Audible Inc. - Company Profile, Information, Business Description, History, Background Information on Audible Inc.



65 Willowbrook Boulevard
Wayne
New Jersey
07470
U.S.A.

Company Perspectives

Audible (www.audible.com) is the Internet's leading provider of spoken audio entertainment, information, and educational programming. Content from Audible is downloaded and played back on personal computers, CDs, or AudibleReady computer-based mobile devices. Audible has 80,000 hours of audio programs from 270 content partners that include leading audiobook publishers, broadcasters, entertainers, magazine and newspaper publishers, and business information providers.

History of Audible Inc.

Audible Inc. is the leading provider of spoken audio in digital format. The company has worked out licensing deals with more than 225 content partners, allowing it to avoid the copyright complications that ensnared the music industry's relationship with the Web. Audible offers spoken versions of periodicals such as the Wall Street Journal in addition to a range of books and some original content produced for Audible.com. After nearly ten years weathering the hardware and financial issues that affected much of the tech world, the company finally achieved its first profit in 2004. Although it could not maintain profitability the next year, it did sustain the interest of investors.

Origins

Donald Katz launched Audible Inc. in 1995 in Wayne, New Jersey. He was joined by Tim Mott, cofounder of Electronic Arts and Macromedia. Mott, who provided more than $400,000 in seed capital, would serve as chairman, while Katz was CEO. Other investors included a handful of venture capital firms (Kleiner Perkins Caufield & Byers among them) and the Thomson Corporation, who provided another $18 million within a couple of years.

Katz, a resident of New Jersey, had been a successful journalist for 20 years before launching Audible, publishing well-received books about Sears, Roebuck & Company and Nike. He continued contributing to publications such as Esquire, Men's Journal, and Sports Illustrated after starting the company.

In fact, according to Business 2.0, Katz was researching a book on the Information Superhighway for Random House (which had advanced him $400,000) when he became entranced with its commercial possibilities. Katz saw in the emerging technology of the Internet a cheap and convenient new medium for distributing spoken audio on demand. It was a marriage of high tech with the ancient simplicity of the human voice. "We want to be a leader in teaching the Internet to talk," Katz said in the New York Times.

Aside from saving the considerable expense of paper, printing, warehousing, and shipping, online delivery would allow almost immediate delivery and a vast selection. There was the added bonus on some titles of hearing the author's own voice. "Being read to is a very pleasurable experience, almost harkening back to bedtime stories," Katz later told the Associated Press. Finally, the population seemed to be turning away from books because they were too busy to sit down and read; spoken works could be consumed during commutes or workouts. Prior audiobook publishers had been constrained by the limitations of producing and shipping a physical product.

Audible claimed that its business model was one of the first designed around the Internet. It took Audible a couple of years to develop the technology for disbursing audio online while protecting the owners' copyrights, according to Business 2.0. Another critical part of the equation was the mobile playback device.

First Portable Digital Audio Player in 1997

The company introduced the first Internet-ready portable digital audio player, called the MobilePlayer, in 1997. Although not up to the audio quality of the later iPod, or even AM radio, it was innovative enough for its day to land in the Smithsonian Institution. It could be listened to through headphones or via an unused frequency on a car stereo or other FM radio. It could store two hours of audio at a time. There were no removable disks; the MobilePlayer had to be reloaded via its docking station. The 3.5-ounce unit sold for more than $200, making it too pricey for the mass market.

For content, Audible turned to dozens of audiobook producers and educational content providers. Katz initially encountered resistance due to publishers' early failures with CD-ROM media. These partners, however, came to value the prospect of an efficient new sales channel. By the time of its product launch in 1997, Audible had more than 10,000 hours of spoken book and periodical material to offer for download, far more than most conventional audiobook outlets.

By September 1998, Audible had served more than 5,000 customers and had sold more than 3,000 players, noted the New York Times. Microsoft soon invested $5 million in the company, while agreeing to include Audible's software with the Windows CE operating system for handheld devices. Agreements with other hardware makers, including Compaq Computer Corp., soon followed.



Public, and Pressured, in 1999

Andrew J. Huffman, former head of multimedia software start-up Aimtech, was hired as Audible's CEO in March 1998, when the company had 35 employees. According to Business 2.0, the strain of constant cross-country flights to Silicon Valley was the reason Katz brought on the new hire. Tragically, in October 1999 Huffman died of a heart attack while playing basketball. He was 39.

