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Spotify’s stock surged 12% on Tuesday after Spotify reported quarterly earnings that beat subscriber growth and profit margin expectations.
In a wide-ranging discussion of the company’s earnings that touched on the controversy sparked by Spotify’s audiobook bundling, its plans for a premium music tier and missing its target for monthly active user growth, Spotify chief Daniel Ek said the company he helped found 18 years ago is reaching a turning point.
“While many believe that Spotify has a great product, we needed to prove that we could also be a great business,” Ek said. “I think we’re really starting to show this now.”
Here’s what else you should know about the global streaming giant’s most recent quarterly earnings and what was said on the call.
“It was a very strong quarter across most of our key metrics”
Ek said at the top of the webcast. The streaming giant, which has for most of its 18-year history failed to be profitable, reported its third-straight profitable quarter spurred on by the addition of seven million net new subscribers, an expanded gross profit margin of 29.2% and 490 million euros ($533 million) in free cash flow, the most in the company’s history. However, the company missed its internal target for total monthly active users (MAUs), reporting a total of 626 million MAUs compared with a goal of 631 million.
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Ek said they are tackling this by enhancing free products to boost engagement and retention in developing markets.
The bundle controversy
When Spotify announced plans to raise subscription prices in the U.S. and the addition of 15 hours of audiobooks per month in May, it also asserted it could pay a discounted “bundle” rate to songwriters for premium streams that Billboard estimates could cut songwriters’ and music publishers’ royalty payments by $150 million. The Mechanical Licensing Collective sued Spotify, claiming it “improperly” classified its premium tiers as bundles. Ek declined to comment on the lawsuit, but defended Spotify saying that it paid out a record-high amount to music labels and publishers in 2023 and will “beat those numbers” in 2024.
“A lot of people want to make this a zero sum game where we have to win in order for them to lose or they have to win and we sort of lose,” Ek said. “It’s not as much a zero sum game as people make it out to be. That’s not to say we don’t quibble around various things at various points. That’s the nature of all supplier and distributor relationships. Overall we have had healthy relationships with the music industry for the better part of now 18 years. … Overall the music industry is growing. We are spending a lot of time and effort making sure it keeps growing.”
Spotify’s interim CFO Ben Kung declined to share details of Spotify’s royalty payout agreements but said the company is confident in its position.
New ultra-premium tier on the horizon
Asked about Spotify’s plans to launch a long-delayed high definition audio offering, Ek described the company’s effort to bring something like a “deluxe version” of Spotify to life for “a large subset” of Spotify’s now 246 million subscribers.
“The plan here is to offer a much better version of Spotify. 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,” Ek said.
Spotify added 7 million subscribers in the second quarter, roughly 1 million more than it forecasted, which bolstered revenue and profit margins, the streaming giant said on Tuesday.
Spotify reported 3.8 billion euros ($4.15 billion) in total revenue, a 20% increase from the year-ago quarter, with a record high gross margin of 29.2% that beat guidance. Its operating income was up for the second straight quarter to 266 million euros ($289.6 million), which the company said was thanks to a stronger 7% gross margin and lower marketing, personnel and other costs.
While Spotify’s 626 million total monthly active users (MAUs) came in lower than the 631 million MAUs the company expected in the second quarter this year, it grew premium subscribers by 1 million more than forecast, and as Spotify raises prices in the U.S. again, that helps the company keep its growth goals on track.
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“Overall, we are encouraged by the traction we are seeing from our monetization initiatives and remain focused on delivering the goals out lined at our 2022 investor day,” the company said in a statement.
Revenue from premium subscribers grew 21% year over year thanks to those subscriber gains and premium average revenue per user (ARPU) gains of 10% compared to last year. Revenue from ad-supported users rose 13%.
The price of Spotify’s premium individual plan in the U.S. rose $1 to $11.99 a month and the duo plan jumped a buck to $16.99 a month in July.
Spotify has been under pressure from major music companies and organizations to reverse changes it made in May to its bundled subscription services that added audiobooks to its premium tier. Spotify wants to pay songwriters a discounted bundle rate for premium streams, but groups like the MLC are suing Spotify claiming the streamer “improperly” classified its premium tiers as bundles.
