Spotify (NYSE: SPOT) is set to raise prices for its popular audio streaming service in several key markets by the end of April, marking the second pricing increase in just over a year. The move is seen as a crucial step toward achieving long-term profitability for the streaming giant.
According to a Bloomberg report that cited sources familiar with the matter, Spotify will increase subscription fees by approximately $1 to $2 per month in markets such as the United Kingdom, Australia, and Pakistan. The company’s largest market, the United States, will see price hikes later this year. The company has not yet formally announced a price hike.
The higher prices are expected to help cover the costs associated with Spotify’s new audiobook service, introduced late last year. While Spotify pays publishers for audiobook content, it says it has only collected additional revenue from listeners who exceed the 15-hour monthly limit included in paid plans.
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But not all subscribers will need to help Spotify afford audiobooks. As part of the pricing overhaul, the company reportedly also plans to introduce a new basic tier offering music and podcasts, but not audiobooks, at the current $10.99 monthly price for an individual premium plan. Users of this basic tier will need to pay extra for audiobook access.
The company is also reportedly looking into introducing the “supremium” plan that would provide access to high-fidelity audio and other premium features at a higher cost.
Spotify has struggled to achieve profitability since its public listing in 2018, largely due to the substantial royalties it pays to the music industry – around 70% of its sales. Last year, the company paid over $9 billion in royalties to record labels, artists, and others, from total revenue of $13.2 billion.
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In December, the company cut 17% of its staff, or 1,500 jobs, in a move to narrow the gap between their “financial goal state” and current operating costs.
The new pricing changes also come as Spotify seeks to reduce its reliance on the music industry by diversifying into other forms of entertainment, such as podcasts and audiobooks. It has become the top two player of audiobooks after Amazon’s (Nasdaq: AMZN) Audible.
While the company has faced some concerns from music industry partners about potential royalty reductions, major labels have pushed for price increases from streaming services. In November, Spotify limited its monetization eligibility to tracks that have reached at least 1,000 streams in the last 12 months.
If the new price hike is happening as reported, the confidence is likely coming from how Spotify’s previous price hike in major markets last year did not deter subscribers. The company reported its best year of user growth ever, adding 113 million new users to its free and paid services. As of the end of 2023, Spotify had 602 million users, including 236 million paying customers.
Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
