Please ensure Javascript is enabled for purposes of website accessibility

Amazon May Be Spotify's Biggest Challenger

By Adam Levy – Aug 26, 2020 at 8:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Amazon's launching a new subscription service through Audible that is focused on premium podcasts.

While many investors see Apple (AAPL -3.67%) as Spotify's (SPOT -4.60%) biggest competitor, Amazon (AMZN -4.77%) is starting to pose more of a threat. As Spotify has made headlines with its big podcasting deals over the last couple of years, Amazon has quietly built a stable of exclusive audio content under its Audible business. Now, it's launching a premium service offering unlimited access to its 11,000 exclusive titles.

In Spotify's efforts to become the world's No. 1 audio platform, Amazon's presenting a big challenge.

A young woman wearing headphones looking at her smartphone.

Image source: Getty Images.

Introducing Audible Plus

Audible's new plan, dubbed Audible Plus, costs just $7.95 per month and offers subscribers unlimited access to its library of exclusive audio content and podcasts. Subscribers currently on Audible's $14.95 and $22.95 per month plans will also gain access to that content while maintaining their monthly book credits.

Audible won't include access to other freely available podcasts like those found across Spotify, Apple Podcasts, and dozens of other podcast players. It'll also be an ad-free experience, whereas Spotify serves ads within podcasts, even to its paid subscribers.

Audible Plus on its own doesn't represent a big threat to Spotify's listener base. The streaming-audio leader counts around 300 million monthly active users. About 21% of them listen to podcasts, but that number's growing. Audible doesn't release listener stats publicly, but it's very likely to be much smaller than Spotify.

Audible Plus represents a major competitor for Spotify in terms of content acquisition. And with Amazon's existing presence in music streaming and advertising, it could be just a few steps away from launching an audio platform more like Spotify's.

Spotify's already spending big on podcasts

Over the last couple of years, Spotify's spent around $1 billion on podcast technology, original content, and exclusive rights. If Spotify has to go up against other bidders for podcast content, that number could climb much higher.

Investors should consider how Netflix saw the rates for licensed content climb rapidly in the early 2010s as more competitors entered the streaming video market, including Amazon. While the market for podcasts isn't as concentrated in the hands of a few big companies as the film and television market, the added competition will likely push prices higher.

Apple has also expressed interest in podcast content, mostly around its own Apple TV+ original series. But if the Cupertino company pursues that strategy further with more podcast or narrative content, it also has plenty of cash to bid against Spotify for top creators.

Spotify has historically operated around breakeven operating income, and its free cash flow is under pressure as it spends big on podcast companies and deals with the impact of COVID-19. It's generated just 6 million euros in free cash flow through the first six months of 2020 compared to 223 million euros during the same period in 2019.

The competition is just getting started

Amazon isn't the only company competing for exclusive premium podcasts and audio content. Stitcher, which SiriusXM recently agreed to acquire, is also in the premium podcast business. As mentioned above, Apple is interested as well. As podcasts become more popular, Spotify will naturally face more competition for premium podcasts, and likely from deep-pocketed tech or media companies.

That could put pressure on its free cash flow and operating income for some time to come. But if the Netflix analogy continues to play out, greater investment in exclusive and original podcasts will eventually translate into greater recurring revenue and strong free cash flow growth.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Spotify Technology. The Motley Fool recommends Sirius XM Radio and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Spotify Stock Quote
$88.01 (-4.60%) $-4.24
Apple Inc. Stock Quote
Apple Inc.
$140.09 (-3.67%) $-5.34, Inc. Stock Quote, Inc.
$114.56 (-4.77%) $-5.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.