Spotify has waited a long time to raise prices from the fabled $9.99-per-month mark, in the US, at least. So what was the fallout from the Spotify subscription price rise announcement? Well, judging by social media reactions, there was no enormous revolt by subscribers, at least. Spotify’s share price dipped by 4.6%, although in general shareholders are presumably happy with an increase to the company’s income stream. Artists and songwriters, many of whom have long campaigned for increased or changed royalty systems, are perhaps understandably not falling over themselves to praise Spotify – but increased revenue should mean some increase to the payouts to them, too.
So what will that increased revenue look like? Spotify’s ARPU – its average revenue per paying user – was reported as €4.32 in its Q1 2023 report. These price rises will lift that figure somewhat closer to the €5 mark. Spotify also announced in Q1 of this year that it was growing faster than expected, although still reported an operating loss of €156m for the quarter. (Warning: some very rough maths follows.) With 210 million premium subscribers, and a hypothetical ARPU of €5 per month, Spotify could generate €1.05 billion in monthly revenue from these paying users. While this is a purely finger-in-the-air figure, it’s easy to see how a small increase in subscriptions costs could nudge the company towards recording regular profits, and please impatient shareholders.
The wider industry will presumably in general approve of the increase in subscription costs from Spotify – and by the other major DSPs which have raised prices recently. But it’s not just rightsholders who were pushing Spotify to raise prices: the impact of inflation, despite growth in subscription numbers, has placed pressure on DSPs, too. RIAA data shows that paid subscription revenue in the US, adjusted for inflation, has plateaued since 2021.
Over on Twitter – sorry, “X” – reaction was relatively muted. While the people who have been campaigning hard for increased royalties for artists and songwriters were not particularly vocal, there was some approval from the likes of the Ivors Academy board director Crispin Hunt, for instance. Others, like Sound Exchange CEO Michael Huppe, said the rise was not big enough, and not keeping at pace with inflation. Observers also pointed out that many subscription services have raised their prices in the US in last 12 months – and it’s noticeable that Spotify is one of the last of the big services to do so.
This streaming-industry-wide move to increase prices is a part of the reason that Spotify’s price increase has not caused that much in the way of a negative reaction from consumers, but it gives us a moment to reflect on how small increases across the board could have a bigger impact. With some (more!) rough calculations, based on US pricing, a person who subscribed to the cheapest options from Netflix, Disney+, YouTube Premium, Spotify, and Xbox Game Pass a year ago would have paid $48.95 per month ($587.40 per year) in total, but they would be paying $56.95 per month now. That’s nearly $100 a year more: not enormous, but perceptible – and that’s if you subscribe to only five services. One piece of research in 2022 indicated that, in the US, the average family spent $219 on monthly subscriptions, although this included internet and mobile-phone subscriptions. Another pegged the average US family as having 12 monthly subscriptions, with Millennials averaging 17 each.
As we mentioned yesterday: there’s a surprising amount of socio-economic interests, pressures and perspectives to keep in mind when discussing a relative small hike in individual-platform subscription fees, which – again – is why Spotify held out until it was sure that the price rise would not be considered a consumer problem. Now, Spotify, and the other DSPs, will wait and see what the measurable impact is of increasing prices during the global economic squeeze on a subscriber base who are looking to shave costs lives here and there. And then they’ll need to start planning for the next price increase.