Mar 27, 2018

The Pandora v. Spotify ad battle is on

Pandora, the largest music streaming service in the U.S., will acquire AdsWizz, an audio ad technology platform, for $145 million in cash and stock. The move comes as Spotify tries to expand its path to profitability as it debuts next week on the New York Stock Exchange with an unusual direct listing.

Why it matters: Revenue growth opportunities for subscriptions are slowing as the market becomes more saturated. Music streamers are now looking for ways to beef up their ad technology to make more money from serving users as on their tiered or free platforms.

How it works: Pandora's acquisition of AdsWizz will make it easier for publishers to monetize and for advertisers to buy and measure their digital audio campaigns. Once fully integrated, advertisers will be able to transact through AdsWizz’s global marketplace across Pandora and other leading audio publishers.

The competition: Spotify gave its outlook for the year to investors Monday, and says it plans to increase revenue by 30%, in an effort to show investors a road to profitability. The company launched its free, ad-supported mobile service years ago has seen steady increases in ad revenue as it invests in data-driven ad technology. The company increased ad revenue 41% from 2016 to 2017 and 50% from 2015 to 2016.

Advertisers seem eager to access the robust sets of data that both streamers provide.

  • "I would say Spotify pre-IPO has very much leaned into allowing us to use the first party data to match to our clients data to allow us to build custom segments," says Susan Schiekofer, Chief Digital Investment Officer for GroupM North America. "I'm interested to see if they are allowed keep doing that post IPO ... It's important to us maintain that level access to first party data,"

Overall, advertising revenues from on-demand streaming services grew 35% to $659 million in 2017, according to the Recording Industry Association of America. Still, advertising only represents a small portion of on-demand streaming revenues and paid subscriptions continue to be the biggest driver of growth.

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