The last couple of years have been a busy period for Spotify.
While the company is obviously best known for its music streaming, since 2018, the Sweden-born team has been hard at work setting the groundwork for a true audio empire.
The first entry in the space was of course podcasts around 2016. In suit, Spotify’s last 2 years have been a headfirst dive into the podcasting arena. When they announced they were coming, they didn’t say it quietly. I wrote in Twitter and the Cool Kids Club:
The podcasting space is hotter and more highly contested than ever before. In the last 18 months, Spotify has shown that they are not messing around when it comes to long-form and podcast content.
In early 2019 they announced a deal to purchase podcast network Gimlet Media, and Anchor, a podcast creation platform. This reportedly ran them over $340M. Under a year later, they made waves again by acquiring the huge podcast network “The Ringer” for almost $200M.
A just couple of months after that, the Twitter tech world near-on imploded when news broke of Spotify signing a deal with Joe Rogan, bringing all future and past podcasts exclusively to the platform for a rumored $100M. More recently still, Spotify has announced new deals with Kim Kardashian and Warner Bros, to create exclusive new content for the platform.
All of that to say: the podcast space is a difficult one to compete in right now.
Spotify has been throwing around its weight in the audio streaming world full force and shows no signs of stopping. In fact, while one hand was climbing the podcast production ladder in acquiring studios, networks, and household-name talent, the other was busy getting a better feel of the wider audio landscape, with regards to horizontal expansion.
A few days ago as of writing this, a job posting appeared on Spotify’s recruitment directory for a Head of Audiobooks — leading a team within the original content focused Spotify Studios branch.
Some of the role’s broad focuses are listed as:
- Developing and executing the book strategy for Spotify
- Identifying third-party content to license and package on Spotify
- Managing a book Editorial team and strategy
- Helping develop a long-term strategy for audiobooks
This isn’t the first official mention of audiobooks by Spotify, but it’s by far the most significant. A range of audiobooks already exist on the platform in a mostly unofficial format if you dig deep enough within the spoken word categories. The company has explored some initial entries into licensing longer-form narrated content, but the format has been little integrated into the platform overall.
That may be about to change though.
Content is expensive. Music content, especially the larger an artist is, is exceptionally expensive. It’s for this reason that Spotify, and all major media companies, past a certain size, have begun exploring alternatives to content licensing to fuel new releases on their platforms. The playbook is tried and true: Netflix, Prime Video, HBO, and now Spotify are all getting into the original content game.
Sure enough, at scale, it’s much cheaper to produce and distribute your own content than it is to license 100% of your library. Once initial costs are out the way, no royalties to pay, no license agreements to be renewed, it’s all profit.
Spotify understood this as well as anyone else and turned to new formats to build their catalog of original content, this has primarily taken the form of podcasts. Today, audiobooks look like the next step in the move.
The Audiobook Opportunity
The audiobook market is ripe for adoption. The audiobook market for the US alone has been growing at a roughly 20-25% CAGR for the last few years and is expected to continue in suit — at a size of roughly $2.7B+ as of 2019.
The market, though, is more than 50% controlled solely by Amazon as of 2018. Via their Amazon-own audiobook service and primarily through their standalone Audible platform, Amazon sits leaps and bounds ahead of the next nearest entrants, such as Apple, Scribd, or Google Play.
Challenging the audiobook market, then, is to challenge Amazon. Historically, a pretty bold task.
That said, Spotify has solid — or at least not terrible — odds in the fight.
When it comes to long-form content, particularly spoken word, discovery is a challenge. In a 30-minute listening session, music streaming platforms can get some reasonable initial insights into the type of music you like, and, therefore, what will keep you on the platform longest. By song 10, a not too rough first persona can be gauged from your listening habits, in order to recommend and algorithmically queue other songs and artists likely to keep you listening.
Long-form content is harder. By minute 30, you’re barely done with one podcast, and definitely in the early days of one single book, if not one single chapter. This means that for product-first companies like Amazon and Audible, initial recommendations and cross-discovery engines have been primarily limited to analyzing keywords and category genre. For audio-led companies such as Spotify, their recommendation engines dig much deeper than surface metadata to curate well-targeted recommendations and autoplays.
Already analyzing BPM, tone of lyrics, etc, Spotify already has strong inroads in place to analyze audio content and help craft tailored suggestions. Beyond just analyzing the main themes of an audiobook and recommending others, Spotify’s offering across music, podcasts, and audiobooks perfectly positions it to offer rich cross-format recommendations.
Imagine being 5 chapters deep into Lord of the Rings, and Spotify recommends an associated soundtrack, or suggests a LOTR lore discussion podcast, or chapter by chapter breakdown show. Beyond consuming audiobooks as a relatively siloed experience, Spotify is well-positioned to build more immersive long-term experiences in content discovery. Audiobooks tend to be consumed over days/weeks, this cross-format experience offers an immersive timeframe in which Spotify brings you into an augmented media world, full of spinoff discussion shows, book discussion groups, and soundtrack playlists.
