Spotify's underrated competition: Meditation apps

In case you missed it, Spotify released its earnings report for Q1 2020 yesterday. While the company’s ad revenue dipped by over 30% year-over-year due to the COVID-19 pandemic, its paid user base still grew by 31% to 130 million subscribers, while total quarterly revenue increased by 22% to $1.8 billion.

Podcasts are also bigger than ever on Spotify, their consumption on the service growing more than 3x year-over-year. 19% of the service’s monthly active users now engage with the format.

I won’t be diving much further into Spotify’s financials. Instead, I want to focus on how Spotify’s public messaging debunks key myths about its competition.

More people than ever are engaging with audio for a specific purpose: Stress relief. As Spotify’s earnings release reads (emphasis added):

Audio has also taken on a greater role in managing the stress and anxiety many are feeling in today’s unprecedented environment. Two in five consumers we surveyed in the US said they were listening to music to manage stress more than they typically do, which explains the recent rise we’ve seen in searches for “chill” and “instrumental.” We’ve also seen an uptick in consumption of podcasts related to wellness and meditation over the last few weeks.

Spotify is building for this new reality in real time. On Monday, the streaming service launched the hybrid music/podcast playlist Daily Wellness. Like Your Daily Drive, Daily Wellness alternates between 15–20 minutes of personalized music and brief episodes of meditation and mindfulness podcasts. The listening experience lasts a total of around 90 minutes, and is meant to be consumed in a linear rather than shuffled fashion.

Spotify also launched two original mindfulness podcasts this week: Wake Up / Wind Down from Spotify Studios (narrated by musician Niall Breslin), and Daily Quote from Parcast Network (which Spotify acquired last March). Both podcasts feature prominently in the Daily Wellness playlist, alongside a handful of third-party shows including Daily Breath with Deepak Chopra, Yoga Girl Daily, The Slowdown, The Daily Shine and The Daily Refresh. Note that these podcasts all update every day, making them a good fit for Daily Wellness’ cadence.

This is part of Spotify’s push to rebrand itself for an at-home rather than on-the-go lifestyle. The service now has a dedicated At Home playlist hub, as well as a Listening Together series of artist-branded playlists for meditating (with Grimes and Kiana Ledé), working out (with Anitta and Normani), cooking (with Troye Sivan and Selena Gomez) and gaming (with NAV and Lil Yachty).

It’s telling that in a pandemic, Spotify reorients itself even more around functions than around songs or podcasts per se.

Herein lies the story. In case it wasn’t already obvious, Spotify is no longer just a music platform. But even with podcasts added, it’s insufficient to call Spotify a more general audio platform.

Instead, Spotify has revealed itself in this pandemic as a platform focused on functional audio.

Lifestyles > products

Some more contextual background would help here. One key paradigm in business and marketing is the importance of satisfying deeper needs, more than creating products. For instance, as the late Harvard Business School professor Theodore Levitt has said: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

In the worlds of direct-to-consumer entertainment and retail, lifestyles — not products — differentiate competitors. Away makes “aspirational luggage.” Modern mattress companies like Casper promote the merits of a homebody way of living. As the marketing maxim goes: “People don’t buy products, they buy better versions of themselves.”

For the music industry, one major consequence of this mindset is that music and lifestyle brands are jockeying for each other’s audiences by expanding into each other’s territories.

In one direction, lifestyle brands across fitness, travel and food & beverage are launching their own record labels and expanding their in-house music divisions, recognizing the power of music in connecting with consumers’ emotions as well as the wider cultural zeitgeist.

In the other direction, major artists like Rihanna and Jessica Alba now run their own fashion empires. Formerly music-focused services like Spotify and Pandora have expanded into podcasts to claim a larger share of users’ daily listening, and to keep tabs on real-time cultural developments.

This shift from music to lifestyle is critical for understanding Spotify’s focus not just on audio, but on functional audio. More than facilitating music or podcast discovery, Spotify has the goal of inserting audio into every function of our lives. From waking up, to being our best during the day, to hanging with friends, to going back to sleep — Spotify, the company argues, is always there.

Once we frame Spotify’s core offering as functional audio, rather than audio writ large, the company’s competitive landscape widens dramatically.

The media tends to see Spotify as a competitor to music subsidiaries of billion-dollar tech corporations, such as Apple Music. But the playing field of functional audio is actually much larger than that. It encompasses not only music, but also audio workouts (Aaptiv), audiobooks (Audible) and meditation (Calm).

I want to focus on meditation and wellness today, because there’s nothing quite like a stressful pandemic to make Spotify’s role in this market clearer than ever.

For music services looking to diversify their audio offerings, meditation is one of the lowest-hanging — and fastest-growing — fruits.

According to Sensor Tower, the 10 highest-grossing meditation apps generated almost $200 million in revenue in 2019, a 52% increase year-over-year. The category has also seen a spike in activity amidst the COVID-19 pandemic, hitting 750,000 downloads during the week of March 29, according to App Annie.

