Daniel Ek just wanted to clear things up.
The Spotify Technology (SPOT) CEO caught all kinds of flak on May 29 when he made a comment on X, the social media platform formerly known as Twitter.
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"Today, with the cost of creating content being close to zero, people can share an incredible amount of content," he wrote. "This has sparked my curiosity about the concept of long shelf life versus short shelf life."
"While much of what we see and hear quickly becomes obsolete, there are timeless ideas or even pieces of music that can remain relevant for decades or even centuries," Ek said.
The "close to zero" comment hit a sour note with many X users.
"Music will still be valued in a hundred years," one person said. "Spotify won't. It will only be remembered as a bad example of a parasitic tool for extracting value from other peoples music. (or "content" as some grifters like to call it) AI will seal your fate."
"Your short-sightedness and financial tunnel vision are showing," another post read. "The cost of creating quality content is not, never has been, and never will be zero."
"absolutely insane of you to tweet this," another person said.
Ek came back to the topic on Sunday to say that he was far too vague in the post, "including with my clumsy definition of content."
Spotify layoffs and price increases
"Just to clarify - my original point was not to devalue the time, effort, or resources involved in creating meaningful works, whether it’s music, literature, or other forms of creative expression," he said.
"My focus was on exploring the staying power of the most creative, most thought-provoking ideas," Ek added. "That didn’t come across, and that’s on me."
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One day later, the audio streaming company announced that it was increasing its subscription prices next month, about a year after its last price increase.
The cost of a premium individual subscription will increase from $10.99 to $11.99 a month. The Duo plan will increase from $14.99 to $16.99 a month, while the Family plan is going from $16.99 to $19.99 monthly.
Spotify raised the monthly prices for its Individual, Family, and Student plans by $1 in July last year. At the time, its Duo plan also increased by $2 per month.
Spotify has been going through some difficult times. In December, the Stockholm, Sweden-based company said it would lay off around 1,500 employees to reduce costs, marking the third round of job cuts last year.
During Spotify's first-quarter earnings call in April, Ek told analysts that the impact of the December layoffs "was another significant challenge."
"Although there's no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipated," Ek said. "It took us some time to find our footing, but more than four months into this transition, I think we're back on track.”
Spotify said that its free cash flow of €207 million ($221 million) was “partially offset” by the severance payments the company had to make to employees following its December layoffs.
Ek said the job reduction was one of the reasons the company came up on Monthly Active Users (MAUs). The company reported 615 million MAUs compared with StreetAccount's call for 618 million.
"The MAU and subscription growth we achieved in 2023 not only surpassed our most ambitious forecast but also set a record for the most significant user growth in Spotify’s history," Ek said. "While we anticipate continuous robust growth going forward, 2023 was a truly standout year and should not be based on expectation for every subsequent year."
Analyst: 'Spotify in front of rivals'
Although the price increase doesn't seem to be getting much love on X, some Wall Street analysts are positive about the move.
Benchmark raised the firm's price target on Spotify to $405 from $375 and kept a buy rating on the shares after the company announced the U.S. plan price increases.
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This latest increase follows Spotify's first U.S. pricing increase last July and suggests the free audiobook engagement it's presently subsidizing is continuing to scale into the loosely 25% of its user base, Benchmark said.
These hikes "put Spotify in front of rivals for the first time," the firm said.
JPMorgan raised Spotify's price target to $375 from $365 and maintained an overweight rating on the shares.
While the price hikes closely follow increases across 50-plus markets that were announced in July 2023 and became effective through last year, JPMorgan expects a minimal negative impact on Spotify's churn and subscriber acquisition.
Deutsche Bank analyst Ben Black said that while the price hikes were widely anticipated, they came earlier than expected, which he said could indicate that May’s step-ups in the United Kingdom and Australia were well-received.
Black, who has a buy rating and a $400 price target on Spotify shares, said he maintained his belief that the price increase is associated with the added audiobook service, which should mostly flow through the profit and loss statement.
He calculated that the US price increase could drive north of € 50 million, or about $54 million, in incremental gross profit and 80 basis points gross margin upside in the third quarter.
"Ultimately, we think these price increases could fundamentally alter how investors perceive both the longer-term outlook for its unit economics and the company’s control over its gross margins moving forward," Black said.
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