Spotify is testing a new dollar ‘subscription’

At a time when artists are pushing for better payment terms for streams and these calls in the UK are backed by a multi-party parliamentary inquiry into the digital economy, it doesn’t immediately seem like the right time is for Spotify to launch. a “subscription” for $ 0.99.

This, however, is a subscription with a difference, blurring the lines between Spotify’s premium tier (s) and its ad-supported tier. Dubbed Spotify Plus, it could charge users $ 0.99 per month and give them more features than those in its free tier normally have – including the ability to play exactly what they want (rather than allowing them to play. access via shuffle mode) and have unlimited jumps on the tracks. However, they will still have ads running every few tracks as they would with the normal free tier.

Spotify points out that Spotify Plus is a select test of the offering with a “limited number of users” and that’s something it does on a regular basis – pitch ideas to a small audience, monitor reactions, model impact economic, then decide to refine it further. test it out, toss it to everyone with great fanfare, or quietly put it on the back burner. It also states that $ 0.99 is only one of the tested prices.

Why is Spotify doing something so daring at a time when artists’ stigma against it has arguably never been higher? There are a lot of dynamics to consider here.

Spotify not only needs to increase its subscriber base and market share; he also wants to remove more people from his free offer and encourage them to take out some form of subscription. The standard price is $ 9.99 per month for a single subscription, but there are variations including student discounts and family plans that allow up to six users to share a subscription cost. There is also a package for couples who live together. You can even integrate Spotify into a special Headspace meditation app subscription.

The underlying problem is that Spotify’s bifurcated business model – combining subscription and advertising – is complex to balance. On a recent earnings conference call, co-founder and CEO Daniel Ek said of the company’s advertising arm: “Certainly this is an area where I didn’t spend a lot of time before, but it becomes impossible to ignore. ”He pointed out that the company is now focusing on this advertising branch.

The problem, of course, is that many consumers are happy to use the free tier even though it has reading limitations. These users may never go through the conversion funnel and become subscribers at $ 9.99 per month (the core philosophy Spotify has built around since its launch). But could they pay at least Something a month to give them a little more user functionality? This is clearly what Spotify Plus is trying to figure out: What exactly is this switch price for long-term free tier users who will never pay full price for a full subscription?

The existential conundrum for the music industry is that, decades after streaming, the base price does not go up. It doesn’t change with inflation: it doesn’t change at all.

In fact, it decreases in terms of ARPU (Average Revenue Per User) when multi-user subscription packages are offered. Six full subscriptions would mean just under $ 60 per month generated, but six users on a family subscription would mean only $ 15.99 per month generated.

In February of this year, Spotify announced that it was rolling out its upgraded HiFi audio level, but it was not clear if that could cost more than a standard subscription. The hope was that it would.

Then Apple Music responded by adding lossless playback at no additional cost. Just like amazon

. All of this could force Spotify’s hand to treat this as a free advertisement rather than a premium upsell.

It now feels like an all-out arms race when it comes to pricing here. Services need to add new features but try (at best) to increase the price of the base subscription in case a competitor takes advantage by reducing them. The UK tabloid market was seized by this in the 1990s and early 2000s and any victory here seemed like Pyrrhic.

Then there’s the controversial Discovery Mode tool that was launched last November “where artists and labels can select songs to promote in recommendation algorithms for Spotify’s radio and autoplay features, in exchange for ‘a lower royalty rate’. The US Congress is now paying close attention to its repercussions which could “ultimately lead to a further decline in the wages of working artists and, ultimately, potentially less choice for consumers.”

Organizations that take a beating to drive their competitors out of the market is one thing: it is, after all, their own profits that are being reduced. But in the world of streaming, if this starts to hit artists’ pockets directly, it’s a whole different matter – both economically and ethically.

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