Spotify’s Shift to Audiobooks Amplifies Concerns Over Profit Margins

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Looking for something to brighten your day during your boring commute? Why not listen to Jeremy Irons reading Brideshead Revisited. However, Spotify’s venture into audiobooks may not have the same effect on investors.

Spotify, the US-listed streaming platform, is eager to expand its reach in the audiobook segment. While its music subscription business is growing, with 551 million monthly active users in the second quarter of 2023, a 27% increase from the previous year, the distributor faces thin margins due to a significant portion of its revenues going to labels and artists. Podcasts, which Spotify heavily invested in, have proven to be a costly distraction.

According to Richard Kramer, founder of Arete Research, Spotify is expected to incur an operating loss of €473 million this year. The stock price has remained relatively stagnant since its direct listing in 2018, while the Nasdaq Index has seen significant growth.

Expanding into the audiobook market allows Spotify to tap into a small yet rapidly growing industry. In 2022, global audiobook revenues reached $5.4 billion, as reported by WordsRated. This move aligns with Spotify’s strategy of becoming a comprehensive one-stop listening platform.

However, the economics of this expansion present challenges. In the initial phase, Spotify is offering 15 hours of monthly content, equivalent to about one and a half books, to existing premium subscribers in the UK and Australia, with the US set to follow suit.

This provides great value for subscribers, considering that a credit on Amazon’s Audible, which covers one book, costs £7.99. This offer may encourage further growth. Nevertheless, it is likely that Spotify will need to compensate publishers for the content.

Spotify’s primary objective is to increase its subscriber base and monetize it later. However, this position may put the company at a disadvantage. Although publishing houses may offer favorable terms to foster the growth of a competitor to Amazon’s Audible, it will be difficult to rival the purchasing power of such a dominant entity.