Whether it’s video or audio, it’s been tough lately to be a streaming business. Companies are having to get creative to make sure their businesses remain favorable investments in the eyes of their shareholders. That’s why streaming audio giant Spotify is looking to dominate with its next ambitious venture: audiobooks.
Audiobooks currently represent a roughly $10 billion global market, and CEO Daniel Ek predicted at Spotify’s recent investor day presentation earlier this month that could eventually grow to $70 billion, with his commanding a big portion of the market. Spotify finalized its acquisition of audiobook distributor Findaway about a week ago.
While Spotify’s ambitions around audiobooks may seem grand, recent results from an exclusive survey by Maru Group for VIP+ found that American consumers might actually be more interested in audiobooks than some may have thought.
The survey, conducted among more than 1,500 American adults between June 17 and June 19, found that the number of audiobook subscribers could grow by up to 50%. Among those who do not currently have an audiobook subscription, or about 87% of the population, 7% are definitely/probably going to sign up for an audiobook subscription in the next 12 months. And while 7% may seem small, that does represent about 16 million Americans—or about half of number of current subscribers.
Audiobooks have yet to gain mass popularity among the U.S. population, with only 23% of respondents surveyed having listened to an audiobook in the past month. In addition, only about 12% purchased an audiobook in the past month, and 13% currently have an audiobook subscription.
Despite the lack of active usership currently, there is solid growth potential for Spotify. But there is some competition in the space, and the current market leader is Amazon-owned Audible, according to the survey. Participants also have listened to audiobooks on Audiobooks.com, which is owned by Swedish audiobook streaming group Storytel, and Google Audiobooks.
Spotify is no stranger to competition. When the streaming giant jumped into the podcast business, Apple Podcasts was the largest player, and many had doubts then, too. Fast forward to 2022, and Spotify has the biggest market share in the U.S.
With a slew of exclusive podcast deals, Spotify was able to grow its podcast biz among its 422 million total monthly active users, as of the end of Q1. Spotify’s massive user base is its greatest advantage, and management expects that base to grow to a whopping one billion globally by 2030.
The convenience of being a one-stop shop for all streaming audio needs is a major value proposition for Spotify. It said about 30% of Spotify’s user base, or roughly 125 million monthly users, listened to podcasts in the first quarter of this year, which represented 7% of total listening hours on the platform during the period.
Despite the success of Ek’s strategy around podcasts, some are still skeptical of Ek’s lofty promises. Even as Spotify’s podcast biz has grown significantly, it’s still not profitable. According to CFO Paul Vogel, Spotify’s podcast business had negative gross margins of 57% last year and losses will peak in 2022. Nevertheless, Ek said he believed the podcast business could see gross margins between 40% to 50% over the next five years.
Ek said that audiobooks could ultimately provide similar margins to podcasts if the company can build a marketplace of creator tools around them. Spotify’s creator base is just as important to its growth as its user base.
Even as Spotify has managed to post impressive growth thus far, growth alone is not enough for investors anymore. The real challenge lies in being able to monetize those users and ultimately post margin expansion. The benefits of its heavy investments into its podcasts business have yet to be realized, and the same narrative will likely play out for its audiobooks venture.
Only time will tell. As management explained earlier this month, Spotify isn’t for investors looking for short-term returns, and the real return on investment will take at least a decade.