MBW Reacts is a series of analytical articles from Music Business Worldwide written in response to recent major entertainment or news events.
As expected, Spotify today (July 24) – after 12 long years – finally announced a ten% increase in the price of its flagship individual Premium subscription in the United States, compared to US$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 his family plan, which goes from $15.99 For $16.99 per month; this is the second time SPOT has raised this particular price in the US (the first was in 2021) and brings Spotify’s family plan prices in line with those of other services such as Apple Music and YouTube Music.
The (much) bigger news today?
Spotify isn’t just raising its prices in the US – it’s also raising its subscription cost (on various plans, including individual Premium) in a huge 52 other markets, including UK, Canada, Brazil, Spain, France, Australia, Indonesia, Israel, Sweden, And Mexico.
Yet how much will Spotify’s new round of price increases be worth to the company – and the music rights holders it pays around 70% of his income?
MAPPING SPOTIFY’S REACH IN THE US
According to 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 subscriptions worldwide, of which approximately 28% resided in North America.
This means approximately 58.8 million submarines in North America – that is, the United States plus Canada.
Of course if all of the 44.4 million Spotify’s U.S. Subs Highlighted by NMPA Saw a $1 would increase per month starting today, that would translate to an increase in revenue of more than half a billion dollars per year ($533 million – It is 44.4m X $12) for Spotify.
Unfortunately for those of us who like digital simplicity… things probably aren’t enough so simple.
A significant number of those 44.4 million subscribers will be on managed plans either through lower cost bundles via telecom operators and/or promotional plans of Spotify (three months for $1, that sort of thing).
Also adding a complication to the picture: Spotify might have just raised the price of its entire suite of first-party (i.e. not bundled with telcos) Premium pricing tiers in the US – but it didn’t raise each tier by the same amount.
As mentioned, the individual Premium price in the United States has just increased +$1 per month, but Premium Duo (a discounted offer for couples) has actually increased by +$2 per month – from $12.99 to $14.99 per month.
Premium Family also increased by +$1 per month (from $15.99 to $16.99), just like Premium Student (since $4.99 per month to $5.99 per month).
It’s a complex picture.
But we can always experiment with some other strong numbers in a loose bid to figure out what that latest US price hike might be worth… at the very least.
Run the Numbers in the USA
Spotify reports that its official worldwide ARPU (average revenue per paid user) at the end of the first quarter of 2023 was €4.32.
It is equivalent to US$4.64 based on quarterly average exchange rates according to the European Central Bank.
The United States is a relatively high per capita income market. Spotify the real ARPU of subscribers in the United States should be significantly higher than this (the so-called “emerging” markets dragging the global average down).
Anyway, for the mathematical exercise we’re undertaking here, let’s use the official global ARPU number for Spotify, even knowing that the actual number in the US should be larger.
If the 44.4 million U.S. Spotify subscribers in February (per NMPA) were paying US$4.64 per month on average (global ARPU of Spotify subscribers in the first quarter), a ten% the overall price increase would lead to a $5.57 annual increase ($0.464 X 12) in the amount paid by each Spotify subscriber.
If this ten% Increased ARPU (+$5.57 per year) extended to all 44.4 million Spotify submarines counted by the NMPA, this would result in a $247 million annual increase in SPOT revenue.
So between this (very conservative) $247 million number and the (probably too simplistic) $533 million number calculated above (44.4 million under X $12), you’ll likely find the real increase in annual revenue that Spotify is about to enjoy thanks to its latest price hike… and that’s only in the US.
The bigger picture out United States
The above does not even take into account what will happen in the 52 markets in which Spotify just raised its prices out in the United States – an even greater opportunity for revenue growth.
Let’s start with Canada.
Remember that Spotify’s own numbers suggested it had 58.8 million subscribers in the WE And Canada (“North America”) at the end of the first quarter?
If the conservative average (based on global ARPU) USD $5.57 the annual price increase we have played with here applies to all these submarines in North America?
It’s approximately US$328 million in new money each year. And, again, that’s conservative.
Let’s look now Europe – where Spotify today announced price hikes in key territories like France, the UK, Spain, Sweden and Norway (but oddly enough, not Germany).
According to Spotify’s documents, 39% of his 210 million global subscribers at the end of the first quarter were located in Europe, i.e. 81.9 million people.
If our conservative forecast (based on global ARPU) increases revenue by USD $5.57 per year, per penny applied after today’s changes?
It is another $456 million per year – not including money earned in territories such as the United States, Canada, Asia, Latin America… or other parts of the world.
The bigger picture In United States
This story is also bigger than Spotify himself.
To illustrate, let’s focus momentarily on the US… but look at what else has happened over the past year on the other biggest music streaming service in the market – Apple Music.
According to the NMPA, Apple Music had 32.6 million paying subscribers in the United States in February 2023.
Apple Music increased the price of its subscriptions in the United States in October last year, both in 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 assuming a ten% increase in Spotify’s overall ARPU figure in our previous calculations, we offered the (very conservative) hypothesis that SPOT might see a +$5.57 annual increase in revenue for each of its US subscribers.
If the same applied to Apple Music subscriptions from February this year (32.6maccording to the NMPA) this would result in $181.5 million annual increase in subscriber revenue.
And if Apple managed to raise the sum paid by all from these 32.6 million US submarines by a base $1 per month? You would be watching another $391 million.
As with Spotify, the true figure is probably between these two points.
The other good news
One more thing we have to mention: this gaming analysis with the numbers used February 2023 data from the NMPA and Spotify’s own data (as of the end of the first quarter of 2023) as a basis.
But SPOT subscriber numbers continue to rise, even as you read this.
In effect, Israelite DavidNMPA CEO and President (pictured), confirmed in June – based on NMPA’s own numbers: “When Amazon and Apple increased their subscription prices (in the US), not only did they not lose subscribers, but they saw subscriber growth.”
The current increase of Spotify pricing therefore promises to deliver a significant payday for the music industry at large.
In turn, the music industry hopes that said price increase will go hand in hand with a steady and continued increase in the number of people – both in the United States and outside – who subscribe to SpotifyAlso.The music industry around the world