State Champ Radio audiobooks
What began as a music-only streaming platform evolved into a broader audio platform that included podcasts and audiobooks. Now, Spotify is venturing into video — in both snippets and long-form content, although the latter is only in an experimental phase.
During Tuesday’s Q2 earnings call, CEO Daniel Ek and interim CFO Ben Kung repeatedly referred to “the Spotify Machine” when explaining the company’s expansion beyond music. As Ek explained, the term means the company “isn’t just a sort of one-trick pony anymore, but it’s actually multiple verticals working together” to create more choice for consumers and drive more engagement.
“Because you may come for the music and stay for the audiobooks,” Ek said. “Some customers may come for the podcast and stay for the audiobooks.”
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The term makes sense: Spotify is an increasingly complex product with multiple moving parts, numerous audio and video formats, and a variety of paid tiers. Each new component to the machine is meant to make the company more valuable as a whole. Similarly, concert promoter and ticketing company Live Nation uses the term “flywheel” to describe how its various products and business segments provide momentum for the larger entity. But “the machine” has a better ring to it.
The machine is integral to becoming a sustainable, profitable company. As Spotify detailed in its 2022 investor day presentation, branching out from music will help improve its gross margins and become the profitable company it has long aspired to be. Music margins are roughly 30% of revenue — the remaining 70% goes to rights holders — and will top out at 35%, the company has said. At that 2022 presentation, Spotify said podcast margins can reach 40-50% gross margin and overall gross margin can get to 40% (gross margin rose to 27.6% in Q1 from 25.2% a year earlier).
The machine helps increase engagement. Spotify is more valuable if people spend more time using it. When engagement increases, churn decreases, which in turn reduces the expense involved in bringing those lapsed customers back. When engagement increases, free users are more likely to become paid subscribers. The last thing a streaming service wants is an infrequent customer who doesn’t enjoy the features or delve deep into its content. Audiobooks are a good example of keeping people hooked: Ek said that in the markets where audiobooks are available, 25% of users are listening to them. What’s more, in the first two weeks a Spotify user listens to audiobooks, Spotify sees “over two and a half hours of incremental usage on the audiobook side,” he said.
The machine gives users greater freedom of choice. Ek confirmed Spotify will have an audiobook-only subscription tier along with a music-only tier; the standard subscription tier offers both music and audiobooks. Over the years, Spotify has given consumers multiple options to choose from: an individual plan, a two-person plan called Duo, a multi-user family plan, and, in certain markets, the ability to purchase one day at a time. Spotify wants to provide “as much flexibility as possible in this next stage of Spotify” to convert more users to paid subscribers, Ek explained.
The machine is built to maximize value. Ek and Kung frequently mentioned a particular internal metric, a value-to-price ratio, that Spotify uses as a North Star these days. By adding podcasts, audiobooks and education, as well as features such as Wrapped — Spotify’s personalized year-end recap — Spotify delivers more value than it provided when it was a simpler, music-only service. Ek singled out the videos that Spotify has added in “11 or 12” markets and built anticipation for video clips that will allow artists to tell stories about their new releases. Such videos are one way Spotify is “focused on winning discovery” to make the platform a better listening experience, Ek said. Spotify’s recent foray into educational video courses in the U.K. is another stab at adding value.
The machine ultimately gives Spotify the ability to raise prices. When Spotify adds products and features, EK explained, it increases its value-to-price ratio. That, in turn, allows it to occasionally raise prices to capture the value it created. “The way you should think about this as investors is the better we can improve the product, the more people engage with our product, and the more value we ultimately create,” Ek said. “And the more value we create, the more ability we will have to then capture some of that value by price increases.” After more than a decade of value creation and stagnant prices, Spotify raised rates in July 2023. In April, it again hiked rates in select markets — including the United Kingdom and Australia — and is expected to expand those increases to additional markets.
