Ad-Funded Music Service Spotify Has Big Brands on Board

European ad-supported music service Spotify has signed up a host of major brand advertisers including T-Mobile, XBox, Sony Pictures, and Universal. What’s more, the Stockholm-based outfit this week announced its millionth user since it launched in October ’08. The firm’s ad sales success suggests the prospect of ad-funded music is proving attractive for both consumers and advertisers.

“The general reaction to our core radio and digital formats has been hugely positive, and many of the major brands are already realizing the unique value of our offering,” Spotify’s UK Sales Director Jon Mitchell told ClickZ News. “There’s no wastage and it’s fully accountable,” he added.

Spotify, led by Martin Lorentzo, co-founder of performance-based digital marketing company TradeDoubler, works in a similar way to commercial radio, combined with the on-demand nature of download services such as Napster. Users stream music of their choice via a downloadable application, and are served display ads, and audio ads in between content. Currently, around one minute of audio ads is served for every 20 minutes of music consumed.

Audio ads are coupled with display creative, which enables advertisers to track click-through rates, and adds an element of accountability unattainable through traditional, or even digital radio.

“We always believed the audio format would be successful, and now the numbers prove it. Figure-wise, our audio CTRs are 0.7 to 1 percent in the UK and display ranges from 0.3 to 0.5 percent, with some clients getting as much as 1.6 percent,” Mitchell claims.

Alongside audio, typical display ads are offered within the application itself. Mitchell says these display units are currently performing especially well, owing to “a general lack of clutter and restricted ad formats,” and the fact that ads are only served when the user is active within the application.

Currently, ads are sold on a run of site basis. However, a number of targeting options will be introduced as the service gathers steam. Alongside demographic, geographical, and socio-economic targeting based on user registration data, the firm also plans to launch music genre targeting later this year. For example, advertisers may find that fans of certain types of music have a higher propensity to buy certain product lines.

Additionally, advertisers may wish to align their brands with certain artists. “Our close relationships with the music industry means we have some interesting opportunities between bands and brands arising in the near future. Watch this space,” Mitchell said.

Although Spotify is entering a crowded market, competing with a host of ad-supported services such as Last.fm and WE7, it has already amassed an impressive list of advertisers including COI, Vodafone, Philips, HMV, Sainsbury’s, Nissan, Paramount, and findanyfilm.com.

The firm currently has relationships in place with all of Europe’s major labels, offering access to millions of tracks. Alongside the ad-supported model, users can also opt to pay a subscription fee for ad-free streaming, much like the services currently offered by Napster and similar services. At present, the ad-supported version of its service is only available in the U.K., Spain, France, Sweden, Norway, and Finland. The firm says it eventually plans to open in the U.S. and Canadian markets.