Audible Braces as MediaBay and Amazon Enter, Growth Continues Across the Board
Talking to audio publishers is like walking into a small town where everyone knows everyone else and all of the competition is friendly — at this point everybody is so excited by the potential growth of the industry that they seem willing to supplant differences for the good of the team. Whether that jovial one-for-all attitude will endure as competition becomes fiercer is yet to be seen, but for now, the excitement is contagious, and inclusive.
“The industry has increased at a rate of over 10% a year, and digital downloads will only increase that growth rate” says Jeff Dittus, CEO of MediaBay.
Anthony Goff, Marketing Director at Time Warner and APA Conference Chair, shared Dittus’ excitement. “Time Warner Audio has been growing at mid to high double digits over the last couple of years,” he said. “We’re at the forefront of the highest growth of any division.”
Although the latest available numbers place the industry at around $800 million, most audio publishers agree that new numbers — being compiled this very moment by the APA — will top the $1 billion mark.
“The future looks very bright. Growth has been phenomenal,” said Mary Beth Roche, President of the APA and VP Publisher of Audio Renaissance, a division of Holtzbrinck. “Audiobooks overall are in growth mode. Digital downloads are the fastest growing segment, but by no means the only growing piece.”
In fact, only about 3.5% of the $1 billion business comes from digital audio sales, even though unit sales are in double digits, according to publishers contacted by PT. Lower retail prices along with discounts due to subscription package deals contribute to this discrepancy.
“Any way you look at it,” Dittus said, “Digital audio allows for a huge possibility of growth.”
One industry insider went even further. “I would say at this point there is nothing going on in the world that doesn’t involve audiobooks.” She laughed, “At least it seems that way.”
Danielle Steel is a Tape. Jon Stewart is a Digital Download.
When PT last checked in on the audiobook industry two years ago, publishers were dragging their feet on the transfer of audio content to CDs, insisting that the cassette still reigned as format king. Now, in the midst of digitization, the majority of publisher content remains on CDs with aggregators like OverDrive, Audible and MediaBay handling the digitization and distribution of the content.
Even though the digital age is upon us, publishers are still recovering from the industry transfer from tapes to CDs. “The move from cassette to CD was glacial,” Roche said. “It took us 10 years to make the tape to CD shift” — ten years after the music industry which, because it has an early adopter constituency that doesn’t restrict its listening to drivetime, has already moved solidly to digital.
Now that CD is the dominant audiobook medium, Jill Sansone, Director of Subsidiary Rights at Hyperion said that for new titles, they would “most likely skip the cassette” and go straight to CD and/or digital. She did add that “specific audiences gravitate to certain formats, so women’s fiction might sell well in cassette, but a humor book by an edgy young comic we’d want on CD and/or in digital format.”
Goff agreed, “The only time we still put anything new on a cassette is if it’s a mega blockbuster, or is especially geared toward an older demographic — there’s an Elizabeth Taylor book coming out this fall, for example.”
Goff estimates that for Time Warner 30% of revenue in 2004 came from cassettes, down from 50% of the market in 2002. CDs on the other hand went from hovering at around 50% last year to comprising 70% of sales in 2004.
“You’d be surprised though — looking at the month of October, we’re still printing six figures worth of cassettes,” Goff said. Digital is a little harder to measure, but growth is rampant. “In terms of units, about 17% of what we sold was digital in 2004, while it was maybe about 4% in 2003.” He continued, “In terms of our overall revenue, however, digital comprises about 4.4% to date. With digital content growing, the number of hard units sold is going down -but the total profit is up considerably.”
Sales terms are becoming less complex as publishers treat their digital component as yet another format for their books, but will ether ever replace paper? “I will never make that prediction,” Dittus said. “I remember when Bill Gates was proclaiming the paperless office, which will never happen — I think if anything, we may see digital audio coming to comprise 30% or 35% of overall audio, but as of now there’s just too large an installed base for other formats. “We may see cassettes going the way of the 8-track, but I would be surprised if CDs were completely phased out. Not to mention the possibility of new hard formats arising.”
But for all the speculation, audio publishers agree that it is still too early to tell. “We won’t really have a good snapshot of the direction of the industry until this time next year,” Goff said, “but we’re poised and ready to see what takes place.”
An Audible Rivalry: The Fall Kick Off
Until now, Audible and downloadable audio were nearly synonymous. Industry growth in the digital download sector is calculated solely on the basis of Audible’s quarterly earnings, as the company has had a monopoly on digital distribution since the format was introduced to the publishing industry in the late 1990s. The era of Audible as a digital audio industry yardstick is about to change however as the field opens up with the entrance of two major competitors this fall: MediaBay and Amazon. [Despite repeated calls and emails, Audible refused to talk to PT once it became clear the issue of potential competition would be addressed.]