The machine also requires a feat of engineering. “It’s a fairly complex machine,” Kung said, because Spotify has both variable-cost models, such as revenue sharing and per-hour royalties, and fixed-cost models — some in-house and licensed podcast content, perhaps. Ek added that “the machine takes care of all the complexity on the back end to deal with what was historically a very difficult problem to solve, which is multiple business models in one consumer experience.” Spotify’s engineering challenge is incorporating additional verticals into a seamless user experience without getting clunky — a criticism often launched at iTunes, which started as a music store and added videos, books, apps, podcasts and iTunes U, a place for educational materials. “Simplicity is hard,” a former Apple product designer once wrote. “Very hard. But when you get it, it’s beautiful.”
The machine might take some getting used to. As Spotify branches out to non-music verticals, it has stakeholders other than the music rights holders, artists and songwriters it has served for more than a decade. Now, Spotify also supports podcasters, authors and — although in the early stages — educators. That has already created some tension between music publishers and Spotify following news that Spotify considers its music-audiobook subscription offering to be a bundle under the Phonorecords IV mechanical rate structure in the United States. Subscription bundles allow Spotify to pay a slightly lower royalty rate. But really, is anybody surprised that the machine is trying to save a little money?
Bono’s audiobook Surrender, which the U2 frontman authored and narrated, was named Audiobook of the Year at the 2024 Audie Awards, which recognize distinction in audiobooks and spoken-word entertainment. The awards were presented at the Avalon Hollywood in Los Angeles on Monday (March 4).
Bono’s audiobook, subtitled 40 Songs, One Story, was released by Penguin Random House Audio in November 2022. It runs 20 hours and 25 minutes. A companion album, Songs of Surrender, debuted and peaked at No. 5 on the Billboard 200 in April 2023.
The four other finalists for audiobook of the year were All the Sinners Bleed by S.A. Cosby, narrated by Adam Lazarre-White, published by Macmillan Audio; Inside Voice: My Obsession with How We Sound, written and narrated by Lake Bell, published by Pushkin Industries; Sing a Black Girl’s Song, by Ntozake Shange, edited by Imani Perry, foreword by Tarana Burke, narrated by Alfre Woodard, D. Woods and full cast, published by Hachette Audio; and Tom Lake by Ann Patchett, narrated by Meryl Streep, published by HarperAudio.
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Oscar-nominated screenwriter Nia Vardalos (My Big Fat Greek Wedding) hosted the awards show. Presenters included Felicia Day (a 2024 Audie Award winner), Lake Bell (a 2024 finalist) and Samira Wiley (a 2021 finalist).
Former first lady Michelle Obama won in the business/personal development category for The Light We Carry. Six-time Tony winner Audra McDonald won in the literary fiction & classics category for Homer’s The Iliad. In the humor category, the winner was Leslie F*cking Jones, written and narrated by Leslie Jones, with a foreward by Chris Rock.
All 27 categories were gender-neutral this year. The best male narrator and best female narrator categories were transformed to best fiction narrator and best non-fiction narrator.
The awards are presented by Audio Publishers Association (APA), a not-for-profit trade organization. Since 1986, the APA has worked to bring audio publishers together to increase interest in audiobooks.
The full list of winners can be found on the APA’s website: audiopub.org.
Here are 2024 Audie Award winners in selected categories:
Audiobook of the year
Surrender
Written and narrated by Bono
Published by Penguin Random House Audio
Autobiography/memoir
Making It So
Written and narrated by Patrick Stewart
Published by Simon & Schuster Audio
Business/personal development
The Light We Carry
Written and narrated by Michelle Obama
Published by Penguin Random House Audio
Fantasy
The Dragon Reborn
By Robert Jordan
Narrated by Rosamund Pike
Published by Macmillan Audio
Fiction
Tom Lake
By Ann Patchett
Narrated by Meryl Streep
Published by HarperAudio
Humor
Leslie F*cking Jones
Written and narrated by Leslie Jones, foreword by Chris Rock
Published by Hachette Audio
Literary fiction & classics
The Iliad
By Homer, translated by Emily Wilson
Narrated by Audra McDonald
Published by Audible Studios
Short stories/collections
Wild and Precious: A Celebration of Mary Oliver
By Mary Oliver, with the contributions by Sophia Bush, Ross Gay, Samin Nosrat, Rainn Wilson, and Susan Cain
Narrated by Sophia Bush
Published by Pushkin Industries
Dolly Parton, Bono, “Weird Al” Yankovic and other music personalities are among the finalists for the 2024 Audie Awards, which recognize distinction in audiobooks and spoken-word entertainment. The nominations, which are presented by the Audio Publishers Association (APA), go to the narrators rather than the authors (unless they are one and the same). Winners across 27 competitive categories will be revealed on March 4 in Los Angeles.
