Spotify’s slow ad growth hurts margins, despite more users tuning in from India

Ad revenues are a crucial aspect for generating revenues from the internet once a company has established a considerable online presence and commands a mass following. Recently Netflix has announced a cheaper subscription for users, who can stand ads interrupting their shows and movies, to increase advertising revenues. Although Spotify has posted a 19 per cent in growth in income from ads in the third quarter, it’s still too slow, and has affected the company’s profit margins.

Royalty for songwriters hurts business?

The music-streaming giant blamed softness in advertising as well as royalty payments to songwriters, along with changing currency rates, for the subdued revenue growth. Earlier this year, songwriters had protested against Spotify, to get a 44 per cent pay hike since most are only paid 0.003 per cent royalties according to a Variety report. Spotify has also been called out for interrupting the user experience by pushing too many ads for audiobooks on the platform.

At loggerheads with Apple

Speaking of audiobooks, Spotify has accused Apple of stifling competition in that segment by charging a 30 per cent commission on in-app purchases on its App Store. The lower than expected growth along with negative sentiment caused by Google’s ad revenue drop, has dragged Spotify’s stock down by 5 per cent. With this slide, the Spotify stock has gone down by more than 58 per cent this year.

India offers bigger opportunities

Amidst the pressure, Spotify has seen a ray of hope from India, which has led its user growth of 23 million in the July to September quarters, taking the total number of listeners to more than 456 million. Last month, Spotify entered the audiobook market with 3 lakh titles, and CEO Daniel Ek sees it as a $70 billion-a-year opportunity. The ad revenue might also get a much needed boost from this new foray by Spotify.

Published on: Wednesday, October 26, 2022, 03:56 PM IST