Spotify Shifts From One-Size-Fits-All to Customized Subscription Plans

Spotify Founder and CEO Daniel Ek believes the company’s approach to flexibility for its customers is a key success factor.

Second-quarter earnings, reported on Tuesday (July 23), highlightedSpotify’s accelerated revenue growth, achieving record highs for both gross margin and operating income. Innovations like daylist and AI DJ, alongside video podcasts and audiobooks, have deepened user engagement with Spotify.Top of Form

“We’re at 246 million paid subscribers, so we’re one of the largest subscription services on the planet,” Ek said during the earnings call. “Interestingly enough, a huge part of that success was really driven by a very simple proposition, a one-size-fits-all proposition. But part of why I believe the subscription business in the last year or two has been doing better is because we moved from that one-size-fits-all to a much more tailored proposition, where consumers now have everything from the basic tiers to duo to family plans to student plans.”

Given the various subscriber options, Ek noted, “what we do see is that there is a good subset of that group now of 246 million subscribers that want a much better version of Spotify, and those are huge music lovers who are primarily looking for even more flexibility in how they use Spotify and the music capabilities that exist on Spotify.”

The Tailored Approach

What will more flexibility look like?

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

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

Ek said Spotify’s subscription business is “probably doing a little bit better than we expected it to do and, as a net consequence, one of the things that is happening is we’re taking some of our best customers, best highest engaged users and turning them into paid subscribers, which of course diminishes some of that potential that we have on the advertising side too.

“It’s not something that we’re still doing to the extent that we would like to do, so you should definitely expect us to keep investing in that and bring more and more programmatic and automated buying onto the platform,” he said.

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

Spotify added seven million net subscribers in the second quarter, with profits climbing 45% year over year to 1.11 billion euros ($1.21 billion). Premium revenue grew by 21% YoY to 3.35 billion euros ($3.63 billion), driven by both subscriber increases and higher average revenue per user. Ad-supported revenue also saw a 13% increase to 456 million euros ($495 million).

Looking ahead, Spotify plans to expand its user base through strategic investments in podcasts and promotional campaigns. Despite fluctuations in monthly active users, the company demonstrated strong subscriber growth and enhanced monetization in established markets, showcasing its resilience and growth trajectory.