# Subscription Pricing Power and AI Disruption Risks

**Podcast:** Motley Fool Money
**Published:** 2026-02-11

## Transcript

Is AI disruption coming for every corner of the market?
Montley Fool Money starts now.
Welcome to Montley Full Money.
I'm Travis Williams.
Joined today by Lou Whiteman and Rachel Warren.
We got to start with some of the big topics of the week.
This is the heart of earnings season.
There are dozens of companies reporting every single day.
One of the big things that popped out to me this week was actually Spotify, a company we don't talk about a whole lot, but you may be listening to us on Spotify.
But they are increasing their prices.
Once again, they did that in January.
I got my notice this week.
And that's actually really helping their financials.
So that's the good news.
But my question for you, Lou is this is something that we've seen with a lot of these companies.
Netflix, you see constant price increases for Disney Plus.
I assume that's coming again for ESPN.
Every single one of these subscription services.
But the bottom line might be getting better.
I think the answer is yes and no.
And I think some historical context is needed here.
So these original prices, the ones we're comparing it to, they were set artificially low at the beginning as loss leaders, right?
And that was funded by VC funds, which in turns were funded by basically zero rates.
So there was free money.
These businesses use that free money to try to gain share.
And so now the price hikes look dramatic off of that.
But I don't think that we can say necessarily that what has happened over the last few years is going to be repeatable indefinitely into the future.
Spotify doesn't have unlimited pricing power.
$22 a month for a family plan is not unreasonable.
There's room to grow from there.
Travis, you say there's no choice.
There is choice.
There's Google, there's Apple.
There's a lot of other choices.
As long as they're kind of all stepping up together, I think it's fine.
But if Spotify said, you know, to heck with it, 50 bucks a month, I don't think that would work out well for them.
Yeah.
So this is so the strategy has to be kind of like a boiling frog.
Yeah.
And if so, I think it does make sense.
Because again, we started artificially low.
I do think that there will be pullback at some point.
I think it's interesting because you can say that like Netflix has specific things.
And if you want to watch, I don't know, Squid Games or something, you need Netflix.
Spotify, I know they're trying with podcasts and stuff, but basically everything that people actually want to hear on Spotify, they can get elsewhere.
If anything, I'd say long term they have less pricing power, but certainly they can continue this trend for a while because it's not unreasonable.
And it is a product people want.
Rachel, is this kind of the trend that we're going to is you get into these ecosystems, even with something like Spotify.
I have a family of five.
My kids both have accounts on Spotify.
Sure, I can switch, but there is switching costs that are involved too.
And so for investors, the good news here is these go from, you know, money losing companies.
They were growing quickly.
Spotify was growing quick quickly for a decade, but it was losing money.
Now we're going to, hey, they're printing cash flow, and that ultimately is what you want to do as a business.
These results also underline the fact that customers are willing to pay marginally more, right?
Not maybe $25 more, but they're willing to pay marginally more for the quality content they're used to.
And I think it also really suggests that music streaming has transitioned from, you know, maybe what was once seen as more of a luxury to really an essential utility for a lot of consumers.
And I think this was really apparent in Spotify's results.
You know, there's really been this shift of focus from just pure subscriber growth to really intelligent monetization strategies and profitability.
I mean, you look at their Q4 results, right?
So gross margin reached a record 33.1%.
That was above analyst estimates.
Operating income rose 47% year over year.
Premium scribers grew 10% year over year.
And you had about $3 billion in free cash flow for the entire 12-month period.
And we're also, I think, seeing a bit of a shift where companies like Spotify are really prioritizing average revenue per user over raw user acquisition.
Now, Spotify has raised their prices in the US twice in the last 18 months.
And the CFO has noted that pricing is actually expected to outpace content costs in 2026.
Um and I think it shows that users seem to be willing to absorb higher costs to keep their curated libraries, whether it's music, podcasts, or otherwise.
This is a trend we're seeing in the space, right?
I mean, platforms are increasingly consolidating their services.
They're moving towards more cable-like bundles, so to speak.
It's funny to say that to sustain their margins.
I think that this is gonna have to be a very careful approach, though.
I mean, Spotify seems to be executing it quite well.
If they and others do too many of these price increases, though, you could have some subscription fatigue among the more budget conscious users.
But for now, this is a strategy that seems to be working.
And I think that that is really apparent in Spotify's financial results.
This is a much better and stronger company than it was five years ago.
