Spotify price increases: Will they trickle down to artists?

Spotify hiking its prices in twelve different markets should translate to more money in the pot all around, but some questions are being raised as to whether much of these additional funds will make it down into the pockets of artists hovering below superstar status.

Guest post by Bobby Owsinski of Music 3.0

The Spotify price increase recently announced affected 12 markets, including the United States, which many see as the first step to overall increases over time. In most cases the increases were limited to bundled subscription plans, like in the case of the United States (Family Plan), and the United Kingdom (Student, Family, and Duo Plans). That said, in Brazil the price increases also included individual subscriptions, something that the company would like to do world-wide.

Any Spotify price increase means that there’s more money in the pot for artists and songwriters (and labels and publishers, of course) so that’s welcomed by the music industry. The fear is that most of the new revenue will end up going to the 0.1% of the business, the superstars, that seem to be reaping most of the rewards now.

But it might be too soon to jump to conclusions about a larger revenue pool as it seems that one of the reasons for the increase is to offset a decreasing ARPU (Average Revenue Per User). To put it into perspective, if the number of subscribers would stay the same, Spotify would actually be making less money today than last year because the ARPU is falling. It’s now currently at around $4.97 per subscriber, which is a long way from the standard $9.99 that most subscribers pay.

Spotify’s paid subscribers numbers now total over 155 million with over 345 active monthly users, up by about 25% over last year.

So why is the revenue per user falling? Many blame it on the fact that Family Plans are frequently shared between groups of friends or individuals, but a small increase (from $14.99 to $15.99 per month in the U.S.) likely won’t overcome that.

Keep in mind that despite the large increase in new subscribers, the company still lost around $175 million last year. It’s fashionable for artists to demand a higher royalty payout from the service, but it’s clear that would put it out of business. For most artists and songwriters, the fact of the matter is that they have a middleman in the picture (the label and publisher) who are probably making a lot more than the artist is from the Spotify royalties received, which is the major problem.

So why doesn’t Spotify raise prices across the board? Considering that Neflix has raised its prices by 63% over time, you’d think the company would be better off. Some of the pricing is due to the licensing agreements with the major labels that are in place, which many feel will change soon. Some of it is market pressure from competitors like Amazon Music and Apple Music, services with big pockets that don’t need to turn a profit.

My prediction is that this current price increase was to gauge the market reaction. If it goes well with little pushback, we’ll see more across the board soon.