Spotify Technology SA plans to increase the price of its popular audio service in several key markets for the second time in a year, a crucial step toward achieving long-term profitability.
The streaming giant will raise prices in five markets including Britain, Australia and Pakistan by about $1 to $2 per month by the end of April, according to people familiar with the matter. It will raise prices in the U.S., 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 prices 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 their paid subscription. Although the company pays publishers for books, so far it has only collected additional revenue from listeners who exceed the limit.
The Swedish audio company will also introduce a new base tier that will offer music and podcasts — but not audiobooks — for the current $11 monthly price of an individual premium subscription, the people said. Users of that plan must pay for audiobooks.
The new basic tier is the first of what will be several new pricing options from Spotify. The company has also been working on a “supremium” plan, charging customers a higher price for access to high-fidelity audio, among other things, as Bloomberg reported last year.
For years, Spotify offered most customers two options: a free, ad-supported music service with limited functionality and a paid listening product with unlimited access.
But the company has lost money every year since its initial public offering in 2018, largely because it pays out about 70% of its revenue in royalties to the music industry. Spotify paid record labels, artists and others more than $9 billion last year – compared to a turnover of $13.2 billion.
Management has tried to reduce Spotify’s dependence on the music industry by offering other forms of entertainment.
The company dabbled in video before deciding to focus on offering many different types of audio. It started by investing billions of dollars in podcasts, an emerging field of on-demand audio. While management has said podcasts will turn a profit this year, Spotify also laid off thousands of employees and limited its investments in original audio programming.
Last year the company announced big plans in audiobooks, a field dominated by Amazon.com Inc.’s Audible. While Audible customers have to pay to listen to virtually any book, Spotify offered its customers free, limited access. The results so far are strong, at least as far as consumption is concerned.
Spotify’s move into other types of programming has alarmed its music industry partners, who worry the company will try to cut their royalties. As a result, major music companies have pushed Spotify and its competitors to raise prices.
Although Netflix Inc. has doubled the price of its most popular subscription in recent years, Spotify only last year raised prices in key markets for the first time since launching its premium audio service in the US in 2011. Despite concerns that some subscribers might cancel, the company posted its best-ever year of user growth, with 113 million new signups for its free and paid services.
Spotify had 602 million users at the end of 2023, including 236 million paying customers.
The success of the price increase has given management the confidence to seek even more. Under the new prices, individual plans will increase by about $1 per month, while family plans and so-called duo plans for couples will increase by $2.
Spotify’s biggest competitors, Apple Inc. and Amazon.com Inc., have also raised prices for 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 rate to access a musician’s catalogue. But there are fans who are willing to pay much more to support an artist they love, as evidenced by the rising prices of concert tickets, merchandise and even vinyl for Korean artists.
Among the various options, streaming services have talked about charging people for early access to new music. Still, the companies are reluctant to make major changes to its core paid product, such as Spotify’s $11-per-month unlimited listening plan. Whether or not management can figure out how to capitalize on the more loyal fans, the cost of that core service is only going to go up.