Lou, as we sort of think about what is going to be disrupted by AI and what isn't, are these subscription businesses that do have the ability to raise the prices, even if it's a dollar a month?
So Spotify, Netflix, Disney would fall into that.
Is that going to be kind of a safe haven for investors?
Because yeah, AI can do a lot of stuff, but it's not just going to make a playlist for you.
So, you know, maybe Spotify is safer, maybe Netflix is safer than we thought it was a couple of years ago.
So yeah, the multiples are still high, but where else are you going to be?
I think AI can make a pretty good playlist for you.
And I think they're doing that already.
They maybe don't have the rights to the music, is the problem.
That's what I was gonna say.
These are mostly pass-through businesses where you know a lot of the creation is out of their controls.
They are just a conduit for, in this case, music.
So I do think that that holds up better.
They're using AI all I'm I don't know.
I'm actually not a Spotify customer, but I can tell you that my music service uses AI to s suggest things all the time for me.
Yeah, yep.
Spotify does that too.
I mean, I do think the other side of that too is that arguably the creators deserve more here.
So one day there could be a day of reckoning in terms of profitability, but that's something we'll handle down the line.
We will see what happens with all these subscription services, but I think the trend towards higher prices is something we're probably gonna have to get used to.
When we come back, we're gonna talk about the latest retail sales data.
You're listening to Motley Fool Money.
Hi, I'm Neil, and I'm Ken.
And we are from the Triviality Podcast, a pub trivia style game show where a lack of seriousness meets a little bit of knowledge.
Join us each week for an hour-long game of general knowledge trivia featuring special guests from around the world, plus tons of extra themed episodes.
If you want to improve your trivia game, or you just want to scream at us in your car when we get easy questions wrong, then we're the show for you.
Find triviality on all your favorite podcast apps.
But you know that because you're already listening to a podcast.
Welcome back to Motley Fool Money.
Retail sales data came out this week, and we heard about what happened during the holidays.
Sales were up 2.4% from a year ago, Rachel.
But that was a little bit below analyst estimates of 2.7%.
And Lou's K-shaped economy appears to be here with layoffs and tech driven by artificial intelligence.
Are we at risk of this retail sales decline continuing?
Or what do you what do you see here?
I think in the short term, that's very much a distinct possibility.
And there's a few reasons for that, but a lot of it also comes down to the disparity in spending power that we're seeing among consumers.
So you've got, as of late 2025, right, the top 20% of earners, and this includes households that earn over 150,000 a year.
The top 20% of earners accounted for about 60% of all personal outlays.
You know, a lot of that spending it's tied to gains in equity markets.
There's AI related investment gains there.
And we're seeing this group as well kind of shifting their focus towards higher-end services, experiential luxury.
But then you've got households earning under $75,000 a year.
That is a cohort of consumers that are seeing more meager growth in spending.
A lot of that spending is tied exclusively to essentials.
This is also a cohort that's struggling much more with issues like persistent inflation, record household debt.
And as you mentioned, you know, AI has been responsible for a growing number of layoffs.
There were about 55,000 layoffs or more in 2025 related to AI changes and efficiencies.
And we've seen that trend continue into 2026.
You know, think companies like Oracle, Amazon, Meta, Intel, the list goes on.
You've got the combination of a softening labor market.
Not all of it is AI related, to be clear.
And you've got the impact of tariffs.
That's increased a lot of economic uncertainty.
We're seeing businesses that are adapting in some ways.
They're trying to target either, you know, extreme luxury or deep discount retailers.
Some retailers are having more success than others.
Some of those more mid-tier retailers like Target continue to struggle while Walmart, which derives a lot of its revenue and growth from essential purchases like groceries, seems to be doing much better.
So I think in the long run, I think the economy is going to come back stronger than ever.
I think consumer spending power is going to improve.
But I don't think that we can ignore these short-term indicators and what they mean for consumers and for a range of businesses.
It just seems to me that like for every negative, there's a positive.
So I don't know how much we can read into any of them.
Are we at risk?
Yes.
But I don't think we should take that as a prediction.
We should just take it as, you know, we're kind of always at risk.
We like to think about this as binary, that either the consumer is good or the consumer is not good.
Really, what this is is just the critical mass of every consumer out there.
If enough individuals feel confident enough that they can spend, then spending is fine and economy is fine.
If not, we're in trouble.