This type of 360-degree consumption experience is of course possible on third party sites, specifically crafted to offer the most immersive reading/listening experience, but creating them would be wildly time-consuming, manually crafted.
Spotify has the perfect technology and positioning to facilitate the process.
Means of Production
Speaking of time-consuming, even making the audiobook itself isn’t quite a walk in the park.
On the surface, the process seems pretty simple: sit down with your book, a mic, and a few days to kill; stitch it all together, export, then hit upload.
In practice, though, the task quickly becomes much harder. ACX (Amazon’s audiobook production network), by virtue of its ubiquity, largely sets the baseline for content quality standards across the audiobook world: dictating specific dB ranges to adhere to, bitrates, credit formats, etc. The process isn’t exceedingly hard to figure out, but most authors will avoid it where possible, typically looking for freelance help on ACX.
Spotify’s audiobook game, though, is one step ahead.
As I linked in the job post at the top, the Head of Audiobooks the company’s looking for works more specifically within Spotify Studios, the original content division, and coincidentally, the one that now controls Gimlet Media and Anchor, a studio/network and a platform both highly capable of developing, producing and pushing out intricate long-form content at scale. No more Findaway Voices needed, Spotify Studios has spent the last 2 years making itself into a lean, mean, content machine.
The infrastructure crossover between podcast production and audiobook production almost entirely matches. While podcast studios of course tick the easy boxes of having the right equipment and quality setup environments, Gimlet Media stands as the perfect entry into audiobooks for its (much more valuable) process knowledge. Having an established chain of production, equipment, experts, industry veterans, and a chunky Rolodex will prove invaluable to Spotify, able to circumvent the growing pains of production at scale almost entirely.
The Amazon Problem
This strategy sounds all good and well so far. Production is no issue, the market is steadily growing, and Spotify has some best-in-class features to differentiate itself in the space. So what’s the catch?
The catch, unfortunately, is a cool $71 billion in cash on hand for Amazon.
Amazon’s leverage power in the book, ebook and audiobook space is, to put it lightly, significant. And that’s no coincidence.
Amazon was born into the book world, building the roots of its empire on a groundwork of books. Amazon has unrivaled negotiating power and gravitational pull with both existing and first-time authors, with the pockets to bankroll any opportunity at a moment’s notice.
Beyond that, the ecosystem they now control today was precisely crafted to offer a self-sustaining process of solidifying their leverage. Amazon dominates the online book market, the ebook market, and audiobook market, proportionally unrivaled. The ability to bundle contract offers to publishers across physical, digital and audio releases of a single piece of content drives down their incremental costs, and for just a little less retained commission, secures them exclusive license rights to almost any and all new book releases in the United States initially, and increasingly further afield.
It’s these slightly pricier exclusive rights (Amazon retains 60% of revenue on exclusives, compared to 75% on non-exclusives) that set the barrier to entry extremely high for any determined new entrant into the audiobook market — and not just new entrants:
For Audible listeners, the yellow band on a book cover reading “only from Audible” facilitates a feeling of access to premium content, but for the rest of the book world, it’s an access barrier.
It means that the audiobook in question can only be sold through Amazon’s Audible. No other retailers or providers can sell or distribute the digital audiobook, including bookstores and libraries.
I’m not here to port judgment on the ethics of exclusive distribution rights, rather to show that for the majority of authors lacking an existing large reader audience, capturing that extra 15% on audiobook sales seems like a no-brainer. For most authors, namely the increasing number of self-published writers, where else are you realistically looking at distributing your book/audiobook at any significant volume. Amazon has the audience, Amazon has the infrastructure in place, might as well go full-Amazon — most everyone would have bought from Amazon anyway!
This outsized leverage is the major hurdle to overcome for audiobook entrants, Spotify very much included. Growing a library is hard when your lead competition outlaws the distribution of, well, almost all books. When faced with barriers to entry so high, though, one has to begin to wonder if there’s not another way of doing things?
The Podcast Back Door
While Amazon dominates most markets they enter with their outsized leverage across various verticals, Spotify further dominates in their one specific space: music. It’s this leverage that set the groundwork for their podcast expansion. In essence, attracting users with their more costly music offering all these years, and now attempting to shift that acquired audience towards less costly, owned media verticals, in the form of podcasts. This goes back to the bold list of acquisitions and exclusivity deals of the past couple years, from production studios, to Joe Rogan, to the DC superhero universe, to Kim Kardashian West, to Michelle Obama.
Similarly, this groundwork in the form of podcasts can serve Spotify as their point of most leverage in developing their audiobook offering.
It’s easier than ever before to create books and ebooks at costs lower than ever before. Self-publishing has been on the rise for years.
As such, the majority of ebook and audiobook authors turn to Amazon as the only reasonable destination to sell. While Amazon has long adopted a focus on attracting book-led authors, Spotify is in a position to disrupt the equation by, instead, adopting a focus on attracting passion economy-led creators. In lockstep with the growth of the podcast format on the platform, audiobooks are poised to benefit from the rising tide to float all boats.
