SI=4%, I=8
According to the Wall Street Journal, Spotify is set to increase the price of its premium plan to $10.99 per month from $9.99 in U.S.
The price increase will be followed in other global markets later in the year.
The planned change is expected to be announced next week.
Spotify Plans to Raise Price of Premium Plan in U.S. - WSJ
@moritz @Magaly
Moderate price increase.
According to its latest shareholder deck 29% of 210M premium subs are coming from North America. I am not sure if it is possible to reverse engineer how many of those 61M million subscribers are on a family plan. Given that Arpus overall for Spotify are low I would guess the majority is. So this move might bring in an additional 15-30million usd a month from U.S. users. This money needs to be shared with labels which means depending on the result of negotiation the button line impact could be 5-15million per month from U.S users. (Which is not a very large impact)
The strategy might make sense in order to keep increasing market share. For the new hi-fi premium abo i am hoping for a more significant price increase and therefore good corresponding margin/take rate.
Were you expecting a bigger price increase? Do you think they can increase prices above their competitors?
To be frank I did not put enough detailed thought into this.
My expectation has probably been that they would announce a Hi-Fi music option priced at a premium of e.g. $13.99 or $15.49 similar to Netflix and then would experiment with migrating users towards it.
I think Spotify could certainly raise its prices above the pricing of the competition, given how invested users are in their music libraries without too many users leaving(If i had to speculate below 10%). A move like that could have a larger impact percentage-wise on new sign-ups though and I wonder if premium subscriber growth will be slower going forward if they now start matching the pricing of the competition in different markets.
What we should do in my opinion is to start a Spotify Pricing article in which we describe the pricing situations of Spotify and its competition in different geographies using tables and link a Google sheet in which we calculate different pricing scenarios for Spotify going forward.
It’s official. Spotify raises prices of its premium plans by $1 in the U.S.
Spotify is also raising prices in a number of other countries including the U.K.
I started playing around with numbers a bit here.
While a lot of assumptions are still not clear, I now believe that the additional impact from the price increase in the U.S. will be higher than previously assumed.
Additionally, we have confirmation from Spotify’s press release that they will raise prices in a lot of important European markets.
@Aron found some good additional resources:
My current estimate which does not take the new data from Bloomberg into account yet, arrives at approx. $400 million in additional revenue from the united states.
Given that this estimate is on the low side due to unfavorable assumptions and price hikes in other countries are not included yet I estimate that Spotify’s additional revenue will be at least $700 million or half of Doug Anmuths estimate.
Spotify has been asked in its latest analyst call how content they are with the deal they reached with content partners when it comes to the price increase. Their answer was that they “feel really good about the situation” and that they are “at a situation where we are at a win-win with all of our rights partners”.
Based on those comments I believe that Spotify receives 35%-50% of those additional revenues. This means their additional annualized profit should be $250 million at the low end and up to $700 million on the high end. (based on Doug Anmuth’s estimate and 50% take rate)
We will probably get some clues into the actual conditions of the deal and the impact on gross margins of the price increase in next quarter’s guidance.
If someone is interested to play around with numbers as well (be careful that you arrive at the correct Arpu of all users combined) feel free to do that on the same sheet, below my numbers.
Do you believe that management comments on royalties paid to labels might have failed to appease investors? This article says that some investors think Spotify has limited leverage when negotiating with labels: Spotify's Q2 Earnings: Why Royalty Costs Shouldn't Raise Concern (NYSE:SPOT) | Seeking Alpha
I think most likely a lot of market participants are observing Spotify on a superficial level and selling simply because the Q2 2023 margin and net profit sounded ugly and some traders exaggerated the move.
Spotify’s dependence on labels is certainly a concern but Spotify also played a vital part in solving the crisis the music industry has been in and we do not see any sign that royalty payments get worse.
Comments from Spotify management that they are content about the latest negotiation round with the labels on how to attribute the price hikes have likely not been noticed by too many market participants. (esp. not by the ones who are currently selling)
But I think that even if they are not happy with the negotiations I don’t think they will ever say so, they will probably continue to say they are “content” because they need to be on good terms with the labels. So their comments don’t really say much to me about that tbh.
I think Daniel Ek tried to frame it like “We got a good deal, but we are creating a win-win situation for our partners and the whole music industry as well.”
Here is what he said:
Yeah. I’m not going to dive into specifics about anything in our agreements as per usual. But I will say that we’re, of course, very pleased with where we are with our partners, and we feel really good about the situation. And that I believe, again, I think I mentioned this in the past, but I feel like, quite often, this is being put in a situation where this is kind of a win-lose relationship between our partners and us. That is not how we see it.
We very much see it as, again, not a zero-sum game, but a growing pie, and the goal is for both parties to be win-win. And I feel like we’re at a situation where we are at a win-win with all of our rights partners. And I feel really good about the growth of Spotify, but also the growth of the overall music economy. And that’s really the kind of main focus for us at Spotify is we’re really trying to create a win-win, and I feel like that’s the part that’s often missing. But we’re really pleased with where we are both with this price increase and our overall position with our partners.
Given that content partners have been pushing for an increase prices for a long time, Spotify’s hesitation and comments in the past that they would like to increase prices, but just on the right terms and the way he sounded in the call, i think they actually reached a good deal.
Another argument is that it will be probably possible to calculate the split based on Spotify’s new margin outlook in just 3 months, so there is little incentive to frame it wrongly to investors, in my opinion.
If the deal would have been tough they could have said that there was fierce negotiation from labels or that they are neither happy nor unhappy about the negotiation results and reached a fair deal.
https://seekingalpha.com/article/4619554-spotify-technology-s-spot-q2-2023-earnings-call-transcript
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Spotify CEO Daniel EK refutes a JP Morgan analysis that said artists could make $1,200 a month in royalties by posting a 30-second song and replaying it 24 hours a day.
JP Morgan went ahead to estimate that 10% of all music streams are fake, where artists run loops on services like Spotify.
“If that were true, my own playlist would just be ‘Daniel’s 30-second Jam’ on repeat! But seriously, that’s not quite how our royalty system works,” Daniel said in an X reply post.