Spotify Has Conquered the Streaming Industry. Will Raising Prices to Turn a Profit Cause It to Lose Everything? - The Average Joe

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    Spotify Has Conquered the Streaming Industry. Will Raising Prices to Turn a Profit Cause It to Lose Everything?

    Noah Weidner

    June 11, 2024

    Spotify ($SPOT) can’t hear the music anymore — with all the money in its ears. After expanding to 180+ countries and amassing over 239M premium subscribers and 376M free users, Spotify is running out of musicians to conquer — and now has to find new ways to grow. That’s even harder, considering it pays most of its revenue to labels and artists — and has struggled to generate consistent profits since its launch in 2006.

    Bittersweet symphony: Spotify has spent years toying with new product categories like podcasting and audiobooks to diversify beyond music streaming. But after bleeding millions from these efforts, it’s turned to raising subscription prices in the US twice in the last year. While this has lifted its stock by 105% over the past year, it risks alienating music fans by charging extra for features.

    • Spotify’s subscription tiers are now more expensive than those of competitors like Apple Music ($AAPL), TIDAL ($SQ), and Deezer.
    • Making matters worse, the long-awaited higher-quality music feature will be pricier than competitors’ offerings.

    This Doesn’t Sound Good

    Spotify is also facing issues with creators and labels — delaying higher royalty rates for years by exploiting loopholes in music law. Now, the company claims its premium subscriptions are a bundle, which could allow it to pay songwriters $150M less this year — angering rights-holders, leading to legal action.

    • The Mechanical Licensing Collective, which collects certain US royalties, sued Spotify, alleging it underpaid millions in royalties owed to songwriters.
    • Music organizations like The Recording Academy expressed disappointment, accusing Spotify of prioritizing cost-cutting over its relationship with artists.

    End of the détente: Spotify’s actions have disrupted the peace in the music industry. National Music Publishers’ Association CEO David Israelite remarked, “Spotify once again has gone to war with songwriters.” With the influence of labels, radio, and artists waning, Spotify is betting it’s now more powerful than the artists who built it. If victorious, Spotify might finally live up to its rich stock valuation.

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