1 month free not available for users who have already tried Premium. Ad-free music listening, play offline, on-demand playback. Likewise, the greater is the difference between \(v_1\) and \(v_2\), the more expensive it is to serve Premium subscribers relative to free users and so the fewer Premium subscriptions Spotify would prefer to sell. 2 Premium accounts for a couple under one roof. ![]() Intuitively, if Spotify collects more ad revenue from free users then it can afford to lose some Premium subscribers by raising the Premium price. In words, the profit-maximising price is increasing in \(a\) and \(v_1\), and decreasing in \(v_2\). In the United States, Spotify Family Plan. In Europe, the family plan will increase three euros to 17.99 (21.73) per month. The profit-maximising price \(p^*\) satisfies the first-order condition (FOC) The Spotify Family plan is increasing by two euros, to £16.99 (20.52). I assume that \(\theta(p)\) decreases with \(p\) so that Spotify Premium is an ordinary good. Where \(p\) is the price of subscribing to Spotify Premium, \(n\) is the number of Spotify users, \(\theta(p)\) is the price-dependent proportion of these users who pay for Premium, \(a\) is the revenue from serving ads to each free user, \(v_1\) and \(v_2\) are Spotify’s variable costs per Premium and free user, and \(f\) is Spotify’s fixed costs. Spotify’s profit function looks something like This revenue needs to cover Spotify’s fixed and variable costs, which include the costs of maintaining its servers and of paying royalties for streaming artists’ music. Spotify earns some revenue from serving ads to free users, but most of its revenue ( about 88% in 2019Q4) comes from Premium subscriptions. ![]() Spotify offers two music and podcast streaming services:Ī paid “Premium” service with extra features like unlimited skips and offline playback.
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