The market for the sale and delivery of spoken audio is highly competitive
and rapidly changing. Principal competitive factors in the spoken audio market
include:
. selection;
. price;
. speed of delivery;
. protection of intellectual property;
. timeliness;
. convenience; and
. sound quality.
Although we believe that we currently compete favorably with respect to these
factors, we cannot be sure that we can maintain our competitive position
against current or new competitors, especially those with longer operating
histories, greater name recognition and substantially greater financial,
technical, marketing, management, service, support and other resources.
We compete with (1) traditional and online retail stores, catalogs, clubs
and libraries that sell, rent or loan audiobooks on cassette tape or compact
disc, (2) Web sites that offer streaming access to spoken audio content using
tools such as the RealPlayer or Windows Media Player and (3) other companies
offering services similar to ours.
Audiobooks on cassette tape or compact disc have been available from a
variety of sources for a number of years. Traditional book stores, such as
Borders and Barnes & Noble, and online book stores, such as barnesandnoble.com
and Amazon.com, offer a variety of audiobooks. The AudioBook Club offers
discounted audiobooks by mail order. Rental services, such as Books on Tape,
offer low pricing for time-limited usage of audiobooks, and libraries loan a
limited selection of audiobooks. One or more of these competitors might develop
a competing electronic service for delivering audio content.
Competition from Web sites that provide streaming audio content is intense
and is expected to increase significantly in the future. Broadcast.com, which
recently announced plans to be acquired by Yahoo!, and RealNetworks offer a
wide selection of streaming audio content. These companies and other portal
companies including America Online, Excite, Lycos and Infoseek may compete
directly with us by selling premium audio content for download.
Audiohighway.com also offers downloaded digital audio content for playback
on personal computers. Command Audio has announced plans to deliver audio
content through FM radio frequency for mobile playback.
Our content providers and other media companies may choose to provide
digital audio content directly to consumers. In addition, a small number of
companies control primary or secondary access to a significant percentage of
Internet users and therefore have a competitive advantage in marketing to those
users. These providers could use or adapt their current technology, or could
purchase technology, to provide a service directly competitive with the Audible
service.
Many of these companies have significantly greater brand recognition and
financial, technical, marketing and other resources than we do. We also expect
competition to intensify and the number of competitors to increase
significantly in the future as technology advances provide alternative methods
of delivering digital audio content through the Internet, satellite, wireless
data, FM radio frequency or other means.
Web
site, store it in digital files and play it back on personal computers and
electronic devices. More than 15,000 hours of audio content are available on
our Web site, including audio versions of books, periodicals and radio
programs. Several manufacturers have agreed to support and promote the playback
of our content on their hand-held audio-enabled electronic devices.
The market for the Audible service results from the increasing usage of the
Internet and the recent introduction of hand-held electronic devices that have
audio capabilities. In contrast to traditional radio broadcasts, the Audible
service offers customers access to content of their choice and the ability to
listen to what they want, when and where they want--whether commuting,
exercising, relaxing or sitting at their personal computers. Unlike traditional
and online bookstores which are subject to physical inventory constraints and
shipping delays, we provide a selection that is readily available in digital
format that can be quickly delivered over the Internet directly to our
customers.
We help publishers, producers, authors, device manufacturers and our Web
site affiliates create incremental sources of revenue. We provide new sources
of revenue for publishers of newspapers, magazines, journals, newsletters,
professional publications and business information and producers of radio
broadcasts. In addition, our service provides companies that distribute or
promote our service and manufacturers of hand-held audio-enabled electronic
devices with a wide selection of content to offer to their customers.
Industry Overview
Public demand for entertainment, information and educational media continues
to grow as sources for this content proliferate. Veronis, Suhler & Associates
estimates that the communications industry exceeded $300 billion in revenues in
1997, increasing from less than $60 billion in 1977. During 1997, Americans on
average spent more than 3,300 hours reading, watching or listening to media
content from a large number of disparate sources. We believe that many
consumers seek a better way to manage this content.
