Spotify Planning Music-Only Tier, More Short Videos

From May 1, pricing for Spotify's Premium subscriptions will go up from $12.99 a month to $13.99 in Australia. But a cheaper music-only tier is coming, along with more short-length videos, as Spotify aims to replace TikTok as the place to discover new music and other content.

CEO Daniel Ek wants the company to be more “flexible” in the subscription deals it offers. Aside from just music, a music and podcast tier is a possibility. Spotify’s library now contains 100 million music tracks and 100 million podcast titles.

“We want to offer as much flexibility as possible in this next stage of Spotify... because we are at the size where we want to appeal to an even larger base of consumers, to turn to one of our subscription offerings,” Ek said. “So that obviously means that you’ll see things like, for instance, the audiobook-only tier… you should expect to see a music-only tier as well.”

Ek was talking to financial analysts and media in an earnings report call on the back of the release last week of Spotify’s first-quarter 2024.

Revenues Up

Revenue from Premium subscribers was up by 21 percent to €3.247 billion ($5.38 billion AUD) and Spotify saw a seven percent growth of each user’s revenue, up to €4.55 ($7.55). Spotify claimed the highest profit ever for a quarter, with €1.004 billion ($1.66 billion), and the first quarter to see a gross margin over $1.53 billion.

It now has 239 million paying subscribers, up 14 percent from the same period in 2023, and three million since December 2023. The total amount of monthly active users has reached 615 million, a growth of 19 percent compared to the first quarter of 2023.

Europe remains its biggest subscriber market at 38 percent, with North America at 27 percent and Latin America at 22 percent. There were no break-out figures for Australia, but data from 2023 had local users at 12.5 million and paying subscribers at 9 million.

Operating income of €168 million ($279 million) was hailed as “a new quarterly high”. This was due in part to slashing its workforce in the last two years. The last axe-wielding in December saw the exit of 1500 staffers or 17 percent of its workforce. It also cut back on its market spend but is reviving that.

Ek was at pains to point out that for Spotify’s next stage, the priority is not to increase the number of music listeners but to increase the number of consumers of other types of content. Spotify, he said, “isn’t just a sort of one-trick pony anymore, but it is actually multiple verticals working together to provide a consistent, great story around more and more choice for consumers, [which] drives more and more engagement.

Ek added: “You may come for the music and stay for the audiobooks, and some consumers may come for the podcasts and stay for the audiobooks.”

The plan was for “more ways for people to interact with it” and for more new products and experiences to offset higher prices. The music-only and music-and-podcast tiers are just two initiatives moving forward.

Short Video & Music Videos

Ek stated, “We are focused on winning discovery and we're going to add as many ways that we can to improve the discovery of Spotify.”

Taking on TikTok is perfect timing with the US threatening a nationwide ban unless it’s sold to an “approved” buyer, and with debate over whether other countries like Australia could follow suit. Ek declined to talk about TikTok’s woes. But he told analysts that after introducing the short-video feature Clips 12 months ago, “Short-form music content is a big focus of ours.” More videos were added in Q1 2024, and that will continue throughout 2024.

“You're going to see music clips in a bigger way,” the CEO said. “You can already today, if you open up the apps, start seeing more and more videos on the music side where artists are engaging with fans. Those in a similar way, like a Reels product that TikTok did a few years ago.

“You’re also going to see music clips show up in a bigger way where artists are using ways of short-form storytelling on video, to tell a story around their album or tell fans about a new album drop that they should be pre-saving. You’re going to see more video on the music side make its way into the product in 2024.”

In March, Spotify introduced music videos in beta in mobile and desktop apps in eleven countries – the UK, Germany, Italy, the Netherlands, Poland, Sweden, Brazil, Colombia, Philippines, Indonesia and Kenya. But plans are “to expand the catalogue of music videos and bring the feature to more users and countries”, which could see it added in Australia. The eleven markets were chosen “based on a number of criteria including market size and the availability of local content support.”

Two trends for music lovers were identified. One was more A1 products. “In addition to that, I believe you're going to see an even more global music ecosystem than any time before in history. So we're excited about all these sort of core trends in music.”

Audiobooks

The audiobook tier Ek mentioned (officially called Audiobooks Access) began tested in America in March. For $9.99 USD per month, listeners get 15 hours of content from 200,000 audiobooks. Prices range from a basic $7.95 with less audiobooks to a $14.95 deluxe offering unlimited listening and a credit to keep a book.

Spotify noticed a 45 percent daily rise in interest in audiobooks from free users, and one-quarter of paid users in Australia, the US and the UK started an audiobook as part of their subs. These indicated interest from younger listeners; 57 percent of those users were aged 18 to 34.

HiFi & US Backlash

Things have been quiet since Spotify HiFi was announced three years ago in a hail of publicity. It’s still in the inbox. But leaks on Reddit suggest it might arrive with a new name as the ‘Music Pro’ feature, and include “advanced mixing”.

The company’s new pricing and format initiatives has created a backlash in the United States, where it is planning to bundle music, podcasts and audiobooks. As with other streaming services, bundling allows it to claim a mechanical royalty rate discount.

The National Music Publishers’ Association (NMPA) called it “attacking the very songwriters who make its business possible” and claimed it was “a cynical and potentially unlawful move”. Nashville Songwriters Association International (NSAI) urged members to cancel their Spotify subscriptions.

Ek summed up Spotify’s direction: “Two years ago we really concentrated on our user growth. Then last year we restructured our costs and now we’re focused on accelerating revenue while improving our bottom line. Next year, our focus may return to top-of-the-funnel user growth, but in the near-term, monetisation remains our top priority.”