Parton is nominated in the autobiography/memoir category for Behind the Seams, which she wrote and narrated with Holly George-Warren and Rebecca Seaver. Her competition includes actor Patrick Stewart for Making It So.
Bono is nominated for the top award, audiobook for the year, for Surrender, which he both wrote and narrated. His competition includes Meryl Streep, the narrator of Ann Patchett’s Tom Lake.
Yankovic is nominated in the multi-voiced performance category for Surely You Can’t Be Serious: The True Story of Airplane!. Yankovic narrated the saga of the 1980 comedy classic with a full cast including Barry Diller, Beau Bridges, Bill Hader, David Zucker, Jerry Zucker, Jim Abrahams and Jimmy Kimmel.
Because nominations go to the narrators, the nominee for best non-fiction narrator for Britney Spears’ best-seller The Woman in Me is its narrator, Michelle Williams rather than the pop superstar.
Nominees in the narration by the author(s) category include former first lady Michelle Obama for The Light We Carry and, again, Patrick Stewart for Making It So.
Obama is also nominated in the business/personal development category for The Light We Carry, where she faces Tony and Emmy winner Sheryl Lee Ralph, nominated for Diva 2.0: 12 Life Lessons from Me for You.
Six-time Tony winner Audra McDonald is nominated in the literary fiction & classics category for Homer’s The Iliad. Among the other nominees in the category: two-time Oscar winner Tom Hanks for his own book The Making of Another Major Motion Picture Masterpiece, with a full cast including Rita Wilson, Natalie Morales, Ego Nwodim and Holland Taylor.
Tony and Grammy winner Leslie Odom Jr. is nominated in the young listeners category for I Love You More Than You’ll Ever Know, which he narrated with his wife, Nicolette Robinson.
In the humor category, the nominees include Leslie F*cking Jones, written and narrated by Leslie Jones, with a foreward by Chris Rock.
All 27 categories are gender-neutral this year. The best male narrator and best female narrator categories have been transformed to best fiction narrator and best non-fiction narrator.
The full list of nominations can be found on the APA’s website: audiopub.org.
Starting Wednesday (Nov. 8), Spotify subscribers in the United States can effortless transition from Britney Spears’ music to her recently released audiobiography, The Woman in Me, thanks to the launch of its previously announced offering of 15 hours of free audiobook streaming per month in Spotify Premium.
The Spotify Premium audiobook catalog includes more than 200,000 titles, over 70% of them bestselling titles from all five major book publishers (Hachette, HarperCollins Publishers, Macmillan, Penguin Random House, Simon & Schuster and RB Media) as well as independent publishers such as Bolinda, Dreamscape and Pushkin. Although Spotify has offered audiobooks since Sept. 2022, the user experience has been less than optimal. Users could listen to audiobooks in the Spotify app but, because Spotify wants to avoid costly in-app fees, users must purchase titles at its website.
Spotify announced its audiobook strategy on Oct. 3 and initially gave access to the company’s audiobook catalog only to subscribers in the United Kingdom and Australia. Rolling out audiobook streaming in its largest market will allow Spotify to better capture the expected benefits of offering free listening to a segment of its 226 million subscribers. “This greatly improves our offering, which will increase engagement on Spotify, which will then, of course, reduce churn,” explained CEO Daniel Ek at an Oct. 3 event.
