Spotify (NYSE: $SPOT) revolutionized music streaming since its 2008 launch, offering a platform with millions of songs and content from global creators, expanding into audiobooks in 2022. The Spotify app is free with basic features or as a premium paid version with enhanced access. Boasting over 600 million users worldwide, including over 230 million paid subscribers across 184 markets, Spotify has transformed the online podcast experience.
In a move aimed at boosting revenue streams, Spotify Technology SA is set to raise subscription prices and introduce a new basic tier in several markets, according to a recent report from Bloomberg News. The Swedish music streaming giant also announced its foray into the video learning course market, offering a diverse range of courses in the United Kingdom.
Price Hikes and a New Basic Tier
The Bloomberg report revealed that Spotify intends to increase prices on its plans by approximately $1 to $2 a month in five markets, including the UK, Australia, and Pakistan, by the end of April and the company’s shares saw a surge of over 5% in early trading following the news.
While the price hikes will initially be limited to these markets, Spotify plans to extend the increases to the United States, its largest territory, later this year. The report also mentioned that the company will introduce a new basic tier, offering music and podcasts but excluding audiobooks, for the current $11 monthly price of an individual premium plan. According to the report, this new basic tier is the first of several new pricing options Spotify plans to introduce, though the company declined to comment on the matter when contacted.
Spotify’s CEO, Daniel Ek, had previously hinted at the possibility of price increases, stating in February that the company has “plenty of levers to pull, including price increases,” and acknowledging that investments in podcasts were a drag on the business in 2023. The company offers premium plans at various price points in the U.S., including $10.99 for an individual, $14.99 for a duo, and $16.99 for a family plan, according to the company’s website.
Expansion into Video Learning Courses
In a bold move to diversify its offerings beyond music streaming, Spotify has launched learning courses on its platform on a trial basis in the UK. The courses are modeled after those offered on MasterClass and video-learning platforms like EdEx, LinkedIn Learning, and Udemy.
Among the notable offerings are a course on starting and scaling a “multi-million-pound business” led by Diary of a CEO host Steven Bartlett and a 29-lesson course on songwriting hosted by Take That singer Gary Barlow, starting at £48.90 ($61.81) each.
The list of courses extends to a wide range of topics, including music lessons on piano and acoustic guitar, priced at £92.90 ($117.44), as well as more quirky offerings like a £35 ($44) class on dog body language and a £71.90 ($90.85) course on teaching your dog to look for antlers during shed season, lasting just 30 minutes.
The courses operate on a “freemium” model, with the first few classes offered for free before users are prompted to pay to access the remaining content.
Spotify’s move into video courses is the latest sign of the company’s efforts to diversify its revenue streams beyond its low-margin music streaming business, where the platform pays substantial sums to record labels for music licensing.
Addressing Challenges and Future Outlook
Due to Apple’s commission fees, Spotify has faced challenges marketing these paid add-on features on its app, resulting in a years-long regulatory battle. To avoid paying Apple a 30% commission on in-app purchases, Spotify has previously avoided giving users the option to pay for subscriptions and make in-app purchases on its iOS app, instead redirecting customers to a web browser.
However, this is expected to change in the European Union following the Digital Markets Act (DMA) launch, where Spotify sets to reconfigure its app to more easily market add-on features to users. Daniel Ek stated that there is a “significant upside” thanks to an enhanced ability to sell its features directly to customers through the app.
As Spotify continues to explore new revenue streams and expand its offerings, the company’s financial results for the first quarter of 2024 will be closely watched. Spotify plans to announce its Q1 2024 financial results and deck to shareholders on Tuesday, April 23, 2024, before market open.
Spotify Stock Performance
As of 03:52 PM EDT on Wednesday, April 3, SPOT stock price was $293, up 8% compared to the previous close. This significant positive movement in Spotify’s stock price was driven by the Bloomberg report indicating that the company plans to raise subscription prices and introduce new revenue streams.
Should You Consider Buying Spotify Now?
Spotify’s plans to raise subscription prices, introduce a new basic tier, and venture into video learning courses present an intriguing opportunity for investors. The price hikes could boost revenue streams, while the new basic tier and diversification into educational content offer the potential for attracting new customers and monetizing existing ones.
However, challenges remain, such as the ongoing battle with Apple over app commissions and the need to carefully execute these strategic moves. Investors should weigh Spotify’s ability to navigate these challenges while capitalizing on new revenue sources. With a strong user base and innovative mindset, Spotify could be an attractive investment, but thorough due diligence is recommended before making any decisions.
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