Spotify is raising its price in the US and 52 other markets. How much money will that make the music industry?
MBW Reacts is a series of analytical articles from Music Business Worldwide written in response to major recent entertainment events or news stories.
As expected, Spotify today (July 24) – after 12 long years – finally announced a 10% rise in its flagship individual Premium subscription price in the United States, up from USD $9.99 per month to $10.99 per month.
Not only that: Spotify is also raising the price of its other subscription plans in the US. This includes its Family Plan, which moves up from $15.99 to $16.99 per month; it’s the second time SPOT has upped this particular price point in the States (the first was in 2021), and brings Spotify’s Family Plan pricing in line with that of other services such as Apple Music and YouTube Music.
The (much) bigger-picture news today?
Spotify isn’t just increasing its prices in the US – it’s also upping its subscription cost (across various plans, including individual Premium) in a whopping 52 other markets, including the UK, Canada, Brazil, Spain, France, Australia, Indonesia, Israel, Sweden, and Mexico.
Yet how much will this new round of price increases from Spotify be worth to the company – and to the music rightsholders to whom it pays out around 70% of its income?
MAPPING SPOTIFY’S REACH IN THE US
According to the National Music Publishers’ Association (NMPA), Spotify had 44.4 million paying US subscribers in February 2023.
According to Spotify’s own Q1 2023 report, reflecting the end of March, it had 210 million Premium subs globally, of which approximately 28% resided in North America.
That means approximately 58.8 million subs in North America – that’s the US plus Canada.
Obviously if all of the 44.4 million US Spotify subs highlighted by the NMPA saw a $1 increase per month from today onwards, it would result in a revenue bump of more than half a billion dollars annually ($533 million – that’s 44.4m X $12) for Spotify.
Sadly for those of us who like numerical simplicity… things probably aren’t quite that straightforward.
A significant number of those 44.4 million subscribers will be on plans managed either through lower-cost bundle deals through telcos and/or promotional plans from Spotify (three months for $1, that kind of thing).
Also adding complication to the picture: Spotify might have just upped the price of its entire first-party (i.e. non-telco-bundled) suite of Premium price tiers in the States – but it didn’t raise every tier by the same amount.
As mentioned, Premium individual price in the US just went up +$1 per month, but Premium Duo (a discounted offer for couples) actually went up by +$2 per month – from $12.99 to $14.99 per month.
Premium Family also went up by +$1 per month (from $15.99 to $16.99), as did Premium Student (from $4.99 per month to $5.99 per month).
It’s a complex picture.
But we can still experiment with some other solid numbers in a loose bid to understand what this latest US price rise might be worth… at a minimum.
Running the numbers in the US
Spotify says its official global monthly ARPU (Average Revenue per Paying User) at the end of Q1 2023 was EUR €4.32.
That’s equivalent to USD $4.64 according to average quarterly exchange rates as per the European Central Bank.
The US is a relatively high-revenue-per-head market, so Spotify’s true subscriber ARPU in the States is bound to be significantly higher than this (with so-called ’emerging’ markets pulling down the global average).
Regardless, for the mathematical exercise we’re undertaking here, let’s use the official global ARPU number for Spotify, even while knowing the real figure in the US would have to be bigger.
If the 44.4 million US Spotify subs in February (as per the NMPA) were paying USD $4.64 per month on average (Spotify’s global subs ARPU in Q1), a 10% price rise in the aggregate would result in a $5.57 annual uplift ($0.464 X 12) in the amount paid by each Spotify sub.
If this 10% ARPU uplift (+$5.57 annually) carried across all 44.4 million Spotify subs counted by the NMPA, it would result in a $247 million yearly bump in SPOT’s revenues.
So between this (very conservative) $247 million number and the (probably too simplistic) $533 million number calculated above (44.4 million subs X $12), you’ll likely find the actual bump in yearly revenues that Spotify is about to enjoy from its latest price rise… and that’s just in the United States.
The bigger picture outside the US
The above doesn’t even take into account what’s going to happen in the 52 markets in which Spotify has just raised its prices outside the United States – an even bigger opportunity for revenue growth.
Let’s just start with Canada.
Remember that Spotify’s own numbers suggested that it had 58.8 million subscribers in the US and Canada (‘North America’) at the close of Q1?
If the conservative (global ARPU-based) average USD $5.57 annual price rise we’ve been playing with here applied to all these subs in North America?
That’s approximately USD $328 million in new money each year. And, again, that’s conservative.
Now let’s look at Europe – where Spotify today announced price rises in key territories like France, the UK, Spain, Sweden, and Norway (but interestingly, not Germany).
According to Spotify’s filings, 39% of its 210 million global subscribers at the close of Q1 were located in Europe – i.e. some 81.9 million people.
If our conservative (global ARPU-based) projected revenue rise of USD $5.57 per year, per sub applied there after today’s changes?
That’s another $456 million per year – not including money gained in territories such as the US, Canada, Asia, Latin America… or other global regions.
The bigger picture In the US
This story is also bigger than Spotify itself.
To illustrate, let’s momentarily focus back on the US… but look at what else has been happening in the past year at the market’s other biggest music streaming service – Apple Music.
According to the NMPA, Apple Music counted 32.6 million paying subscribers in the US in February 2023.
Apple Music bumped up its US subs price in October last year, across both its Family plan (from $14.99 per month to $16.99 per month) and its individual plan (from $9.99 per month to $10.99 per month).
Remember that, by assuming a 10% uplift to Spotify’s global ARPU figure in our previous calculations, we offered the (very conservative) hypothesis that SPOT could see a +$5.57 annual revenue rise for each of its US subscribers.
If the same was applied to Apple Music’s subs as of February this year (32.6m, according to the NMPA) it would result in a USD $181.5 million annual uplift in subs revenues.
And if Apple managed to raise the amount paid by all of those 32.6 million US subs by a basic $1 per month? You’d be looking at an additional $391 million.
Like with Spotify, the real figure probably lies between those two points.
The other good news
One further thing we should mention: This play-with-the-numbers analysis has relied on the NMPA’s February 2023 data and Spotify’s own data (as of the close of Q1 2023) as its basis.
But SPOT’s subscriber numbers keep on ticking up and up – even as you read this.
Indeed, David Israelite, CEO and President of the NMPA (pictured), confirmed in June – based on the NMPA’s own numbers: “When Amazon and Apple raised their subscription prices [in the US], not only did they not lose subscribers – they experienced subscriber growth.”
Today’s rise in Spotify’s pricing, then, promises to offer a major payday for the wider music industry.
In turn, the music industry will be hoping that said price increase goes hand-in-hand with a continued steady rise in the number of people – both in and outside the United States – that are subscribing to Spotify, too.Music Business Worldwide