Billboard estimates the move, which reclassified premium, duo and family subscription services as “bundled subscription services,” could cut songwriters’ and music publishers’ royalty payments by $150 million in the first year.
The lower personnel costs that helped boost operating income are in part due to staff cuts the company made last December.
Spotify chief executive officer Daniel Ek is expected to discuss the company’s strategy on bundling and provide greater details about his company’s quarterly earnings on a call Tuesday morning.
Topline Results for Q2:
Total revenue of 3.8 billion euros reflected revenue from premium subscribers growing by 21% and ad-supported revenue growing 13%.
Gross margin of 29.2% beat the company’s growth forecast due to improved music and podcast profitability, the company said.
Operating income also beat guidance at 266 million euros due to lower personnel and marketing costs.
Total monthly active users (MAUs) were 626 million in the second quarter, up 14% from a year ago.
Premium subscribers totaled 246 million and ad-supported MAUs totaled 393 million, up 12% and 15% from a year ago respectively.
Premium average revenue per user (ARPU) rose 10% from last year.
Although most music stocks gained value this week, Spotify dropped 4.6% to $302.27 despite the U.S. markets surging to record heights and two new analyst reports that indicated the company’s share price has much room for improvement.
On Wednesday (July 10), KeyBanc increased Spotify’s price target from $400 to $410 on the belief that the market is underestimating the company’s revenue, earnings and gross margin for 2025 and 2026. In addition, Wolfe Research initiated coverage of Spotify with a $390 price target. Given Spotify’s closing price of $302.27 on Friday, KeyBanc’s new price target implies 35.6% upside while Wolfe’s price target implies 29% upside.
There was one Spotify dissenter this week, however. Redburn Atlantic downgraded Spotify to “sell” with a $230 price target — 23.9% below Friday’s closing price. While Redburn’s analysts are impressed with Spotify’s operating momentum, they believe the market “is simply forecasting too much growth,” they wrote in an investor note. In April, Spotify — which will release its second-quarter earnings on July 23 —said it expects second-quarter revenue to be 3.8 billion euros ($4.1 billion), which would be a 19.6% increase over the prior-year period. It also said it anticipated 245 million subscribers, up 11.4% year-over-year.
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Spotify also bucked the trend among all stocks, which enjoyed a record-setting week. The Dow Jones Industrial Average and S&P 500 reached all-time highs on Friday (July 12) while the Nasdaq composite hit a new peak on Thursday (July 11). After gaining 0.2% this week, the tech-heavy Nasdaq is up 22.6% in 2024, while the S&P 500 added 0.9% and has gained 17.7% year to date.
Spotify’s fall was a major factor in the Billboard Global Music Index (BGMI) dropping 0.9% to 1,828.20 this week, though a couple of other valuable stocks also played a role even as only six of the 20 stocks lost ground this week. The index’s second-most-valuable component, Universal Music Group, declined 2.2% to 27.40 euros ($29.92) while its sixth-most-valuable component, HYBE, fell 3.9% to 189,700 won ($137.95). Despite this week’s decline, the BGMI is up 19.2% in 2024, just shy of the Nasdaq and ahead of the S&P 500.
Among stocks that saw gains this week was Warner Music Group (WMG), whose share price improved 2.0% to $30.93. On Thursday, Jefferies lowered WMG’s price target to $38 from $43, which implies 22.9% upside over Friday’s closing price. On Friday, Wolfe Research initiated coverage of WMG with a $37 price target, which implies 19.6% upside. Meanwhile, Redburn downgraded WMG from “neutral” to “sell” and has a price target of $23, 25.6% below Friday’s closing price.
Sphere Entertainment Co. led all music stocks by gaining 16.6% to $43.66, bringing its year-to-date gain to 28.4%. On Thursday, Morgan Stanley boosted its price target to $45 from $42, which implies 3.1% upside from Friday’s closing price. The company’s shares got a boost two weeks ago after hedge fund titan Steve Cohen’s Point72 Asset Management took a 5.5% stake. Sphere’s sister company, MSG Entertainment, gained 8.0% to $37.21.
