Streaming’s surprise growth in Sweden suggests that, for Spotify, the time for price rises is now

Why didn’t Spotify raise its $9.99 / €9.99 / £9.99-per-month Premium prices in more major markets before the average person faced an economic tornado from spiraling inflation, energy prices, and interest rates?

It’s a question I was surprised not to see put to Spotify boss Daniel Ek more forcefully by gross-profit-fixated analysts on Spotify’s Q1 earnings call last month.

Before we dig into why it might have been a wise question to ask, let’s blow away a myth: Spotify has actually increased prices in multiple markets over the past year – but only on certain types of subscriber plans.

In April 2021, Spotify inched up the monthly price of three Premium subscription plans – Duo, Family, and Student – across 11 markets, including the UK and multiple European territories.

In addition, SPOT made a solitary price increase in the US – moving up its Family plan from USD $14.99 to $15.99 per month (see below).

Thus, it made pricing changes in 12 markets during this period in total.

But that’s not all.

In April last year, announcing SPOT’s Q1 2021 results, Daniel Ek confirmed something very interesting: He said that Spotify had already implemented a variety of price increases in “more than 30 markets [in the] previous two quarters” (a statement MBW believes was made in reference to Q4 2020 and Q1 2021).

These 30-plus market price rises were in addition to the round of US/UK/EU price rises, across 12 markets, that Spotify executed in April 2021.

The statistical takeaway, there: Spotify increased at least one plan price in more than 42 markets in the 12 months between end of Q2 2020, and end of Q2 2021.

Yet if you glanced at the standard Spotify individual Premium tariff today in three key territories – US, the UK, and Germany – you’d get a very different impression.

In each of these markets, you’ll see the same number Spotify has been charging since its launch: $9.99 / €9.99 / $9.99 per month (see below).

This fact fuels ongoing debates regarding the continual erosion of ‘real’ revenue being generated by Spotify (and consequently paid out to the music biz) when inflation is factored in.

Here’s a prime example of Spotify’s inflationary ‘real term’ revenue reduction in action:

In the UK last year (2021), Spotify’s GBP £9.99 individual Premium monthly fee was – according to the Bank Of England – worth the equivalent of £7.60 in the same money when Spotify launched in Britain, back in 2008.

That decline (£9.99 to £7.60) was caused by 2.1% average annual inflation during this period, says the BoE.

Current UK inflation, of course, is running much higher than that: According to the Consumer Price Index, UK inflation rose by 7.0% in the 12 months to end of March 2022.

And in the US, over the same 12-month period, the CPI says inflation increased by 8.5%.

As a result, Spotify’s $9.99 / €9.99 / £9.99 price point is rapidly becoming worth less in ‘real’ value terms than it ever has before.

The big question

This all begs an inevitable query: Should Spotify have been bolder in its price rises to date in various crucial markets (such as the US, UK, and Germany)?

In particular, should SPOT have upped the $9.99 / €9.99 / £9.99 monthly individual Premium subscription price point it’s been clinging to since 2008?

The evidence suggests yes, it quite possibly should have.

Paul Vogel, Spotify’s CFO, discussed the impact of Spotify’s price rises in 30-plus markets (at the time) on SPOT’s Q1 2021 earnings call in April last year.

Vogel commented: “[We] feel good about what we have accomplished so far in terms of price increases.

“When you look at gross additions and churn, we’ve seen very minimal impact on either one of those metrics.”

In other words, Spotify didn’t see much in the way of existing user subscription cancellations – or a slowdown in new subscriber uptake – after raising its prices in all those territories.

“When you look at gross additions and churn, we’ve seen very minimal impact on either one of those metrics.”

Spotify CFO Paul Vogel, speaking in April 2021, on the impact of prise rises in 30-plus territories

Yet getting clarity on exactly which prices Spotify has raised in which markets – especially when it comes to individual Premium subscriptions – isn’t easy.

Perhaps through fear of alerting its competitors to its strategy, Spotify has not exactly been forthcoming – for media or for its investors – in listing out precisely how it’s altered prices in most of those 42-plus markets.

With that in mind, this is hopefully interesting: According to research undertaken by MBW, in Q1 2021, Spotify upped all of its prices – including its standard Premium tariff – in some very important markets.

One of those markets was Sweden.

MBW has seen (and number-crunched) the results, and they deserve to be carefully chewed over by the global music biz.

The Swedish success story, and the slowing down of it…

First, some context.

The recorded music market in Sweden (the home of Spotify, of course) was one of the world’s first truly mature streaming territories.

By 2014, for example – just three years after Spotify launched in the United States – streaming was already claiming over 79% of the total music market in Sweden.

Spotify, just as it is today, was by far the biggest streamer in the market.

At this point, as consumers continued to make the transition from downloads to streaming, Sweden’s recorded music market was romping upwards:

• In 2015, the market’s streaming revenues grew 10.6%;
• In 2014, they grew 10.8%;
• In 2013, they were up 30.3%
• And in 2012, they were up 55.4%.

Yet in the years that followed 2015, with a critical mass of Sweden’s population already subscribing to Spotify et al, this growth started plateauing.

Plateauing, that is, until 2021 – when Sweden’s recorded music industry saw its first double-digit streaming growth for six years (+12%, see below).

Can you guess what changed?

The dramatic impact of Spotify’s price hike

First things first: MBW has used the, ahem, scientific method of deploying internet archive platform The Wayback Machine to monitor Spotify’s prices in Sweden over the past 12-18 months.

As a result, we’ve been able to determine what Spotify was charging for its subscription plans in Sweden in January 2021, and what it was charging for those same plans in March 2021.