The market, today, is undeniably smaller. For authors, adding an audiobook format is a relatively simple process within the entire publishing process. For podcasters, audiobooks represent an entirely new format, but one they’re familiar with from another angle. Where authors look at audiobooks as an extension of their writing format, podcasters look at audiobooks as an extension of the range of products they offer to build a personal (or corporate) brand.
Spotify is already well underway in a mission to attract new podcasters and exclusivize their distribution, in return for more direct monetization opportunities on-platform than they would receive elsewhere. Spotify is in a position to offer a 1-2 combo of affiliate revenue for attracting new paid subscribers to Spotify Premium in order to access audiobooks of creators they already listen to, and the advertising/play revenue already in place for artists on the platform. For podcasters, these audiobooks would less resemble an actual book-style story, but a higher-quality, higher value, story-driven extension of their tried and true podcast format.
Imagine, for example, that the first chapter of a given creator’s ebook was available for listening under the free Spotify plan, just as their podcast already is. For a creator you already listen to and are actively engaged with, you’re rarely not going to at least try that first free chapter. Building off an already warm prospect, the allure of the rest of the audiobook behind only a $10/mo paywall, also granting access to all Premium features already established on the platform, is a strong one. Moreover, it sounds a much more affordable option relative to an Audible subscription, at a 50% higher price point, with extra costs behind that.
For traditional authors, the gravitational pull of the Amazon ecosystem does undeniably remain strong. The revenue gleaned from Spotify on actual plays would be marginal relative to Amazon/Audible — rather, here, using Premium affiliate revenue as a proxy for incremental audiobook releases. As such, an audiobook strategy for Spotify has lower barriers to entry by targeting podcasters and digital creators, compared to those possible in building a fully-fledged Audible competitor, targeting the author and publisher market more broadly. This, while further simplifying the audiobook creation process relative to Amazon, making audiobook publishing more accessible to creators.
I mentioned higher up that this recent job posting isn’t the first mention of audiobooks by Spotify. One of the earliest mentions I could find of the format with regards to the streaming company is in the context of Spotify Kids.
In a similar fashion to the popular YouTube Kids app, Spotify Kids is a protected, standalone platform with restricted access and child-oriented content. In the announcement post for Spotify Kids late 2019, they made an initial indication of exploration of the audiobook format in the context of this Kids offering:
As we evolve the Spotify Kids experience over time, we plan to enhance parental control features to allow for even more customization. We’ll also bring our audio expertise to the table with listening experiences that go beyond music—like more stories and audiobooks and eventually podcasts.
The Spotify Kids offering looks to develop their content offering in the opposite way to the standard platform, focusing efforts on story-driven content before moving towards podcasts, but the exploration of the format remains just as interesting.
In 2017, audiobooks for children represented 10% of audiobooks sold in the US, 25% in France, and more than 40% in China. The market opportunity for kid-focused audiobooks is significant. It’s worth noting, in the US, the seemingly low penetration of youth content in the market is likely less an indication of low interest by children, but rather an outsized interest in audiobooks by adults, relative to other markets. In France and China, audiobooks are a much less ubiquitous type of content for adults, largely due to Audible’s aggressive advertising efforts heavily concentrated in the US these last years.
Spotify dipping their toes in the water of audiobook content in the kids space is a strong indication of the ambitions the company has in the audiobook space as a whole. On the kids-end, the opportunity to develop a holistic educational and story-driven content offering is massive, and the existing omnipresence of Spotify in American households would empower its growth in millennial families with young children significantly.
The Ambient Battle
Moreover, the progressive move towards long-form content like podcasting and audiobooks reflects an ongoing shift in the overall Spotify strategy. The production of high-margin original content is a means to an end. Rather than trying to be the lions’ share of audio time, they want to lower the distinction between audio time and time itself — representing a shift towards an ambient media company, filling the silence in the day with something entertaining or informative.
Brett Bivens wrote a great piece specifically about this shift over at Venture Desktop, stating the situation succinctly:
The real winner in audio over the next 10 years will also need to own an outsize share of something much larger — the consumer’s ambient hours.
To democratize ambient media content, beyond just offering audiobooks, building them into an integral part of your day, a critical factor remains the physical device via which the ambient content is consumed. Spotify’s ambient future wouldn’t have been possible without the rise of the smart speaker and voice assistant services in the last years.
Today, a whopping 25% of households in the US have at least one smart speaker or voice assistant physical device. This is perfect groundwork upon which Spotify can build their ambient media empire. The outsized success of AirPods, also, has heavily contributed to this groundwork also, pushing the “eyes-up” ambient media opportunity years ahead, with over 70% of worldwide wireless headphone unit sales.
If indeed, the real winner in audio will be the one to own the consumer’s ambient hours, Spotify is setting itself up masterfully for victory. Making use of the groundwork laid by audio hardware companies, and developing their offer to expand to long-form, owned media content, Spotify is already underway in expanding their audio empire.
Music was the launching pad for their dominance, podcasts are shaping up to be the second. To take over the fierce battleground of audio streaming services, though, audiobooks will be the next frontier, and Spotify is leading the charge.