Spotify will tread “very carefully” regarding raising prices in the US, its chief executive Daniel Ek said on Monday, even as the audio streaming pioneer cheered Wall Street with other measures to wring more money from users.
Speaking after Spotify’s first investor presentation since going public three years ago, Ek told the Financial Times that while the company is rolling out a pricier subscription option in the US this year featuring better sound quality, a broader price increase was not imminent.
In the world’s largest music market, the company’s $10-a-month subscription cost has remained fixed for years even as Spotify added millions of podcasts and songs to the platform.
“There are definitely [parts] of the US where it’s starting to become mature, but large portions of the US are just now discovering streaming,” Ek said. “That’s why we’re playing it very carefully in the US.”
The music industry has long been keen for Spotify to raise prices. Steve Cooper, chief executive of Warner Music, told the FT that music subscriptions are “underpriced”, pointing to the video streaming service Netflix, which has raised prices in the US several times, most recently in October.
“When you think about the deal the [music streaming platforms] give people for access to 50m or 60m tracks, it’s unbelievable,” said Cooper. “Ultimately, they’ve got to raise prices.”
Ek is looking to convince investors that the company he founded a decade and a half ago will eventually halt losses at its music service, where licensing deals with record labels eat up two-thirds of its revenue.
As well as the launch of the higher-definition, CD-quality premium subscription service, Spotify announced at the investor day that it would double the number of countries where its services are available and roll out dozens of new podcast shows from the likes of Barack Obama and Ava DuVernay.
Ek did not comment on how launching Spotify in 85 new territories across Africa, Asia and Latin America, such as Ghana, Sri Lanka and Pakistan, would have an impact on its average revenue per user, or Arpu, a metric that has been worrying Wall Street.
Arpu has been declining steadily as the company offered promotional discounts and expanded into countries such as India, where it charges subscribers a lower price. Arpu dropped 8 per cent in the fourth quarter from a year ago, to only €4.26.
Podcasts could offer a reprieve from its punishing business model, if the company creates a separate podcast subscription or is able to increase podcast listening enough on its main platform to muscle the music rightsholders into accepting a lower revenue share.
Spotify has done extensive research on the economics of a podcast subscription, according to people familiar with the matter. The company would probably look to charge subscribers about $3.99 a month for access to a library of podcasts, these people added.
“We keep on experimenting and looking at what consumers want,” Ek told the FT. “I don’t think [a podcast subscription] is something we would rule out into the future.”
Spotify shares climbed more than 5 per cent on Monday as investors initially cheered the product and content announcements, before falling back. The stock has more than doubled since it listed on the New York Stock Exchange in 2016, as investors bought into the company’s declarations that it would become the Netflix of audio by pouring almost $1bn into podcasting.