Why 2023 will be a defining year for Spotify's ad business in India

The extreme tolerance of Indian consumers towards ads makes India a crucial market for Spotify. The audio streaming platform earns just about 12% of its revenue from advertising, globally. The India business, however, is predictably driven mainly by advertising revenue. 

The global leadership of Spotify is now increasing its focus on advertising revenue. Further, the move of Netflix and Disney+ towards advertising video on demand (AVoD) indicates that platforms that depend mainly on subscription revenue need a healthy contribution from the ad business. 

Increasingly, Spotify is seeing the ads business “as a critical part of our overall product offering,” says Arjun Kolady, head - ad sales, Spotify India. “Globally, on average 40% of our users are on Spotify Premium and drive 90% of the revenue. The remaining 60% drives 10% of the revenue. In India, the numbers are very different.”

Kolady is confident that the global music streaming giant will remain dependent on advertising in India for the foreseeable future. “I don’t see a pathway to us becoming a predominantly subscriber-based platform in India any time soon. We expect our premium business to become a lot stronger but do not expect the weightages to flip,” he says.  

Affordability vs value

What brands are finding counter-intuitive with Spotify’s users is that one simply cannot tell the socio-economic profile of users simply based on whether or not a user pays to listen to music on Spotify. 

“Most brands that come to us say they want to reach Spotify Premium users. Why? Because they assume it is the subscribers who have higher disposable income.” But that’s not the case with music consumption on Spotify, says Kolady. “I know eight-year-olds who have subscriptions and CEOs and CXOs who don’t.”

India is among the few markets where Spotify has a student plan. The Student Premium plans start at Rs 66 per month. Other plans offer the ad-free experience at Rs 7/day, Rs 149/month for two accounts, family membership plan for Rs 179/month, and the basic Rs 119/month for a single user. 

Despite a wide-range of pocket-friendly Premium plans, users in India are not seeking out the ad-free music streaming experience. “For a large part of the population, it is not an issue of affordability. It is about if they value the ad-free experience.” It is those who obsess about music, create playlists, and share playlists, who pay to listen. Kolady says that a large majority of the people he knows who use Spotify Premium are teenagers.

Moolah from ads

Spotify launched in India in 2019. It was the 79th market for Spotify. The audio-streaming platform entered a market that already had Gaana, Jio Saavn, Amazon Prime Music and YouTube - the video-streaming app doubled up as a reliable music-streaming app for many users.  

In the last four years, Spotify has gone from 217 million users globally to 465 million monthly active users, as of October 2022. About 195 million users pay to listen to music and audio content on Spotify. 

The Indian market is a sliver of Spotify’s overall business and according to industry estimates, has about 48 million MAUs in the country. India is a focus area for CEO Daniel Ek who in a recent interview said that the company “will invest for as long as we need to in order to succeed in India.” 

Globally, 12% of Spotify’s revenue came from ads in Q3 CY22. The ads business grew 19% y-o-y while the subscription business registered a 22% increase y-o-y. Largely, Spotify’s business in India is led by advertising revenue the platform generates from running audio, video, and banner ads.

Kolady points out that the completed views of video ads on Spotify is sometimes much better than even video streaming platforms. "From a viability, metric, quality and cost point of view we are much better than video platforms. This is because we serve video ads only when we know that the user is actively engaging with the app."

Among audio/music streaming platforms, Spotify is perceived to be a premium platform in India. It is the chosen vehicle for urban premium targeting for brands and commands almost double the advertising rates of its competitors.

Media and entertainment brands, FMCG companies, technology firms and device manufacturers and emerging sectors like fintech and travel aggregators have advertised on the platform.

2023: A defining year for Spotify 

Educating stakeholders and evangelising audio advertising remain the top priorities of Spotify in India. Have brands been slow to recognise the potential that Spotify holds? 

When the platform first launched in India, OTT platforms were the first to advertise. Until now, Spotify India has worked with about 200-250 brands. “It is still early days,” Kolady admits. While listeners have tuned in and the company benefitted from the pandemic in terms of greater time spent, the last two years have not been conducive for the ad sales team to meet stakeholders and evangelise their product. 

“We have addressed a very small part of the business community. We have worked with the top five agency groups. We have not had the time, bandwidth or resources to work with so many others. I expect this to be the biggest things we change in 2023,” says Kolady. 

The company will grow its ad sales team by five times in 2023 and have a strong presence in Delhi, Mumbai and Bangalore. Spotify will be bringing its self-serve academy to enable structured learning for marketing professionals. It will also bring podcast advertising to India sometime next year.

It will also carry out research to marry conceptual understanding with data. For example, the platform will try to answer questions like: what role does audio play in the media mix? Is it driving incremental reach? Is it a frequency driver? 

Brands that have been early adopters are now asking Spotify the tough questions about ROI, efficacy and mixed media modelling - which the streamer now plans to address through research and measurement. 

“Based on what I saw at Google and Facebook, I have understood that it takes sustained, repeated interventions over at least a few years for one to feel comfortable that there is a certain baseline that has been created in the market. I don’t think we are there yet, we are moving towards it,” Kolady says. 

He hopes that by 2024 he would be able to say that the business is “on and going well”.