With music streaming prices going up, why isn’t Spotify raising prices? One analyst says it’s because Spotify is at a competitive weakness compared to its rivals.
According to New Constructs CEO David Turner, keeping prices low is simply Spotify’s survival strategy against its rivals. “It speaks to the relative competitive weakness of their business compared to these bigger firms that have bigger, larger platforms that bring a lot to the table,” Turner told Yahoo Finance this week. He’s speaking of Apple and Google with Apple Music and YouTube Music, respectively.
Remember that Apple and Google recently announced price hikes for their individual and family plans. Apple Music now costs $10.99 per month for individual plans. Meanwhile, the YouTube Music family plan jumped from $17.99 monthly to $22.99 monthly. So why hasn’t Spotify followed suit?
“Firms like Google and Apple are making tons of money. They can afford to lose a lot of money in streaming music and podcasts without even blinking an eye. Spotify can’t,” Trainer adds to explain why Spotify isn’t raising prices.
“It’s going to be really difficult for [Spotify] to make a lot of money and compete with firms that can offer a very similar service along with a whole lot of other services.”
Spotify now has 205 million monthly subscribers with 295 million ad-supported subscribers. Despite the subscriber growth, operating expenses for Spotify grew 44% year-over-year. “The next era of Spotify is one where we’re adding speed plus efficiency–not just growth at all costs,” Daniel Ek told investors during the earnings call. “That’s a big shift, but now we’re going to have to live up to that.”
Spotify’s stock lost more than two-thirds of its value in 2022 and remains down more than 65% compared to its February 2021 high. “There’s a disconnect here between valuation and the underlying economics and fundamentals of the business,” Trainer continues. “[Spotify] is an unprofitable business that’s been burning through a lot of cash.”