In its entire decade of existence, Spotify has struggled to balance the two tenets of its business — high licensing payouts to artists and labels and a wonderfully cheap monthly fee for users — resulting in a balance sheet that prompts worried squints from investors and music industry analysts. But the math on both sides may be changing soon.
On the outgoing side of things, the Swedish music-streaming service is yet again in the midst of renegotiating licensing deals with its major-label partners, which could result in more favorable financial structures for the company as it now has more leverage in the market than ever before; on the incoming side, Bloomberg reports that Spotify is gearing up to test price hikes to its subscriptions in certain countries — suggesting that more expensive streaming plans in general may be on the horizon. People familiar with the matter told Bloomberg that Spotify will raise the price of its family plan in Scandinavian countries by 13 percent, from $15 to around $17, as a test to see whether it could eventually raise prices around the world.
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The countries of Sweden, Denmark, and Norway are a natural fit for Spotify’s experiment, as they serve as Spotify’s home base and have been a testing ground for a previous pricing trial several years ago. (Executives referred to the hike, in Norway, as an “individual market price elasticity” test that should not be taken as a signal of broader strategy.) Spotify has not given an official comment or provided details such as the number of users who will be affected or duration of the test.
But the hike test will be happy news to the music business. Of Spotify’s 232 million users, 108 million of them are paying subscribers, the company said in its second-quarter earnings report last month — but its average revenue per user (ARPU) has dipped down to about $5.40, thanks to trial period offerings, discount subscription plans such as student plans and bundles with telecommunications companies like AT&T, and the low monthly fee for Spotify’s recently launched service in India that comes out to the equivalent of $1.67 a month. The company promised in that report that the “downward pressure” on its ARPU will “moderate” throughout the year; though pricier monthly subscription fees have not been confirmed or officially enacted, they would certainly help bolster those figures in the long-term future.
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