Spotify Launches Creative Lab, Tests Generative AI Ads
Spotify is stepping up its pitch to advertisers with the launch of a new internal creative agency.
The aim is to encourage marketers to produce attention-grabbing campaigns that fully use the streaming platform’s various assets, from audio ads to video and live events.
Kay Hsu, who joined the company in January, leads the Spotify Creative Lab, which currently comprises around 40 people globally. She was previously vice president of digital creative at Clinique.
An early Creative Lab client was PepsiCo’s Rockstar Energy drink, which created a concert featuring the British rapper Stormzy that was streamed live within the Spotify app. Viewers could switch between footage of the real concert and the rapper performing in other virtual worlds. Spotify and Rockstar promoted the event using other ad formats on the Spotify app and in an out-of-home campaign.
Spotify’s Creative Lab follows a similar playbook to other digital ad giants like Meta and Google, which in their earlier years also offered similar dedicated resources to marketers to help them build bespoke campaigns on their platforms. Hsu previously worked at the Instagram Creative Shop and later was head of creative and design for partnerships at Meta.
Spotify Global Head of Sales Brian Berner said the Creative Lab launch is a culmination of recent user growth, interest from marketers, and the expansion of the platform’s content beyond music to areas like podcasts, audiobooks, and video.
“This was maybe long overdue and something we were very excited to lean into,” Berner said.
Advertising represents a small portion of Spotify’s business, which generates 89% of revenue from its premium subscription tier. Ad-supported revenue grew 18% year-over-year in Spotify’s first quarter, driven by an increase in pricing in music and significant growth in its podcasting business, the company said.
Premium users are around 13 times more valuable to Spotify than those on the ad tier, based on average revenue per user, according to market-research firm Enders Analysis. Creative Lab can potentially offer advertisers a way to reach the premium audience, such as through podcasts and live events. Spotify has 615 million users in total.
Berner said Spotify’s big point of differentiation among rival platforms is user attention. Users, on average, spend 2.4 hours with Spotify daily, he said.
“Spotify is so unique in that you’re coming at various moments throughout the day,” Berner said. “You’re engaged, one-to-one, you’re not fighting the scroll, you’re not fighting information overload, you’re not fighting newsfeed.”
Still, Spotify remains a relative minnow in the overall ad landscape. Emarketer predicts it will bring in $2.06 billion in revenue this year, behind the likes of Pinterest, which is forecast to generate $3.65 billion, and Snap, which is expected to post $4.04 billion. Alphabet and Meta are way ahead, forecast to post $204.92 billion and $154.16 billion, respectively.
Alphabet and Meta managed to pull so far away from the pack thanks to the size of their audiences but also because their ad offerings are incredibly easy to use, said Joseph Teasdale, head of technology at Enders Analysis. Creating audio ads can be more cumbersome.
“I think that’s underrated when you’re talking to small businesses who don’t have any dedicated marketing resource, that this is extremely straightforward,” Teasdale said. “Stick it on a bank card, self-serve, easy targeting solutions, and visible results.”
Spotify’s Berner confirmed the company is in the early phase of testing a generative-AI ad product, where advertisers can quickly whip up audio ads using the voices of different creators and podcast hosts. A spokesperson for Spotify said there wasn’t yet a timeline for the product’s launch but that some advertisers have been onboarded to test it.
