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Audible Sounds Off on a New Rival

For digital music downloads, Apple's (AAPL) iTunes dominates the market. But for downloads of audiobooks, newspapers, and magazines, the leader is Audible (ADBL). It offers content ranging from audio versions of The Da Vinci Code to daily summaries of The New York Times. Lately, the Wayne (N.J.)-based company has been on a tear. Revenues in its last quarter, ending Mar. 31, skyrocketed 91% year over year, to $12.9 million.

Founded in 1995, Audible weathered the dot-com crash and became profitable in 2004. Now it faces new challenges. When CEO Donald Katz started the company, the Net didn't have much audio content, consumers weren't used to paying for media online, and the only MP3 players in existence were expensive and had tiny storage.

On June 3, the Wall Street Journal reported that Amazon (AMZN), an Audible partner, will be entering the audiobook-download business, too. During the Book America Expo on Friday in New York, BusinessWeek Online reporter Burt Helm caught up with Katz about the Amazon news and other trends. Here are edited excerpts from their conversation:

Q: What's your reaction to the news that Amazon may be getting into the downloadable-audiobooks business?

A: Amazon's plans seem unclear at this point. They remain a partner of ours, though the revenue generated through the partnership remains immaterial. It's only natural that the market for digital audio information and entertainment will appear attractive to others. But there are innumerable challenges to entering this market. Our partners' content plays on 135 digital audio devices -- including the iPod, PocketPCs, Palms, and a variety of Smartphones.

We have a proven and patented technology and valuable distribution partners -- including in Apple's iTunes, where we're the exclusive provider of audiobooks and spoken-word programming. Running a first-class service enterprise is very different from moving boxes.

Q: Podcasting software, which lets users record and distribute their own audio shows, has become hot trend recently. Is podcasting a threat or a help to Audible's business?

A: Podcasting is an entirely positive thing for us. I mean, depending on how you define it, we've been podcasting since November of 1997. And we're really taking advantage of the technology. We plan to deliver our subscriptions through RSS [feeds] in a couple of weeks.

We'll also be putting out self-publishing tools for users to create their own podcasts. Probably there would be some payment to use the software, but we'll put out the specifics shortly. As with everything we do, it will be amazingly friendly in terms of price.

Q: There are several startups like Odeo that plan to offer similar services to Audible using new podcasting technology (see BW Online, 5/24/05, "His Mission: Simplify Podcasting") How do you plan to compete?

A: It's not a small thing [for] a consumer [to] have a happy listening experience online. We'll be excited to provide all of this technology for our self-publishers. Additionally, our technology will both protect their intellectual property and work for 135 kinds of digital audio devices.

Q: In 1997, when you started offering downloads, very little digital audio was available. Now, there are thousands, if not millions, of songs and books available. What will Audible look like in the future?

A: We'll soon be delivering content wirelessly in the middle of June, and we're moving worldwide. We're just now moving into education, as part of a partnership with Pearson (PSO) to provide audio study guides along with texts. But more broadly, audio of the spoken word will be used much for education and all sorts of information.

Q: Why do you think digital audio services have taken off, while other digital media like e-books have faltered?

A: I don't want to sound like I'm bragging, but one of the reasons this category is surging is our product. We just built something that had a user experience that worked, from how the audio platform behaves to the richness of the library. Having said that, having a proper dedicated device is very important to enjoying the product. When we started in 1997, we couldn't do much more than study the possibilities.... The technology was still developing, and the sound quality wasn't great.

What we did was make the pricing commensurate with the experience -- as our ability to make the sound better and richer increased, the pricing went up. Now we have the iPod, as well as 135 different devices in the market that all play our files, and it's much easier. I think in other markets the content community has set protectionist price points. You can't just make the price the same as the physical version if you want to look for new customers, new channels, and new revenue streams.

Q: What would need to happen to make e-books popular?

A: The pricing set for the first e-books wasn't viable. Look at the way e-books were born: The industry tried to duplicate the physical book model. There were too many different people involved -- software distributors, coding middlemen, point-of-sale distributors -- all upping the price. For the digital distribution world, it needs to be one big bubble, where one company writes the software, sells the product, and so on.

E-books will come, and it will be a large market. But at this point, it's not the best user experience -- reading on a screen hasn't come up to compete with paper. The reading experience needs to get consistently better. Finally, the fact of the matter is that books aren't going to go away in anyone's lifetime. They're profound artifacts -- they're the kind of things people love collecting and displaying. Books are something that are loved for themselves.

Q: Wasn't that also true of vinyl records?

A: People certainly loved their vinyl records and had a much stronger relationship with their collection. Having said that, people certainly like their Treo 650s or their iPods today.

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