What’s interesting is that many wellness-audio apps are also placing musical talent at the core of their user experience. Music enhances these apps’ ability to serve their core function in users’ lives: Promoting a calming, healthy and happy life at home.

In other words, they’re looking a lot more like Spotify (and vice versa).

The meditation apps dominating Spotify’s long-term territory

The meditation app competing in the most direct way with Spotify is Calm, currently the #1 Health & Fitness app in the iOS App Store.

Calm’s primary content types are Mental Fitness, Sleep Stories, Meditations and, yes, Music. Unlike with Spotify, most of Calm’s content lives behind a paywall that costs $69.99 a year.

More than most wellness-audio apps, Calm has invested heavily in exclusive celebrity partnerships. For instance, the app features a mental fitness audio series with LeBron James and sleep stories narrated by the likes of Matthew McConaughey, Nick Offerman and Eva Green. (In this case, “stories” is just another word for podcasts.)

Music is also a frequent outlet for Calm’s talent partnerships. In March 2019, the app partnered with Moby on the first Calm-exclusive album, Long Ambients 2 (which is now available elsewhere). Four months later, Calm hired its first-ever Head of Music Courtney Phillips Spoehr,  a former brand-partnerships exec at Universal Music Group. Since then, the app has partnered with artists like Nick Murphy, Lindsey Stirling, Tom Middleton, Sam Smith, Sabrina Carpenter, Above & Beyond, Sigur Rós and Chuck Wild on a mix of remixes of existing musical content and original, music-driven meditation experiences — all exclusive.

Calm also sources its instrumental, non-vocal meditation and sleep music from outside parties. For instance, Calm has a series of “playlists” with titles like Peaceful Thoughts, Torpor, Refreshing Spirit, Lo-Fi Beats and Soothing Piano that are all actually preexisting albums from record labels like Sound Therapy, which focuses on wellness, and West One Music Group, which specializes in production music. While these catalogs are also available on Spotify and other streaming platforms, they stand out on Calm in their explicitly functional framing. (This isn’t all “fake-artist” doom and gloom, as the Calm app credits composers by name.)

The second highest-ranking meditation app in the iOS App Store, Headspace, already has a discounted bundle with Spotify in select European markets.

Many publications have reported increased activity on Headspace amidst the COVID-19 pandemic. According to The Economist, Headspace saw a 14x spike in activity around calming-related content in the last week of March. The Washington Post also reported that users were tuning into Headspace’s live meditations — which allow people to tune in simultaneously to guided meditations at scheduled time slots — 70% more often than usual.

For now, music on Headspace exists in the form of focusing and sleeping playlists (see below). Unlike Calm and Spotify, Headspace doesn’t credit any artists or composers in these playlists, instead choosing to highlight function over culture. But if you listen to Headspace’s “Lo-Fi Times” and “Sweet Sleep” playlists, they sound a lot like Spotify’s “Lo-Fi Beats” and “Deep Sleep” playlists. In these cases, both apps perform the exact same functions of helping users focus and sleep.

In addition, Headspace’s recently-formed Media Ventures division will soon be expanding the company’s presence into many audio and video formats, including podcasts and documentaries — further competing with Spotify for the largest share of users’ mindfulness (terrible, I know).

This is not a meditation-app example, but even Audible is investing in original wellness-driven content as well. On April 21, the Amazon-owned company launched a free collection of sleep, relaxation and narrative content narrated by the likes of Diddy and Nick Jonas, in partnership with Arianna Huffington’s Thrive Global.

Audible is in a unique position to capitalize on wellness audio not only because it has the capital to attract talent (hello, Amazon). Its users are also familiar with audiobooks and other long-form audio formats, easing a pivot into sleep-friendly content. In contrast, Spotify’s approach to wellness content seems to focus on shorter podcast episodes, lasting a few minutes each.

Who wins?

In wellness audio, Spotify’s main advantage against its competition is its verticalization.

I can’t understate how powerful it is that Spotify owns its main podcast supplier. Anchor, the podcast creation and distribution tool that Spotify bought in 2019, now powers over 60% of all podcasts on the platform. Also, Spotify doesn’t own only the long tail of podcasts. It also owns the head, with valuable properties like Gimlet Media and The Ringer now under its wing.

Hence Spotify has a sprawling music and podcast catalog, both in-house and third-party, from which it can pull for its wellness content. In contrast, the likes of Calm and Headspace have no blanket licensing deals (yet), and handle music licensing on a case-by-case basis.

One area where the jury is still out is the efficacy of celebrity talent in mindfulness content. Yes, celebrities can help startups gain new users and stand out in an increasingly competitive environment.

But do we really need to fall asleep to Diddy? Probably not. There’s an inherent danger in framing mindfulness not as a psychological necessity or a state of being, but as entertainment.