Listening is a way for individuals to consume this content at times when
they are unable to read, such as when they are driving. A 1996 market study by
the Yankee Group indicates that 87% of automobile commuters listened to the
radio an average of 50 minutes a day while commuting. According to the
Department of Transportation, in 1990, 84 million people drove to and from work
alone, an increase of 35% from 1980. As individuals look to use their commuting
time more efficiently and manage an increasing amount of available content,
audiobooks have emerged as a personalized "pay-to-listen" alternative to radio,
which does not allow listeners to control when they listen to a particular
program. Americans spent $2.2 billion on spoken word audio tapes in 1998, an
increase from $1.6 billion in 1996. This increasing usage of audiobooks exists
despite limited types of content, high prices and the limitations of cassette
tape players. For instance, the audiobook market does not address timely print
content such as newspapers, newsletters, magazines and journals.
Recently, the Internet has emerged as a significant global communications
medium enabling millions of people to access and share information. Through the
Internet, users have the ability to quickly receive information in various
forms, from text and multimedia to newer technologies such as streaming audio.
Jupiter Communications estimates that over 33% of all Internet users listen to
Internet-delivered audio on their personal computers. However, the current
audio environment available on the Internet generally restricts consumers to
listening at their personal computers. Consumer electronics and computer
manufacturers are addressing this constraint by developing a new generation of
mobile devices that are capable of playing back downloaded audio content.
IDC estimates that shipments of hand-held companion devices exceeded 4.5
million units worldwide in 1998 and will increase to over 14 million worldwide
by 2002. We believe seven million of these mobile devices will be audio-enabled
by the year 2002. This estimate does not include the recent appearance of
Internet-connected music players. According to Forrester Research, the
installed base of Internet-connected music players are estimated to reach one
million units in 1999 and 17 million units in 2002.
The confluence of the Internet as an increasingly accepted media
distribution channel, the widespread adoption of audio-enabled mobile devices
and the continuing growth in consumer demand for content in a variety of
formats, has resulted in new challenges for the media industry. These
challenges include creating a system that takes advantage of revenue
opportunities by making content readily accessible through the Internet while
compensating publishers and other content creators and preventing unauthorized
duplication and distribution. This creates an opportunity for a provider who
can establish a secure system for Internet delivery of premium audio content.
Our Solution
We have created the Audible service to give consumers the ability to
download spoken audio content of their choice from the Internet and to listen
to this audio when, where and how they want. The Audible service addresses the
market opportunity created by consumer demand for audio content and the
emergence of the Internet and hand-held audio-enabled electronic devices. We
have created the first service for secure delivery of premium digital spoken
audio content over the Internet for playback on personal computers and these
devices. Our service allows customers to program their listening time with
personalized selections from a wide collection of spoken audio content
available on audible.com, our Web site, including entertainment, news,
education and business information. We have assembled the largest and most
diverse collection of premium spoken audio content available for download on
the Internet for playback on personal computers and hand-held electronic
devices in most cases, currently available only through us and, in many cases,
pursuant to exclusive license rights. We have more than 15,000 hours of audio
content available on our Web site, including audio versions of books and
periodicals such as The New York Times, The Wall Street Journal and The
Economist, and radio programs such as Car Talk, Fresh Air, Marketplace and News
From Lake Wobegon. We provide over 3,000 audio versions of books from
publishers, including Bantam Doubleday Dell Audio Publishing and Random House
Audio Publishing, each a division of Random House, Inc., Dove Audio, Harper
Audio, Simon & Schuster Audio and Time Warner AudioBooks, and written by
authors such as Dave Barry, John Grisham, Stephen King, Sidney Sheldon and Amy
Tan. We believe that our extensive audio content collection and our secure
delivery system provide benefits to our customers, content providers,
manufacturers of AudibleReady hand-held electronic devices and other companies
which distribute or promote our service.
Benefits to Customers:
Unlike the traditional ways consumers select, organize and consume audio
content, Audible customers can access content of their choice and listen when,
where and how they want--whether commuting, exercising, relaxing or sitting at
their personal computers.
