Spotify is launching a new in-house creative agency to help it better pitch to advertisers.
The aim is to encourage marketers to create attention-grabbing campaigns that make the most of the streaming platform's various assets, from audio ads to video to live events.
Kay Su, who joined the company in January and currently leads Spotify's creative lab, which has about 40 people around the world, was previously vice president of digital creative at Clinique.
An early client of the Creative Lab was PepsiCo's Rockstar Energy drink, which produced a concert featuring British rapper Stormzy, livestreamed within the Spotify app. Viewers could switch between footage from the actual concert and footage of the rapper performing in another virtual world. Spotify and Rockstar promoted the event using other advertising formats in the Spotify app and an out-of-home campaign.
Spotify's Creative Lab follows a similar strategy to other digital advertising giants like Meta and Google, which earlier offered similar dedicated resources to marketers to build custom campaigns on their platforms. Hsu previously worked in the Instagram creative shop and later served as head of creative and design for partnerships at Meta.
Spotify's head of global sales, Brian Berner, said the launch of Creative Labs was a culmination of recent user growth, interest from marketers and the expansion of the platform's content beyond music into areas like podcasts, audiobooks and video.
“This is something that's probably been due for a long time and something we've been really looking forward to,” Varner said.
Advertising is a small part of Spotify's business, with 89% of the company's revenue coming from premium subscriptions, and the company said its advertising revenue grew 18% year over year in the first quarter, driven by rising music prices and strong growth in its podcast business.
According to market research firm Enders Analysis, premium users are about 13 times more valuable to Spotify than its ad-tier users, based on average revenue per user. Creative Labs could give advertisers a way to reach premium audiences through things like podcasts and live events. Spotify has a total of 615 million users.
Berner said a big difference between Spotify and competing platforms is the attention span of its users, who he said spend an average of 2.4 hours a day on the app.
“Spotify is really unique in that it's accessible to you at different moments throughout your day,” Varner says, “so you can engage with it one-on-one, and you're not bogged down in scrolling, you're not bogged down in information overload, you're not bogged down in a news feed.”
Still, Spotify is a relatively small player in the overall advertising landscape. Emarketer projects it will bring in $2.06 billion in revenue this year, behind the likes of Pinterest, which is expected to bring in $3.65 billion, and Snap, which is expected to bring in $4.04 billion. Alphabet and Meta are not far behind, with expected revenues of $204.92 billion and $154.16 billion, respectively.
Alphabet and Meta have been able to pull away from the pack not just because of the size of their audiences, but also because their ads are so easy to use, said Joseph Teasdale, head of technology at Enders Analysis. Creating audio ads can be more of a pain.
“When you're talking to small businesses that don't have dedicated marketing resources, I think people underestimate how easy this is,” Teasdale says. “You stick it on a bank card and it becomes a self-service, easily targeted solution that gets measurable results.”
Spotify's Berner acknowledged that the company is in the early stages of testing a generative AI ad product, which lets advertisers quickly create audio ads using the voices of different creators and podcast hosts. A Spotify spokesperson said the company hasn't yet determined when the product will be available, but that some advertisers are participating in the test.