It’s earnings season once again, with Spotify the first music company set to report second-quarter earnings on July 23. Which is fitting — not only is the Swedish streaming giant the most valuable publicly traded music company by market capitalization at $60.4 billion, it’s also an important bellwether for much of the music business.
Music subscriptions will continue to be the driving force for Spotify, other streaming companies, record labels and music publishers. Subscriber gains mean more money flowing through to creators and rights owners, while rising prices are benefitting streaming services and could flow down to creators and rights owners, too — although analysts have mixed opinions on whether price increases have those downstream benefits or simply pad streaming companies’ bottom lines.
Another giant of the music business, Universal Music Group, is up next, with its earnings slated to drop the day after Spotify’s (July 24). Believe and SiriusXM earnings are due the following week (both Aug. 1), while Warner Music Group is set for the week after (Aug. 8). Follow Billboard‘s list of upcoming industry events for more earnings release dates once they’re announced.
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On the touring front, for all the hullabaloo about weakened consumer demand and canceled tours and festivals, the live music market is likely to have produced another banner quarter. While everyone’s eyes will be on Live Nation to gauge the health of the business, the concert giant has yet to announce its earnings release date; CTS Eventim, which will report earnings on Aug. 22, is the only promoter to have announced so far.
Here’s what to expect in the upcoming slew of earnings reports.
Subscription gains — but without churn?
The recorded music market is having its cake and eating it, too: subscription prices are increasing, and customers don’t appear to be leaving in droves. Music subscription services are benefiting from price increases — namely Spotify in 2023, with some additional price hikes in 2024 — with little churn. Higher prices and continued subscriber growth will lead to gains in total revenue and average revenue per user (ARPU); Spotify expected 245 million subscribers at the end of June, which would be 6 million net additions in the quarter and a whopping 25 million greater than the 220 million subscribers it had on June 30, 2023. Watch out for any indications that higher prices negatively affected Spotify’s churn rate, however — although the company does not release specific churn data, it will likely warn investors if subscriber losses were greater than expected and are headed in the wrong direction. So far, however, any consumer complaints have been more bark than bite. In another good sign, streaming activity has been healthy, too. U.S. audio streams — by count, not by dollar value — were up 8.1% in the second quarter, according to Luminate.
Payoffs from price increases and cost-cutting
Spotify expects to have operating income of 250 million euros ($273 million) in the second quarter, which would be a nearly 500-million-euro ($545 million) improvement over the 247-million-euro operating loss it saw in the second quarter of 2023. If attained, that big shift from loss to profitcould be chalked up to r Spotify’s decisions in 2023 to raise prices and drastically cut back on its headcount (including a 17% workforce reduction in December). Those moves quickly produced benefits: Gross margin increased to 27.6% in the first quarter of 2024, up from 26.7% in the fourth quarter of 2023 and 25.2% in the first quarter of 2023. The reduced expenses from layoffs also helped operating margin improve to 4.6% in the first quarter — a big gain from the -2% and -5.1% margins it saw in the fourth and first quarters of 2023, respectively. Additionally, Spotify’s second-quarter guidance of 3.8 billion euros ($4.1 billion) of total revenue would be a 19.6% improvement from the prior-year period revenue of 3.18 billion euros ($3.47 billion). ARPU also increased 7% in the first quarter and is likely to improve again in the second quarter.
More advertising weakness
Music subscription services chose a good time to raise prices. Weak advertising revenues have been a recurring theme since music and tech companies began warning investors in 2022, and continued unsteadiness in the advertising market will impact ad-supported revenues for streaming companies, record labels and music publishers. On July 1, Guggenheim lowered its estimate for Universal Music Group’s recorded music ad-supported streaming growth to 10.6% from 11.1% “to better reflect more challenging comparisons” against the prior quarter, as Guggenheim analysts wrote in an investor note. However, that revision was still above the first-quarter estimate of 10.3% due to UMG’s renewal of a licensing agreement with TikTok in May.
