Music streaming company Spotify (ticker symbol SPOT) is reportedly set to raise its premium subscription fees again this year, following last year's increase. The market expects that the loss-making company Spotify will be able to improve its profitability.
On the 3rd (local time), Bloomberg News, citing sources familiar with the matter, reported that Spotify plans to raise premium subscription fees by about $1 to $2 in five countries, including the UK, Australia, and Pakistan, by the end of this month. It also reported that price hikes will be implemented in the U.S. market by the end of this year. Spotify raised premium subscription fees for the first time since 2011 in major global markets last year.
Following the news of the subscription fee increase, Spotify's stock price closed up 8%. This was because there was speculation that it could provide support for Spotify's efforts to expand businesses beyond music streaming to grow its size.
A representative example is the audiobook service launched at the end of last year. Until now, Spotify has offered up to 15 hours per month of audiobook service to premium subscribers. Since Spotify has entered the audiobook market dominated by Amazon and pays publisher royalties, it is analyzed that margin losses were inevitable. Bloomberg stated, “Margins from the subscription fee increase will be primarily used to cover audiobook operating costs.”
Spotify, founded in Sweden in 2007, is the world's largest music streaming company. As of the end of last year, the global monthly user count reached 602 million. Among them, 236 million are paid service users.
The problem is that the company has consistently recorded losses since its stock market listing in 2018. This is due to paying about 70% of its revenue to the music industry in royalties and other fees. Last year, Spotify paid more than $9 billion to record labels out of $13.2 billion in revenue. Over time, Spotify has laid off thousands of employees and reduced investments in original audio programming.
It is analyzed that Spotify is raising prices at a rapid pace as a countermeasure. Bloomberg reported, “Despite concerns that the price increase last year would cause users to leave, the management gained confidence that they could achieve more through price hikes after successfully attracting a record 113 million new subscribers.”
Bloomberg also revealed that Spotify plans to introduce a new pricing plan. This premium plan will provide music and podcasts but not audiobooks. In this case, subscribers will have to pay separately for audiobooks. Spotify is also reportedly preparing a premium plan that offers access to various features such as high-quality audio.
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