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The Digiday Podcast
Spotify rebuilds ad business around automation, AI to win bigger media budgets
00:35:21
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- [00:00]
A
Foreign. This episode is brought to you by Blockboard. Running high quality ad campaigns used to mean big teams, big budgets, and a lot of complexity. BlockVantage changes that. AI does the heavy lifting so you can launch campaigns in minutes across screens, including tv, with no media buying expertise required. And every impression is verified before you pay. No black boxes. Best results that you Can Trust. Visit myblockboard.com. Hello. Hello, and welcome to another episode of the Digiday podcast. I'm Kameka McCoy, senior marketing reporter here at Digiday, and this episode is coming to you live from the Cannes Lion International Festival of Creativity is where Digiday and the team is on the ground covering some of the massive shifts that are happening right now in the ad industry. Yesterday, my colleague Seb Joseph kind of set the stage with our Cannes lion briefing. So if you haven't had the opportunity to check that out, please do. But he essentially mapped out what's going on with the industry's power shifts in the sands from platforms to agencies and creators, and how AI is accelerating changed across all all of media, how it's bought, sold, and everything in between. I'm here live at the Spotify studio in Cannes, and I'm joined by Brian Berner, VP of Advertising partnerships at Spotify, to talk about Spotify's evolving ad business, its push into the video ads, and how it's evolving to solve the audio measurement challenge that media buyers are working through. So super excited to have this conversation. Ryan, welcome to the show.
- [01:50]
B
Thank you for having me.
- [01:51]
A
How's it been so far?
- [01:54]
B
Cannes, that is, yeah, very hot. This is, I think, the hottest can, at least I think I've experienced in the past decade. But very excited for the week. I'm very excited for the programming lined ahead for Spotify, our daytime programming, our nighttime concerts. We're very much looking forward to another wildly successful cam.
- [02:16]
A
Absolutely. Absolutely. Well, I am super excited to talk to you. The point of the conversation and why I wanted to chat with you today is advertising. Right. That's obviously the reason why we're all here on the ground. Marketing and creativity and things like that. But Spotify's ad business is in growth mode. I would say at Investor Day, you guys had a couple of talking points about kind of what the road ahead looks like. So hoping to get a better perspective on where you guys have been, what you guys see happening on the ground now with your ad business, and then moving on to the future. So start by telling me, like I said, Spotify has spent the last couple of years, like, rebuilding its Ad text packs. So there's more ad formats, more ways to buy, better measurability and things like that. But talk to me about what that growth looks like to you from this year. From last year to this year.
- [03:00]
B
Yeah, yeah. Well, so there's kind of like three questions in one there, so I'll try and unpack those. But I think first and foremost like very quickly like where we were to where we're going. Let's start with overall strategy of leaning into automation.
- [03:18]
A
Yeah.
- [03:19]
B
So we identified a big gap in our strategy with where the advertising world was going with respect to more automated planning and buying. So with that said, we invested in building out the Spotify ad server. We made further enhancements and overhauled Spotify Ads Manager for clients that preferred self service buying. And then we also stood up and launched the Spotify Ad Exchange. So I would say the big theme there was just getting more in line with how the industry is moving towards automation. To then though a from to is what was predominantly an audio platform or audio first and still is.
- [04:03]
A
Right.
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B
However, if you look at Spotify's consumer facing products, especially with cohorts like Gen Z, watching is becoming a much bigger form of consumption on the platform. It started with video podcasts and now we're introducing music videos. So as part of the transformation process, we also really had to think through a more holistic strategy to be able to engage with consumers in in those moments that they were in focus watching Spotify. And that's where we have also spent this past year, focusing a lot on introducing new video and display surfaces to the platform. And then third and big reason
- [04:58]
A
why
- [04:58]
B
we're here at Cannes is just focusing on fandom and Spotify's role within culture and live experiences and how do we bring online to offline. And so you're going to see us doing a lot more with in experiences and brand partnerships within life.
