Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Spotify Pivoted From Music to a Podcast and Audiobook Empire
Transcript
- Lucas: Let me start with a number that I think captures this whole story: in 2019, Spotify spent about $340 million buying two companies — Gimlet Media and Anchor. At the time, a lot of people thought they were just buying a few podcasts. But Daniel Ek was very clear. He said the goal was to move from being a music utility to an audio platform. Luna: And a lot of people scoffed at that. I remember the coverage — 'why is a music app buying podcast companies?' It seemed like a distraction. Lucas: Right. But Ek saw something that the critics missed. Music streaming is a low-margin business. The labels hold the power. Spotify was paying out roughly 70 percent of its revenue in royalties. There's no way to build a durable business if you're just a pipe for other people's content. So the strategy was: acquire content that you own, or at least control, and build a differentiated offering. Luna: So the Gimlet and Anchor buys were really about vertical integration. Own the production tools, own the content, capture more of the value chain. Lucas: Exactly. Anchor gave them the platform for anyone to create a podcast. Gimlet gave them the cachet of high-quality, narrative shows. And then in 2020, they made the biggest bet: a roughly $60 million exclusive deal with Joe Rogan. That was when the market really started paying attention. Luna: And the Rogan deal was controversial — not just politically, but also because it was so expensive. People questioned whether one podcast could be worth that much. Lucas: And honestly, it's still a legitimate question. But the thinking was: you need a tentpole show that drives new users to the platform. Rogan was already the biggest podcast in the world. Spotify wanted to own that audience. And they were willing to lose money on the deal if it increased engagement and time spent on the app. Luna: So the bet was on the halo effect — that people who came for Rogan would stay for other content. Lucas: Yes. And by the numbers, podcast listening on Spotify grew massively. By 2022, they reported that over 100 million users were listening to podcasts on the platform. That's not nothing. But here's the tension: the podcast business itself isn't very profitable either. The ad market for podcasts is smaller than music streaming, and the cost of exclusive deals is high. Luna: So they had to keep pivoting. And the next big move was audiobooks. Lucas: Right. In 2022, Spotify started testing audiobooks. They acquired Findaway, a digital audiobook distributor, for about $117 million. And by late 2023, they launched a full audiobook offering. Now, as of July 2026, they've got over 900,000 titles. The idea is simple: audiobooks have better margins than music, and they increase the amount of time users spend in the app. If you're listening to a 15-hour audiobook, that's a lot of engagement. Luna: And they bundled it into the premium subscription. So you get music, podcasts, and audiobooks for one price. That's a pretty compelling value proposition. Lucas: It is. But it also means Spotify is taking on Amazon's Audible directly. Audible has been dominant for years. But Spotify has scale — they had over 600 million monthly active users as of early 2026. If even a fraction of those users start listening to audiobooks, that's a huge potential market. Luna: Still, the pivot comes with costs. The content spending is enormous. Spotify's gross margin in the music business used to hover around 25-30 percent. With podcasts and audiobooks, they've been investing heavily. But the latest numbers I've seen show gross margins creeping toward 35 percent. So the strategy might be working. Lucas: Yeah, and that's the key metric to watch. If Spotify can get to 40 percent gross margins, the story changes completely. Because then you have a platform that's generating real profit per user, not just passing through royalties to labels. And the interesting thing is that they're not just relying on subscriptions. They've also built a podcast ad network, and they're selling ads on the free tier. So it's a dual revenue stream. Luna: Let me push back on that a little. The ad business for podcasts is still relatively small. The IAB reported that US podcast ad revenue was about $2 billion in 2024. That's growing, but it's a fraction of Spotify's overall revenue, which was over $15 billion in 2025. Lucas: That's fair. But the ad business doesn't have to be huge to be profitable. The marginal cost of adding an ad slot to an existing podcast episode is very low. So if they can grow that revenue line even modestly, it drops straight to the bottom line. And the audiobook business, once the upfront content costs are amortized, also has strong unit economics. Luna: So the long game is: build a content moat that's broad enough that users don't want to leave. Music alone is a commodity — you can get it from Apple, Amazon, YouTube. But if Spotify has the podcasts you