The Spotify Ltd. logo sits on the cover of a notebook inside the music streaming company’s offices. (Photographer: Krisztian Bocsi/Bloomberg)

Spotify to Raise Prices in Norway in Test of Customer Loyalty

(Bloomberg) -- Spotify Technology SA plans to start raising prices in Norway next month, a small-market test that may foreshadow increases for its global listeners later.

Prices for new customers will go up by 10 percent in May, and extend to existing users in July, the company said. The increase will apply to all three of Spotify’s paid offerings in the country -- the standard subscription, a student plan and a family plan.

“In order to meet market demands and conditions, while continuing to offer a great personalized service, Spotify will be increasing the price of our premium subscription in Norway,” the company said in a statement. Prices in the U.S. range from $5 to $15 a month.

After going public earlier this month, Spotify is eager to prove to investors that it has a path to profitability. The company operates at a loss due to high royalty payments to the music industry, costs that have hobbled rivals Pandora Media Inc. and Deezer.

Raising prices represents a way to boost sales and margins without seeking concessions from the recording industry. Netflix Inc., another online service with high costs and low margins, has employed price increases to great effect over the past couple years. The company has boosted its average subscriber price by more than 12 percent in the past year.

New Listeners

Spotify has added more than 43 million customers over the past couple of years, growth that has reshaped the music business and boosted its valuation past $27 billion. But it has signed up new customers by discounting, with revenue per customer shrinking by 26 percent over that span.

The company has experimented with a few ways of reducing royalties and boosting margins, including by adding non-music programming and obtaining more favorable revenue splits with record labels. Spotify renegotiated its deals with record labels last year, and will do so again in 2019.

Stockholm-based Spotify views neighboring Norway as an ideal market for experimentation because the majority of its users in the country pay for a premium offering. Residents who once pirated music online now pay a monthly fee for access to a library of more than 35 million songs.

Success in Norway could lead to price increases in other parts of the world, which would placate investors anxious about the company’s losses.

Competitors Lurk

Yet many analysts question whether Spotify will be able to convince people to pay more. Netflix has justified price increases by funding more than 700 pieces of original content, programming that its customers can’t get anywhere else.

Spotify offers the same selection of songs -- more or less -- as rivals Apple Inc. and Inc. Those companies don’t rely on music to make money, and instead use music to sell other products and services.

“Spotify’s growth has been paired with substantial discounting that we see as likely to continue,” Barton Crockett, an analyst with B. Riley FBR Inc., said in a recent note.

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