- [05:17]
A
Absolutely. Let's actually talk about the video podcast. I know I'm mixing up the routine here, but the video podcast and the video series here. Right. They're gaining traction. To your point, more people are starting to watch videos on these platforms, including Spotify. I've talked to media buyers and it seems that it's in consideration. Right. But talk to me a little bit about what the perception is from the advertisers that you guys work with has become a line item on. Is it something that they're incorporating more frequently? How are you seeing that show up?
- [05:45]
B
Yeah, definitely. I think, you know, everything starts with interest, but it all starts with the User data. Right. So we're showing that, you know, especially I said with Gen Z, but also other audiences. What is a video consumption, you know, look like on Spotify? How does that equate to impressions? And then equally with our stack, how does that match up with, you know, standardization for buying and measuring? So from that perspective, I think everyone is definitely in a test and learn phase right now. But because we're seeing such great results for the marketers that are leaning into the testing, learning, it's definitely becoming a more multiformat strategy on the platform. So I'd say a lot of excitement and momentum in the test and learn phase. But as consumption increases, so will market consideration.
- [06:39]
A
As you guys are testing and learning, what have been some of the early learnings or early results from that? Have you guys nailed down what pricing looks like here and all of the fixins, if you will?
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B
Pricing? We're still learning. Definitely still learning there. Right. Because it's a much, it's a much different experience versus I'd say standard pre roll.
- [06:58]
A
Right.
- [07:00]
B
Spotify is a dynamic experience. Maybe in your personal days. I know in mine there are moments where I might have that video on in that moment, but then I'm taking off and I switch to audio. So from that perspective, we're really working with marketers more on understanding what biddable looks like. So even if you look at some of our recent Q1 postings, over a third of our partners are now leaning into biddable. But why that's important as it pertains to, you know, video in particular is because it just gives marketers the flexibility to, you know, think about multi format and then, you know, have the flexibility and dynamic serving of, you know, when someone's in view or if they're in passive listening mode, you know, have the flexibility to serve the format that's best suited for that situation.
- [07:50]
A
Absolutely. For the video ads, is, is it a brand awareness play? Is it a performance play? Have you categorized that yet?
- [07:59]
B
I'd say the majority of it's. It's a little bit of everything, right? I would say definitely, you know, we have a phenomenal brand with respect to, you know, fandom and culture, reach and engagement. Attention on Spotify is great. The average Spotify users on the platform for over two hours per day.
- [08:20]
A
Yeah.
- [08:20]
B
And that's not a binge two hours. That's maybe, you know, for your morning work, then your commute, then maybe you pivot to focus at work, maybe at nighttime it's socializing, you know, with friends. So from that perspective, you know, Definitely seeing a lot of reach and awareness play. But then as we continue to get better at understanding, you know, what exactly performance means to a brand, we're seeing more full funnel budgets come into play. And that, that again, quite frankly I think is also a result of the investments we made into automation.
- [08:55]
A
What's the pitch to advertisers around video right now? Given one of the things that you emphasized when we first started talking is that it is still an audio platform, Audio first. So what is the pitch to kind of incentivize advertisers toward video on a audio first platform?
- [09:10]
B
Yeah, I think it's attention. It's as simple as attention, but it's also about when you think about attention and you think about what we talked about, that it's a dynamic experience. Sometimes I'm watching, sometimes I might be reading lyrics on the platform or just listening. So you think about attention. Then that transcends to, you know, Spotify is also an environment where you know, you're not scrolling through a feed. It's very much a personalized experience that you're tuned in, watching or listening. So from that perspective then the conversation about well what does attention mean? It equates to well then how do you serve the right message to the right user in the right moment and then what is the best format for that moment? So that's what I would say the conversation with brands are, is if you want to, you know, be able to really tell your brand story with the right format in the right moment, then you really should be thinking through what does your multi format strategy look like on Spotify to capture users attention and tell your brand story.
- [10:20]
A
I think that's interesting, especially now. Right. Because advertisers and marketers are tasked with making, especially CMOs, God bless them, are making every dollar count they've got to go and be accountable for not only marketing strategy and creativity and brand awareness, things like that, but also for business outcomes. Yes. So talk to me a little bit about what can you give them in pitching the video podcasts and video ads like they can wrap their heads around. Are there attention metrics or incentive? Incentive. Incentives, that's the word. Incentives.
