The latest plot twist in the saga of Spotify is one we should have seen coming: the company that describes itself as “the world’s most popular audio subscription service”, is getting into audiobooks. Properly getting stuck into them. It overheard its rivals staging an audiobook party, decided it wanted in and soon it plans to barge into the kitchen popping other people’s corks.
For an undisclosed sum, the Stockholm-founded, New York-listed audio streamer has bought Findaway, a US audio tech company that has partnerships with audiobook publishers including Amazon's Audible, Apple iBooks, Google and Sweden's Storytel and also owns the audiobook self-publishing house Voices.
The logic is impeccable. After carving out the music streaming industry we know today but finding itself at the mercy of the Big Three labels, Spotify segued into podcasts in 2018, snapping up the platforms Anchor and Gimlet and then buying exclusive rights to US-targeting podcasts from Michelle Obama, Harry-and-Meghan and vaccine misinformation spreader Joe Rogan.
‘Big potential’
Now the company, led by founder Daniel Ek, says it has surveyed its users and discovered that many of them who listened to true crime podcasts went on to buy true crime audiobooks. Its distribution platform, or more specifically its user base, therefore offers "big potential" to publishers.
Spotify, which already has a tie-up with Storytel, wants its users to "be able to buy any audiobook on Spotify and listen to it". If it hasn't got Taylor Swift narrating the classics by Christmas, it'll be missing a trick.
And yet the clearest story its new audiobook enthusiasm tells isn’t the one about podcasts being the gateway drug to audiobooks. It’s much more high-level than that. Spotify has seized upon its latest diversion because it must.
As a publicly quoted company in the investment phase of its evolution – a polite way of saying it only ever seems to make a profit accidentally – Spotify absolutely must diversify into less mature adjacent markets. The first sign of sluggishness in its existing, maturing markets will fast trigger a crisis of confidence unless it has something else to offer.
Is this company really worth what investors think it is (about $54 billion, based on Friday evening’s market capitalisation)? Does it have anywhere to go? To prevent awkward questions like these buzzing around investment circles, Spotify must be relentless in its quest to lock down its next source of revenue growth. It can’t just amble along a pre-trodden path.
‘Pivot to video’
A happy ending is not guaranteed. Indeed, you don’t have to go very far back in time to find examples of media businesses that latched onto new and shiny things in order to keep investors satisfied, only for the new and shiny things to turn out to be mirages.
The infamous “pivot to video” trend at the midpoint of the last decade, for instance, saw writers at mostly un-unionised US news media sites laid off en masse and replaced by video producers because their employers wanted to ride an apparent wave of social media advertising revenues and also appear up-to-speed in presentations to private-equity financiers.
Alas, when the great social bonanza failed to materialise – with Facebook apologising in 2016 for overstating its video viewership numbers – the new hires were soon unhired and "pivot to video" became a euphemism for shoddy treatment, as well as a phrase synonymous with failure and a dark joke about how nobody knows anything.
Precious few business aphorisms have stuck in my mind over the years, but one that has lodged itself there is something I heard Belgian businessman Luc Vandevelde say at a conference once: "Companies talk about strategic investments, but if you hear the word 'strategic', watch out. It means: 'You shouldn't expect a return on your investment, at least not as long as I'm chief executive officer.'"
Strategy is important. Having one is better than not having one. Having access to the capital that helps you execute a strategy is preferable to being trapped without financial leeway, unable to respond as better-financed behemoths run away with your market.
But the word “strategic” is a signifier too. It means “don’t be so impatient”. It means “don’t judge us, we’re playing a long game”. And it might be a very long game. While a good strategy will lead to a good profit, and a bad one to a bad loss, the chances are the timescales involved will be so stretched out, the outcome is not especially material to the leadership that proposes the strategy in the first place. They and their remuneration packages may be long gone before the verdict is in.
Among publicly quoted enterprises, the cycle can seem self-perpetuating: to maintain investors’ interest, a company flirting on the edge of profits must dangle the prospect of bigger profits later on.
If growth is slowing down, they go on buying sprees that will bump up the quarterly figures. Later, an opportunity might arise to divest themselves of unloved parts, with deals structured to trigger executive windfalls. If the unit being sold or spun off happens to be the original business, then never mind. There is no room for sentiment.
Market forecasts
Spotify is, as Ek said recently, “just getting started”. By discovering audiobooks, it’s diving into a “rapidly growing industry”, one it believes will grow from $3.3 billion to $15 billion by 2027.
This forecast hails from a study by Grand View Research. Another research firm, Omdia, predicts that the market, having crossed $4 billion last year by its count, will be worth $9.3 billion by 2026. Now either 2026 will be a bumper year for audiobooks of extreme proportions or market forecasts have been known to vary. Either way, no self-respecting audio streamer could sit this out.
Still, then what? Well, Netflix is edging into podcasts. Anyone for a Spotify pivot to video?
