Spotify, a major player in the music streaming industry, has recently rolled out changes to its advertising model that could potentially impact artist payouts. The introduction of a new Generative AI Ads tool is one of the key features aimed at assisting in the creation of ad scripts and voiceovers for advertisers.
These modifications come on the heels of Spotify’s Loud & Clear annual royalty report, which unveiled a significant increase in the platform’s payouts to the music industry over the past decade. From 2014 to 2024, Spotify’s annual payouts surged from $1 billion to over $10 billion, marking a tenfold rise. Moreover, the company achieved its first full year of profitability by the end of Q4 last year.
Referred to as the “next stage of Spotify Advertising,” the platform’s latest advancements include the introduction of the Spotify Ad Exchange (SAX). This innovation enables advertisers to reach Spotify’s engaged user base through real-time auctions, offering enhanced addressability and measurement capabilities. Additionally, Spotify has revamped its Spotify Ads Manager, providing advertisers with improved targeting and measurement tools. The Creative Lab, AUX (its music consultancy agency), and the newly launched Spotify Generative AI Ads tool further enhance the ad creation process.
For artists, the implications of these advertising changes remain somewhat ambiguous. While Spotify’s Global Head of Advertising, Lee Brown, highlighted that Spotify Free users spend an average of two hours daily on the platform and are exposed to these ads, the exact impact on artist payouts is not explicitly outlined in the recent report. However, Spotify did disclose that its ad revenue has more than doubled since 2020.
In its annual royalty report, Spotify emphasized its commitment to paying rights holders, stating that it allocates approximately two-thirds of its revenue to these stakeholders, including both premium subscribers and advertisers on the free tier. Despite facing criticism regarding its payout model, Spotify acknowledges the evolving landscape of the music industry due to streaming services, emphasizing that more artists are now able to earn royalties at various stages of their careers.
While the specifics of how these advertising changes will affect artist payouts are not yet clear, Spotify’s proactive approach to enhancing its advertising ecosystem underscores its commitment to both advertisers and artists. By providing advertisers with advanced tools and targeting capabilities, Spotify aims to create a more engaging and lucrative platform for all stakeholders involved in the music industry.