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B
Yes, yes. Okay.
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A
Incentives to be able to kind of bring them into the fold.
- [10:58]
B
So I think about that from two different perspectives. It always starts with how does the brand think about performance? And then how have they built their stack to measure their own performance. So that could be everything from brand lift to click through attribution, closed loop attribution. Mmm, modeling. Right. But to answer your question, what have we done is back to the investments we made in the platform and making it easier to create, buy and measure on the platform. From a measurement standpoint, it is just making sure we are aligned with as many industry standard third parties as much as possible. So for the brands that have heavily invested in a preferred partner, we want to be able to bring that to life and make sure that whatever KPIs they're tracking against are measurable. But what I would also say is our specialty, it's our 1pmeasurement. So the Spotify Pixel has been a big focus of ours because that does allow for better closed loop understanding, conversions and quite frankly insights that you can garner by leveraging the Spotify Pixel. But we also offer brand lift and other 1P offerings.
- [12:14]
A
That's, I think one of the complaints that I often hear from media buyers is walled garden and not being able to get a holistic look at how my Spotify ad buy interacts with my, I don't know, my meta ad buy and things like that. Is that something that you guys are thinking about in terms of kind of helping marketers and advertising connect the dots?
- [12:33]
B
So think about that marketer where you're talking about walled garden versus the MTA strategy. It goes back to certain brands that want to approach more the self service, you know, hands on keyboard, that's their strategy and then they'll probably lean into Spotify Ads Manager to do that. But our investment in automation and overhauling our ad stack was to make sure that we could partner with all of our brand's preferred activation methods. So that's where we stood up the Spotify Ad Exchange. So if you have an MTA strategy, then you're most likely leaning into Programmatic. And yes, we built that plumbing. So we just want to make it easy for brands to be able to access our signals, our formats and understand how Spotify is performing as an overall part of their media mix.
- [13:22]
A
Actually, let me back up, I should have started with this. Given that you guys overhauled the tech stack, right? And capabilities, things like that, what were the signals that that needed to happen?
- [13:32]
B
It was just if you just simply looked at where the market was going at the time, we had a very limited programmatic offering. It was limited signals, limited formats, therefore limited inventory. And you could see how quickly, just simply looking at, to your earlier point, the brands that were leaning into MTA that were shifting from more of the traditional insertion order based buys into Programmatic. So it was customer feedback, it was just overall industry trends. And then same point that even if you're looking at the brands that are, you know, let's say more of like the mid market or D2C brands. They are, you know, very much hands on keyboard. Yeah, so. So I'd say the signals was just direct customer feedback as well as just, you know, any industry report of where you see how brands are deploying their media activations. So that was, you know, where we knew we needed to invest.
- [14:29]
A
As you guys are continuing to move forward are or with the overhauled tech stack and with the overhauled outlook, I guess, if you will, does that change what type of advertisers you guys are going after? Whether it be, you know, we want to partner better with like hold co as opposed to small businesses, that type
- [14:45]
B
of approach, I don't think it changes the overall mix. I think Spotify sits at a very, you know, unique intersection of for brands that are looking to tap into fandom and culture, experiential, you know, type of marketing activations. That's where, you know, we have everything we talked about, like here at Cannes with what we're doing with experiences and fandom. And I think there are for brands that are maybe looking for, you know, more traditional, you know, mid funnel or direct response equally. I think our goal is just to simply, hopefully have a solution for any brand no matter where you're at in the funnel.
- [15:35]
A
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- [16:42]
B
Yeah.
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A
What does that look like for Spotify? What does fandom mean and how do you guys monetize that?
