Spotify’s chief executive Daniel Ek said on Tuesday that the streaming service wants to raise the price of its monthly subscription plans, but said it depends on reaching agreements with major record labels.
“I think we are ready to raise prices, I think we have the ability to do that, but it really comes down to those negotiations” with major music industry stakeholders, Ek said on a conference call discussing Spotify’s first quarter earnings.
It was the first time Spotify’s CEO has expressed a desire to hike prices, and in doing so, he is trying to put major music companies in a position that forces them to take the next step.
Some of the music industry’s top executives, including Robert Kyncl at Warner Music Group, have criticized Spotify and other streaming services for not raising prices, effectively contributing to undervaluing music.
Spotify reported total revenues of 3 billion euros ($3.3 billion USD) for the first quarter this year, a 14% uplift from 2022 but slightly lower than the company expected as macroeconomic fears crimped Spotify’s advertising business by around $20 million.
Ek has been peppered with questions over when Spotify will raise prices in its largest market–the U.S.–over the past year. Ek said on Tuesday that that while raising prices is not core to Spotify’s growth strategy, it has gained confidence from price hikes instituted for certain markets and plans that higher cost subscription plans do not drive away a significant number of customers.
“We did raise prices in 46 different locations and markets last year, and even in those markets we were still out performing,” Ek said. “I feel really good about our ability to raise prices over time—that we have that ability—and we have lots of data now that backs that up. We may have been marginally helped by being a lower-cost provider, but it isn’t a primary part of our strategy and it’s not something that we’re thinking about.
“Instead, we’re working with our label partners to work … to figure out what’s the best opportunity to do that. And that’s a more complex trade. When the timing’s right we will raise it.”
Spotify reported a 22% year-over-year uptick in monthly average users, bringing that figure to a total of 515 million, beating the company’s earlier guidance on higher renewals than predicted. Premium subscribers rose by 15% to 210 million, compared to 182 million a year ago (and 205 million last quarter), thanks to growth in Spotify’s family- and duo-subscriber plans. Ad-supported users rose 26% to 317 million from 252 million a year ago (and 295 million last quarter).
“Revenue growth was slightly below our expectations due to macro-related variability in our advertising business,” the company said in a statement. “The operating loss was also better, aided by lower marketing spend. Overall, we are encouraged by the strong start to 2023.”
Here are some of the highlights:
- Spotify reported total revenue of 3 billion euros ($3.3 USD), up 14% from the year ago quarter.
- Monthly active users (MAUs) were up 22% to 515 million this quarter versus the year ago quarter, including a net addition of 26 million new users.
- Premium subscribers grew by 15% to 210 million this quarter compared to the year ago quarter.
- Gross margin of 25.2% held flat from a year ago.
- The company reported operating loss of 38 million euros ($41.9 million USD), and free cash flow of 57 million euros ($62.9 million USD).