Spotify has become a global household name for music and podcasts, boasting hundreds of millions of users and a subscription business that continues to surge. Yet behind its success lies a glaring weakness: its advertising division. Once hailed as a potential growth engine, Spotify’s ad business has stumbled, leaving investors, advertisers, and analysts questioning whether the streaming giant can truly reinvent itself as more than a subscription service.
During the company’s most recent earnings call, CEO Daniel Ek admitted what many in the industry have been saying for years: Spotify has been moving too slowly on advertising. Although the company has publicly set the goal of making advertising account for 20% of its overall revenue, progress has stalled. As of June 2025, advertising contributes just 11% a figure nearly unchanged from previous years. In the second quarter, ad revenue actually declined by 0.7% compared to the prior year, prompting media analysts such as Brian Wieser to wonder if the company’s advertising ambitions had already plateaued.
A Business Out of Sync
Spotify’s advertising troubles stand in sharp contrast to its otherwise healthy financial picture. Subscriber numbers continue to climb, overall revenue is growing steadily, and the company’s stock price has more than doubled in the past year. But cracks in its ad model have been visible for some time. Chris Camacho, CEO of ad agency Cheil UK, said that in an era when brands demand seamless campaigns and measurable outcomes, Spotify has “struggled to connect ambition with action.” He argued that the platform needs to deliver more than just audio ad slots it must give advertisers meaningful access to cultural moments, richer storytelling formats, and clear proof of value beyond mere impressions.
The underlying issue, according to industry insiders, is that Spotify has been too focused on its subscription business. Premium subscribers generate far more profit, which has pushed advertising to the sidelines. Ad buyers have complained about poor customer service, while podcast publishers argue that Spotify’s ad pricing and strategy remain muddled.
Spotify itself appears to recognize these shortcomings. The company’s longtime advertising chief, Lee Brown, left his role in 2025, and Ek hinted that “execution, not strategy” was to blame for the poor results. A leadership search is now underway to revamp the division.
The Premium Paradox
At the heart of Spotify’s dilemma is a paradox baked into its business model. The company relies on its free, ad-supported tier as both an entry point for Premium upgrades and as a source of ad revenue. Yet if it converts too many free listeners into Premium subscribers, the advertising audience shrinks. On the other hand, if it makes the free tier too appealing, users may see no reason to upgrade at all.
This balancing act is crucial, especially since Premium profits are estimated by Enders Analysis to be 15 to 20 times higher than ad-supported gross margins. In 2024, advertising generated $1.9 billion an important sum, but still a fraction of what subscriptions bring in and barely enough to cover Spotify’s hefty royalty payments to music labels and content creators.
A Messy Podcast Strategy
One of Spotify’s boldest moves to bridge the advertising gap was its billion-dollar investment in podcasts. By acquiring companies such as Gimlet Media and Anchor, along with striking exclusive deals with marquee names like Joe Rogan and the Obamas, Spotify aimed to attract advertisers eager to reach more affluent, engaged listeners.
But execution has been messy. The company has shifted strategies multiple times ending original and exclusive shows, laying off staff, rethinking ad measurement practices, and recently pushing heavily into video podcasts. While Spotify’s $235 million acquisition of Megaphone in 2020 was supposed to solidify its adtech foundation, publishers complained that the platform yielded lower CPMs (around $8–$9 per 1,000 impressions) compared to host-read ads that often fetch $20 to $40. Although Spotify insists its CPMs are “far above” those numbers, publishers say the inconsistency has undermined confidence.
Betting Big on Video
In 2025, Spotify began pivoting toward video as a way to revitalize its ad model. It launched the Spotify Partner Program, offering creators a 50% revenue split on ad sales from their videos, alongside minimum revenue guarantees to attract publishers. Early adopters like YMH Studios, which produces popular shows such as Your Mom’s House and 2 Bears, 1 Cave, reported a 20%–30% revenue lift.
Still, skepticism lingers. “Video here feels like an add-on,” said Camacho of Cheil UK, noting that Spotify must reinvent what video within an audio-centric platform could be rather than mimic YouTube or TikTok. Spotify counters that video podcast consumption is up 54% this year, with users who watch consuming 1.5 times more content than audio-only listeners. The company is also building community features, better analytics, and new monetization models around video to prove its long-term value.
Service and Stability Problems
Spotify’s advertiser relationships have also suffered from inconsistent service. The company cut 2,300 jobs in 2023, including dozens in its advertising and campaign management teams. Agency executives such as Dan Granger of Oxford Road said response times slowed dramatically, with Spotify taking days to respond to inquiries that competitors addressed within hours. Some clients also reported ad insertion issues in podcasts, with ads clustered awkwardly instead of spread evenly, reducing campaign effectiveness.
Spotify insists it maintains strong customer service standards, aiming to respond within three to six hours and resolve issues within 48. Yet analysts remain skeptical. A recent note from Arete Research questioned whether Spotify has “the DNA of an ads company” or if advertising is simply viewed as a funnel toward Premium subscriptions.
Looking to 2026 for a Turnaround
Despite the challenges, Spotify is not giving up on advertising. Over the past year, the company has announced several initiatives, including the Spotify Ad Exchange (allowing brands to purchase inventory via demand-side platforms), a new in-house creative lab, and even generative AI tools designed to help advertisers build audio ads more efficiently. By partnering with adtech firms such as The Trade Desk, Spotify hopes to position itself as a more flexible and transparent alternative to “walled garden” competitors like Meta or Google.
Industry experts say these moves could eventually pay off, but patience will be key. “From a technical standpoint, Spotify is pretty sophisticated,” said Will Doherty, senior vice president of inventory partnerships at The Trade Desk. “It takes time for any business to consolidate and unify an ad stack on a global scale, while managing the various partnerships needed to grow and be successful.”
Spotify itself is now pinning its hopes on 2026 as the year when its ad business finally reaches escape velocity. Until then, investors and advertisers alike will be watching closely to see whether Spotify can overcome what has become its Achilles’ heel.