Listeners who exceed the 15-hour monthly allotment can purchase additional listening time. In the early days of the audiobook offering in the United Kingdom and Australia, Spotify has “already seen consumers doing that in ways we probably wouldn’t have imagined, where some consumers are heavily upgrading and being really heavy audiobook listeners [from] day one,” Ek said during the company’s Oct. 24 earnings call.
To help listeners find audiobooks, Spotify offers an audiobook button on the search page and offers an editorially curated selection of popular titles at its audiobooks hub. Listeners can search by category — such as mystery & thriller or self-help — and scroll through lists such as “From book to screen” and “As seen on social media.”
The impetus for audiobook streaming harkens back to Spotify’s origins as a friction-less substitute for digital piracy that had decimated record label revenues by the time Spotify was founded in 2006. “We looked at the world and we thought the only way to beat piracy was to offer a much better experience,” said Ek during the Oct. 3 event. In 2018, Spotify applied the lessons it learned in music to a new format, podcasts, and, Ek claimed, added more than 100 million to podcast listeners to the ecosystem. “This created a win-win,” he explained. “The more people listened to podcasts, the more music grew. And the more people listened to music, the more podcasting grew as well.”
Now, Spotify sees audiobooks as the next opportunity to revitalize an underserved ecosystem with a single dominant player — Amazon-owned Audible in this case. “And just like in music and podcasting,” said Ek, “we’re really excited to be able to bring all the amazing tools that we built for creators and consumers alike to enable more discovery of these amazing audiobooks to the world.”
Spotify is giving subscribers in some of the company’s largest markets up to 15 hours of listening time per month to a library of more than 150,000 audiobooks, the company announced Tuesday (Oct. 3). Audiobook access is available to premium individual subscribers as well as the primary account holders for family and Duo accounts (a […]
Nir Zicherman, the executive overseeing Spotify’s audiobooks expansion, is leaving the company at the start of October after more than four years as an executive at the audio giant.
In an interview with The Hollywood Reporter, Zicherman — currently the the vp and global head of audiobooks at Spotify — said he is departing to return to his “entrepreneurial roots with a new project in the startup space.” Zicherman first joined Spotify in 2019 after the company acquired Anchor, the podcasting platform that Zicherman co-founded with Michael Mignano, as part of Spotify’s podcast product division. He was later tapped to oversee Spotify’s growing audiobooks business, which formally launched last September with an à la carte model but has faced setbacks in user adoption in part due to Apple’s App Store policies around in-app purchases.
“After a total of 9 years working across Spotify and Anchor, I’ve decided that it’s time for the next chapter in my career,” Zicherman, whose last day is Sept. 30, told THR in an email. “I’m extremely proud of the work the team has done, and now that we’ve successfully established a foundation, I’m excited about what’s next for audiobooks at Spotify — but I’m an entrepreneur at heart, and on a personal level, I’m excited to be getting back to the startup world. I felt that now was a good time to begin that transition, as the team at Spotify is set up well for success in our future work.”
As Spotify begins the search for Zicherman’s successor to lead the company’s audiobooks product strategy, Spotify’s vp business affairs, David Kaefer, will continue overseeing the business side of the audiobooks expansion.
Zicherman, whose upcoming departure was first reported by The Verge, is the latest in a string of podcast-adjacent executives at Spotify to leave. In the past year, those exits have included Courtney Holt, a major dealmaker for Spotify’s podcasting expansion; Mignano, the Anchor co-founder who left to become a partner at Lightspeed Venture Partners; and Dawn Ostroff, the chief content and ad business officer.
In addition to Zicherman, upcoming executive departures include Max Cutler, the company’s top creator partnerships executive and founder of the Spotify-acquired podcast studio Parcast, who is set to leave in May. In announcing his decision to leave in February, Cutler told staff that he was similarly leaving Spotify to “return to [his] entrepreneurial roots” and launch his own venture, though has not yet shared additional details on that business.
