Launched in 1997 with a plan to sell audio books over the Internet, the company has played its hand relatively well, lining up big-name partners such as Microsoft, Random House and Amazon.com as well as best-selling authors such as Stephen King and John Grisham.
Its target market is growing, and the technology required for its products has advanced beyond the experimental phase, unlike that for visual e-books, which are still in search of viable devices for mass-market acceptance.
But none of that seems to matter now. Ruthless investor skepticism over unprofitable Internet businesses has helped drive Audible's stock as low as a remaindered book title, to around 94 cents a share. In an earnings report last week, the company reported a quarterly loss of $7.85 million on sales of less than $1 million. While the end of the tale has yet to be told, analysts predict the next chapter will likely involve a takeover.
Audible "will survive, but at some point they will be bought out by someone who could make use of their technology and library," said Nitsan Hargil, senior Internet analyst at Kaufman Bros.
Audible's story is hardly unique. With investors turning their backs on speculative Internet ventures, dozens of dot-coms have faltered. But Audible's woes show that even a company that appears to have done a lot of things right is not immune to the current market downswing.
Audio books are considered to be the fastest-growing segment in the publishing industry, growing 75 percent since 1995 and representing $2 billion in annual sales, according to the Audio Publishers Association (APA). While that had inspired investors to take a chance on Audible's future, few are now hearing the message.
"Audio books was a subset of a talking boom," said Audible chairman and founder Donald Katz. The company was "based on the fact that there was a booming spoken-word marketplace," for example, with the popularity of talk shows and the speaking circuit within the corporate and education arena.
A niche to die for
Audible offers some 12,000 titles for download, covering nonfiction, education, comedy, language learning and audio editions of print newspapers and magazines. Files can be downloaded and replayed on personal computers or on devices such as the Diamond Rio 500 Player or the Microsoft Pocket PC.
The company offers best-sellers for $12 and other classic audio novels for less, almost half the cost of a cassette version that sells for around $20 or a CD that can cost around $30.
Audible also offers audio digests of newspapers--including The Wall Street Journal and The New York Times--at $6.95 a month for each subscription.
Still, the market for audio book listeners remains too small to drive the kind of growth needed to get investors excited.
Audible's strength and weakness partly lie in the demographics of its target market.
A study by the APA revealed that audio book customers 35 to 64 years old listen to more titles and spend more time listening each week than any other age group.
The upside is that older consumers are thought to be more respectful of copyright laws than young music fans, who have rushed to the Internet to get free songs by their favorite artists but have been reluctant to pay for the privilege of downloading tunes.
Dan O'Brien, an analyst at Forrester Research, said audio books appeal to an older crowd, which doesn't pose the same threat of piracy as do young music fans.
"I think there is a sense of respect (from the older generation) for authors who create books," O'Brien said.
The older generation, however, has not been drawn to MP3 technology in large numbers, according to Kaufman's Hargil, who said the main problem with audio books is nobody is buying them online.
"We're in no-man's-land," he said. "There's no way to make money off it yet."
Audible's Katz counters that audio books are selling far ahead of music and other digital books online.
"We've grown our business without (the need to sell) millions of devices" to download audio books, he said, adding that when MP3 devices become mainstream, Audible will gain more customers.
Waiting for success
Michael Herrick, chief executive of Audible rival MediaBay.com, agreed with analysts, saying that consumers still aren't buying a lot of audio books.
But he said he believes audio downloads and the availability of new e-book devices will help drive the market forward. For example, he said, devices may soon be available allowing consumers to switch back and forth between reading and listening, giving people new reading flexibility that many may find attractive.
Whether these companies can afford to wait for those developments is unclear. Like Audible, MediaBay is struggling to climb out of its market rut. MediaBay's stock is trading near $3 a share.
While both companies are struggling, publishers are backing audio book initiatives that could give them much-needed boosts.
In May, for example, Random House entered into a four-year publishing, marketing and distribution agreement with Audible to create Random House Audible, a publishing unit that produces spoken-word content for digital distribution.
"I would say that I feel pretty optimistic about" audio books, said Jenny Frost, president of Random House Audio Publishing Group.
Frost said that people already have adapted to listening to books and that they will be able to download audio books anywhere instead of having to go to the store and buy them.
That kind of optimism was in abundance three years ago when Audible first launched, but it is in short supply these days.
"Like any new medium, it's a gradual process--like music downloads was a gradual process--to get consumers interested," MediaBay's Herrick said.