Continued strong demand for live music
For all that has been written about fans’ lessened appetites for live music, public companies appear to be in stable conditions. In its first-quarter earnings report in May, Live Nation said that through mid-April, the percentage of large shows booked was up double-digits while concert margins had improved, too. “We are seeing no weakness,” said president/CFO Joe Berchtold, adding that artists who toured in both 2023 and 2024 are seeing better sell-through this year. And with fewer stadium shows in 2024 than 2023, Live Nation will have more concerts in the more profitable arenas and amphitheaters that it owns or operates. Analysts are still bullish on Live Nation in the wake of the Department of Justice’s antitrust lawsuit against the company filed in May: As of this week, 18 analysts have “buy” recommendations on Live Nation, four have “hold” recommendations and only one has a “sell” on the stock. CTS Eventim expects another solid year, too. In April, the German promoter and ticketing company reiterated comments contained in its 2023 annual report that predicted “further moderate sales growth” in 2024.
The Taylor Swift Effect
UMG’s financials will get a boost from Taylor Swift’s latest album, The Tortured Poets Department. Released on April 17 through UMG’s Republic Records, Tortured Poets has remained at No. 1 on the Billboard 200 album chart for 11 consecutive weeks since its April 19 release, with sales boosted in subsequent weeks by additional variants that helped it maintain chart position. In the most recent chart week, for example, two CD versions of the album that fans initially ordered through Swift’s webstore in early June were shipped. In all, Swift’s latest album topped the Billboard 200 for 9 of the second quarter’s 13 weeks and sold 2.4 million units in the U.S., with about 2 million of those coming from CD and LP sales, according to Luminate. That led Republic Records’ U.S. market share to reach an industry-leading 15.72%, up from 12.42% in the first quarter – greater than Warner Music Group. UMG’s total market share in the quarter was 36.37%, up from 34.48% in the prior-year quarter and well ahead of its 33.9% share in the first quarter of 2024.
A group of consumers have dropped a class action lawsuit against Spotify over its recent decision to kill its short-lived “Car Thing” device, a case that claimed the streamer left users holding “a useless product.”
Filed in May, the case came just days after Spotify announced that the Car Thing — a device launched in 2021 for playing music in a car — would be bricked in December. The customers claimed the move left them “with nothing more than a paperweight that cost between $50 and $100.”
But less than two months later, attorneys for the jilted consumers said Tuesday (July 9) that they would drop the lawsuit. The move came without explanation and does not indicate that any kind of settlement with Spotify was reached.
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In their initial complaint, the aggrieved buyers claimed Spotify had refused to offer refunds and, at the time of the lawsuit’s filing, the company’s FAQ addressing the deactivation did not make any mention of refunds. It simply told users that Spotify was “not offering any trade-in options” and urged them to consider “safely disposing of your device following local electronic waste guidelines.”
But after the news of the lawsuit had spread, Spotify’s website was updated to include a new section covering refunds. In the updated text, Spotify tells users: “Individuals seeking a refund can contact customer support with proof of purchase to discuss their options.”
It’s unclear if the move to more clearly offer refunds resulted in the withdrawal of the lawsuit, and neither side immediately returned requests for more information. But the voluntary dismissal was made “without prejudice,” meaning the accusers could refile the case at some point in the future if they choose to do so.
Spotify announced Car Thing in April 2021, saying it would provide users with a “seamless and personalized in-car listening experience.” The product — a touch screen with a physical dial that still requires access to a smartphone — rolled out in February 2022 at a price point of $89.99. But just months later, Spotify said it would cease production, telling investors that they “frankly haven’t seen the volume at the higher prices that would make the current product financially viable.”
Then in May, Spotify alerted users that it would stop supporting the devices entirely. The company told users that it was “not a decision we made lightly” and offered a link to customer service to “ensure that you have the right place to reach out if you have any questions.” A week later, the company confirmed in a public statement that the move, set to take effect Dec. 9, would render the devices fully inoperable.
