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Insider November 18, 2021 — Why Spotify bought an audiobook company

Explaining the Findaway deal

Happy Thursday, Insiders. After a couple weeks of slow-moving news, I can officially say news is back! Things are happening. But first! I promised more thoughts on Spotify’s big audiobook acquisition in the form of Findaway, and I’m delivering. Let’s get right into it.

Last week, Spotify announced plans to spend an undisclosed amount of money to acquire Findaway, an audiobook creation and distribution company that plays a major role in the industry. The announcement likely made sense to anyone who’s been paying attention to Spotify’s audio moves — ahem, all of us here — but for those who haven’t, to sum it up plainly: Spotify wants to be the place you consume all audio. This purchase sets it up to achieve that goal. When you open Spotify this time next year, the app will likely highlight an Armchair Expert episode alongside Taylor Swift’s newest single alongside Barack Obama’s newest book. It’ll be a crowded, but potentially powerful, destination.

At the same time, though, Spotify getting knee-deep in audiobooks is a wildly different proposition than podcasts. There are powerful publishers to handle, a separate revenue model, a higher barrier to entry, and lots of IP rights to navigate. In the interest of better understanding why Spotify sees a future in the space, let’s break it down by what you need to know when thinking about this deal.

Findaway is Anchor for audiobooks

Let’s start with the most approachable idea for us podcast folks. Akin to how Spotify bought Anchor to make recording and publishing a podcast easy, Findaway plays a similar role in the audiobook space. Now, it’s not as easy as recording audio on your phone, overlaying some music, and pressing publish to make an audiobook, at least a quality one. Audiobooks often involve a narrator, if not actors, audio clips, and more. It’s usually on the level of a highly produced podcast.

Findaway operates a business called Voices that sets authors up with a narrator and ensures content gets made well, but in exchange, authors pay Findaway to make that happen and use their services. This offers a clear business opportunity for Spotify. It’ll interface with creators, something it already does through Anchor and its music work, and generate revenue at the same time. It likely can improve on Findaway’s tech, too, given that it has an entire team dedicated to cracking on-the-go recording in Anchor. 

Once a book is recorded, Findaway can distribute it, too, which generates revenue. This leads us to the next thing to think about in relation to this deal. 

Findaway turns Spotify into an audiobook distributor

Spotify will now play an integral role in the audiobook world — major publishing houses entrust Findaway to distribute their content to retailers, libraries, and listening platforms. Unlike in podcasting, where hosts have an RSS feed they can input wherever they want their show to populate, audiobook publishers and authors generally work with a distributor to get their content to storefronts and make sure all the data is properly inserted, among other things. Findaway’s solution is called AudioEngine.

Mark Pearson, the CEO and founder of Libro.fm, which sells audiobooks and supports independent bookstores, says this distribution business is critical to consider when thinking about Spotify’s deal. His platform works with Findaway to bring books to the Libro.fm app in some cases, and he says the reason many publishers distribute through Findaway is because “what we [on the app side] do on the backend is actually not trivial,” he says. “There’s a lot that goes into it with metadata and files, and to deliver that in an app format for the listener is really hard work.” This would be a lot of labor for one organization to handle adequately.

One familiar podcasting company is also already working with Findaway for distribution of its audiobooks: Pushkin Industries. CMO Heather Fain tells me the team partners with Findaway to distribute their audiobooks everywhere other than Audible. The reason to do so is because it’s easier than managing the plethora of places where a book populates. Findaway distributes the audiobooks and makes sure they show up properly across various apps and platforms, including Apple Books, Kobo, public libraries, and Libro.fm. (Yes, there could be a world in which Spotify is providing audiobooks to Apple.) However the distribution deal is structured, Findaway is making money, representing a new revenue line for Spotify. 

Finally, there’s one more aspect of this deal to think about: Spotify will become a bookseller

With Findaway on its side and audiobooks now seemingly a priority, Spotify will likely start selling them from within the app. This could be essential for Spotify in its quest to be the place people can get all their audio. It’s a retention strategy — don’t move to Audible for your audiobooks, stay on Spotify — and also might recruit people to the platform if the offering is competitive. 

If Spotify sells books a la carte, the margins will be much higher compared to podcasts. Even a CPM of $50 in podcasting means a podcaster is only making five cents per listener. Charging each listener $15 for access to an audiobook is a more lucrative arrangement.

Plus, Spotify gets to double-dip on revenue: anywhere Findaway is involved, Spotify makes money — as a retailer, as well as through audiobook production and distribution. 

Looking to the future, I imagine Spotify could end up offering different subscription tiers that allow paying subscribers to download an audiobook a month, a la Audible and others. It could also try to launch an unlimited audiobooks plan, like its Swedish competitor Storytel. There’s also the possibility of Spotify making an exclusives play where it signs deals with publishers and authors to bring books to its platform — a classic Audible move, but one that would make extra sense given Spotify’s penchant for exclusive podcasts. If Spotify can become a main place people buy and listen to audiobooks, in addition to all other audio, it also might be able to strong-arm publishers into putting more books on its platform at more favorable prices.

If Spotify’s pace in the podcasting world is any indication, the audiobooks integration could happen fast. It only took Spotify two or so years to start claiming that it’s the top podcasting app. Can it do the same for audiobooks? This world is evolving quickly, and I imagine we’ll be covering audiobooks a lot more in this newsletter going forward.

All right, with all that out of the way, let’s get into a little more Spotify news…

Spotify is rolling out subscriptions to 33 more markets

Spotify is aggressively expanding the reach of its podcast subscriptions, allowing Anchor creators in 33 new countries to put their shows behind a paywall. This also means anyone in the US who already set this up can sell their subscriptions to listeners in these countries. An incremental update for our purposes, but I’m tracking the subscription storyline closely, so this is one I had to put out there.

Onto the next one in Spotify land…

J.J. Abrams’ Bad Robot launches a podcast arm

Hollywood can’t get enough of podcasts, and neither can Spotify. J.J. Abrams’ production company Bad Robot — god, that robot bumper is burned into my mind after six seasons of Lost — and Spotify are “collaborating” on the launch of an audio production division, called Bad Robot Audio, that’ll include the development and production of scripted and unscripted content. Former Spotify blood is running the show, too: Christina Choi is head of podcasts. A Spotify spokesperson tells me this collaboration is a “first-look deal where we have exclusivity.” It’s not an ad deal. Obviously, Abrams and Bad Robot are big names, and this investment presents even more evidence that Hollywood sees dollar signs when it thinks about audio. 

Vox Media buys Criminal Productions

Vox continues to spend on podcasts and this week announced its acquisition of Criminal Productions. (As you well know to expect by now, here’s my disclosure that Hot Pod is also owned by Vox.) Criminal Productions, from public media alumni Phoebe Judge and Lauren Spohrer, includes three podcasts: Criminal, This Is Love, and Phoebe Reads a Mystery. The deal further signals Vox’s interest in the audio space; it acquired Cafe Studios in April, which effectively gave the company a launching point for podcast subscriptions, and partnered with Longform and Gastropod in the past six months. Which is to say nothing of the acquisition of this very newsletter, but frankly, I don’t think that has anything to do with Vox’s podcast interest and is probably a reporting annoyance for our PR team more than anything else. 

Anyway! 

To wrap things up, and I appreciate you sticking with me on this longer one, we have yet another social audio news roundup. This time, it’s hyper-focused on funding. VCs really seem to want to spend money on audio products. I’m going to literally bullet point these news bits because it’s not so much about the details but about the trend, you know?

Money is silly, isn’t it? Aria will be here for you tomorrow, and I’ll be back Tuesday. See you all later!!!