MBW Explains is a series of analytical features in which we explore the context behind major music industry talking points – and suggest what might happen next. Only MBW+ subscribers have unlimited access to these articles. MBW Explains is supported by Reservoir.
Spotify just announced that it’s giving more away to its free users.
The platform confirmed earlier today (September 15) that its ad-supported users can now search for songs – and manually play tracks from playlists and albums for the first time on mobile.
They can also press play on specific tracks shared by their friends.
Previously, mobile users of Spotify ‘free’ were largely locked into a shuffle-only playing experience.
Despite these perks, Spotify is remaining careful not to make its ‘free’ tier as pleasurable to use as its ‘Premium’ paid-for tier.
Of course, ‘free’ users will still receive interruptive audio ads. Non-premium listeners will also be limited to a certain number (TBC) of minutes per day for on-demand playback.
In addition, ‘free’ users won’t be able to ‘cue’ songs to follow the ones they’re currently listening to.
Spotify is betting that its improved free service will increase engagement, boost ad revenues, help retain free users, and ultimately convert ad-supported users to Premium subscribers.
Speaking exclusively with MBW, Gustav Gyllenhammar, Spotify’s VP of Markets and Subscriptions, says that “having both free and premium is the cornerstone of Spotify’s strategy” but that the company “felt it was time to give Free a glow-up”.
He noted that 60% of current Premium subscribers started on Spotify’s free tier, making user engagement on the ‘free’ tier crucial for long-term growth.
Here are five key insights from our exclusive conversation with Gyllenhammar about Spotify’s new pricing strategy:
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1) Spotify has made this move in response to young users… who’ve likely been bouncing to YouTube and TikTok.
Gyllenhammar indicated that the new changes to Spotify ‘free’ were in part motivated by shifts in media consumption habits, particularly among younger users.
“When you look at Gen Z and teenagers… they really felt like the old Spotify free experience on mobile was almost broken, in the sense that they tried to tap on things and it didn’t work,” Gyllenhammar explained.
He said Spotify saw “retention challenges with an experience that is not living up to users’ needs” as a result.
“We continuously keep our finger on the pulse of where young users are going, and we’ve seen user behavior both on social media and other video streaming platforms, where consumers are expecting the ability to choose what they consume.”
Gustav Gyllenhammar
Gyllenhammar also acknowledged the competitive landscape.
“We continuously keep our finger on the pulse of where young users are going, and we’ve seen user behavior both on social media and other video streaming platforms, where consumers are expecting the ability to choose what they consume.
“That’s something that we felt was very important for this change as well on Spotify ‘free’ – that you are able to have more freedom in picking your specific content,” he said.
However, he emphasized that Spotify’s Premium offering maintains clear advantages: “We think the clear benefits of Premium over time will lead to a continued strong conversion [rate] to premium because of offline [playback], superior sound quality, all these extra features, and the advertising-free environment, which is very important for most use cases.”
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2) Spotify says it would never launch additional free streaming elements without ‘alignment’ with large music rightsholders
Gyllenhammar emphasized the importance of getting the thumbs-up from industry partners before implementing the freemium updates.
“We obviously have alignment with our industry partners on this feature,” he said. “We would never go with something like this unless they were aligned.
“We obviously have alignment with our industry partners on this feature.”
Gustav Gyllenhammar
The executive positioned the ‘free’ enhancements as part of a broader collaborative strategy with music rightsholders: “It is very important for us, as well as for our industry partners, to continue to drive increased monetization for the music industry.
“We think together, we’ve only scratched the surface of the opportunities there.
“Obviously we have the core subscription [tier] today, which drives revenue, but [via] a deeper partnership, we think there’s a win-win solution that we can build for driving more revenue streams for the future.”
Premium subscriptions continue to generate around 90% of Spotify’s total revenue.
Auguras Pipiras via Unsplash
3. Spotify feels there was ‘no longer an ability to charge [extra] for lossless audio’.
The fact these benefits are being added to Spotify’s standard Premium tier – rather than being kept as exclusive benefits for its long-rumored “Super Premium” tier – has raised key questions about the company’s pricing and audience growth strategy.