This article was originally published by The Hollywood Reporter.
After taking her hit 2015 song and turning it into a novel, Hayley Kiyoko is ready to bring Girls Like Girls to new life with a little help from some of her LGBTQ friends.
On Tuesday (April 4), Kiyoko announced the official audiobook for her upcoming novel, Girls Like Girls. Along with Kiyoko portraying the main character Coley, the new audiobook will boast an all-queer cast, including voice actor Natalie Naudus as Sonya, 13 Reasons Why‘s Brandon Flynn as Trenton, Pretty Little Liars: Original Sin‘s Malia Pyles as SJ, and MUNA frontperson Katie Gavin as Brooke.
“I am so honored and excited to have Natalie Nadus, Brandon Flynn, Malia Pyles, and Katie Gavin join me in voicing the characters from Girls Like Girls for the novel’s official audiobook recording,” Kiyoko said of the casting in a statement. “They have all made such a positive impact on the queer community through their art and by living their authentic truth each and every day. I couldn’t have asked for a better cast to help me tell this story.”
Kiyoko’s debut young adult novel is loosely based on her 2015 single of the same name, telling the story of a girl named Coley, who moves to Oregon and meets Sonya. According to a synopsis of the upcoming novel, “neither girl is sure they are ready to open their heart and accept the love they fear and deserve most.”
Both Girls Like Girls the novel and the audiobook arrive May 30, 2023 — pre-order the new audiobook here, and watch the original video for “Girls Like Girls” (directed by Kiyoko herself) below:
The areas of the audio marketplace with the highest growth rates don’t involve music or young people. As online listening growth slows and smartphone ownership is nearly ubiquitous, podcasts and audiobooks stand out in Edison Research’s The Infinite Dial 2023 report.
In 2023, weekly podcast listening reached 40% of people aged 12 to 34, up from 33% in 2022; and 39% for the 35-to-54 age group, up from 31% the year before, the report states. The 55-and-over audience remained at 14% after falling from 17% in 2021. The average U.S. podcast listener averages nine podcasts per week, with 19% listening to 11 or more.
Those growth rates contrast with slowdowns in smartphone penetration (now at 91% of the U.S. population), social media usage (flat at 82% of the population for three straight years) and monthly online audio listening (up slightly from 73% in 2022 to 75% this year).
But podcasts appear to have room for more growth. The percentage of people who listened to a podcast in the last month was 42% — 28 percentage points lower than online audio listenership.
About 183 million people — 64% of the U.S. population 12 and over — has ever listened to a podcast. That’s up from 44% of the population five years earlier and 27% a decade ago.
Audiobooks are also growing. The percentage of Americans who listened to an audiobook in the last year rose to 35% of the U.S. population — up from 28% a year earlier — or about 100 million people. Still, there’s lots of room for growth, and companies will likely see that percentage as an opportunity to introduce the format to new listeners.
Podcasts and audiobooks are tangentially related to music in the streaming age. Digital platforms increasingly combine music and non-music content to keep listeners engaged and make the apps more attractive to subscribers. To improve both its product and margins, Spotify has invested handsomely in podcasts — from DIY tools like Anchor and Megaphone to content creators Gimlet, Parcast and The Ringer — as well as audiobooks, through the acquisition of audiobook distribution platform Findaway.
Streaming companies tend to obsess about young consumers, but the growth opportunity appears to lie in older age groups. Edison found that 89% of the 12-34 age group listened to audio online in the previous month, up from 87% in 2022 and 86% in 2021. The 35-54 age group’s monthly listenership rate improved from 72% in 2021 to 81% in 2022 and 85% this year. The 35-54 age group’s podcast listening improved from 43% in 2022 to 51% this year — a big leap, but still below the 12-34 age group’s 55% mark.
The often overlooked 55-and-over age group has significant room to grow. Its monthly online listening rate stands at just 53%, up from 52% in 2022 and 46% in 2021. The age group is also slow to adopt podcasts. Just 21% of people 55 and over listened to podcasts in the last month. Worse yet, the 55-and-over crowd is losing enthusiasm: Its monthly podcast listening rate was 22% last year and 26% in 2021.
