Spotify to increase prices by up to $2 per month in several major markets

Spotify Technology SA plans to raise prices on its popular audio service in several major markets for the second time in a year, a key step toward long-term profitability.

According to people familiar with the matter, the streaming giant will increase prices by about $1 to $2 (roughly Rs. 83 to Rs. 166) per month in five markets including the UK, Australia and Pakistan by the end of April. The company will raise prices in the United States, its largest territory, later this year, said the people, who asked not to be identified discussing confidential plans.

Spotify shares rose 4.6% to $281.92 at 9:35 a.m. in New York.

The higher price will help cover the cost of audiobooks, a popular service launched late last year. Spotify offers customers up to 15 hours of audiobook listening per month as part of a paid plan. While the company pays publishers for books, so far it has only collected additional revenue from listeners who exceed their quota.

The Swedish audio company will also launch a new basic package that offers music and podcasts but not audiobooks, currently priced at $11 (roughly Rs. 917) per month for the individual premium plan, people familiar with the matter said. Users of this plan need to pay for audiobooks.

The new basic tier is the first of several new pricing options for Spotify. As Bloomberg reported last year, the company has also been working on a “premium” plan that would charge customers a higher price to get features like high-fidelity audio.

For years, Spotify has offered most customers two options: a free, ad-supported music service with limited features, and a paid listening offering with unlimited access.

But the company has lost money every year since going public in 2018, in large part because it pays the music industry royalties on about 70% of sales. Last year, Spotify paid more than $9 billion (approximately Rs. 75,093 crore) to record labels, artists and others, while generating revenue of $13.2 billion (approximately Rs. 1,10,137 crore).

Management has tried to reduce Spotify’s dependence on the music industry by offering other types of entertainment.

The company dabbled in video before deciding to focus on offering many different types of audio. It started by plowing billions of dollars into podcasts, the emerging field of on-demand audio. Spotify has also laid off thousands of employees and cut investment in original audio programming, even as management says podcasts will become profitable this year.

Last year, the company announced major plans in the audiobook space, which is dominated by Amazon.com Inc’s Audible. Audible customers must pay to listen to almost all books, while Spotify offers customers free, limited access. So far, the results are strong, at least on the consumption side.

Spotify’s push into other types of programming has alarmed music industry partners, who fear the company will try to lower their royalties. As a result, major music companies have been pushing Spotify and its competitors to raise prices.

While Netflix has doubled the price of its most popular plans in recent years, Spotify only raised prices in major markets last year for the first time since launching its premium audio service in the United States in 2011. Despite concerns that some subscribers will cancel, the company posted its fastest year of user growth ever, with 113 million new signups for its free and paid services.

By the end of 2023, Spotify had 602 million users, including 236 million paying customers.

The success of the price increase gave management the confidence to pursue more. Under the new pricing, individual plans will go up by about $1 per month, while family plans and so-called couple plans will go up by $2.

Spotify’s biggest rivals Apple and Amazon have also raised prices on their music services.

Music companies and audio services are also discussing ways to generate additional revenue from their most ardent fans. Currently, all listeners pay the same fee to access a musician’s catalog. But there are also fans who are willing to spend more to support their favorite artists, as evidenced by rising prices for concert tickets, merchandise and even vinyl records for Korean artists.

Among various options, streaming services have discussed charging people more for early access to new music. However, the companies are reluctant to significantly change their major paid offerings – such as Spotify’s $11-a-month all-you-can-listen plan. Whether or not management figures out how to capitalize on more loyal fans, the cost of this major service will only rise.

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