Late last year, Spotify began offering 15 hours of monthly audiobook listening to its Premium subscribers in select markets, including the U.S. Now the company says the new service is the second-largest audiobook provider behind Amazon-owned Audible -- something Spotify CEO Daniel Ek said was notable "given how entrenched the legacy players are." During its Q4 2023 earnings call with investors, the company also offered a glimpse into how audiobooks are being consumed by Spotify customers, including by sharing insights that indicate the books are reaching a different set of listeners than on Audible or other platforms.
"The intriguing part is we're able to bring a whole new audience to audiobooks. So internally and externally, I think the biggest surprise had been the type of titles that resonate with consumers. These are not the normal titles that traditionally do well," said Ek.
"It's a lot of entertainment. It's a lot about culture," Ek noted. "Also pleasing is very many younger authors, newer authors as well, given the model where you can take a chance on a new book without...eating up the credits, which I think kind of drove you towards more safer bets," he added. "So we're seeing a very, very interesting trend around the content consumption which is...I believe addictive to the entire book industry."
On Audible, subscribers can either access a limited selection of audiobooks and originals or can pay more to get a monthly credit to purchase an audiobook from an extended selection of best sellers and new releases. This model encourages users to spend their credit on well-performing top titles or those from known authors. But on Spotify's plan, users simply have a certain number of monthly hours available for audiobook listening. This has driven them to explore lesser-known titles and those from emerging authors, Spotify explained. They're also interested in listening to audiobooks about subjects that align with music, like entertainment and culture, for example.
Investors had a lot of questions for Spotify about the new audiobook offering, leading Spotify to share its overall impressions of how both consumers and publishers were adapting to the new format. On the latter, Spotify said that publishers and authors were excited about the innovation offered by its subscription and have been "very open-minded" in terms of trying new things. (Some authors and agents, meanwhile, are pushing back against Spotify's entry into this market, saying the company isn't being transparent about author compensation.)
In addition, consumer engagement with the feature has been strong, Spotify shared, though without any specific metrics.
Still, the streamer stopped short of offering details as to how the addition of audiobooks was adding to its bottom line, saying it was too early to say as of yet. Instead, Ek pointed out that, generally speaking, the more engagement on the platform, the better Spotify's value proposition for consumers. The company had added 28 million users in the quarter, its second-biggest gain in company history. The service now has 602 million users, over 236 million of which are paid subscribers with access to the audiobooks service.
The company declined to answer investors' specific questions about the impact of audiobooks' consumption costs on margins, but said Spotify expected to see gross margins improve through 2024.
One tease of what's to come for the format was hinted at in a question about Spotify's popular Daylist, a personalized audio playlist that tries to predict your mood at various points throughout the day. People have been coming to Spotify specifically for the feature, driving searches for the term "Daylist" up by over 2,000%, the company said. Now it seems Spotify may be thinking of how to translate Daylist's success to new formats.
"I'm really proud of the team and the things that they're doing in this department," said Ek, of the team behind the feature. "And it wouldn't surprise me if we see many more innovative things come out of it -- both on, of course, on the music side, but later on also reflecting that on the audiobook side on the podcasting side as well," he suggested.