Spotify will increase its subscription prices for a second time in five markets this month, according to sources who have spoken to Bloomberg. Although this price increase seems to be very much linked to the streaming service's ambitions in the audiobooks space. Either way, the reports prompted an increase in Spotify's share price, its investors presumably hoping that the price rises will help the company meet its increasingly urgent need to achieve profitability.
According to Bloomberg, Spotify will increase the price of a premium subscription by $1 and a family plan by $2 in countries including the UK, Australia and Pakistan. The US won't be affected this month, but will see a similar price rise later in the year. However, users will reportedly be able to avoid the price rise by opting for a new subscription plan that excludes free access to audiobooks.
Spotify has been trying to expand beyond music for years, of course, believing it can get a better profit margin on other content types, including podcasts and audiobooks. However, in the short term, those moves have negatively impacted on profitability.
That is because the royalty pool into which 65-70% of its subscription revenues go is earmarked for the music industry, meaning it needs to generate alternative and distinct revenue streams for other content types.
For podcasts that was mainly advertising and sponsorship, while users initially had to pay extra to access audiobooks, on a book-by-book basis. With those revenue streams slow to take off, Spotify had to cover the cost of its expensive deals and acquisitions in the podcasting and audiobooks domain from its 30-35% share of subscription revenue, or other financing.
Last year Spotify started offering premium subscribers in some markets up to for fifteen hours of audiobook listening a month at no extra cost.
Given it still needs to pay royalties to the audiobook publishers, Spotify will have had to cover the costs of that offer from its share of subscription money. But, if subscribers start paying an additional pound per month specifically for audiobook access, could that revenue be specifically used for paying audiobook publishers?
Many in the music industry had been calling on Spotify to increase its baseline 9.99 subscription price for years prior to the uplift to 10.99 that was instigated last year, so that more money could flow into the core royalty pool that is shared with music companies. Given that initial price rise didn't prompt a significant number of subscribers to unsubscribe, it's generally hoped that there will now be semi-regular price increases to at least keep in line with inflation.
However, if Spotify is also keen to offer a greater range of subscription packages, including some that are specifically connected to and can therefore fund non-music content, that could complicate things. Though it is known that Spotify is also hoping to placate its partners in the music industry by working with them on super-fan products that could generate extra income connected to specific artists and music content.
Spotify should start announcing details of its new pricing and subscription packages later this month. We’ll see if subscribers are keen to pay extra for audiobook access. At least by making audiobooks separate to a basic subscription, if that all goes horribly wrong, it will be easier for Spotify to cut the audiobooks out entirely.