Beginning of the Future – Audio

By Nick Strann, John Lustyan | Part 2 of 3

Part 2 of Spotlit’s Three Part Series detailing the under reported trends of 2020. Other topics include:

Part 2: Audio – The Approaching Arms Race in…Audiobooks?

On Friday, The Information reported that Apple has begun exploring what it would take to launch a paid podcasting service. A  consumer survey spotted in early November strongly suggests Spotify is nearing a similar product. Couple these moves with $800M+ of podcasting acquisitions in 2020 alone and it becomes clear (even though it was already abundantly so) that Big Tech sees podcasting as THE segment ripe for the exclusive content, monthly subscription playbook. The question no one really seems to be answering, however, is who will actually pay for podcasts in the first place?

Consumer willingness to pay has always been the podcast industry’s greatest obstacle and there is little evidence of that changing in 2021. Even with the sheer amount of capital thrown at exclusive “premium” podcasts this past year, Citibank recently downgraded Spotify to a sell, stating “To date, we have not seen a material positive inflection in app downloads or Premium subscriptions [as a result of investments in podcasting.]” Some might argue that it just takes a handful of industry heavyweight going 100% behind a paywall, but it’s difficult to see even Joe Rogan sustaining his massive fanbase in that scenario. Case in point, Tim Ferris experimented with this tactic in 2019 and was promptly met with 72% of his fans rejecting the notion of paying for podcasts.

But what if we told you that there was another segment of the audio market with almost the exact same IP incubation and ownership benefits (regular film/TV adaptation, merchandising opps), a larger yet similarly explosive trajectory ($2.4B US market, 8 years of double-digit growth) AND a long history of consumers paying for content, including recurring subscription models with millions of users?

That segment exists, its Audiobooks, and the audiobook market quietly got VERY interesting in 2020.

Last year, while the entertainment hype and corp dev machine was focused on the potential of podcasts, Apple and Spotify both began hiring publishing industry executives/consultants in order to more thoroughly explore and expand audiobooks (and share of ear) on their respective platforms. Simultaneously, dominant market leader Audible rolled out Audible Plus – an all-you-listen subscription service priced at $7.95 a month – moving the publishing industry one step closer to the business models of music (Spotlit’s 9/8 Hot Spot discusses this further). As parent company Amazon starts to focus more and more attention on the audio space in support of its advertising and Alexa line of products, we at Spotlit expect that Amazon will move to further integrate Audible into its Amazon Music service in 2021, offering music, podcasts, and audiobooks all on one platform. This will in turn intensify competitive pressure and accelerate the audiobook ambitions of Apple and Spotify, shifting the nature of the music streaming arms race in a completely new direction.

Key Takeaways:

  • For Streaming Platforms – The major players in the podcast space are all pretty much off the table and biz dev teams should shift their attention to audiobook publishers (and their customers) now before competitive bidding situations become the name of the game. The valuations and non-core business lines of a Big Four Publisher (Penguin Random House, Hachette, Harper Collins, Macmillan) won’t make sense but genre focused publishers with a strong audiobook track records should be considered for their breakout potential. Companies like Podium Audio and Blackstone stand out.
  • For Publishers – Audible’s stranglehold on the audiobook market will act defensively against moves made by competitors, and they’ve got the marketing levers on-platform to impact your sales. Thus, diversifying distribution will hurt the bottom line in the short term. On the other hand, establishing preferential deal terms with hungry for content platforms like Apple Books and Spotify could pay dividends in the long run. If you have to choose, Spotify has been looking to cut the right deal in audiobooks for some time. Start there.