Spotify Moves From One-Size-Fits-All to Tailor-Made Plans

 

Daniel Ek, Spotify’s founder and CEO, believes the company’s approach to customer flexibility is a key factor in its success.

Spotify’s second-quarter results, released Tuesday (July 23), highlighted accelerated revenue growth, with record gross margin and operating profit. Innovations such as Daylist and AI DJ, as well as video podcasts and audiobooks, have increased user engagement with Spotify.

“We have 246 million paid subscribers, which makes us one of the largest subscription services on the planet,” Ek said during the earnings call. “Interestingly, a lot of that success is due to a very simple proposition, a one-size-fits-all proposition. But I think part of the reason the subscription business has performed better over the last couple of years is because we’ve moved from a one-size-fits-all proposition to a much more personalized proposition, where consumers now have access to everything from basic plans to duo plans to family plans to student plans.”

Given the different subscription options, Ek noted, “what we’re seeing is that there’s now a good subset of that 246 million subscriber group who want a much better version of Spotify, and they’re big music lovers who are primarily looking for even more flexibility in how they use Spotify and the music capabilities that exist on Spotify.”

The tailor-made approach

What will greater flexibility look like?

“I think we can create a win-win situation, both for the creative ecosystem, but also for consumers,” Ek said.

“The plan here is to offer a much better version of Spotify, so think about something that might be something like $5 above the current premium tier, so it’s probably around a price point of about $17 or $18, but kind of a deluxe version of Spotify that has all the benefits of the regular version of Spotify but a lot more control, much higher quality across the board, and other things that I’m not ready to talk about yet,” he added.

Ek said Spotify’s subscription business “is probably doing a little bit better than we expected, and as a net result, one of the things that’s happening is we’re taking some of our best customers, the most engaged users, and turning them into paying subscribers, which of course also takes away some of the potential that we have on the advertising side.”

“It’s not something we’re doing to the extent we’d like to yet, so you should expect us to continue to invest in that area and introduce more and more programmatic and automated buying to the platform,” he said.

The PYMNTS Intelligence study, “The Replenish Economy: A Household Supply Deep Dive,” conducted in collaboration with sticky.io, surveyed more than 2,000 U.S. consumers and over 180 subscription merchants. The findings reveal that flexible subscription plans are now commonplace, with three-quarters of retail subscription merchants allowing existing subscribers to adjust their plans at any time.

Spotify added seven million net subscribers in the second quarter, with profits up 45% year-on-year to €1.11 billion ($1.21 billion). Premium revenue rose 21% year-on-year to €3.35 billion ($3.63 billion), driven by both subscriber growth and higher average revenue per user. Ad-supported revenue also rose 13% to €456 million ($495 million).

Spotify plans to expand its user base through strategic investments in podcasts and promotional campaigns. Despite fluctuations in monthly active users, the company has shown strong subscriber growth and improved monetization in established markets, demonstrating its resilience and growth trajectory.

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