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Spotify Found a Surprising Way to Convert Free Users to Paying Customers: Even More Freebies

October 28, 2019, 11:24 PM UTC

More people are signing up for Spotify’s paid version. It’s music to the streaming music service’s ears—and its profit margins.

Spotify said its premium user growth in the last quarter exceeded expectations in its third-quarter earnings report released Monday. The news comes after the Stockholm-based streaming giant made changes to its user experience. For over a year now, Spotify has been giving non-paying users more features previously reserved only for paying customers. The idea behind the move is that giving those listeners a taste of what they can get on premium will lead to buy-in, something the company emphasized with the release of the new features last year. The lastest premium user numbers signal that Spotify’s broader marketing strategy may be working.

Last year, Spotify made a significant change to the way its free tier operates by allowing non-paying users to listen to select playlists without ads and giving them a data-saving mode. It also tested adding unlimited skips to ad-supported accounts.

As of Q3 2019, Spotify had 113 million premium subscribers out of its total 248 million monthly active users, according to its latest earnings report. That’s a 31% increase year-over-year. An individual Spotify Premium plan costs $9.99 a month, but the Swedish streaming company also offers a family plan for $14.99 that can include up to six members. Students are eligible for a discounted individual account at $4.99.

“The better our free experience is, the more chances they’ll become premium users,” Gustav Söderström, Spotify’s chief product officer, said when announcing last year’s changes to the free model.

The premium push comes at a strategic time for the company. The music streaming industry has become more competitive in recent years after Apple launched Apple Music, and to a lesser degree, with the debut of Tidal. Amazon has a music service as well, though Spotify noted in its earnings report that its users heavily skew toward non-paying listeners, making it less of a threat.

Spotify had its direct listing in 2018 and started emphasizing securing more revenue since then. While the ad-supported tier does bring money into the company, the premium model carries the business. In its last quarter, premium tier revenue made up €1.6 million ($1.8 million) of its total revenue of €1.7 million ($1.9 million).

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