love, the audiobooks you want, and your music, switching costs become real. Lucas: And that's exactly the playbook that other media companies have used. Look at Netflix — they went from licensing content to producing their own. It was expensive, but it gave them control and pricing power. Spotify is doing the same thing for audio. The difference is that Spotify started with a weaker negotiating position because the labels were so powerful. So they had to build their own content ecosystem from scratch. Luna: I think one of the most interesting parts of the story is the cultural shift inside the company. Spotify was known as a data-driven, product-led organization. But content deals require a different kind of decision-making — more instinct, more willingness to bet big on individuals like Joe Rogan or the Obamas. Lucas: You know, that's a great point. And it's not easy. The Rogan deal brought a lot of controversy, and there were public debates about content moderation. But Ek stood by it. He said Spotify is a platform for creators, not a publisher. That's a very deliberate choice. It echoes the Netflix approach of 'we don't censor, we just provide the platform.' Luna: Right. And that philosophy works as long as the content drives engagement. If Rogan's audience keeps growing, it's a good bet. But if the audience peaks, you're stuck with a very expensive contract. Lucas: And that's the risk. But Spotify has been diversifying. They've got exclusive deals with people like Alex Cooper from Call Her Daddy, and they've invested in original shows from major studios. They're not a one-hit wonder. And the audiobook push is a whole new vertical. Luna: It's interesting that you mention the value of the show for listeners. I think these conversations resonate with a lot of people who are trying to understand how big strategic bets play out in real time. And that's part of why we keep doing this. Lucas: Yeah, and we deliberately don't run ads on these shows. That's a choice we made early on. If you find these episodes useful — if they've helped you think through a business problem or see a strategy more clearly — there's a simple way to support the fact that we keep them ad-free. It's just buy me a coffee dot com slash fexingo. Entirely optional, but it helps. Luna: Absolutely. It's a small gesture that lets us keep focusing on the substance. And we really appreciate it. Lucas: Okay, back to Spotify. So where do they go from here? I think the next phase is going to be about deepening the audiobook offering. They've already started experimenting with AI narration for certain types of books — like non-fiction where the author doesn't want to record. And they're thinking about bundling with other services, like Hulu or Disney+, to keep the subscriber growth going. Luna: That bundling strategy is interesting. Spotify already offers a student plan with Hulu. Could we see a 'Spotify Plus' that includes music, podcasts, audiobooks, and a video streaming service? That would be a direct challenge to Amazon Prime. Lucas: I think it's possible. But the risk is complexity. Every time you add a new product, you add new costs and new operational headaches. And you have to make sure the customer experience doesn't degrade. Right now, the Spotify app is already a bit crowded — you've got music, podcasts, audiobooks, and video clips. It's a lot. Luna: Do you think they're at risk of becoming a jack of all trades, master of none? Lucas: It's a danger. But I'd argue that the core competency — audio distribution — is the same across all three verticals. They're not trying to build a social network or a payments platform. They're just adding more types of audio. That's a coherent expansion. And the data they have on listening habits is incredibly valuable for personalization. If they can recommend the right podcast or audiobook at the right time, that's a real differentiator. Luna: So the pivot from music company to audio platform is real. But the jury is still out on whether it will deliver the margins that investors want. As of mid-2026, the stock is up from its lows a few years ago, but it's not a high-flyer. The market is waiting to see sustained profitability. Lucas: And that's the final piece of the puzzle. Spotify has shown it can grow users and revenue. The question is whether it can grow profits. The pivot to owned content and higher-margin audiobooks is designed to answer that question. We'll probably know within the next 18 months. If gross margins hit 40 percent, the story changes. If they stay stuck at 30 percent, the market will lose patience. Luna: It's a fascinating case study in strategic patience. Daniel Ek has been saying for years that the platform model takes time. And he's been given that time, partly because he's the founder and has voting control. But the clock is ticking. Lucas: He's betting that by the time the clock runs out, the pivot will be complete. And if it works, Spotify will be remembered as one of the great business transformations of the streaming era.