Spotify’s pockets are hungry, and users are the meal.
To achieve its profit goals in 2024, Spotify is implementing another price hike for its premium subscription plans in the United States. This comes within just almost a year after the streaming giant increased its individual plan rates from $9.99 to $10.99 in July 2023.
According to an email announcement, the ad-free Premium plans will see the following price adjustments starting in July:
- Individual plan will rise by $1 to $11.99
- Spotify’s Duo plan for two users is increasing $2 to $16.99
- Family plan will jump $3 to $19.99
The changes mean a 20% price hike over two years for existing subscribers, which should receive an email once the hike is implemented. New subscribers, on the other hand, will already pay the increased rates upon subscription.
Spotify’s Profitability Push
CEO Daniel Ek has labeled 2024 as Spotify’s “year of monetization.” That’s why, the company has outlined plans for huge revenue growth, including the new pricing strategy.
This follows Spotify’s recent price increases in selected markets earlier in April 2024.
Due to its earlier efforts, Spotify recorded a $1 billion quarterly profit in Q1 2024, its highest ever. However, consistent full-year profitability has remained elusive for the 18-year-old company.
Despite the good Q1 profit, Spotify fell short of its 618 million monthly active user goal for the same quarter by 3 million users.
Because of this, Spotify is seemingly continuing its effort to become more profitable this year.
Aside from pricing changes in the US, Spotify is pursuing initiatives to increase advertising income through the Spotify Audience Network marketplace.
These efforts include an expansion into audiobooks via the $123 million acquisition of Findaway. Plus, the platform plans to introduce high-fidelity streaming to complement its existing music and podcast offerings, into which Spotify has invested over $1 billion.
Reports also suggest that Spotify may be decreasing its artist royalty rates. They can do this by leveraging a loophole that allows streaming platforms to pay lower royalties for bundled subscription plans.
Due to the new ‘basic’, music-only tier, Spotify’s regular premium plans are now considered bundles. Meaning, musicians will receive lower royalties from users within these plans.
This comes after Spotify has stopped paying for songs that fail to get 1000 streams on the platform.
User and Artist Backlash
Unsurprisingly, most users did not like the news.
Some Spotify users voiced their frustration with the platform’s focus on other audio content rather than just music streaming.
“I only want music only! Stop increasing prices to justify adding things I don’t want,” one user complained online.
“I DONT want podcast in my music app. … I dont want audio books when I want music. I also dont wanna pay more for the same service. JUST DO MUSIC!!!!”
Many others agree with this sentiment.
They mentioned that Spotify’s moves seem to be too focused on solving its business problems rather than improving its music listening experience. This led to some users deciding to leave the platform for good despite using it for years.
The pricing changes also arrived amid backlash over Ek’s recent claim on X that the “cost of creating content” is “close to zero.” So, it’s leaving a bitter taste in the mouths of more of its subscribers.
Yet, an industry observer has given a wider perspective on the issue.
He pointed out that Spotify’s business model of paying royalties per stream while charging the same subscription price regardless of usage leads to massive losses. This comes despite Spotify’s 32% global market share and $15B in revenue.
“Here’s their problem: whether you listen to five songs per month or 5,000, you pay the same $11 monthly fee. Even though they pay a pittance per stream ($.003 or less per song), their royalty payment for 5,000 songs is $15. ” says Scott Truitt on LinkedIn.
“Now, throw in a family plan at $16, which usually means kids (mine play a constant stream of music), and you can see why they continue to hemorrhage money. And if you listen on the free tier, they lose even more on you.”
He suggested that Spotify’s only path to profitability is to push for even lower royalties and use AI to generate cheap content. However, he also acknowledged that this risks alienating paying subscribers.