where Spotify reaches an audience that does not engage with radio, we hope to improve both media buyers’ understanding of the audio market, and to grow the audio market as a whole.”
Thomas Balaam, Business Director Exchange – Radio at Mindshare, who was given an early review of the study, said: “As the digital audio market continues to grow in the UK it is essential that we can we can understand listening habits and measure the incremental reach digital audio services offer when combined with traditional radio.
“This research will give us insights that will help us create improved audio advertising plans for our clients.”
Tom Coare, Associate Director at OMD, added: “With the audio landscape changing rapidly, it’s great to see Spotify investing in a study like this. The results show that Spotify and radio are complementary media and when used together they improve reach efficiencies for advertisers.”