When asked why Spotify hadn’t reserved lossless audio access for a new, higher-priced tier, Gyllenhammar said: “We obsess about the value-to-price ratio for our premium customers, so that consumers feel like they’re getting the benefits out of the subscription.
“That ensures our retention, lowers churn, and means that the lifetime value of our customer stays very high.”
“Where the general DSP landscape was going was that there was no longer an ability to charge for lossless as a separate function or as an add-on.”
Gustav Gyllenhammar
He argued that industry dynamics had shifted around lossless pricing: “Where the general DSP landscape was going was that there was no longer an ability to charge for lossless as a separate function or as an add-on.”
Discussing what user benefits might be left for Spotify’s ‘super-premium’ launch, Gyllenhammar said: “Together with our industry partners, we still have a job to do to come up with more interesting and exciting products that we could layer on top of the current subscription landscape.”
Venti Views/Unsplash
4. Could Spotify charge a nominal fee for ad-supported services in mature markets?
MBW asked Gyllenhammar about the prospect of introducing a nominal subscription fee to access Spotify’s ad-supported services in certain ‘mature’ markets – i.e. ending completely ‘free’ access to Spotify.
Doing so would bring Spotify’s pricing model more in line with that of Netflix, whose cheapest tier – ‘Netflix with Ads’ – costs $7.99 per month in the United States.
Responding to the question, Gyllenhammar emphasized the strategic value for Spotify of maintaining a truly free entry point.
“Free is obviously very dear to us,” he said. “That ability for users to start on a non-paid experience, that’s where general entertainment platforms also allow users to consume music.”
(What does he mean by ‘general entertainment platforms’? Almost certainly YouTube.)
Gyllenhammar reiterated that 60% of Spotify’s paid-for users today began on the service’s free tier: “It’s important that we continue to pull young users into a high-performing conversion funnel, which ends in a subscription. No one has really shown that to the same extent as Spotify.”
“It’s important that we continue to pull young users into a high-performing conversion funnel, which ends in a subscription. No one has really shown that to the same extent as Spotify.”
Gustav Gyllenhammar
Beyond new user acquisition, the free tier serves another crucial function, according to Gyllenhammar.
“The other part also being that it’s also an incredibly effective safety net and rebound net for people who temporarily might not be able to pay for a subscription – they can pause for a month, fall out of premium and then come back,” he said.
Gyllenhammar added: “A lot of the secret sauce of Spotify’s subscription growth is not just that we can pull both younger users in at the free end of the funnel… but the fact that it serves as a safety net for churn and resubscription into premium is almost as important as the new user sign-up.”
5. The new move will be a ‘a boon for Spotify’s advertising business’
According to Gyllenhammar, testing across multiple markets over 18 months prior to the global roll-out of the new freemium updates had a positive impact on MAU retention rates.
He explained that the increased free engagement will be “a boon for our advertising business” due to the “increased free audience, as well as more time spent on the platform for free users, and also more focused time spent for free users – because you can go in and pick your songs and so on”.
Gyllenhammar added: “We can now have much higher-performing advertising units for our users. So we also feel strongly that this should be something that can drive accelerated profitability and revenue generation on the free tier from advertisers. That’s another part of why this move is important for us.”
“We can now have much higher-performing advertising units for our users [on the free tier].”
Gustav Gyllenhammar
Spotify’s Ad-Supported Revenue in Q2 2025 was €453 million ($514m), up5% YoY on a constant currency basis but down 1% YoY in real terms.
On a Q2 earnings call in July, Spotify CEO, Daniel Ek said: “As I look at our progress, the one area that hasn’t yet met your expectations is our Ads business. We’ve simply been moving too slowly and it’s taken longer than expected to see the improvements we initiated to take hold.
“It’s really an execution challenge, not a problem with the strategy.”
Shortly before Ek made that comment to investors, Spotify former Global Head of Sales, Lee Brown, left the firm and joined DoorDash.
Spotify’s Q2 financial summary
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