- [16:48]
B
Yeah, great question. Thank you for that. I would say, really, I would say like, think about like the Creator economy. Right. So we talk about creators a lot. But, you know, the creator economy maybe had a focus on, like, influencers, but now, like creators run the gamut from. Of course, musicians are creators and they're starting to evolve how they engage with fans. You have podcasters now, you still have influencers, authors. You know, we're focusing on audiobooks a lot. So when we think about fandom, what we think about is as we invest into the use the, the core experiences on Spotify, it's everything from, you know, how are you able to follow, you know, a podcaster or an author or a musician, how, you know, if they're dropping new content, do we create new tools for you to get notified about that? It's how do we create surprise and delight experiences? Such as Spotify reserved, where if you're one of the top listeners and you know your artist is coming through town, we've reserved two tickets for you. So we've introduced sharing, you know, better sharing features, social features, community features. So when we think about fandom at Spotify, it's just thinking about an opportunity to give our creators unique ways to interact with and engage with their Spotify followers.
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A
Now, how do you monetize that without it being, I guess, jeopardizing the relationship that consumers, listeners, fans have with their creator, podcaster, author, you know, you name it.
- [18:32]
B
Yeah. Again, another great question. So I think, pat myself on the back. I think two different things about that. One, when we think through our ad experiences on Spotify, we want them to be as seamlessly integrated into the content experience that they shouldn't feel disruptive, they shouldn't feel painful. One of our internal beliefs for advertising partnerships is that great ads can be great content. So from that perspective, just from a format and innovation experience, if you think about our recent relaunch of sponsored sessions we were thinking about, as users are toggling on and off visually, how do we integrate the brand more creatively with larger canvas real estate? How do we create a better experience that it feels more rewards based when you're interacting with the brand? And then again, how do we make it as least disruptive to that listening experience as possible? So when we think about monetization, there, we just think about a thoughtful ad experience that should feel native to the user experience. And then when it comes to creators in particular, we still partner with them and we're working with them on, you know, what verticals or brands are they passionate about. And they always have, you know, first saying, like, who they want to partner with so that it's very important when you're a creator that if you're going to, you know, speak on behalf of brand. If you're a podcaster and you're doing a host raid, it's going to be a brand that you believe in because authenticity is more important than it's ever been before. Because especially within podcasting, like we're seeing that podcasting is now the number one trusted source for consumers with how they get their daily news and information.
- [20:31]
A
Yeah. I'm curious, as you guys move into these beyond audio only environments, in the videos and creators and things like that, did the success metrics that you take back to advertisers and marketers, Marketers then change
- [20:48]
B
again? I don't, I wouldn't say they change. Right. Because the media landscapes evolves and like what happens there is, you know, I don't want to sound like a broken record, but it starts with the brand.
- [20:59]
A
Yeah.
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B
And how are they defining performance? That's just very important because we can, we can guide you on what is performance look like, but we need to understand like what are your true metrics? And that's going to vary based on, you know, the maturity of the brand, the size of the brand. You know, sometimes it might just be reach because they're trying to create awareness and grow their band brand. Other instances it might be in a, a very, you know, competitive vertical. So they're trying to, you know, take share. But back to your core question then. Even when it's like marrying online and offline, you know, whether it's brand awareness or, you know, store sales, you know, in store traffic, et cetera, et cetera, or even you think about the power of an experience. The power of the experience is so emotional for the people that attended that, you know, we're also going to be looking at what is the social amplification of that event? What is the shares of that event, you know, was it picked up in the trades as well? So I think it just really depends on what that brand is looking for. And then we try and provide a bespoke or just, you know, an aligned strategy that hits their brand. KPIs, same question.
- [22:14]
A
But from a budgeting perspective, when I talk to media buyers. Right. One of the things about and this is audio, not just Spotify, is that, oh, this is a brand awareness play. I will spend, spend brand dollars. Right. Have you guys managed to tap into performance dollars with some of these new tools and things or what does that kind of look like as you guys?
- [22:32]
B
Yeah, yeah, I would say if again, some of the announcements we made last year is that we rolled out app installs. So that's been a big bet of ours of understanding driving app installs on the platform. That's a big swing for us with respect to showing the power of audio for driving an actual download response. But equally that's also why, even for that perspective, when you have users in focus and why we're introducing display.
