Spotify Tech Share Price (0SPT)

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.) By Liam Proud LONDON, April 27 (Reuters Breakingviews) � Investors are giving Spotify boss Daniel Ek the benefit of doubt on profitability, having bid up shares in his loss-making streaming service 15 percent since its early April float. That gives Ek time to experiment with ways to turn his 71 million paying users into a viable business. He�d be wise not to put much faith in price hikes. The $28 billion Swedish group said late on Thursday it will charge Norwegian subscribers 10 percent more. That will test whether they value Ek�s service enough to pay a premium for broadly the same catalogue of music found on Apple Music, which currently costs the same 99 Norwegian crowns ($12.37) per month as Spotify. Norway is a logical place to experiment. Spotify has a comfortable market-share lead in many European countries, especially in Scandinavia, whereas Apple is growing faster in the United States, according to the Wall Street Journal. And residents of high-wage Norway already pay almost 20 percent more in dollar terms for Spotify and Apple than Americans. But hiking prices probably isn�t a path to profitability, since Spotify�s thin gross margin means most revenue goes straight to rights holders and publishers. Even if the firm pulled off a 10 percent worldwide price hike this year, the extra 511 million euros of revenue � based on the midrange of its targets for operating loss, gross margin and top-line growth � would boost operating profit by just 123 million euros. That�s the difference between an operating margin of minus 5 percent and minus 3 percent. Even with greater scale, a price hike wouldn�t change much. Use the midpoint of Ek�s long-term targets � 30 percent revenue growth and 33 percent gross margins � and Spotify would see 3.7 billion euros of gross profit from 11.2 billion euros of revenue in 2021. And assume R&D, technology spend, sales, general and marketing costs total 30 percent of revenue. Sum it up, and the price hike would add an additional 1.1 billion euros of revenue in 2021, but only 365 million would trickle down as operating profit, boosting Spotify�s operating margin by a measly 2 percentage points. Spotify�s Norwegian experiment may be an easy gain � but the results will disappoint anyone hoping for a path to significant profitability. On Twitter https://twitter.com/liamwardproud Context News - Swedish music-streaming service Spotify on April 26 said it would raise prices for subscribers in Norway. The rise will be 10 percent, according to a person familiar with the matter. Changes will affect new users from May and existing subscribers from July, and will apply to all three of its paid services. - According to its website, Spotify currently charges 99 Norwegian crowns ($12.37) per month for its p