Users must be willing to view ads or pay for a premium subscription.

“We’ve updated our user guidelines, making it clear that all types of ad blockers, bots and fraudulent streaming activities are not permitted,." said Spotify last week.

The changes to Spotify’s terms and conditions are subtle, and you have to dig for them to find the new language. The change can be found in item #10 of the User Guidelines where use of ad blockers is prohibited as part of a user’s acceptance of Spotify’s terms and conditions: “circumventing or blocking advertisements in the Spotify Service, or creating or distributing tools designed to block advertisements in the Spotify Service.."

In item #16 titled “Term and termination,." Spotify explains that it has the right to terminate the agreement or suspect access at any time, if it suspects unauthorized use of the service or if a user does not comply with the terms of agreement.

Why the new stance? It isn’t really new. Spotify has been trying to address this problem for the last year, even disabling users’ ability to stream music until they uninstall their ad blockers and reinstall an unaltered version of the Spotify app, reports Digiday.

Spotify estimates that about 2 million listeners block ads in their apps, or about 2 percent of listeners of the ad-supported tier. That means it is missing out on 2 million people potentially seeing ads on Spotify which is a real cost to the company. The revenue generated from advertising helps offset customer acquisition costs, and Spotify is no longer willing to allow this behavior. In fact, the company has implemented technology to track when listeners are utilizing ad-blocking or related services.

“We are continuing to invest heavily in refining those processes and improving methods of detection and removal and reducing the impact of this unacceptable activity on legitimate creators, rights holders, advertisers and other users,." said a Spotify spokesperson last summer.

Spotify’s free listeners have three choices: (1) comply with Spotify’s new terms and conditions by uninstalling their ad blockers or bots, (2) stop using Spotify, or (3) subscribe to the ad-free Premium Spotify for $9.99 a month.

The news coincides with Spotify’s release of its fourth quarter financials for the period ended December 31, 2018. Here are a few highlights from that earnings report:

• Monthly active users grew to 207 million, a 29 percent increase year-over-year, exceeding the company’s guidance.
• Spotify now has 96 million premium subscribers, up 36 percent year-pver-year, including the addition of 7 million subscribers during a six-week holiday promotion.
• In the fourth quarter, the company expanded from 65 countries to 68.
• Users listened to more than 15 billion hours of content in the fourth quarter.
• Total revenue for the quarter was €1,495 million, a 30 percent increase year-over-year.
• Premium revenue was €1,320 million, also a 30 percent increase year-over-year.
• Ad-supported revenue was €175 million, representing a 34 percent increase year-over-year.
• Average revenue per user was €4.89, a 7 percent decrease year-over-year.
• Gross margin was 26.7 percent in Q4; premium gross margin was 27.3 percent.

In addition to these highlights, Spotify announced its agreement to acquire Gimlet Media Inc., who produces podcast content, and Anchor, a company focused on podcast creation, publishing and monetization.

Insider Take:

We’re glad to see Spotify taking a stronger stance against free listeners who use ad blockers. Ad blocking has caused publishers and other companies billions of dollars in lost ad revenue, and in the case of Spotify, these users are getting free music without offering anything in exchange – not their money nor their time. Also, Spotify maintains the service for those users, incurring expenses on their behalf. The company could go the route of Apple Music and not offer a freemium model; it could go freemium only, but this seems like a fair compromise.

Dana Neuts is Subscription Insider's Senior Staff Writer, covering our daily subscription news as well as member features, case studies, and reports.  

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