Audible had had a successful initial public offering in July 1999, in which the share price opened at $9 and closed at $21 the first day. It also got another important new strategic partner during the year in Amazon.com, which acquired a 5 percent holding for $20 million.

Former Comcast executive Thomas Baxter was hired as Audible's president and CEO in February 2000. It was a precarious time to lead an Internet start-up, in spite of promising developments such as a new weekly comedy show from Robin Williams available only on Audible.com launched in April 2000. A strategic alliance was formed with Random House the next month, creating Random House Audible, said to be the first publishing imprint devoted to creating titles for digital distribution. Both of these projects aimed to use efficiencies of the Internet to connect with niche markets. Audible's downloads were priced at about $8, versus $20 for a book on CD.

The collapse of the high-tech bubble in the spring of 2000 stalled the company's efforts to find or make a cheaper, more capable audio player. The company's stock value was cut back, but not to the extent of other Internet start-ups. Nevertheless, Audible was posting some rising numbers. In 2000, content and services revenues more than quadrupled to $2.5 million, while the number of customers nearly tripled to 51,000. Total revenue, including hardware sales, was $4.5 million. Unfortunately, the company's net loss also increased, from $13.5 million in 1999 to $32.3 million in 2000.

Microsoft acquired $10 million of the company's preferred stock in March 2001, allowing Audible to stay in business. (This holding was divested in 2003.) Amid growing losses, however, the company soon cut 40 percent of its staff, including Baxter, who later became CEO of Time Warner Cable. The company's web site was down for more than a week after its New York City server lost power following the September 11, 2001 terrorist attacks on the United States.

In spite of its obstacles, the company was able to avoid delisting on the NASDAQ as its share price dipped below $1, at least temporarily. It was among the tech companies that moved its national market to the small-cap market in 2002. It finally moved to the NASD Over-the-Counter Bulletin Board in February 2003. Fortunately, investors such as media giant Bertelsmann AG, parent of Random House, believed in the company and continued to help it survive.

Introducing Subscriptions in 2000

Audible was moving to a subscription-based business model. While it continued to offer individual downloads for $5 to $30, it introduced memberships beginning at about $13 per month. This encouraged greater consumer involvement and a steady income stream, Katz told the New York Times.

Audible brought out a new audio player, the Otis, in December 2001. It was available to subscribers for $49, and later for free, with a yearlong contract. Audible soon abandoned the Otis, however, in favor of off-the-shelf MP3 players.

It was the introduction of Apple's iPod in late 2002 that finally provided the means needed to connect Audible's content with a large audience. Audible soon worked out an exclusive deal with Apple to offer 6,000 of its downloads through the iTunes music store.

The venture's success, however, was attracting to the market established online players, noted Business 2.0. Amazon.com allowed Audible's exclusive agreement to provide its audiobooks to expire in 2003. Another former partner, Microsoft, also was developing its own online spoken audio business; Apax Partners acquired its Audible stock in 2003. Audible also had faced competition from others, such as Books on Tape Inc. and MediaBay Inc., for years. Still, Audible was the clear market leader for downloads of audiobooks.

According to figures in the New York Times, the audiobook industry had increased 360 percent in the previous dozen years, to $2 billion (compared with $12 billion for the U.S. music industry). Other sources pegged the figure at closer to $800 million. Audible itself seemed to be growing the market; more than half of its users had no previous exposure to audiobooks in any form.

A Taste of Profits in 2004

By 2003, Audible's archives included more than 34,000 hours of material. This would double within two years. Net revenues were $34.3 million in 2004; the company posted net income of about $2 million. This milestone increased interest in its stock considerably; in fact, Standard & Poor's gave it its highest rating in 2005.

Sales were $63 million for 2005, though the company slipped into a loss. During the year, Audible began downloading content to mobile phones, beginning with the Treo. By this time, the company's content could be downloaded to more than 135 different devices. Audible also had signed a cross-marketing agreement to supply content to XM Satellite Radio Holdings Inc., while adding a subsidiary in the United Kingdom (its customers already came from more than 100 countries).

Principal Subsidiaries

Audible Limited (U.K.).

Principal Competitors

Audio Book Club, Inc.; Audio Renaissance USA; Books on Tape Inc.

Chronology

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