Monday, August 19, 2019

Spotify To Test Hiking Family Plan

Spotify is planning to test a price increase for family plan subscribers in Scandinavia to see whether it can raise prices in the region and around the world, according to a Thursday report from Bloomberg. The family plan in Sweden currently costs about $15.45 per month, similar to the pricing in the United States and the rest of Europe. The new pricing will be about a 13% increase.

According to USAToday, the company is looking to maximize its revenue in markets where it's already a dominant force in music while expanding at lower prices into emerging markets in Asia and the rest of the world. It makes sense for the Swedish company to see if it can successfully raise prices in Scandinavia before testing other markets.

Spotify has experienced a significant decline in its average revenue per user over the last few years. The erosion coincides with its revamped family plan pricing from 2016, which made it significantly less expensive for bigger families to all get premium access. For example, a family of five could cut their Spotify bill in half with the new pricing.

While Spotify has expanded into new markets with lower average prices than in its most popular markets – Europe and North America – family plan pricing is still the biggest factor impacting the company's average revenue per user. "Approximately 75% of the impact to ARPU is attributable to product mix changes," management wrote in the company's second-quarter letter to shareholders.

Some music publishers have complained about Spotify's declining ARPU, since a large part of their contracts include revenue-sharing agreements with the music streamer. The company is currently engaged in a round of contract renewals with the major labels, having inked deals with two of the four companies as of its second-quarter earnings release at the end of July. Stabilizing, or even increasing, ARPU will give Spotify additional leverage in the next round of negotiations, which will likely be in two years, if history is anything to go by.

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