The other major trends found in the report reflect smartphone penetration, the prevalence of mobile broadband and the use of mobile operating systems in cars such as Apple CarPlay and Google’s Android Auto. In the last decade, the percentage of U.S. consumers who have listened to AM/FM radio in the car dropped from 84% to 73%, while CD listening declined from 63% to 29%. SiriusXM satellite radio use in the car improved from 15% to 20% over that time, while online audio jumped from 12% to 37% on the same metric.
Less than three weeks after she won a Grammy for her audiobook Finding Me (and by doing so, clinching EGOT status), Viola Davis is nominated for two 2023 Audie Awards – audiobook of the year and narration by the author(s).
The Audie Awards, which are presented by The Audio Publishers Association, recognize distinction in audiobooks and spoken-word entertainment. This year’s finalists also include Paul Simon, Billy Porter, Kevin Hart, Lucy Liu, Thandiwe Newton, Malcolm Gladwell, Molly Shannon and BD Wong.
Finding Me was one of six projects to receive two nominations. Others are Coraline by Neil Gaiman; Good Omens by Gaiman & Terry Pratchett; Hello, Molly! by Shannon; The 1619 Project, created by Nikole Hannah-Jones and The New York Times Magazine; and War and Peace, narrated by Newton.
There are 26 competitive categories, including two that are gendered – best female narrator and best male narrator. Winners will be revealed at the Audie Awards Gala on March 28. The ceremony will be streamed from Chelsea Piers’ Pier Sixty in New York City.
“The Audio Publishers Association congratulates all of this year’s finalists,” Ana Maria Allessi, president of the APA, said in a statement. “This year’s finalists are representative of the immense talent in the audiobook community and beyond. From the recently crowned EGOT recipient Viola Davis to Grammy winner Paul Simon to audiobook luminaries like Soneela Nankani and Edoardo Ballerini, we’re proud of these multi-hyphenates who are helping shape the medium. We look forward to celebrating all of them at the March 28 gala.”
The Audio Publishers Association is a not-for-profit trade organization. Since 1986, the APA has worked to bring audio publishers together to increase interest in audiobooks. For more information about the APA, visit audiopub.org.
Here are nominees in four key categories:
Audiobook of the Year
The 1619 Project, created by Nikole Hannah-Jones and The New York Times Magazine; edited by Caitlin Roper, Ilena Silverman, and Jake Silverstein; various narrators; published by Penguin Random House Audio
Finding Me, written and narrated by Viola Davis; published by HarperAudio
Miracle and Wonder: Conversations with Paul Simon, by Malcolm Gladwell and Bruce Headlam; narrated by Paul Simon, Malcolm Gladwell, and Bruce Headlam; published by Pushkin Industries
Remarkably Bright Creatures, by Shelby Van Pelt; narrated by Marin Ireland and Michael Urie, published by HarperAudio
Wake: The Hidden History of Women-Led Slave Revolts, adapted by Tyler English-Beckwith, based on the graphic novel by Rebecca Hall and Hugo Martínez, various narrators; published by Podium Audio
Autobiography/Memoir
The Extraordinary Life of an Ordinary Man, by Paul Newman; edited by David Rosenthal; foreword by Melissa Newman; afterword by Clea Newman Soderlund; narrated by Jeff Daniels, Melissa Newman, Clea Newman Soderlund, Ari Fliakos, January LaVoy, John Rubinstein, and Emily Wachtel; published by Penguin Random House Audio
Hello, Molly!, written and narrated by Molly Shannon; published by HarperAudio
Left on Tenth, written and narrated by Delia Ephron; published by Hachette Audio
Safe, Wanted, and Loved: A Family Memoir of Mental Illness, Heartbreak, and Hope, by Patrick Dylan; narrated by Raúl E. Esparza; published by Snow Anselmo Press with Girl Friday Productions
Unprotected: A Memoir, written and narrated by Billy Porter, published by Recorded Books, a division of RBmedia
Humor
Happy-Go-Lucky, written and narrated by David Sedaris; published by Hachette Audio
Let’s Catch Up Soon, by Sarah Cooper; narrated by Sarah Cooper and Felip Jeremic, published by Audible Originals
