Market Insight

Spotify announces 15 million paid users

January 05, 2015  | Subscribers Only

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Spotify announced that as of December 2014, it has 15 million paid subscribers and 60 million active users (including both free and paid). In May 2014, the company announced that it had just reached 10 million paid users, meaning the company acquired 5 million new subscribers in less than 7 months.

Our analysis

Spotify continues to be the leader in on-demand music. The company ended 2014 with a 25% conversion rate of free to paid users, maintaining its rate from December 2012. The conversion rate was likely maintained by several promotions during the later months of 2014, including:

  • A student plan discounted 50%
  • A family plan discounted 50%
  • Holiday gifting
  • A three-month $0.99 promotion, discount 90%

In developed on-demand markets (e.g. Scandinavia) between 20%-29% of the population use an on-demand music service. By contrast, in markets like the UK and US, penetration remains less than 5% of the population. A major focus for the company is to drive premium adoption in these less developed markets –this is what the promotional offers are intended to do. This promotional approach is in line with the company's freemium model. The aim is to attract users to the service, trusting that a reasonable share of them will convert to, or in this case remain, full-price subscriptions.

This sort of promotional offer does not align with some recent suggestions that the price of a premium on-demand subscription should be dropped to around $4.99. Where the former should help to drive full-price subscriptions in less developed markets, the latter risks prematurely devaluing premium on-demand subscriptions in a bid to boost adoption. To put it another way: if a developed on-demand market were to experience a major price cut it could need as much as 60% of the population to subscribe to make up for lost revenue.  But aggressive short term promotions are likely to be a key move if Spotify is to turn 5% premium penetration into 25% penetration.

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