Brief:

• Spotify updated its terms of service to say it will suspend or terminate accounts that are found to be using ad blockers, per The Verge. The rules go into effect on March 1, giving Spotify the authority to cancel accounts without warning. 
• Spotify in the past year has taken steps to limit the use of ad blockers. The company in August said it has several ways to detect artificial manipulation of streaming activity.
• The company last year revealed that about 2 million users had blocked ads using a modified version of its audio-streaming software. Spotify last week said it had 207 million monthly active users (MAUs), including 96 million premium subscribers and 116 million ad-supported users, as of Q4 2018.

Insight:

While Spotify might prefer that its entire user base pay for a monthly subscription to generate steady revenue, as is the case with services like Netflix and Amazon Prime, it has a large user base that remains on its free, ad-supported model. Advertising makes up about 12% of Spotify's revenue, growing 34% to $199 million in Q4 2018 from a year earlier. While ad revenue is still outpaced by subscriber revenue, the high growth rate suggests that it can be a steady stream of income for the company, which reported a profit for the first time in its 13-year history. 

Ad blocking is a significant problem for websites that depend on sponsorship revenue, and companies like Google have worked to support ad standards to improve the user experience and dissuade consumers from installing ad blockers on their smartphones and computers. Google last month reinforced commitments to stopping disruptive ads from displaying its Chrome web browser worldwide beginning July 9 following the news that Better Ads Standards would be expanded. The standards have been available in North American and Europe and Google Chrome has been filtering ads on sites in these countries since last year.

Spotify faces more competition as the music streaming industry grows more crowded, especially with Google's YouTube and Apple starting subscription services that are replacing the older revenue model of selling digital versions of individual songs and albums. Always-on mobile connectivity means that music lovers don't need to load up their smartphones with song libraries and still get fresh tunes.

Spotify's audience is almost twice as big as Apple's 50 million paid user base for Apple Music, although the iPhone maker has a stronger presence in the U.S. With the moves to punish ad blockers, Spotify might also be looking to assure that new aspects of its business are implemented smoothly and can start providing returns on revenue sooner.

Last week, the streamer acquired the podcast network Gimlet Media and podcast production platform Anchor as part of an effort to drive adoption of its platform and increase its share of the podcast market, which is projected to reach $659 million by 2020, according to the Interactive Advertising Bureau and PwC.