Although Amazon’s purported entrance has received the most attention after the retailing behemoth posted a solicitation on their site this summer that read: “Calling all publishers: Send us your digital audiobooks! Amazon is developing a new store to offer downloadable audiobooks to our customers…” the largest immediate rival to Audible is MediaBay, fellow distributor, content provider and home to the Audio Book Club. MediaBay teamed up with MSN last year to become its exclusive provider and producer of spoken-word audio – an alliance that set them squarely against Audible and their Apple friendly ways.
Audible’s alliance with Apple – outlined by a four-year exclusive contract set to terminate in 2007 – has been a major plus for the company, allowing them to act as the exclusive provider of spoken word audio content to Apple’s wildly popular iTunes store. At the end of 2004, Audible found revenue generated through iTunes to constitute 11% of their overall sales, although iPod customers can also buy directly from Audible. The catch in the agreement that is often overlooked is that Apple may convert the contract from exclusive to non-exclusive, if they give Audible 120 days prior written notice – a fact that makes future alliances difficult to prognosticate.
With Audible audiobooks working on both Windows and Mac supported devices, and MediaBay audiobooks working on only on Windows supported devices, some claim that incompatibility issues are going to hamper the growth of the otherwise booming digital download market. Microsoft’s Windows Media digital rights management (DRM) supports more than 60 devices, while Apple’s DRM supports only Apple products, yet the iPod has been such an enormous success (with more than 15 million units sold), that there seems to be a problem on both sides of the divide.
For now, MediaBay’s entrance is merely providing the user – and the publisher — with more options. “We have negotiated rights with every major publisher,” CEO Dittus said. “We have 45 deals signed.”
Audio Book Club went digital last month, and MediaBay plans to have their entire offerings available for download by mid-fall. Dittus said that MediaBay has currently digitized 95% of their audio titles, and that when they’re done, over 5,000 titles will be available, in addition to the 5,000 titles already available on tape and CD.
“Publishers send us the masters, usually CDs,” Dittus said. “We digitize [them] and then put them into our stores and partner stores. And we are then often asked to act as distributors of that same content for the publishers.” To date, some of MediaBay’s digital content partners include: BBC, HarperCollins, Penguin Group USA Audio, Random House, Simon & Schuster, Time Warner, Harper Audio, and Zondervan. Nearly all of MediaBay’s partnerships are non-exclusive since most major publishers currently have deals with Audible, as well.
Audible has had its own fair share of developments over the past year, including the delivery of wireless content in June, and a January 2005 deal with the NFL. With the exclusive Harlequin deal signed earlier this summer, it would seem that Audible is becoming more aggressive in securing exclusive digital audio contracts with publishers now that their digital domination is being challenged. “All of the digital providers are salivating at anything exclusive,” Goff said. Audible also recently signed a deal in which an “exclusive multifaceted strategic relationship” was formed with XM satellite radio, according to the press release, in which the two companies will co-market each other’s products, as well as create programming for one another. Beginning in 2006, Audible and XM plan to launch “Audible Ready/XM” devices which will allow purchasers to listen to XM satellite radio as well as download audiobooks and other spoken word audio from Audible. It was just announced that Sirius has plans to launch their own exclusive device this fall.
When Middle America Tunes In
As for Amazon’s entrée into the market, everyone in the industry is abuzz with speculation. The first question that arises is whether or not Amazon will continue to promote soon-to-be-rival Audible’s content once they go live. In 2000 Amazon acquired a 5% stake in Audible and Audible, in turn, agreed to pay Amazon $30 million over the subsequent three years to promote their content. Since then, visitors to the Amazon site have been directed to click through to the Audible.com site if they wish to purchase downloadable material.
Amazon declines to give details regarding their purported entrance, but the digital “store” is allegedly slated for a fourth quarter entry and could involve digital music service MusicNet (offering WMA-based downloads) according to the Wall Street Journal and other sources. Rumors began to circulate last fall that Audible was being eyed by Amazon as a potential buy-out, and now some are again raising this as a possibility, especially given its aggressive timetable for launch. The company is also rumored to be soon offering song-by-song downloads similar to iTunes, as well as a subscription service — similar to Audible. Although everyone has differing conjectures as to what exactly Amazon will offer and when, all agree that Amazon’s foray into the digital download market, will (as Goff put it) “totally put digital audio into the mainstream.”
“Once Amazon exposes Middle America to all of this, the digital download culture is going to explode,” Goff said. “It won’t just be this little subculture of iPods anymore. Audible was our sole digital stream before and they are still hugely important to us, but they are becoming one channel of many.”
