According to the Bloomberg report, Spotify (NYSE:SPOT) is planning to hike up the price of its paid-subscription service in several important markets for the second time within a year. This move is seen as a crucial step toward achieving long-term profitability.
The world’s largest paid streaming service will be raising prices by about $1 to $2 a month in five markets, including the U.K., Australia, and Pakistan, by the end of April 2024. The U.S., its biggest market, will see a price increase at some point later this year, although the exact timing has not been specified. Following this news, Spotify's stock surged by 13%.
Last year, the company increased the prices of its premium subscription by as much as $2 in the United States and various other countries. Spotify, which competes with streaming services like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and YouTube (NASDAQ:GOOG), owned by Google, has faced challenges in turning a profit over the years. This struggle is mainly attributed to the significant amount Spotify pays out in royalties to major music companies and other rights holders – roughly $9 billion out of $13.2 billion in revenue in 2023.
Bloomberg reported that the higher prices will assist the company in covering the costs of its audiobook service, which provides 15 hours of listening time per month for subscribers. Similar to the challenges faced in music, the company deals with royalties in the audiobook realm and only generates additional revenue from listeners who surpass the 15-hour limit.
Spotify is also set to introduce a new basic subscription tier priced at $11 per month, the same as the current premium plan. This basic tier will include music and podcasts but not audiobooks, and it will be among several newly priced subscription plans to be rolled out.
The latest earnings report, released in February, showed the platform couldn’t move in the black in 2023 despite ending the year with 602 million monthly active listeners, up 23% from the previous year and exceeding Wall Street's expectations of 601 million.
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