Audible Service Could Teach Music Industry a Lesson
By LISA NAPOLI
Published: October 20, 2003
Reasonably priced secure downloads. Compensation for writers and artists. Peaceful alliances between publishers and online distributors.
A utopian vision for the music industry? Perhaps. But that approach, which appears to be the goal of Apple Computer's iTunes music store and others like it, is already a reality for delivering audio books and other spoken word offerings over the Internet, as created by Audible, a small company in Wayne, N.J.
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Technological challenges for Audible - like having to invent a playback device to fulfill the promise of mobile listening, and a small target audience not accustomed to going online - have been daunting. So have financial woes: Since the company went public in July 1999, its stock has ranged from a high of $25 a share to just pennies, and Audible has never made a profit. The stock closed at $2.03 on Friday, up 44 cents. And yet, in part because of investors like Microsoft, Amazon and Bertelsmann, Audible, which was begun in 1995, survived an era that destroyed many other digital start-ups.
Survival also has something to do with the fact that Audible's business has nothing to do with music, Donald R. Katz, Audible's founder, said. While the music industry has struggled with how to work with the Internet, initially denying it was even a threat and keeping it at arm's length for years, Audible has been using digital downloading to reach new audiences and to deliver the wares of the audio book industry more efficiently and less expensively.
"Consumers are listening to audio books on cassette, on CD, on MP3's," said Mary Beth Roche, president of the Audio Publishers Association, a trade group. "Our challenge in the bricks-and-mortar stores is limited shelf space. How do you figure out what format for which title?''
Digital downloading offers a solution. Ms. Roche, who is also the publisher of Audio Renaissance, an Audible partner, said that the audio books industry had traditionally lagged behind the music business in technological innovation. But it has forged well ahead of the record business in developing a viable and secure delivery system that customers are willing to pay to use.
"Audible was able to come up with a digital rights management system that worked and made everyone comfortable,'' she said. "Maybe we benefited because we were a smaller business."
There are big differences between the two recording industries. Audio book sales, about $2 billion a year, are a small fraction of the music industry's $12 billion in revenues from the United States. Unlike CD's, audio books - often filling four or more cassettes - can be unwieldy, more naturally suited to the digital format. And users of spoken word content, which covers a variety of products, including radio programs and daily digests of newspapers, are typically older, which makes them more respectful of copyright laws, industry executives say. "A book is a substantial cultural artifact, where a song doesn't have much weight to it," Mr. Katz said. He cited the "politicization of sharing music'' as another reason for the music industry's problems.
An author and former journalist, Mr. Katz founded his company before the term "dot-com" was tacked on to every business plan, before portable digital audio players existed, and when rumblings about music piracy were as new as the Web itself.
At the beginning, Mr. Katz's team had to concoct not just the software for secure digital delivery of its offerings but the portable hardware device on which to play them back. Initial users had to buy portable devices that predated MP3 players; the company's first portable digital audio device is so innovative that it is preserved as an artifact at the Smithsonian Institution.
"One of the reasons we didn't grow as quickly as we could have is that the business was predicated on the ubiquity of playing devices," Mr. Katz said. The devices have only taken off in the last two years, particularly with the introduction of the Apple iPod, which works with Audible.
On Thursday, Audible's reach grew with the announcement that thousands of hours of its offerings will be available from Apple's iTunes music store.
Audible long ago abandoned making its own device; it now gives away an MP3 player as an incentive for new subscribers.
Persuading audio book publishers and radio producers to allow him to sell their content online was not easy at first, Mr. Katz said, particularly because many publishers were still feeling the sting of failed experiments with the CD-ROM. But unlike the record industry, book publishers agreed to share their rights long before a free alternative like Napster or Kazaa came along to make copyright violations as easy as clicking a mouse.
"Audible had to go out and convince publishers that this new technology would shepherd their content in a secure way and that it wouldn't cannibalize their business," Mr. Katz said. "I was pretty honest that the revenues would be very, very small at the beginning. Everybody basically was fundamentally happy to have this extra revenue stream."
The market for audio books has grown 360 percent since 1990, industry figures show. One in five American households includes someone who has heard an audio book, said Robin Whitten, editor of AudioFile magazine. "When I started you had to explain what an audio book was to people,'' Ms. Whitten said. "Now it's part of most people's experience."
As the business has grown, Audible has managed to carve a niche. Its alliances with publishers have improved and offerings have become more comprehensive. Audible is growing but it is not yet a financial success, Mr. Katz said. "We're getting close to being self-sustaining,'' he said. "The big challenge is it's just not well known enough."
