Audio platform Spotify reported 456 million monthly active users (MAU) globally in Q3, 2022. This has increased by 20% year-on-year. Of this, 274 million are ad-supported MAU. These users are up by 24% year-on-year. In Q4, 2022, the audio platform aims to have approximately 23 million monthly active users. With the platform adding and building content through podcasts, it seems to have been able to provide a strong ground to advertisers. In a conversation with BrandWagon Online, Brad Grealy, head of advertising sales, JAPAC, talks about the company’s plans to expand its team in India and its strategy. (Edited Excerpts)
Spotify’s ad revenue grew to $383 million in Q3 2022, compared to $360 million in the previous quarter. At a time when most audio platforms seem to be struggling to earn ad dollars, what according to you has worked?
Yes, you are correct. We continue to see a lot of upsides in terms of our ability to generate year-on-year growth from a revenue perspective. There are a couple of different reasons behind this, but I think a big driver, especially in other parts of the world, has been podcast advertising. Podcast advertising was an underserved market previously, from a marketer’s perspective. The user behaviour was there for a while in terms of scale but there was an opportunity gap in terms of the amount of investment that went into the format. There were also some technical challenges with the format that needed to be addressed. For instance, there wasn’t as much accountability in podcasts in terms of targeting and measurement metrics. So we introduced new technology, specifically called streaming ad insertion that allowed us to kind of modernise the advertising experience within podcasts. There were a lot of direct-to-consumer (D2C) companies which created powerful brands within the podcast category. Now, there’s been an evolution of a much wider group of advertisers that have leveraged the initially for the first time only to turn into regular repeat customers.
How has the podcast business grown over the years? Not to mention Spotify has upped its content in podcasts…
We see that podcasts have been incremental to the business that we’ve had for several years. We’ve also launched it in more markets. We’re in over 180 markets globally now. With that being said, each new market comes with a new opportunity for the business. And it’s specifically in this part of the world. We’ve had a business for quite a while in India and it’s growing exponentially from an audience perspective, especially from a revenue perspective. We also expect a lot more growth in terms of people and products. From a product perspective, podcasts are geographically agnostic. Thus, launching in new markets has provided us with a lot of upsides.
Even as podcasts have piqued marketers’ interest, how do you plan to sustain in India, where the cost per thousand impressions (CPM) is very low in the case of audio content?
The ad-supported business is growing exceptionally quickly in this part of the world. With increased audience size comes an increased addressable market for marketers. Over time we feel like there’s the ability in us to be even better consultants, for our customers’ business here and help them to leverage Spotify in new and unique ways. When you say CPMs are really low perhaps that’s a comparison to radio, and that is the reality of radio, but we don’t really think of ourselves as radio. We think of ourselves as more of an interactive digital platform where our marketers are able to address consumers, especially Gen-Z on a one-to-one basis. In terms of CPM, India’s got a robust performance business. We will participate in that.
What about the content strategy which Spotify has adopted for India?
We need to make investments in terms of global content here as well. We will start by giving advertisers access to podcast content on the Spotify app. As for the technology piece, we will be building it parallel to the Spotify Audience Network. This will give marketers the ability to access the world’s best passive podcast content, whether that’s on Spotify, or off Spotify. Spotify’s advertising business unit here will have access to that content to make it available to marketers. Spotify already has content in Hindi and other local languages. Moreover, we want to have the most variety of the catalogue here in India. So that was a very intentional strategy. For podcasts, people will still be able to access big international podcast creators. But yes, we will be intentional about which podcasts we will onboard or which ones we will create in-house within the studios that are more focused on local listenership here in India. One can use music as a good example of how we’re very intentional about building the catalogue. We’ll apply a similar strategy to the podcast.
As we enter 2023, we can already see large tech companies moving towards the optimisation of cost. What is Spotify’s play?
There’s been a lot of press recently about some of the big social platforms, in particular, that are kind of bracing for changes and, you know, some headwinds, specifically as we go into 2023 and we feel pretty fortunate to be making big investments in our advertising business, while others, you know, for some of the right reasons, are choosing a different path. And so, we expect those investments to continue to pay dividends not only next year but several years into the future. And India is one of those spaces where we’re going to be making long-term investments. With the exponential growth of the audience here, we believe we need to grow our team at a faster pace. We’re going to grow the Indian advertising sales team by five times over the course of the next seven months. Our optimisation is all about bringing in new talent, skill sets, expertise, and resources, to be able to best serve this very fast-growing market. The last thing I’ll say is, and Daniel Ek, our CEO, had recently mentioned an impressive piece about India, that, “this isn’t a market where we’re going to just test and then if it doesn’t go, we will pull out, rather will make big long-term investments. We’re focused on a 2030 strategy, not a 2023 strategy.”