On May 28, three Car Thing buyers — Hamza Mazumder, Anthony Bracarello and Luke Martin — filed their lawsuit, accusing Spotify of violating state and federal laws by essentially duping their clients into buying a “useless product.”
“Had plaintiffs and other members of the class known that Spotify manufactured the Car Thing with the ability to brick the product at any point after its introduction to the marketplace and in Spotify’s total discretion, they would not have bought a Car Thing, or would have paid substantially less for them,” the lawsuit read.
Spotify has removed the music and profiles of several Russian artists who support the Ukraine invasion and have been sanctioned by the European Union and elsewhere in the West, Billboard has confirmed. The removals were first reported by The Moscow Times. “Platform Rules clearly state that we take action when we identify content which explicitly […]
In late May, Spotify CEO Daniel Ek made headlines when he tweeted, “Today, with the cost of creating content being close to zero, people can share an incredible amount of content.”
One person who took offense is deadmau5, who put up an Instagram post over the weekend offering feedback on Ek’s comment. “Incorrect,” the producer’s caption reads. “The cost of creating content was 25+ years of my life and much of those proceeds going to your company you complete f–king idiot.”
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The post garnered nearly 38,000 likes and many comments, with one person writing, “We hate Spotify so much,” to which the Canadian electronic producer responded by saying, “feel that, I’m about to pull my catalog from these f–king vultures, enough’s enough.”
As of publishing, the producer’s catalog is still available on Spotify, where he currently boasts nearly 5 million monthly listeners.
“I’ve been saying for a long time that we as the IP owners, the artists, the artist managers and the major record companies have allowed these multibillion-dollar companies to build platforms and companies with our art and our fans, and now we’re locked out,” deadmau5’s manager Dean Wilson tells Billboard in regards to royalty rates on DSPs like Spotify. “We can’t talk to our fans on the platform with our art that we’ve built.
“When you say that out loud, it’s insane that we keep allowing that to happen,” Wilson continues. “They’re our fans that we drive to platforms with our art, and unless we pay [the platforms]…you can’t get to your fans. Or you don’t even know if you’re getting to your fans. It’s like, if you spend this amount of money and move this needle on that, you could get to maybe this amount of people.
“Then how much data do we get back in return? The bare minimum they can give you. Ask me today, ‘How much am I getting paid per stream on Spotify?’ I don’t know. And that’s our job. How crazy is that, that that’s our business, and if you stream my record for more than 30 seconds today, I can’t tell you what that generated. It’s in this mythical bucket.”
In April, Spotify reported that its first-quarter revenue jumped 20% and gross profit topped 1 billion euros ($1.08 billion), helping return the 18-year-old streaming company to profitability and putting it on track to meet its 2024 growth target.
Earlier this month, the streamer announced that it’s raising prices for the second consecutive year, with its premium individual plan in the U.S. increasing by a dollar to $11.99 a month starting July 1. The platform’s duo plan will also go up by a buck to $16.99 a month while the family plan will be increased by $3 to $19.99 a month.
Despite the price hikes, royalty rates recently went down for songwriters on the platform. By adding audiobooks to premium offerings like individual, duo and family plans, Spotify claims these subscriptions are now “bundles” — a type of plan that qualifies it for a discounted rate on U.S. mechanical royalties given that multiple products are offered under one price. According to Billboard estimates, the change means publishers and writers will earn about $150 million less in royalties over the course of Spotify’s first bundled year.
Since the bundling change was first reported, Spotify has been targeted by the National Music Publishers’ Association (NMPA) on multiple fronts. In May, it was hit with a lawsuit by the Mechanical Licensing Collective over the discounted rate. In response, Spotify has called the NMPA’s accusations “baseless” and “misleading” and argued of the MLC lawsuit that “bundles were a critical component” of the Phono IV agreement struck between publishers and streaming services.
Spotify has officially unveiled a basic premium tier for users who prefer not to pay extra for audiobooks, the company announced Friday (June 21). The plan is priced at $10.99 — $1 less than its premium individual plan, which includes 15 hours of audiobook listening time per month.
