Spotify is testing a new ad unit called Sponsored Songs on its free service, which essentially allows labels to promote songs on playlists and elsewhere on its pages for a fee, the company confirmed to TechCrunch on Monday (and confirmed the report to Variety). A Spotify rep described the ad unit as “a product test for labels to promote singles on the free tier.”
Initially anyway, Sponsored Songs will be integrated into playlists and will use the company’s algorithms to promote the songs to users based on their music tastes. While payment details were unclear and the process remains in beta, the report says that it will only be featured on the service’s free tier. There is also an opt-out option under Sponsored Content in the settings menu that would allow users to hide the ads from view, though it the company did not confirm whether that option would be available to free users or just Premium subscribers.
It’s a canny move by the service, both a relatively transparent and legal form of “playola” — the old-school and illegal radio practice of labels paying for airplay on certain songs, which sources say has long since infiltrated the playlist game — and also a subtle way of monetizing the level of trust many users feel toward both its popular product feature Discover Weekly (which creates a playlist of new music based on users’ previous tastes) and playlists like Rap Caviar. It’s also another bonus the service can get out of its free service, which has enraged labels and music publishers who say it is hampering efforts to steer users toward paid subscriptions.
But perhaps most of all, it’s another move by the profit-challenged company to make money. Spotify, which is expected to list itself on the stock market this or next year, released a very mixed annual financial statement last week: While it claimed to have reached 140 million users, both its revenue and operating loss grew significantly in 2016, and it showed an operating loss of some 349 million Euros ($389 million) compared with a 236 million Euro loss the previous year. Its gross profit was just $502 million.