And it's always just some mix, whether it's 70, 30, 51, 49.
It feels like that critical mass has shrunk, but that doesn't mean it continues to shrink or that you know we're in trouble.
We just had a surprisingly strong jobs number.
There's some asterisks there, and I don't know if it's as good as we hoped, but jobs are okay.
Michigan's consumer sentiment is at a six month high.
I don't want to read into that as like gung-ho either, but there is a glass half full for every glass half empty right now.
And I don't think as investors, we should get too caught up on anything or predict anything.
Yeah, all of the disruption that was supposed to come from AI for the labor market, anyways, doesn't appear to be here yet.
So we will see if that continues throughout 2026.
If there's one thing to watch, and after all I said, you know, don't watch any of it.
But if there's one thing, I do think pricing stability.
And that comes through with inflation numbers.
We haven't had wild surprises.
We're seeing inflation do exactly what economists thought it would.
It's still up.
It's not making life easy.
Again, this is the shrinking critical mass.
But if we can get some sort of pricing stability, I don't know why we can't just go on like this sort of indefinitely.
When we come back, we're going to talk about one of the shocking earnings reports, or at least reactions from the market.
That's with Unity Software.
You're listening to Motley Full Money.
Good for dich.
Good for Berlin.
Welcome back to Motley Full Money.
Let's talk about earnings in Unity.
And this is the AI disruption that I don't know if it's here or we see it coming, but Rachel, Unity actually reported pretty good numbers.
I think they beat on both the top and bottom line.
They had a little bit of weak guidance, but you miss that guidance right now.
The stock's down 30% as we're recording.
Just a wild reaction from the market.
From a high level, what did you see?
Very, very strong response from the market.
I think a lot of this is being driven by the board guidance they gave, which investors saw broadly as disappointing.
And I think there's still intensifying fears of AI-driven disruption.
So their forecast for Q1 revenue between 480 million and 490 million.
That was a bit below Wall Street's consensus estimate of about 494 million.
They also fell a bit short of Wall Street's expectations for their Q1 adjusted EPTA forecast.
And a lot of this suggests that they're seeing a slower ramp up for Vector.
Vector is Unity's AI-powered advertising tool.
They're looking at flat growth for their Unity 6 subscriptions in Q1.
So all of these are reasons why investors seem to be responding the way they are.
The other kind of big thing that's happened recently, and this was where we saw the stock plummet in uh in late January was after Alphabet's Google unveiled Project Genie.
It's basically this generative AI prototype that can create interactive world models.
And so this sparked some fears that Unity could be rendered obsolete.
You know, Unity is still unprofitable, but their revenue is growing.
They're in a good position cash-wise.
I do think the price reaction is a bit of a knee-jerk response to AI uncertainty.
I'll note AI world models are likely to expand, at least in my view, Unity's addressable market rather than replace it, especially because you're at a place where professional game development really remains highly complex.
They really need that platform that Unity has to monetize and advertise their games.
So I think it's important to look beyond the market response into the actual numbers.
Sometimes it's just wrong place, wrong time.
I don't know if Unity is at 30% in trouble.
It looks like the market is reacting, but what we do know is this is the wrong time to provide weak guidance.
Quarter was great, but forecasting lower revenue in EBITDA at a time when there's hyper concern about these businesses.
All we know for sure is that the current business results are okay, if not better than okay.
I thought it was a decent quarter.
To extrapolate more than that, I mean, I think we're supposed to look to the future, so we do need to be aware of these threats.
But in the near term, yes, there's a lot of assumptions being made.
And all we really know is that this business is chugging on and has threats and opportunities, just like most stocks that you consider.
It does seem that the market is leaning towards that risk versus the opportunity side.
And we've had a lot of stocks that were high growth stocks that were just soared in 2025.
Now we're going the opposite direction in a very violent way.
So we'll see if that continues throughout 2026.
As always, people on the program may have interest in the stocks they talk about, and the Motley Bull may have formal recommendations for or against.
So don't buy or sell stocks based solely on what you hear.
All personal finance content follows the Molly Pool's editorial standards and is not approved by advertisers.
Advertisements are sponsored content and provided for informational purposes only.
To see our full advertising disclosure, please check out our show notes.
For Lou Whiteman, Rachel Warren, Dan Boyd, and Christy Waterworth Behind the Glass, I'm Travis Hoyam.
Thanks for listening to Motley Fool Money.
We'll see you here tomorrow.