Spotify Eyeing US Price Hikes; Ek Blasts Apple for Limiting Audiobook Growth
Recent Apple and YouTube Premium price increase announcements are “really good for us,” said Spotify CEO Daniel Ek on the company’s Q3 earnings call Tuesday. Saying Spotify has the “lowest churn of any competitor,” Ek said, “we would likely fare better” with price hikes, citing the streaming audio service’s “significant pricing power.”
Apple raised prices of monthly plans by $1 to $10.99 for individuals, $2 to $16.99 for families, and it tacked on $10 to annual subscriptions, bringing them to $109. YouTube Premium will go up by $5 in the U.S. next month to $22.99. Spotify, for now, is $9.99 monthly for the individual plan, $12.99 for Duo, $15.99 for Family and $4.99 for students. On a potential U.S. price increase, Ek said, “It is one of the things that we’d like to do,” and it’s a conversation the company will have following recent developments with label partners.
Responding in Q&A to a question on how Spotify could be innovative on price, Ek noted the company has mostly been a subscription business as an “all-you-can-eat” service but is growing the advertising side. “It’s kind of interesting to see how people are blending the two together, now, on the video side,” he said, “so that might be an opportunity where consumers may not see that the price point is increasing, but effectively, the [average revenue per user] is increasing." He also said a la carte options are in the mix, citing its nascent audiobooks business and live concert tickets, plus other future verticals.
Ek expanded on his frustration with Apple as a “gatekeeper” dictating “how we communicate with our customers.” In a Tuesday blog post, Ek referenced challenges Spotify faces in the audiobook space, citing the "complicated" and "confusing" purchase flow "that Apple’s rules force us to provide consumers," which is “artificially limiting” Spotify's growth, Ek said.
Spotify filed a complaint against Apple with the European Commission nearly four years ago and is still waiting for a decision, Ek said: “And while we wait, Apple continues to dictate what online innovation looks like, doing serious harm to the internet economy, choking competition and the imagination of app developers.” With audiobooks, “Apple has once again proven just how brazen it is willing to be with its App Store rules, constantly shifting the goalposts to disadvantage their competitors.” Apple didn’t comment Wednesday.
“The App Store was designed to be a great business opportunity for developers, and we fully support initiatives to introduce new features in apps that provide lasting value for users," an Apple spokesperson responded Wednesday. "We have no issue with reader apps adding audiobook content to their apps, linking users out to websites to sign up for services, or communicating with customers externally about alternative purchase options." The Spotify app was rejected "for not following the guidelines regarding including explicit in-app communications to direct users outside the app to make digital purchases," he said. Apple provided "clear guidance on how to resolve the issue, and approved their app after they made changes that brought it into compliance.”
Spotify’s Q3 revenue rose 21% year on year to $3 billion, slightly ahead of guidance, said Chief Financial Officer Paul Vogel. Podcasting drove its advertising business 19% higher vs. Q3 2021 to $386 million, coming in below expectations. Pivotal Research Group analyst Jeffrey Wlodarczak wrote investors Tuesday that Spotify's overall revenue was higher than expected driven by “dollar strength,” but ad-supported revenue was “materially below expectation reflecting a worsening ad environment.”
Wlodarczak maintained a “hold” rating on Spotify stock, citing risk factors including competition that’s “not necessarily focused on profitable growth;” potential content cost inflation and recession risk; music content controlled by three or four players; “controversial podcast content [that] could translate into lost subscribers or music"; and a slowdown in streaming growth "sooner than we anticipate.” Shares dropped 13% Wednesday, closing at $84.42.