The Office BFFs, written and narrated by Jenna Fischer and Angela Kinsey; published by HarperAudio
Who Do I Think I Am?, written and narrated by Anjelah Johnson-Reyes; published by Hachette Audio
The Wilder Widows, by Katherine Hastings; narrated by Pamela Dillman; published by Flyte Publishing
Narration by the Author(s)
Apparently There Were Complaints, written and narrated by Sharon Gless; published by Simon & Schuster Audio
Finding Me, written and narrated by Viola Davis; published by HarperAudio
Hello, Molly!, written and narrated by Molly Shannon; published by HarperAudio
Ten Steps to Nanette, written and narrated by Hannah Gadsby; published by Penguin Random House Audio
Waypoints, written and narrated by Sam Heughan; published by Hachette Audio
To learn more about the 2023 finalists visit https://www.audiofilemagazine.com/audies.
Spotify’s quest to improve its margins has taken another step forward, as a pilot program for billing subscribers using Google devices expands to the U.S. and additional markets. Called “user choice billing,” the system allows app developers to provide Google Android smartphone users with the option of paying the developer directly — at a reduced fee — or through Google Play.
Last week, Google’s user choice billing pilot expanded to the U.S., Brazil and South Africa, and Google announced that dating app Bumble also joined the program. Spotify was the first developer to join the pilot program in March with test markets of Australia, India, Indonesia, Japan and the European Economic Area. With the additional markets, user choice billing will be tested in most of the world’s largest smartphone markets and most valuable music markets.
With user choice billing, prospective Spotify subscribers are presented with two payment options side-by-side in an Android app: Spotify and Google Play. Choosing Spotify will take the user to a form to fill out credit card information to sign up for a subscription. Importantly, it all happens within the Spotify app, not Spotify’s external website. Choosing to pay with Google Play prompts the user to enter a password to pay with the credit card on file with Google.
Billing is an under-appreciated but important issue in the subscription music business. Because music streaming is inexorably tied to smartphones, and because consumers have come to expect simplicity when engaging in e-commerce on smartphones, in-app billing helps a company like Spotify sign up subscribers. The problem for a music service like Spotify operating on thin margins, though, is that app stores run by Apple and Google have traditionally demanded a cut of these in-app purchases. That’s left music companies either paying the app store fees themselves, without raising prices, eroding each subscription’s profitability, or raising the price to compensate for the fee, which could turn away potential subscribers. Prior to 2016, Spotify charged users 30% more for an in-app upgrade to Premium to offset Apple’s 30% fee.
There’s one other option, of course: To save on fees, a music service may disallow in-app subscriptions and encourage a customer to take a few extra steps and subscribe at its website. That process risks losing potential subscribers along the way, but nevertheless, Spotify has gone this route and not allowed in-app purchasing on its Apple app since 2016.
Companies have faced this quandary for years. In 2019, for example, Pandora raised the price for subscribers who used Apple’s in-app purchasing premium subscription service from $9.99 to $12.99 to offset the fees. Pandora reported paying $50 million in fees to Apple and Google in 2015 – 3.7% of its annual revenue.
“It certainly puts independent music services at a disadvantage where we’re paying 30% of the economics out to the platforms that distribute our apps, who also happen to be competing with us, and for the same users, and the same economics,” Pandora’s then-CFO Mike Herring told investors in 2016.
Apple typically charges a 30% fee for in-app purchases during the first year of a subscription and 15% thereafter, according to Apple’s website for developers. Neither Apple nor Spotify have said publicly what fees are paid for Spotify subscriptions. The fees that Spotify pays Google are also private.