The reveal of the basic tier, which Spotify teased during its Q1 earnings call in April, follows the company’s June 3 announcement that it would be raising prices in the United States for a second consecutive year. Starting in July, its premium individual plan will bump up to the $11.99 price point, while its duo plan will rise to $16.99 a month (up from $15.99) and its family plan will spike $3 to $19.99 a month.
The news also follows a recent Bloomberg report that Spotify plans to roll out a high-fidelity audio tier later this year for $5 more per month than its premium individual plan.
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Shares of Spotify rose 1.5% to $317.86 this week, marking their third consecutive weekly gain. On Friday alone, the stock gained more than 1.2%.
The new tier comes amid a pitched battle between Spotify and music publishers following the streamer’s decision to reclassify its premium offerings as “bundles,” which qualifies those plans for a discounted rate on mechanical royalties in the United States. According to Billboard estimates, publishers and songwriters will earn roughly $150 million less in royalties in the first year following the change.
On May 15, nearly one month after the bundles were first reported, the National Music Publishers’ Association (NMPA) sent Spotify a cease and desist letter for allegedly hosting unlicensed lyrics, music videos and podcast content on the service. The following day, the Mechanical Licensing Collective (the MLC) sued the streaming company, alleging it had “improperly” classified its premium tiers as bundles.
Later in May, NMPA president/CEO David Israelite sent a letter to Judiciary Committee leadership in both the U.S. House and Senate asking for an overhaul of the statutory license in section 115 of the Copyright Act, which “prevents private negotiations in a free market” for mechanical royalty rates for songwriters and music publishers in the United States. At the NMPA’s annual meeting on June 12, Israelite announced that the organization had filed an official complaint with the Federal Trade Commission (FTC) and sent letters to the attorneys general for nine states along with consumer trade groups, alleging Spotify has violated the Restore Online Shoppers’ Confidence Act (“ROSCA”), section 5 of the FTC Act and other consumer protection laws.
Spotify has hit back at the various actions taken by the NMPA, at various points calling its accusations “baseless” and “misleading.” Of the MLC lawsuit, the streamer argued that “bundles were a critical component” of the Phono IV agreement struck between publishers and streaming services, that “multiple DSPs include bundles as part of their mix of subscription offerings” and that it “paid a record amount to publishers and [collecting] societies in 2023 and is on track to pay out an even larger amount in 2024.”
Billie Eilish should be happier than ever: She’s become the third artist to surpass 100 million monthly listeners on Spotify, the music streaming platform confirms — and she did it with just 82 songs.
The two-time Oscar winner follows behind only The Weeknd, who has 107 million monthly listeners, and Taylor Swift, who boasts 102 million; both have more than double the songs on the streamer than Eilish. And at just 22 years old, this makes the “Lunch” singer the youngest yet to have reached the 100 million listeners milestone.
“Spotify has been a part of Billie’s story from the start. Ever since ‘Ocean Eyes,’ she has continuously grown her fan base around the world,” Jeremy Erlich, Spotify’s global head of music, tells Billboard. “What she and [brother-collaborator] Finneas have achieved since 2016 is quite remarkable … and all this by the age of 22.”
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The singer-songwriter currently has eight songs in the streamer’s Billions Club: “Lovely” with Khalid (2.8 million plays to date), “Bad Guy” (2.5 million), “When the Party’s Over” (1.8 million), “Everything I Wanted” (1.6 million), “Ocean Eyes” (1.4 million), “Happier Than Ever” (1.3 million), “Idontwannabeyouanymore” (1.09 million) and “Bury a Friend” (1.01 million).
Eilish’s debut single, “Ocean Eyes,” arrived on the Billboard Hot 100 in 2018 and peaked at No. 84 the following year. Since then, she has landed 42 more songs on the all-genre tally, with six of those reaching the top 10, including 2019’s “Bad Guy,” which topped the chart in August that year.
Her third album, the 10-track Hit Me Hard and Soft, dropped in April and debuted at No. 2 on the Billboard 200. First album When We All Fall Asleep, Where Do We Go? and sophomore set Happier Than Ever both topped the chart for three weeks.