Between these two dates, we’ve learned, Spotify executed a comprehensive, across-the-board price rise in Sweden.

Below, you can see the difference: by the end of Q1 2021, SPOT’s Duo, Family and Student plans were all raised by between 10 and 20 SEK (around USD $1 – $2) each month in Sweden.

Crucially, Spotify also raised that monthly individual Premium price too: up by 10% per month, from 99 SEK (around $9.99) to 109 SEK (around $10.99).

The market impact

So what impact did Spotify’s price rise gamble have on its business in Sweden during 2021?

Seemingly, nothing but positive.

Remember that Spotify CFO, Paul Vogel, addressing investors in April 2021, said of Spotify’s recent price increases: “When you look at gross additions and churn, we’ve seen very minimal impact on either one of those metrics.”

Now, we have pretty solid evidence of how this played out in Sweden.

According to IFPI Sverige, Sweden’s recorded music industry posted 1.780 billion SEK (around $180m) in annual revenues in 2021, up by 169.7 million SEK (around $17m) YoY.

The vast majority of that money came from subscription streaming… of which the vast majority came from Spotify.

Sweden’s subscription streaming revenues in 2021 hit 1.467 billion SEK (around $148 million). This figure was up by 131.7 million SEK (around $13m) YoY.

In turn, that 131.7 million SEK YoY climb in 2021 was more than triple the size of the equivalent YoY subscription streaming revenue growth seen in 2020 (+42.6m SEK), according to a comparison of IFPI Sverige’s published yearly numbers.

“The increase in revenue from subscription-based streaming services [in Sweden] can largely be explained by the price increase on streaming that was made in 2021.”

Ludvig Werner

Ludvig Werner, CEO of IFPI Sverige (Sweden), has no doubt what fueled Sweden’s extraordinary jump in growth in 2021.

“The increase in revenue from subscription-based streaming services [in Sweden] can largely be explained by the price increase on streaming that was made in 2021,” he says.

“It is positive that the market has accepted this price increase, which also shows how important and obvious it is today to have access to a streaming service for music.”

(Ad-funded revenue also rocketed up in Sweden last year by double digits – see table below – but there is an anomaly in this data: ad revenue from TikTok income was included by the IFPI for the first time.)

Not just a Swedish phenomenon

Another major music market in which Spotify raised prices in early 2021 was Brazil – which, according to IFPI, was the world’s 11th biggest territory that year.

Again, MBW has turned to the trusty Wayback Machine to work out precisely what went on in the territory.

Here’s what we know: On April 24, 2021, an individual Spotify Premium plan in Brazil would have cost you BRL 16.90 per month (equivalent to around USD $3.40).

But by June 11 2021, thanks to a price rise in the interim, that same Spotify Premium plan would have set you back BRL 19.90 per month (around USD $4.00).

That’s a near-18% increase between these dates.

Every other type of Spotify Premium plan – Duo, Family, Student – also saw its price pushed up during this period.

What happened to Brazil’s streaming market in the wake of these price rises? You can already guess.

The market – where Spotify is market leader with an estimated 60% share of music streaming subscribers – exploded.

According to local recorded music trade body, Pro-Música Brasil, the Brazilian market’s annual subscription streaming revenue shot up by 28% YoY in 2021, to BRL 1.084 billion (around $219m).

Overall streaming revenue (included ad-funded and video) was up by 39%.

And talk about a ‘mature’ streaming market: In terms of sales and streaming only (i.e. not counting performance royalties or sync, but counting CD, vinyl, download etc.) streaming formats generated 99% (!!!) of Brazil’s recorded music revenues in 2021.

As you can see below, Brazil’s subscription streaming revenues were up by a significant margin more in 2021 (+BRL 236m) than they were in 2020 (+ BRL 187m).

It’s also worth looking momentarily at Norway, where Spotify as an “experiment” raised pricing back in July 2018, up from 99 NOK per month to 109 NOK (with other rises for Student and Family plans too).

Those prices have never come back down.

According to the IFPI’s latest Global Music Report, in 2021 – three years on from that price rise – Norway’s subscription streaming revenues jumped up by double digits versus the prior year (+10.7%).

This is surely a good sign for the longer-term impact of these price rises, particularly when it comes to attracting new subscribers to Spotify’s paid-for tiers as the years tick by.

Daniel Ek’s big decision

So what now for Spotify’s streaming price rise strategy?

Will Daniel Ek finally move up that long-lasting $9.99 / €9.99 / £9.99 monthly paradigm in the world’s largest streaming markets?

Should he have done it earlier, when the populations of those markets were arguably far less price sensitive than they are as inflation swirls around all of our heads?

How much extra revenue did Spotify sacrifice – or, indeed, salvage – by not increasing those 9.99 price points in the comparatively heady economic days of 2018 or 2019?

“You should expect that we will continue to leverage [price] increases as we evaluate market conditions.”

Daniel Ek, speaking in April 2021

In April last year, confirming Spotify’s price rises in 12 new markets – and the fact his firm had already raised prices in 30-plus markets – Daniel Ek was in celebratory mood about the lack of churn / subscriber slowdown these moves had resulted in.

“The positive data we continue to see in terms of the value users see in Spotify underscores the significant opportunity here,” Ek memorably told his company’s investors. “And you should expect that we will continue to leverage [price] increases as we evaluate market conditions.”

Spotify is still evaluating those market conditions.

Yet thanks to multiple macro-economic threats, they look a darn sight more fragile today than they did when these words left Ek’s mouth, just 13 months ago.Music Business Worldwide