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The Street
The Street
Patricia Battle

Spotify is planning a major change, and users may not be happy

Spotify  (SPOT) is gearing up to make a major change to its subscription plans. The audio streaming service is planning to raise its subscription prices in multiple markets including the U.S. this year as well as adding a new subscription tier, according to a new report from Bloomberg.

By the end of April, Spotify is reportedly looking to raise its individual subscription plans by $1 monthly and its Premium Family and Premium Duo plans by $2 in the U.K., Australia and Pakistan. In the U.S., the prices will allegedly increase “later this year,” according to Bloomberg.

Related: Spotify's new plan is sure to make less-popular artists very angry

Spotify will also reportedly launch a new basic tier where users can stream music and podcasts, but it will exclude audiobooks. It will also be priced at $11 a month. If users want to stream audiobooks, they will have to shell out extra cash.

The last time Spotify hiked its subscription prices was last year when it increased its Premium subscription plan from $9.99 to $10.99 a month. Its Premium Family plan also rose from $15.99 to $16.99 a month. Premium Duo increased from $12.99 to $14.99, and Premium Student went up from $4.99 to $5.99 per month. The price hikes last year were significant because at the time, the last time it issued a price increase was about 12 years ago.

Spotify recently warned its investors that price increases were on the horizon for 2024. During an earnings call in February, Spotify CEO Daniel Ek claimed that the company’s “hurdle rate for investment has increased,” and that as a result, it may make a few changes.

“We have various levers to pull at different times to drive revenue growth,” said Ek. “These include growing our users, creating new businesses with new revenue streams, and increasing revenue per user through price increases.

David Kaefer, VP, Business Affairs, Spotify, at The Future of Audiobooks Event with Spotify 2023 on October 03, 2023 in New York City. 

Bryan Bedder/Getty Images

Spotify has been heavily investing in expanding its hand in the audiobook business over the past year. In November, it added 200,000 audiobook titles to its platform in the U.S., which was made available to its premium subscribers who have 15 hours of audiobook access monthly.

During the fourth quarter of 2023, its gross margin, which is the amount of revenue a company has after direct costs, was 26.7%, a small increase from the 26.4% it reported during the third quarter. Spotify said in the earnings report that the growth was partially offset by audiobooks start-up costs. Its gross margin during that time period was 26.7%.

“In Q4, we became the No. 2 provider of audiobooks behind Audible, which is notable given how entrenched the legacy players are,” said Ek during the earnings call in February.

Spotify’s heavy investment in audiobooks came right before it laid off 1,500 employees in December, which is a 17% deduction of its workforce. Ek in a note to employees claimed that the move was due to higher costs.

“Despite our efforts to reduce costs this past year, our cost structure for where we need to be is still too big,” said Ek in a memo to employees.

Related: Veteran fund manager picks favorite stocks for 2024

 

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