In February 2021, Spotify announced its high-quality audio offering, called HiFi, and released a promotional video featuring Billie Eilish and her brother/producer, Finneas, waxing about the benefits of listening to recordings in their natural state rather than the compressed files that became standard in the digital era. “The streaming war is going Hi-Fi,” Billboard proclaimed a few months later.
But it was a false start. Spotify’s HiFi didn’t materialize, and the company officially announced its delay in January 2022. There were rumblings about HiFi in June 2023, but the rumors amounted to nothing. Instead, Spotify pushed ahead with building an all-in-one audio platform by building its podcast business and launching an audiobook offering.
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Now, HiFi appears to be back on track. This month, news broke that Spotify will finally launch a high-definition audio tier later this year. Still called HiFi, Spotify will offer the tier for an extra $5 per month for individual plans ($16.99 compared to $11.99, which bakes in an expected $1 increase from the current $10.99), according to a Bloomberg report. The HiFi tier for family plans is reported to be $19.99, $3 more than the current $16.99.
Waiting three years could come with some advantages. First, there’s a large addressable market that wants high-quality audio. A 2023 MusicWatch survey found that 85 million Americans aged 13 and over agreed that obtaining the highest sound quality is important and that they would be willing to pay more to get it, according to MusicWatch’s Russ Crupnick. That’s a big uptick from 2020 when a previous MusicWatch survey found that it found that 69.2 million people aged 13 to 65 were open to paying more for studio-quality sound. Most of that change represents greater interest in high-quality audio, as population growth has been “only about 1% per year,” says Crupnick.
“Once people realize that audio quality is available and they hear it, it is hard to go back,” says Qobuz managing director Dan Mackta. “The challenge is just getting people to actually hear it.”
There are two types of premium audio streaming: 16-bit, known as “lossless” or “CD-quality,” and 24-bit, which is commonly referred to as “high-resolution.” Both Apple Music and Amazon Music Unlimited offer CD-quality and higher definition tiers that go up to 24-bit/192 kHz. Qobuz streams 24-bit audio up to 192 kHz. Spotify streams up to 256 kbps for subscribers — far below CD quality of 1,411 kbps— and 128 kbps for ad-supported users.
Early high-definition entrants like Qobuz, Tidal, Amazon Music Unlimited and Apple Music have done much of the dirty work educating consumers about audio quality. Amazon Music, which debuted high-definition audio in 2019, saw strong demand and engagement, Amazon Music vp Steve Boom told Billboard in 2021. Apple Music rolled out lossless audio and Spatial Audio in June 2021. More than 90% of Apple Music listeners have engaged with Spatial Audio, the company said in January, adding that plays of music available in the format have more than tripled in the previous two years.
The streaming market has matured over the last three years. Spotify currently has 59 million more subscribers than it did at the end of 2021, giving it a larger base from which to upsell a premium audio tier. Consumers have also warmed to the notion of paying more for a music subscription. Spotify’s first large-scale price increase in July 2023 was followed by an additional increase in May in the United Kingdom and Australia, and the United States will follow later this year — all without a material amount of subscriber churn, company executives have said.
Spotify will have to convince its subscribers that high-quality audio is worth a premium, however. Amazon Music Unlimited originally charged a premium for high-definition audio but later made it a standard feature for the lower-priced, standard subscriber plan. Likewise, Apple Music offers lossless audio and Spatial Audio at no extra cost. To counter its competitors’ pricing strategies, Spotify could make HiFi a bundle of premium features. In 2022, Spotify reportedly surveyed consumers about their willingness to pay for a premium tier that offers high-definition audio, additional playlist and library features, limited-ad Spotify playlists, and other add-ons.
But Spotify HiFi could also encourage its competitors to follow suit by further raising prices. Mackta says Qobuz intends to raise prices at some point in the future. In fact, Qobuz lowered prices in 2019 — a standard plan is currently $12.99 per month — in response to larger services like Apple Music and Amazon Music making high-definition audio a standard feature. “In general,” he says, “music is too cheap.”