Why is Spotify not suffering in the markets quite like its big-tech peers? Meta/Facebook, Snap, and Netflix are all reporting either lower earnings, dramatic drops in stock valuations, or both. Spotify is not immune to the market – its stock price is also about half of what it was in January – but business seems to be riding out the cost-of-living crunch so far. Last week it reported that revenues for Q2 2022 were up 23% year-on-year to $2.9bn. One number in that report stuck out: 31% growth for its advertising revenues (to €360m).
Bloomberg thought so too, and dug deeper. The reason advertising on Spotify has jumped so dramatically was for a few reasons, they conclude, but chiefly it’s a combination of the “immaturity” of Spotify’s ad business, and the still-nascent podcast advertising market.
By “immaturity”, they mean that Spotify’s approach to audio ads has not yet reached the fully-automated approach of, say, Facebook’s giant ad machine. And podcast ads are a a blooming market: Spotify said that it saw “strong double-digit” growth for its podcasting revenues in Q2 2022.
Audio ads – especially on podcasts – may have started to be seen as a way of connecting very directly with niche audiences, and with a more negotiable and flexible approach. Audio or podcast ads are different to programmatic ads: if a big brand decides to run audio ads, it’s often a result of the old-fashioned human process of good personal relationships. This means that money is often locked into ad deals, or that the money flow is less likely to be suddenly switched off, which can be done with the push of a button on automated platforms. Of course, this doesn’t mean that audio advertisers are not tightening their belts: maybe this lag means we haven’t seen it at earnings-report level yet.
Currently, most ads you hear either next to podcasts, or within podcasts, are for big brands, but there is a growing possibility for podcasters on Spotify to start serving local or hyper-local ads – something else Bloomberg sees as a growth area, assuming advertisers get on board.
While some analysts predict continued podcasts advertising growth, others, including Spotify, are cautiously waiting for Q3’s numbers. Spotify of course, makes the vast majority of its money selling subscriptions, and so far people don’t seem to be cancelling them, as they have with video streaming services. But the cost-of-living crisis is tightening its grip on people’s lives, and winter is literally – and metaphorically – coming.
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Tools :: Wyng
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