Spotify has unveiled a new offering that will allow companies to offer Spotify Premium as an employee perk, the company announced Wednesday (May 18).
Dubbed Spotify for Work, the corporate accounts feature has already been adopted by global professional services firm Accenture, which will roll out the offering for its employees across Sweden, Latvia and Lithuania. According to Accenture managing director Jan Jendeby in a blog post announcing the new package, Accenture company will help support “the innovation and development” of Spotify for Work by sharing feedback about the product.
Although a spokesperson would not confirm the rate for these kinds of corporate accounts, Spotify for Work will offer subscriptions at a discounted rate per person — similar to Spotify’s popular family plans, which allow up to six members of a household to use a single account for $15.99 in the U.S. and varying amounts in other countries. These sorts of bundle plans help swell Spotify’s subscriber base, but also results in lower average revenue per user (ARPU).
That’s a problem for creators and other rights holders, who want to see as much value as possible per customer, contributing to the revenue pie that’s split up for their royalty payments. ARPU did increase 6% year-over-year to €4.38 ($4.59) in Spotify’s most recent quarterly earnings report (though it was basically flat from the prior quarter), which was due in part to price increases on plans, including bundled plans, instituted by the company in over 40 markets, including the U.S. and the U.K., in April 2021. But that was only after Spotify saw a sharp 39.4% drop in ARPU between 2015 to 2020, from $8.66 to $5.25.
With the introduction of corporate accounts, Spotify now risks driving down ARPU once again, depending on how popular the offering becomes. That could become a point of contention, again, for rights holders who are less concerned about Spotify’s subscriber growth – a goal that’s clearly being targeted with Spotify for Work – than with how much each of those users brings in.
Spotify’s practice of offering bundles to increase its subscriber base has extended beyond just family plans or plans for couples (known as Duo plans). In 2017, the streaming service partnered with the New York Times to bundle a one-year subscription to the paper with one year of free access to Spotify Premium for just $5 a week. Later that year, Spotify teamed with Hulu to sell a discounted bundle of their services for just $5 a month to college students, before later expanding that deal to all existing Spotify Premium subscribers for just $12.99 a month (in 2019, Spotify and Hulu lowered the price of those bundles to just $9.99 a month, or the price of a Spotify Premium account).
For Spotify, these types of bundled plans were seen a way to compete with deep-pocketed music-streaming rivals Apple and Amazon, in part by reducing churn — or the percentage of subscribers who leave a service in a given period. Spotify doesn’t report its current churn rate, though Citi analyst Jason Bazinet previously estimated it at roughly 4% in 2020, down from 7.7% in 2015, according to one of the company’s financial filings.
Because they reduce the amount paid per user, bundled packages like family plans and Spotify for Work give users an incentive to keep the service – helping increase the “lifetime value” of subscribers, Bazinet added – which would also be a benefit to rights holders in the long term. Indeed, in the same 2015-2020 period during which ARPU declined dramatically, the lifetime value of new Spotify subscribers more than doubled from $16.78 to $36.85, according to Billboard calculations, while total annual royalty payments grew from under $2 billion to around $5 billion.
