Programmatic Is 25% Of Spotify’s Revenue, Growing Twice As Fast As Direct

If Spotify’s third quarter earnings are any indicator, programmatic audio is taking off with buyers.

The digital audio platform told investors on Thursday that 20%-25% of its revenue comes from its self-serve programmatic platform and other automated buying features. That’s up from 18% in February, when the company went public.

The market is moving aggressively toward programmatic solutions, especially in Europe and the United Kingdom, said CEO Daniel Ek.

“We’ve made it a point of tactical emphasis from a product development standpoint,” he said. “The market is heading there and we’re driving there as fast as we can.”

Spotify rolled out a self-serve programmatic platform in September 2017 and will continue to see benefits from the shift toward that buying model for “many years,” Ek added.

Ad supported revenue at Spotify was up 30% in Q3 to $162 million, while ad-supported monthly active users grew 20% to 109 million. Overall revenue grew 31% year over year to $1.54 billion, and monthly active listeners were up 28% year over year to 191 million.

Average revenue per user (ARPU), however, declined in Q3 by 6% to $5.39.

CFO Barry McCarthy predicted that the rate of decline in ARPU “will continue to decelerate” as Spotify generates more growth through its student and family plans.

As Spotify pushes for more programmatic sales, the company is also ramping up its podcasting efforts, which it sees as a major opportunity. The majority of radio listening has not yet shifted online and it’s still early days for the podcast market overall. Spotify is experimenting with both fixed and variable deals with publishers.

“Our opportunity is gigantic,” Ek said. There aren’t too many companies in the world focused on that opportunity to bring audio online.”

Improving the user experience for podcasting is one way to help Spotify increase its share of podcasts, Ek said, including by fixing podcast discovery as well as adding functionality, such as the ability to fast forward through content.

Spotify, which spends a significant portion of its budget on negotiating deals with music labels, is also looking to podcasts as a way to diversify its revenue.

“If podcasts become a significant portion of the business, that will add its own margin structure and revenue stream separate from the music business,” McCarthy said.

To continue its growth spurt, Spotify plans to spend more on marketing, to double down on new markets, including Japan and India, and to keep investing in features that improve the user experience. The platform is also boosting distribution by partnering with phone and smart speaker manufacturers, such as Samsung, Apple, Google and Amazon.

“We are an independent player in this,” Ek said. “One of our key strategies is to partner with as many players as we possibly can.”

Ek declined to comment on whether Spotify is a potential buyer of Universal Music Group. UMG’s corporate parent, Vivendi, put 50% of the company up for sale in July.

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