Spotify CEO says company will ‘further expand price increases’

Spotify is planning further price increases, according to comments made by co-founder and CEO Daniel Ek during the company's third quarter earnings on Thursday. The streaming service had added 6 million subscribers in Q3 to achieve a total 144 million paying customers across 320 million active users, but fell short on both sales and earnings, driving the stock lower.

By raising prices for its service, Spotify could pull in higher revenues in markets where the company believes users will continue to see the value in paying for their streaming subscription.

The company didn't specifically detail its plans for price increases in terms of dollars and cents or geographies. However, Ek explained how the company was thinking about possible price hikes in broader terms.

He said although Spotify's primary focus continues to be user growth, there are markets where the service is more mature and has increased the value it provides subscribers, including with its enhanced content."

What he means by enhanced content" are Spotify's investments in growing its content library, specifically podcasts. Today, the service has 1.9 million podcasts. This quarter, it released 58 original and exclusive podcast shows, bringing this offering to a total of 16 markets.

Among the highlights, The Michelle Obama Podcast" sent the new show to No. 1 on the platform for its July launch through August. Spotify's partnership with DC Comics is kicking off with the Batman Unburied" podcast. It's also working with Riot Games League of Legends on an esports partnership and with Chernin Entertainment to turn its podcasts into film and TV.

However, Spotify's The Joe Rogan Experience" deal has been more controversial. It could potentially cause moderation headaches for the company now that it's been brought in-house, and could lead to some portion of users to unsubscribe as a political stance.

This month, Spotify also rolled out new tools for Anchor users that let them include licensed music in their podcasts to help create a new type of music-and-spoken word programming.

Combined, Spotify sees these efforts as reasons why its service could be priced higher in some markets.

In its mature markets, Spotify says it's seen engagement and value per hour grow over the years.

I believe an increase in value per hour is the most reliable signal we have in determining when we are able to use price as a lever to grow our business," noted Ek.

He also said that early tests of price increases have performed well.

While it's still early, initial results indicate that in markets where we've tested increased prices, our users believe that Spotify remains an exceptional value and they have shown a willingness to pay more for our service," said Ek, in his remarks. So as a result, you will see us further expand price increases, especially in places where we're well-positioned against the competition and our value per hour is high," he added.

Spotify has been openly hinting about price increases all year.

In the first quarter, Ek had slightly opened the door to the idea, saying it was encouraging" to see the company had the opportunity to raise prices when the economy improved. In Q2, Ek again suggested higher prices were coming, and added that Spotify's exclusive podcast content enables pricing power," along with its overall improving service and the existence of higher ARPU (average revenue per user.)

Today, Ek's statement suggests higher prices aren't just being weighed or discussed - they're coming.

To date, Spotify has tested price hikes at its upper tiers of its service in several markets.

Last year, for example, Spotify tested price increases for its Family Plan in some Scandinavian markets, upping the cost by around 13%. The goal of those tests was to figure out if it would make sense for the streamer to roll out higher pricing on a worldwide basis.

Just this month, reports indicated Spotify had increased the price of its Family Plan in Australia from AUS $17.99 to AUS $18.99 - or, approximately US $13.69. This change was effective October 1 for new subscribers.

Today, Spotify notes it also raised the price of the Family Plan in a half dozen other markets this month, including Belgium, Switzerland, Bolivia, Peru, Ecuador, and Colombia, alongside its Duo Plan (2-person plan) in Colombia.

There was one caveat to Spotify's plans for higher pricing, however: the pandemic. Ek said the company would continue to tread carefully in these COVID times to ensure we don't get ahead of the market."

In other words, it doesn't make sense to raise prices in a recession, where people have lost jobs and are cutting unnecessary expenses - like their streaming subscriptions.