SPOTIFY HYPING AD-REVENUE GROWTH TO WALL STREET

While the music-biz focus is squarely on Spotify’s subscriber growth, the service is spotlighting the free tier in the run-up to the direct listing—because ad revenue is a big deal indeed to potential investors. In an interview with The Wall Street Journal, marketing chief Seth Farbman, who came to Spotify from Gap in 2015, made the company’s dual priorities crystal clear.

When asked about Spotify’s ultimate business objective, Farbman said, “The ambition has changed tremendously. A vast majority of our revenue still comes from subscriptions. In the foreseeable future, that will still be a main driver, but we started to watch the media landscape change. We saw what was happening with a real sort of bifurcation of digital media. Basically, it’s Google, Facebook and everybody else. We thought, it seems like there’s an opportunity for a third way, for another option. We said this is where we’ll put even more emphasis.”

Farbman then confirmed that Spotify’s ambition is to become the third-largest player in the ad space while acknowledging that “We need to tell our story better… We want to have a stand-alone, high-quality, ad-supported service that allows people to engage with Spotify, with the music, at a much higher rate.

“We’re not in India. We’re brand-new in Japan, and there are many more markets like that. To be able to have a free consumer service that we can monetize and continue to invest in is enormous. So for the growth, to have that as a viable business model on its own is tremendous.”

It makes perfect sense that the ad-supported side is key to Spotify’s global strategy—onboarding users in developing markets where income is low. Considering how many people still listen solely to hit playlists, the company can’t realistically put all its eggs in the premium basket.