- [23:04]
A
Yeah.
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B
To the platform to have, you know, different environments serve different performance metrics, as you said. And then another announcement we made is lead gen. We're testing that out right now. So we're definitely trying to understand what the full funnel performance looks like and where do we have a right to win.
- [23:25]
A
Has it been easier to paint a full picture for advertisers especially because this is a clickless environment Right. Where there's no. I click here and I can immediately tell you what, you know, that return on investment was or something like that. What does that look like for you guys?
- [23:38]
B
Nothing's ever easy. No, I'm joking. Welcome to, welcome to advertising. You could have asked that 25 years ago and I always said the same thing. No, I think it's a journey because like I've been, I've been with Spotify for 15 years. Yeah, 15 years ago we were launching in the United states as the seventh country and now 15 years later we're in over 189 countries. Fifteen years ago we were a music only platform and along the ways we got into podcasts and we've gotten into audiobooks. So we've had a lot of great partnerships along the way. But back to the point, I think, you know, brands join us on that journey and right now that journey is evolving into, you know, understanding, you know, both visual, visual and audio on the platform. We've always, we've always had visual advertising on Spotify. But as we've seen the consumption habits change with our users, it's become more of a focus to lean into multi format. So I think again what it always boils down to is just what is the user data showing us? Partner with our brands to show them those insights and then test and learn with us.
- [24:49]
A
Absolutely. I think right now the Spotify roadmap and its ad business that I'm seeing as it wanes into video. Right. This is a conversation that has historically been dominated by YouTube. What's kind of the plan of action to up that share of voice and convince advertisers to spend their video ad dollars with Spotify as opposed to competitors? Sure.
- [25:12]
B
But I would also Say it's more, if I may, more. Multi format is definitely like we're not going to alienate audio. Like let's be clear, like people are still listening to music, engaging with music. Even at Cannes. This week we're talking about further advancements we're making in our gen AI audio, which is very exciting. So from that perspective, I just think it continues to boil down to having marketers think about what is a multi format experience look like on Spotify and then us providing the tools to activate as easy as possible to optimize, to better, you know, create insights and understanding and then to have the measurement there to see, you know, that all formats work or some brands may be better suited to audio versus video. So I definitely, you know, I don't think with, with our brand partners we're not seeing, you know, a one size fits all strategy.
- [26:13]
A
Yeah, Dig deeper into that. When you look at where advertisers are spending their ad dollars, what ad formats, what's kind of driving Spotify's ad business?
- [26:22]
B
Definitely audio, but audio would also be music, audio, ads, let's say. And podcasting. Podcasting is still a lot of our growth. And then the biggest things this past year was video and display, but also sponsorships. So we made announcements, as I said with our reformatted sponsored playlist, we've created and launched Carousel and we have more announcements we'll be making over the course of the year with like high impact sponsorships as well.
- [26:52]
A
Yeah. Of the ones that you just listed, what has seen the most significant growth? Dollar amount from maybe let's say the last three months, last quarter.
- [27:01]
B
It's a little bit. It depends by country and depends by vertical. There are, let's say us.
- [27:06]
A
Well, us.
- [27:07]
B
It was definitely like we've been. We're seeing a lot of the growth happen within all of our visual, within our high impact sponsorships. We're seeing it happen within video, we're seeing it happen within experiences. But it's additive, it's not coming at the expense of audio. It's just joining us on that journey. That again, if you're better looking to extend your reach and frequency to the Spotify user, our ad strategy has changed based on our user consumption. So I would say, yeah, it's definitely all additive. You don't have to make a sacrifice on one versus the other.
- [27:43]
A
I've noticed a couple of times in this conversation you've really been sure to emphasize that this is still an audio first platform. What's the rationale there? Especially if you guys are starting to Lean more into video and creators and things like that. Why is it important that it be known as an audio first platform still?
