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How the Digital Music Industry Can Spin Your Listening Habits Into Ad Dollars

Spotify and iHeartMedia embrace targeted advertising based on musical tastes

Spotify's new targeting tools let brands advertise to a user who goes from tablet to a phone.

What do your listening habits say about you? That's one of the most important questions the digital music industry is asking as it develops new technology for highly targeted advertising.

The biggest players like Spotify, iHeartMedia and Pandora are developing technology to serve ads to listeners, and they all see value in targeting based on musical tastes. A fan tuned to a rock station fits one profile for iHeartMedia. A subscriber playing a workout mix gives Spotify a consumer to sell to real-time marketers.

The music platforms are in the middle of building ad machines that take advantage of this rich data. Just this week, Spotify launched playlist targeting that amasses like-minded listeners for advertisers. Earlier this month, iHeartMedia, launched a programmatic marketplace for advertisers to buy radio spots, piecing together local stations to accumulate a national reach.

"Using music as a proxy, Spotify has great insight into what people are doing," said Jeff Levick, Spotify's chief business officer.

While iHeartRadio and Spotify occupy different areas of the industry—the former is closer to traditional radio—they both show that the music business is rethinking how to generate revenue in the digital age. Last year, digital music sales overtook CDs for the first time, according to a report this week.

Spotify has 60 million subscribers, 45 million of whom access the free tier of the service that generates revenue from ads.

The music service has 1.5 billion playlists that offer listener insights, so brands "can target consumer intent—not implied intent, not perceived intent, actual intent," Levick said.

Spotify also has developed sequential messaging technology, which tracks when a marketing message is served and to whom, so brands know when a user received the ad. They can then follow up with a different message and build a marketing narrative. 

Levick said the average Spotify user listens to music 148 minutes a day across multiple devices, and that sequential messaging technology lets advertisers hit consumers when they switch from phone to tablet, too.

Meanwhile, iHeartRadio is developing the technology to make targeted advertising easier. Its new programmatic platform allows brands to build audiences across its thousands of terrestrial radio stations. 

Longtime industry veteran and iHeartMedia CEO Bob Pittman said the company is trying to bring digital ad technology to radio buying.

"Radio was, years ago, the first media to really segment and really target," Pittman said, because stations catered to specific audiences. There was, however, a problem of scale, and advertisers were unable to reach mass audiences.

Now, instead of making deals with 150 individual stations, iHeartRadio's programmatic platform lets advertisers buy them all at the same time, Pittman said.

The digital radio company also lets advertisers use data they've collected about their own customers, so they can target their ads at people they know or people who have similar digital footprints. 

"Radio is the most under-monetized of all major media," Pittman said, noting that with the better measurement, advertisers would be convinced to shift more money there.

The announcements from the two major players come as rival Pandora also ups its programmatic ad technology. Just this week, the digital radio pioneer announced new targeting tools that let brands reach audiences with greater precision.

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