Spotify reported its third-quarter earnings today (Oct. 29), showing better-than-expected results as the company emerges from the crushing blow to the advertising market across the board in the second quarter that was caused by the uncertainty and financial hits of the coronavirus pandemic around the world. The world’s largest streaming service grew its paid subscriber base to 144 million, with 320 million monthly active users, while advertising revenue grew 41% over Q2 and 9% year over year.
In prepared remarks released alongside those earnings, Spotify CEO Daniel Ek celebrated the results and made a point of noting that the company had paid out €1 billion to rights holders in each of the first three quarters of 2020, with the fourth quarter already on pace to exceed €1 billion as well. But he also took the opportunity to look ahead at where Spotify is going in its quest to build “the world’s largest audio network,” saying that the company will “continue to invest in enhancing our user experience, furthering market expansion and developing and acquiring unique content from both new and established creators.”
What this means, broadly, is podcasts, which is one growth area that Spotify has been particularly focused on over the past year-plus, with exclusive deals and new programming. But Ek also said that the company’s momentum and trajectory mean the time is coming when Spotify’s price point will no longer stick at $9.99/month for an individual plan — where it has stayed static for a decade — and $14.99/month for a family plan.
“While our primary focus remains user growth, based on our maturity in certain markets and the increasing value we provide to our subscribers — including enhanced content — we’ve seen engagement and more specifically value per hour grow substantially over the past few years,” Ek said. “I believe an increase in value per hour is the most reliable signal we have in determining when we are able to use price as a lever to grow our business.”
This plan has been in the works for a while now; last August, sources confirmed to Billboard that Spotify was testing a price hike in Scandinavia, raising its family plan price by 14% in Norway, Sweden and Finland, a year after a separate test raised prices by 10% in Norway. This is the Swedish company’s home turf, where the population over-indexes in terms of subscribers (and where the service costs slightly more than in the U.S. already), and Ek was encourage by the results.
“[W]hile it is still early, initial results indicate that in markets where we’ve tested increased prices, our users believe that Spotify remains an exceptional value and they have shown a willingness to pay more for our service,” he said. “So as a result, you will see us further expand price increases, especially in places where we’re well-positioned against the competition and our value per hour is high.” (The caveat being the company will “tread carefully” while the pandemic continues.)
If anything, it’s a bit of a surprise that Spotify hasn’t increased prices across the board yet, given that the standard $9.99/month price point in the U.S. has begun to fracture of late. Several DSPs, such as Tidal and Amazon Music, have higher price points for higher-quality audio, while Amazon Music also has lower price points for its Prime members and for its affiliated devices, like the Echo or Fire TV. Several experts told Billboard last fall that subscription services could raise prices a dollar or two “with minimal disruption,” while Spotify will no doubt tout its exclusive podcasts as a main reason to boost its price, or introduce a slightly higher subscription tier, which it has also resisted.
Exclusivity is what underpins Netflix’s price increases, which have gone up several times in the past few years — including between 13% and 18% last January — and which some analysts think will be coming again, as Netflix looks to continue its growth amid a pandemic that has seen video streaming surge as people remain at home, but subscriber growth tail off in Q3. For Spotify, price hikes could also offset an issue in declining average revenue per user, which is one possible reason that, despite its positive earnings report this morning, its stock has dropped more than 8% in daily trading as of press time.