- [27:58]
B
I think that it's, you know, audio is still an incredible medium for brand storytelling. A majority of us are engaging with Spotify with our earbuds in. It is a format that, I mean, we're at Cannes, the festival of creativity. And I think that audio, maybe it's personal bias, but audio is seeing a phenomenal renaissance. If you see podcast consumption, you're hearing again, like I said, podcast is the number one source now for consumers for trusted information. You're seeing brands that have become massive brands now that built their business starting on podcast ads. So I still think it's just a very, a very powerful way to engage with consumers. Tell your brand story. And I also just think the innovation that's come in with how much all of us now, like maybe this, I don't know if this dates me or is reflective of younger generation. But like, even if I, you know, just think about how I'm interacting with devices, I don't, I don't really text anymore. I just turn on the mic and I start talking to it. And so you're just going to see voice continue to, you know, grow in I think, audio. Audio centric. Audio centric environment. So I think there's still a lot more excitement and innovation that's going to come from audio as a format.
- [29:26]
A
You guys are also a subscription first business. But talk to me a little bit about where advertising sits in you guys. Like, how important is it? You get what I'm saying. We've got a subscription business, but how much does ads play a role here? Is it supplemental, that type of deal?
- [29:42]
B
Yeah, but 20 years ago, Spotify was conceived 20 years ago and launched. And even if you look at what's happening with the larger video subscription platforms today, we always have had a free platform. So while our subscription business continues to grow, that grows as a complement with the free business. And I think having always been rooted within having both a freemium and premium model has been a competitive advantage. And even if you look at all of our growth metrics globally, and it might vary by certain geographic regions, both free and premium continue to grow. So again, I don't think one comes at the expense of the other. I think we've proven the value of having a freemium and a premium business model.
- [30:34]
A
Absolutely. You've been there for 15 years. And I want to harp back to that. What would you say in Spotify's app business have been the most Meaningful change from where you sit,
- [30:46]
B
you're making me
- [30:47]
A
think back back down memory lane.
- [30:49]
B
Sixteen years, I'd say over 15 years would have been some of the most memorable changes. I think one and I touched upon this before, I think how much marketers are understanding the power of audio and that it should have a place as part of your overall marketing and media mix only continues to get stronger. You know, 15 years ago we might have been spending a lot of time just educating people on audio or why, why audio? And so I think over the years that conversation has greatly changed and now marketers see it and value it. And now we're thinking through things like Genai Audio. We're working with brands on testing new creative, having technology to help you craft and create a script, helping you ab test voices, languages, tones within the ads or lane or in music using Genai Audio. In this past year alone, year to date, we've had over 7,000 brands test Genai create over 20,000 creatives. So and I think this is just the beginning. So I think that is clearly like to go from a day where people were maybe just taking their radio ads and repurposing them on Spotify to now how much they're embracing personalization, discovery and leveraging, you know, our tech. And then equally like, I mean, who would have thought 15 years later that we're now, you know, audio podcast, you know, books, audiobooks, you know, how much the gener, you know, different generations are now watching their podcasts instead of just listening to their podcast. And that's, you know, a huge step change that, you know, I'm sitting here talking to you about multi format, high impact sponsorships versus, you know, again, 15 years ago I was probably just talking to you about audio.
- [32:57]
A
All that said, how does Spotify define itself now? Because again, you guys have got, you're got several parts of the business that you're now building out and kind of encouraging into that video space and creators and things like that. But how are, how is Spotify defining itself?
- [33:14]
B
I would say Spotify is still, there's no better partner to, you know, capture user attention and tell your brand story. Audio first still multi format, multiformat. Okay, we've got a new definition right after. Right moment. Right format.
- [33:31]
A
Absolutely. Listen, I can't thank you enough for spending some time with me this afternoon to walk me through Spotify's ad business, how it's changed over the last 15 years and kind of what's next. I appreciate you.
- [33:40]
B
Well, thank you very much for having me.
- [33:47]
A
Well, that brings us to the end of this episode of the Digiday Podcast. Thank you to everyone for listening. And please don't forget to share this episode with someone who you think would enjoy it. You can even rate us and leave us a comment on Apple Podcasts. We'll be back next week with another episode of the Digiday Podcast. Thank you so much for joining us.