“We’re not going to comment on the terms of our agreement with Google because they are confidential,” a Spotify spokesperson tells Billboard, “but it’s safe to say that our [user choice billing] partnership is based on commercial terms that meet our standards of fairness.”
Generally, subscription services such as Spotify pay a 15% fee for in-app purchases, but the fee can go lower. App developers in Google’s Play Media Experience Program, which integrates apps into Google’s ecosystem of wearables and other hardware products, can pay less than 15%, for example. For subscription-based services with significant licensing costs — such as music, video, books and audiobooks — fees “can be as low as 10%,” according to a Google spokesperson.
User choice billing provides additional savings for app developers on top of any other program or discount. If an Android user presented with user choice billing opts for the app developer’s payment system, Google lowers the fee by 4%. So, if an app developer were paying a 10% fee to Google, user choice billing would reduce the fee to 6%.
Small improvements to gross margin are crucial to a music service that pays more than three-quarters of its revenue to rights holders. Spotify’s gross margin on its Premium subscription service was 28% in the third quarter of 2022, meaning that Spotify paid out 72% of its subscription revenue for licensing fees and some smaller costs of sales. Every percentage point of revenue represents about $100 million in subscription revenue in 2022, based on past earnings and Spotify’s fourth-quarter guidance. If Spotify can move its gross margin by a small amount, it would greatly impact the company’s free cash flow. To put it in perspective, Spotify’s net cash flow from operations for the first three quarters of 2022 was $109 million.
While Google seems willing to consider alternative approaches to in-app billing, Apple does not. Prominent app developers, including Spotify, have been fighting for better terms for years. In 2019, Spotify filed a complaint against Apple with the European Commission for anticompetitive behavior alleging that Apple “continue to give themselves an unfair advantage at every turn.”
Additionally, Apple is currently involved in a lawsuit brought by Epic Games regarding its control over the App Store. Although the judge in the case has mostly sided with Apple, the judge did order Apple to allow apps to provide links to payment alternatives outside the App Store. The lower court’s requirement has been delayed until the appeals court rules on the case. The two sides began oral arguments in the Ninth Circuit Court of Appeals on Monday (Nov. 14).
Apple’s strict rules are particularly meddlesome to Spotify’s latest attempt to improve its margins — audiobooks. In September, the streaming service began selling 300,000 audiobook titles following its acquisition of audiobook distributor Findaway in June. The plan makes sense: Audiobook purchases on its platform can provide Spotify with 60% gross margins — about twice the margin in music streaming – and audiobooks are a natural addition to its burgeoning podcast business.
But Apple’s rules for in-app purchases would make audiobooks purchased through an iOS app far less profitable — and a less straightforward process. Whereas the Google app provides “a beautiful experience,” CEO Daniel Ek said during the Oct. 25 earnings call, the process of buying an audiobook through Apple “is inherently broken because Apple decided it wanted it to be broken.” Spotify had lawyers “in the room” working with developers, but Apple rejected Spotify’s app multiple times, according to Ek. “It holds developers back and holds creators back,” he said. “And it’s bad for consumers.” Plus, there’s the added element here that Apple happens to be Spotify’s leading competitor for music streaming.
With audiobooks, Spotify currently sells titles on its website rather than inside the app to avoid fees (the user can listen using the Spotify app after the title is purchased). But just getting people to its website isn’t straightforward. As Spotify claimed on a website called Time to Play Fair, Apple does not allow Spotify to explain how to purchase an audiobook outside of the app, include a link to direct the user to a Spotify audiobook page, request or receive an email with instructions on how to purchase an audiobook or reveal an audiobook’s price in the app or in an email. Spotify’s Android app does not sell audiobooks, but the app allows users to receive an email with a link to Spotify to purchase a title.
In its June investors’ day presentation, Spotify management looked beyond music, podcasts and audiobooks. In the next ten years, Spotify will add sports, news and education to the platform and double the current average revenue per user, said Gustav Norström, chief freemium business officer. The user choice billing pilot program can only help with that goal.
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