Spotify on Monday announced that the platform will raise the price of its premium plans by between $1 and $2 a month for U.S. users. As a public reckoning over giving artists their fair share of the profits continues while the company lays off workers, it begs the question: why is the price of Spotify going up?
The price increase came ahead of new quarterly earnings from Spotify, in which the company boasts a 27% surge in monthly users. Up by a net acquisition of 36 million (the largest quarterly net addition in the company’s history), there were an average of 551 million users on Spotify between April and June. Additionally, the number of paid subscribers grew by 17% to 220 million, with a net gain of 10 million users. In total, the company’s revenue grew by 11% to €3.2 billion.
“The market landscape has continued to evolve since we launched,” the company wrote in a Monday blog post announcing the price change. “So that we can keep innovating, we are changing our Premium prices across a number of markets around the world. These updates will help us continue to deliver value to fans and artists on our platform.”
This announcement comes as Spotify and other streaming services face pressure from investors to place a greater emphasis on increasing profitability rather than user acquisition. Apple, Amazon, and Tidal all announced price increases in the past year, with YouTube raising the price of its premium service for the first time since it launched in 2018. Spotify, which is publicly traded, raised premium prices in 46 countries last year, with the change coming this year to the U.S., U.K., Canada, France, Mexico, and Australia. Existing users will have a one-month grace period before the new price goes into effect.
The price hike comes six months after the Sweden-based company cut about 600 jobs (or 6% of its total workforce). At the time, the company attributed the cutbacks to aggressive overexpansion and a hiring spree during the COVID pandemic. In recent years, the company—led by co-founder and chief executive Daniel Ek—has poured billions of dollars into its podcasting arm, notably through a number of high-profile deals.
Back in 2020, Spotify reportedly paid $100 million for an exclusive licensing deal with Joe Rogan whose podcast is one of the most popular in the world. During the pandemic, both Rogan—and by association Spotify—came under fire for allegedly spreading COVID misinformation, leading to boycotts among both users and artists alike including Neil Young, Joni Mitchell, David Crosby & Stephen Stills, Graham Nash, and others.
In 2019, reports circulated that Spotify paid $25 million for an exclusive podcasting deal with former President Barack Obama and Michelle Obama which ended last year. Similarly, in 2020 the service reportedly paid $20 million for a deal with a media group run by Prince Harry, Duke of Sussex and his wife Meghan Markle, an arrangement that came to a mutual end after only producing one podcast series over the course of three years.
During all of this, musicians across the globe have called on Spotify to increase its royalty payout for artists. A Business Insider report from 2021 found that artists earn anywhere between $0.003 and $0.005 per stream on average. According to The Union of Musicians and Allied Workers, artist payout continues to drop. The union found artists were paid an average of just over half a cent per stream in 2018 and less than a third of a cent in 2020, a resulting decline of 43% over two years.
During the pandemic, streaming numbers soared and many users updated to premium, resulting in record earnings for Spotify which in turn boasted historic royalty payouts. Though the company highlighted the $7 billion in royalties it paid to artists in 2021, the math isn’t exactly that simple. According to a 2016 study as reported in The Washington Post, “For each dollar of revenue earned on Spotify, 58.5 cents go to the owner of a song’s sound recording (usually a record label), Spotify keeps 29.38 cents, 6.12 cents go to whoever owns publishing rights (usually the songwriter) and 6 cents goes to whoever owns the mechanical rights (usually the songwriter).”
So despite record streaming numbers and increases in paid subscriptions, artist payout rates stayed relatively stagnant—even as Spotify handed over $100 million to Joe Rogan. When faced with backlash, co-founder Daniel Ek told artists they need to make more music in order to make more money, stating that it’s “not enough” for artists to release music “every three to four years,” which only further inflamed tensions.
Even in the wake of record numbers, Spotify continues to tighten its belt with this new price hike. Coming in the aftermath of layoffs earlier this year and stagnant artist pay, it’s all a sobering reminder that the music business is a business, after all.