Spotify Is Signaling More Price Increases in the Future
Written by djfrosty on July 24, 2024
Don’t be surprised if Spotify decides to further raise prices on its premium subscription plans.
Although CEO Daniel Ek and interim CFO Ben Kung didn’t provide a timeline for future price increases, they sent numerous signals during Tuesday’s second-quarter earnings call that additional price increases are possible.
Spotify waited more than a decade to raise prices in the U.S. and many other markets in 2023 — from $9.99 to $10.99 a month for an individual plan. In 2024, the rate was bumped up to $11.99 per month. If those price increases were poorly timed, Spotify would have seen subscribers leave and revenues would suffer. Neither happened.
In the second quarter, the company added 7 million subscribers from the prior the quarter — 1 million more than it told investors it expected — and revenue reached 3.8 billion euros ($4.15 billion), up 20% year over year, the company announced Tuesday. Higher prices, combined with extensive layoffs, helped Spotify turn a 247 million euro ($269 million) operating loss in the second quarter of 2023 into an operating profit of 266 million euro ($290 million) — a swing of 513 million euros ($559 million).
Following widespread price increases in 2023 and additional price hikes this year in the U.S., U.K. and Australia, “We’re seeing less churn in this round of increases than we did in our prior one, which was already very low by any measure,” Ek said. The churn rates following the second round of increases were “better than expected,” added Kung.
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Following the two rounds of price hikes, Spotify is “very encouraged by what we’re seeing in the three major markets where we’ve taken price now, that’s basically about two times in the last 12 months,” said Kung. “And so I think we see that as a great data point for … what might be possible … in the rest of our territories.”
Why are subscribers not leaving? Ek attributes its churn rates to “the tremendous value we’ve added to the service over the last several years.” That includes features such as the year-ending recap Wrapped and Discovery Weekly, a personalized playlist of new releases. More recently, the company invested heavily in podcasts and audiobooks. Spotify is now a well-rounded audio platform, not the music-focused streaming service of its early years. “Access to all of this content would cost a user approximately $26 — significantly more than a Spotify subscription,” said Ek. “Spotify remains a pretty outstanding deal.”
Engagement is important for subscriber retention. As long as Spotify can keep listeners listening, it believes it has an ability to raise prices. “The most important thing in the near term is just making sure that audiobooks are driving incremental engagement for the platform, and we’re seeing this happening in a way that makes us feel good about the path that we’re on here,” said Kung.
The U.S., U.K. and Australia appear to have absorbed two rounds of price increases without missing a beat. Spotify executives didn’t say what to expect in other large, mature markets, but Ek suggested that listeners in developing markets, which currently skew more toward ad-supported listening, could stomach paying more. “The high engagement in [developing] markets gives us tremendous confidence in our ability to raise prices,” he said.
Separately, Spotify believes a subset of its subscribers are willing to pay substantially more for an elevated experience. Spotify first announced a high-quality audio tier, called HiFi, in 2021 but delayed its launch. Now, it appears HiFi is back on. “The plan here is to offer a much better version of Spotify,” said Ek. “So, think something like $5 above the current premium tier, so probably around $17-$18 price point, but sort of a deluxe version of Spotify that has all the benefits that the normal Spotify version has plus more control and quality across the board.”