Spotify made music and podcasts available to subscribers.  Next: audio books.
5 mins read

Spotify made music and podcasts available to subscribers. Next: audio books.

Four years ago, Spotify’s business was stagnating. Apple had overtaken the company as the highest-paid music service in the U.S., losses mounted and customer growth slowed.

Daniel Ek, the company’s CEO, decided that Spotify needed to transform from a music service into an audio everything shop. The first missing piece was podcasts, a business that helped drive ad sales.

Now Mr. Ek has his sights set on another fast-growing medium: audiobooks.

On Tuesday, Spotify said it would begin offering 15 hours of audiobooks each month to premium subscribers in the U.K. and Australia as part of its streaming service. This winter, the offer will be expanded to subscribers in the United States.

Spotify’s expansion into books has the potential to shake up the audiobook retail landscape, a fast-growing publishing segment long dominated by Amazon-owned audio retailer Audible.

In Mr. Ek’s eyes, Audible’s dominance in audiobooks is reminiscent of Apple’s previous control over music and podcasts. Spotify built its business by revolutionizing the music industry with its monthly subscription service and podcasts. Mr. Ek said in an interview that he sees the potential to do the same with audiobooks.

“Similar to music, one of the big problems is: How do you reduce friction?” Mr. Ek said of audiobooks. “How do you enable consumers to easily discover great new audiobooks?”

Having books on Spotify, which has 220 million premium members worldwide, could help publishers reach large new audiences. Spotify has the tools to recommend relevant audiobooks to podcast listeners interested in specific topics and to promote audio titles to Spotify users who have listened to a podcast with an author.

Spotify will also provide algorithmic recommendations to users and share some basic demographic information with publishers, said David Kaefer, head of Spotify’s audiobook business.

Hachette Book Group, whose authors include David Sedaris, James Patterson and Donna Tartt, has more than 7,000 books available on Spotify.

“I see it as a great opportunity to be in the company of Joe Rogan, Taylor Swift and Beyoncé,” said Ana Maria Allessi, vice president and publisher of Hachette Audio.

But there are also concerns that Spotify’s plan, which involves experimenting with a new business model for book sales, could upend its lucrative and growing audiobook business. Instead of paying for each audiobook a customer listens to, the company has proposed paying for the time the customer listens, according to a review of a publisher’s correspondence with agents outlining the terms.

The average audiobook lasts seven to ten hours, according to Spotify, meaning subscribers can listen to about one and a half books per month, but some popular books can run much longer. Subscribers can try out as many books as they want, and heavy users who want to hear more can pay $10.99 for an additional 10 hours of audiobook content.

Kim Scott, best-selling author of “Radical Candor” and former executive at Google and Apple, worries that Spotify’s pay-as-you-listen model could devalue the work that goes into writing a book.

The proposal put forward by Spotify is reminiscent of the way Apple changed the business model of selling music, Ms. Scott said. Instead of buying an entire album for $10, iTunes users could buy individual songs for 99 cents.

“This is not a launch and iteration moment for publishers; It’s a Pandora’s box,” said Ms. Scott, who declined when her publisher, St. Martin’s Press, asked to include her book “Just Work” on the Spotify streaming service. “Before I did this deal, I hired a consultant and asked, ‘Will this bring in new readers or cannibalize existing sales?'”

Several publishing agents expressed similar concerns but declined to comment publicly due to the sensitivity surrounding the ongoing negotiations. Agents worry that paying publishers for the time people spend listening to a book could lead to lucrative a la carte payments and prompt other retailers to pursue similar models.

“Audio has been a key growth driver, so having a more diversified market for audiobooks is a good thing,” said Christy Fletcher, co-head of publishing at United Talent Agency. But she added: “While we all want to reach as many listeners as possible, there is a real danger that this consumption model will devalue the work of authors and become the norm across all platforms.”

Spotify has deals with the five largest publishers in the United States, as well as hundreds of others, including smaller companies and self-published authors. A catalog with more than 150,000 titles will be offered at launch. Agreements with different publishers vary, and some publishers are more cautious than others. Some major companies like HarperCollins and Penguin Random House have dropped their entire audio catalogs, while another major publisher, Macmillan, is starting with only a fraction of its audiobooks.

Mr. Ek said he had heard concerns from authors and publishers but believed the 15-hour limit would protect the value of audio titles while attracting new customers.

“The economic situation is very favorable for the book industry,” he said. “Everyone got involved because they see that ultimately this will be a net positive for large consumers.”