Did you listen in to all the recent investor presentations from the world’s largest music companies? Of course you didn’t. You watched Netflix with your evening, like a normal person.
But here at MBW, we just can’t get enough of music biz CEOs talking topical tidbits.
And we’ve definitely noticed that, of late, one of the most recurrent topical tidbits when analysts question music’s leaders is this: whether Spotify (and other streaming services) should raise their prices in the remainder of 2022.
At this point, it’s worth reminding you that Spotify has actually already raised prices – when it comes to multi-user bundles like its Family Plan – in multiple markets, including the UK and US, over the past 12 months.
SPOT also raised its individual premium tariff in markets such as Brazil, Argentina and Sweden last year, as MBW covered in our analysis the other week.
Yet that classic $9.99/€9.99/£9.99-per month price point – for individual premium Spotify subscriptions in the service’s biggest markets – still remains the same in the US, the UK, and in Europe’s biggest markets like Germany.
Said Stringer: “That’s down to the DSPs, not us. But do we think [the streaming business] in the mature markets can withstand pricing increases? We do.”
“do we think [the streaming business] in the mature markets can withstand pricing increases? We do.”
Rob Stringer, Sony Music Group
Last month, Eric Levin, CFO of Warner Music Group, noted that Spotify had already raised prices in certain markets throughout the past 12 months, connecting that trend to the fact that SPOT’s premium ARPU grew 3% YoY in Q1.
However, speaking to Warner’s investors on the firm’s calendar Q1 (fiscal Q2) 2022 earnings call, Levin added: “We continue to be encouraging of [other music streaming services] to look at pricing as an opportunity to improve economic performance of streaming.”
And then there’s Pershing Square Holdings, led by billionaire Bill Ackman.
A 10% shareholder in Universal Music Group (alongside its affiliates) – and therefore, a weighty player in the global music business in its own right – Pershing Square is optimistic that further price rises are coming to music streaming’s biggest companies in the months ahead.
Ryan Israel, Pershing Square partner, told Pershing’s investors last month: “One of the things that is unique about music streaming is our view is it is the lowest-cost, high-value form of entertainment that you can find.
“As a result, the hourly cost for [music] streaming is very cheap; the overall monthly subscription that you pay to Spotify, Apple Music or Amazon [Music] is very low relative to… a lot of other forms of entertainment overall.”
“Given that inflation in the broader economy is running in the high single-digit rates, these [music streaming] companies have not [raised] pricing. And we think it’s very likely in the future that they may decide to [raise] some pricing.”
Ryan Israel, Pershing Square Holdings
Added Israel: “Given that inflation in the broader economy is running in the high single-digit rates, these [music streaming] companies have not [raised] pricing. And we think it’s very likely in the future that they may decide to [raise] some pricing.
“And because Universal is effectively a royalty over the overall streaming revenues, any pricing that the music [streaming] providers would [increase] would flow directly as Universal’s revenues, and to the artists as well.”
Denis Ladegaillerie, CEO of Paris-listed Believe, was also quizzed by analysts on streaming pricing on Believe’s Q1 earnings call last month – but put his entire faith in the likes of Spotify to make the right decisions, at the right time.
Said Ladegaillerie: “All of our deals with DSPs are revenue-share based, and in our view it is in the interest of the DSPs to maximise the value of their user base.
“[The streaming services] are much smarter than we are at knowing whether to increase subscription prices by one Euro, two Euros, three dollars, or four dollars.”
Denis Ladegaillerie, Believe
“[The streaming services] are much smarter than we are at knowing whether to increase subscription price[s] by one Euro, two Euros, three dollars, or four dollars.
“They have the data, and they [know] whether that’s going to create churn, create value, or not.”
Standing alongside Spotify EVP/CFO, Paul Vogel, Ek was asked by an analyst – Mark Zgutowicz of Benchmark – why pricing wasn’t discussed in the prior three hours of Spotify’s presentation.
Zgutowicz mentioned that Spotify had added new content types to its premium service in recent years – particularly with podcasts and now audiobooks on the way – but said “we’re still sitting at a $10 [per month] subscription price”.
Zgutowicz further noted that consumers had seen monthly price rises “outside of music” – an obvious nod to Netflix, in the video world, which has raised its standard US price multiple times in the past few years.
However, the analyst also acknowledged that current macro economic trends (inflation, growing interest rates, energy prices) may make any price rise announcement a fragile process for Spotify.
“Why not pull that lever,” asked Zgutowicz, “particularly in your developed markets, where nobody’s going to leave Spotify for some other service [because of] a one or two dollar increase?”
Daniel Ek said in response: “We agree. Right now we think Spotify sits at an amazing value-to-price ratio, and that is what gives us the opportunity to over time increase the ARPU [via price rises] too.
“We definitely think that there’s pricing power with this model [and] the more things we’re bringing on to the platform, the more value we’re bringing to users, which of course should mean that we have more opportunity to raise prices over time. It’s absolutely part of our strategy.
“That said, we’re in a macro environment which is very uncertain at this time.”
“the more things we’re bringing on to the platform, the more value we’re bringing to users, which of course should mean that we have more opportunity to raise prices over time. It’s absolutely part of our strategy. That said, we’re in a macro environment which is very uncertain at this time.”
Daniel Ek, speaking yesterday
In a clear reference to Netflix’s disappointing Q1 performance – and forecast that it will lose 2 million more net subscribers in Q2 – Ek added: “I personally look at what’s happened in the video streaming business and I wonder to myself if that industry didn’t get ahead of itself.
“Because frankly, yes, it did increase prices, but it’s also now finding itself in a position where it’s harder and harder to find future growth.”
Added Spotify’s Vogel at yesterday’s event: “If you look at what we’ve done in the past, we’ve continually experimented with different price points. We started with a standard plan, then a family plan, a student plan, a Duo plan.
“We have different pricing in different markets [and] different plans in some markets – we have daily and weekly subscriptions in some markets.
“We’ll continue to iterate and innovate around different pricing and different pricing opportunities.”
The first of those plans is the Amazon Music Unlimited Individual Plan – i.e. all-you-can-eat, on-demand streaming – for customers who are additionally Amazon Prime members.
Prime members have previously been able to subscribe to this plan in the US for $7.99 per month. From May, this price point increased to $8.99 per month.
Alternatively, individual Prime Members in the States can now take out an annual subscription to Amazon Music Unlimited for $89 per year, up from $79 per year.
Amazon increased the price of the Amazon Music Unlimited Individual Plan (for Prime members) in the US, the UK, and Canada, according to Amazon FAQ pages in each of these markets.
In addition, Amazon raised the price of its Amazon Music Single-Device Plan, which gives users access to the full Amazon Music Unlimited service, but locked to a single eligible Echo or Fire TV device.
That plan was previously $3.99 per month in the US, but moved up to $4.99 per month in May.Music Business Worldwide