What will Spotify’s price rise mean for its recording arti…[ad_1]
It had started to feel as though it would cost £9.99 for ever, but Spotify has, after 14 years, finally increased its prices.
Its standard monthly subscription price rose by 10% in more than 50 markets this week, including the US and the UK, and was tentatively welcomed by many in the music industry – but others point out that a £1 rise, to £10.99, will not solve wider quandaries around streaming economics.
The company told subscribers the rise was to “invest in and innovate our product offerings and features, and bring you the best experience”, but tactically avoided mentioning any positive effects for recording artists and songwriters. Their share of streaming income is not determined by Spotify itself – it is also affected by the terms of their record deal, should they have one. Spotify was, however, among services opposing an increase in the royalty rate for songwriters in the US (that opposition failed in July 2022 and the new rate was set at 15.1%).
The price increase comes in the wake of Spotify significantly scaling back its gaping money pit of a podcasting division in June 2023. The company has lost money since its launch, reporting an operating loss of €156m (£133m) for the first quarter of this year and an adjusted operating loss of €112m (£96m) for the second quarter.
Spotify’s stock slumped by 14% on 25 July, the day it published its latest financial results, which fell short of what Wall Street analysts were expecting. In an earnings report just after announcing the price rise, Spotify co-founder and CEO Daniel Ek described the price rises as a “tool in our toolbox”.
A senior record company executive, speaking anonymously, is deeply cynical about the timing of this move given labels have been calling for this for years. “Spotify wanted to make a big move ahead of their stock price tanking – and they thought it would be good press,” they say. “They poorly timed it for their own stock price.”
But Paul Clements, chief executive of the Music Publishers’ Association, views the price rise as generally positive for songwriters. “An increase in subscription fees will help to increase the amount of royalties that flow through to the composers and songwriters we represent,” he says, although “failure to increase subscription pricing for some 15 years has arguably depreciated the value of music per paid user”. For reference, something costing £9.99 in 2001 would cost £17.87 today.
Annabella Coldrick, chief executive of the Music Managers Forum, says artist managers “for a long time have been calling for a price rise” that was in keeping with inflation. “We got the idea that [streaming services] were driving to grow the market, but there comes a point where it’s falling so far behind that it needs to be revisited.” Apple Music has duly increased its prices last year in the US to $10.99 and YouTube Music made a similar move earlier this month.
The streaming services face a delicate balancing act: keen to not price out consumers and derail a growing streaming market, they also face pressure to make streaming pay more to music creators.
David Martin, chief executive of the Featured Artists Coalition, says: “We put our faith in the platforms to be the ones that are able to set price points and move them at the right time. The £9.99 price point was tricky in terms of how it was perceived psychologically, as £9.99 sounds a lot different to £10.99. Now we’re past that, maybe it removes some of the psychological barriers to allow price rises more frequently and more in line with inflation.”
Against the backdrop of a cost of living crisis, increases will have been carefully modelled around price sensitivity. “If it doesn’t lead to a drop off [in subscribers], it will probably lead to another 5% increase next year,” predicts Coldrick.
Netflix, Disney+ and others have managed to regularly increase prices, but can afford to be more bullish because they offer exclusive shows and films. For the music streaming services, who all effectively have identical catalogues, this has been a harder sell. There was widespread paranoia about rivals poaching subscribers by instigating a race-to-the-bottom pricing war such as the one that gripped British tabloid newspapers in the 1990s.
The anonymous senior label executive says a 10% increase is “necessary” but it does not help the industry create new revenue beyond subscription streaming. “Ultimately, we’re still all dividing $11 into pieces,” they say.
The wider concern is that any price rise will benefit record labels and services, with platforms such as Spotify and Apple Music typically taking 30% of all subscription income, much more than the artists, especially those stuck on low streaming royalty deals.
Martin explains that the 10% increase will mean nothing to an artist on a terrible record deal, who still owes money back from their advance and isn’t even getting significant royalty revenue. “It’s not unusual for us to see artists tied into single-digit royalty deals despite their catalogues being on DSPs [digital service providers]. Those terms are so poor in some cases that that might be 10% of nothing being paid through.”
Where and how the extra money is split remains the major bone of contention here. Since 2016, the independent company Beggars Group has paid digital royalty rates of 25%, up from the 18% it was paying since 2009, but this is far from a unilateral policy across labels, especially the majors.
“[The subscription price rise] definitely doesn’t solve all the questions around streaming and fair remuneration for artists,” argues Coldrick, who calls for greater transparency about how streaming income is shared out. “It’s not that artists think this is bad, but there are a whole host of other issues that have to be addressed alongside it, so it’s not just another bumper pay rise for the music business.”
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