Spotify attracts eyes as well as ears with video ads

By Douglas Busvine

COLOGNE, Germany (Reuters) - Spotify is increasingly attracting viewers as well as listeners to its free music streaming service and is finding new ways to target adverts and podcasts at customers, its head of global advertising sales told Reuters.

The Swedish company, which has risen 39 percent in value since it floated in New York in April, is seeing growth in video outpace audio ads and is broadening its audience with rapid growth in sponsored podcasts, Brian Benedik said at the dmexco digital marketing fair in Cologne, Germany.

"Video is our fastest-growing format, which is counter-intuitive for an audio-led platform," Benedik said in an interview.

Spotify runs an ad-free 'freemium' model, with 83 million users paying a monthly subscription - more than its nearest rival Apple. Another 100 million or so listeners opt for a free service that is interrupted by advertising breaks.

With the company now worth $33 billion, analysts say it needs to justify its valuation by hitting ambitious growth targets of its founder Daniel Ek - who wants to grow revenue as much as 35 percent a year.

Most customers of the free service use mobile devices, which account for the majority of ad revenues where video is the fastest-growing advertising product.

Spotify tracks online behaviour and, if it figures out customers are looking at the Spotify app, it runs a video ad. If they are listening passively, the ad would be audio.

Spotify is also ramping up its offering of podcasts and, although these don't go to commercial breaks for premium subscribers, shows can be sponsored in much the same way that TV coverage of major sporting events is backed by major brands.

Benedik said he saw potential for Spotify to deploy its algorithms to recommend podcasts, along the lines of its 'Recommended for You' feature for music, that will get to know users' interests and keep them coming back for more.

In Germany, podcast listening on Spotify has increased 150 percent, year-on-year. Growth rates globally are 367 percent.

"If we can figure out a recommendation around podcasts and serve them up to users, that would be great," said Benedik, adding that if Spotify can get the user experience right this would open the way to make more revenue from podcasts.

(Reporting by Douglas Busvine; Editing by Elaine Hardcastle)