When Spotify unveiled its new ad-supported free mobile service earlier this month, we wondered what this might mean for the streaming service’s advertising sales business. It turns out Spotify has been thinking hard about this too.
Today, the company is publishing a report by its director of economics Will Page with input from accountancy firm Kingston Smith W1. It promises “encouraging” views on the recovery of the UK advertising market, linked to the wider economy, suggesting that 2014 will see both return to growth after the tough times in recent years.
Among its findings are a focus on four of the largest marcomms groups in the UK: WPP, Omnicom, Interpublic and Havas Advertising, noting “raw, unadjusted growth of 5% to 10%” in their headline revenues, compared to a 7% fall in Q4 2009 as the recession started to bite.
“Not only do we have headline growth from the marcomms groups, but much of it is from organic growth, not from acquiring existing business,” write Page and McKie. “We can be confident that the recovery is underway with investment taking a lead, and advertising soon to follow.”
The report also suggests that the advertising industry is emerging from its “Wanamaker era” – named after the man who coined the phrase “Half the money I spend on advertising is wasted. The trouble is, I don’t know which half” – and focusing instead on “more targeted approaches… less branding, and more direct response”.
Which, of course, ties into Spotify’s ambitions to grow its advertising business at the expense of traditional media, radio in particular, as well as its message that so far, it has had to build that ad sales business entirely within a global recession.
Past failures of wholly ad-supported digital music services led to a certain distrust of the model within the music industry, while in recent times there’s been a perception that the ad-supported tiers of services like Spotify are just a gateway to the more-desirable premium subscriptions.
Yet if the advertising industry really is recovering, with an increased appetite for innovative digital ad formats, 2014 could be a very interesting year for Spotify, iTunes Radio, Pandora, YouTube and numerous other digital services.
“It’s easy to forget just how long the economy has been bouncing along the bottom – five years! It’s almost like we’ve been conditioned to think it’s the norm,” Page tells Music Ally. “Thankfully, that’s now changing, and for digital music services which have innovated their way through the recession, it’s a long overdue change for the better.”