Spotify has released a new subscription of only 0.99 euros – baptized as Spotify Plus – that allows users to play individual songs, as well as change songs within the same playlist in an unlimited way . These two features, let's remember, are not available in free accounts.
What does remain intact between the free accounts and this new subscription are the advertisements, which will be played periodically while the service is used. It is the main penalty regarding the Spotify Premium subscription. Despite this, this significantly cheaper alternative is likely to attract many people who do not mind living with the aforementioned ads.
For the company, however, the launch of Spotify Plus is a double-edged sword . On the one hand, it is a way to extract more income from those people who currently have free accounts. They will continue to take money from advertisers –because they continue to show ads– and, in addition, they will get an additional euro for each user.
However, this play also has a risky side: how many of the users who until now paid a premium modality could go to Spotify Plus, the version of 0.99 euros? This is precisely where the success or failure of this new proposal lies.
With Spotify Plus, the company cannot afford the loss of premium users
A quick look at the Spotify accounts makes it clear that the company's profit comes, unquestionably, from users with premium accounts . In the second fiscal quarter of 2021, the company earned 2,056 million euros from premium subscribers. Meanwhile, their accounts only received 275 million euros from advertising revenue (what Spotify gets for free accounts).
It should also be noted that Spotify closed the last quarter with 165 million subscribers , while the number of monthly active users (MAUs) with free accounts was 210 million. That is to say: there are many more people who use a free account at some point of the month than those who pay a subscription.
The monthly ARPU (average revenue per user, which, in Spanish, means the average income obtained by each user), however, is the metric that best reflects the more Spotify earns from premium subscriptions regarding free accounts.
In the case of premium subscribers, the ARPU that Spotify indicates in the investor documents corresponding to the second fiscal quarter of 2021 is 4.29 euros Spotify does not specify ARPU for free accounts in its financial results. However, with the data that it does make public, we can make an approximation for guidance purposes. The result? Spotify generates only 0.4 euros per user each month. These figures quantify the reality behind the business of the European company: Spotify earns much more for each premium subscription (4.29 euros per user each month) than for each free account with ads (approximately, 0.4 euros per user every month). And the same would happen between Premium and Spotify Plus subscriptions (approximately 1.4 euros per user per month). The key, therefore, will be to exploit the new modality without losing balance in the tier that leaves them the most income.
