Despite maintaining its lead in the global music streaming market, Spotify says it will consider raising its prices in the US, following recent moves by Apple Music and YouTube.
The plan was revealed by CEO Daniel Ek during the company’s earnings call on Tuesday (October 25).
“When our competitors are increasing their prices, that’s really good for us because, again, with our deep engagement that we have and the lowest churn of any competitor, we will likely fare better,” Ek told analysts after Spotify released its third-quarter earnings report.
Ek noted that Spotify has implemented more than 46 price increases in markets globally and the results of these price adjustments have been “as good as we would have hoped for, if not better, in many of these places.”
“When our competitors are increasing their prices, that’s really good for us because, again, with our deep engagement that we have and the lowest churn of any competitor, we will likely fare better.”
Daniel Ek, Spotify
Over the past year, Spotify raised the prices of its multi-user bundles like its Family Plan – in multiple markets, including the UK and US. It also raised its individual premium fees in markets such as Brazil, Argentina and Sweden last year, as noted in an MBW analysis in June.
Most recently, Ek said Spotify has significant pricing power and offers “an amazing consumer value proposition,” adding that the platform is set up well for the years to come.
Ek singled out the US market in the company’s plans to consider price hikes. The potential move comes as the US dollar continues to strengthen, putting pressure on other global currencies.
“In light of our competitors raising prices, that obviously gives us more confidence going into it, too,” Ek added.
Apple is raising the pricing for Apple TV+, Apple One, and Apple Music worldwide. In the US, the individual Apple Music subscription was raised by $1 to $10.99 per month from Monday (October 24), while the Apple Music Family plan subscription was increased by $2 to $16.99.
Similarly, YouTube also raised the price of YouTube Premium’s Family Plan by 28%, or by $5, to $22.99. The change took effect immediately for new subscribers, while existing customers were given a 30-day notice.
EK told analysts that Spotify has been selective in rolling out price hikes in macro environments during the pandemic, “and we’ll do so opportunistically, too”.
When asked about Spotify’s deals with labels in connection to price increases and whether incremental pricing would mean a lower share of royalties, Ek said any price increase that Spotify plans to carry out “should be net-net a win-win for both parties.”
“That’s definitely part of any conversations when we’re talking about pricing with our label partners, as you could imagine, even in the past and in the context of the 46 price increases we’ve already made,” Ek said.
During the earnings call, Ek also disclosed other strategies that Spotify is considering in a bid to raise SPOT’s ARPU (average revenue per user). The company has considered offering “a la carte” services to its offerings such as providing a separate subscription tier for audiobooks or selling live concert tickets.
“That gives us a lot more flexibility,” Ek said.
During the recent quarter, Spotify’s Premium monthly global ARPU grew 7% YoY to €4.63 ($4.61), but was down 1% at constant currency.
The company booked a gross profit of €750 million ($747m), reflecting a gross margin of 24.7%.
Spotify’s results showed how profit margins were squeezed by slow advertising growth.
CFO Paul Vogel noted that ad softness, in addition to currency effects, did have a small modest impact on gross margin.
“Not something we normally call out as part of gross margin. But in this quarter, the currency moves were significant enough to impact it,” Vogel told analysts.Music Business Worldwide