Selection. At our Web site, audible.com, customers can browse and purchase
from a large and diverse collection of readily available premium spoken audio
content, most of which is currently available only through us in digital format
for Internet distribution either pursuant to exclusive arrangements or because,
to our knowledge, no one else currently has these rights. Our collection
includes over 3,000 digital audiobooks in a wide variety of categories from
more than 1,500 authors. We are the only source of timely digital audio
editions of leading newspapers and selected periodicals. We also offer popular
and special interest radio programming, including interviews, commentaries and
talk radio. Our collection also contains selections that are difficult to find
or may not otherwise be readily or conveniently available to customers, such as
lectures and speeches. We have over 4,400 of these other audio selections in
addition to our audiobooks.
Convenience. audible.com provides customers with one-stop shopping for their
premium digital spoken audio needs. Our customers can browse and sample spoken
audio selections through our easy to navigate Web site. Our customers can
purchase bundled packages of selected audio content and choose automated
delivery of
timely audio content on a subscription basis. Unlike traditional and online
bookstores, which are subject to physical inventory constraints and shipping
delays, we provide a selection that is readily available in digital format that
can be quickly delivered over the Internet directly to our customers.
Listening Experience. Unlike radio, which offers limited programming and no
ability for the listener to control broadcast times, our service enables
customers to take greater control of the listening experience. Customers decide
to listen to what they want, when and where they want. Our service allows
customers to skip between selections or individual articles or chapters within
selections. Customers can pause and resume listening where they left off and
can "bookmark" multiple sections of content, rather than be constrained by the
rewind and fast forward functions of cassette tape players.
Lower Prices. We provide customers with lower priced spoken audio content
because we do not incur the costs of traditional audio content manufacture and
distribution. For example, on June 15, 1999, the unabridged digital audio
version of Stephen King's new novel, The Girl Who Loved Tom Gordon, sold for
$10.95 on audible.com compared to the cassette version price of $23.96 plus
shipping through Amazon.com. By comparison, the manufacturer's suggested retail
price for the same title was $29.95 for cassette tape and $32.00 for compact
disc.
Benefits to Business Affiliates:
We help content creators, device manufacturers and other companies which
distribute or promote our service to their customers to create incremental
sources of revenue by aggregating premium audio content and providing a widely-
accepted system for digital spoken audio distribution.
Content creators. We provide a new source of revenue for publishers of
newspapers, magazines, journals, newsletters, professional publications and
business information and producers of radio broadcasts by creating a new market
for content that is too timely for distribution on cassette tape and too
specialized for widely-broadcast radio programs. Additionally, our electronic
delivery service offers publishers of audiobooks a new distribution channel for
their existing audiobook content. Older publications, including archived or
out-of-print content, when converted to digital audio form, can also provide
additional revenue while incurring relatively low costs for storing and
delivering electronic inventory. Our solution has the benefit of reducing the
risk of audio files being copied without authorization by employing a system
designed to limit playback of audio files to specifically identified personal
computers and hand-held electronic devices.
Device manufacturers. Major manufacturers of hand-held audio-enabled
devices, such as Casio, Compaq, Everex and Philips, have agreed to support and
promote the playback of our content on their devices. Diamond Multimedia has
agreed to promote our service after we jointly make its next version of its Rio
Internet Music Player compatible with our service. Our service provides these
manufacturers with an attractive application that takes advantage of the audio
capability of their devices, which may, in turn, increase their sales. In most
cases, these manufacturers also receive a percentage of the revenue generated
over a specified period of time by each new Audible customer referred by them
through the purchase of a new device. For example, a purchaser of a Philips
"Nino 510" palm-size device using our software can purchase and download
content from audible.com. Philips will receive a percentage of the revenue
related to content downloaded by this purchaser.
Companies which distribute or promote our service. We have entered into
marketing agreements with Microsoft, MP3.com, RioPort, RealNetworks, SOFTBANK
Content Services, Broadcast.com, The New York Times and The Wall Street Journal
to promote our content to their customers, either directly or indirectly. In
return, we have access to additional distribution outlets. We have agreed with
some of these companies to share a portion of revenue from sales of our content
to their customers.