Online audio book leader faces a tough future

updated 7:54 p.m. ET July 31, 2005

NEWARK, N.J. - Mary Lou Kalbow started listening to books while driving a five-hour rural postal route in Minnesota about five years ago. Now she downloads titles by Janet Evanovich, Jonathan Kellerman and James Patterson to her portable MP3 player and listens all day while she works as a massage therapist.

"I like to be entertained. Mystery, action, a love story. Something that keeps me on the edge of my seat," said Kalbow, 52.

Kalbow is one of the thousands of devotees of Audible Inc., a pioneer in the listenable literature business that remains the Internet's top provider of audio books.

The company is about to need plenty more people like her.

Just as Audible is finally beginning to show profits, the prospect of stiff competition looms from Amazon.com Inc., a partner that now plans to launch its own audio book store.

Another loss came with the departure of National Public Radio, whose programs are no longer available to download from Audible's Web site.

Many investors revolted when Audible plowed several million dollars in revenue back into developing such services as partnerships with XM Satellite Radio Holdings Inc. and Texas Instruments Inc. for taking audio books on the road, including on next-generation cell phones.

And some analysts now think Wayne, N.J.-based Audible could be a takeover target.

"Having faced no significant competition so far, Audible has not been able to sustain a profit despite reasonably good revenue and subscriber trends," said Frederick W. Moran, an analyst with the Stanford Group. He wondered how the company would fare in a price war against bigger Internet companies that "could much more efficiently build and launch their own sites."

For now, Audible is the market leader. It has more than 225 partners, of which 60 percent are exclusive, giving it more than 70,000 hours of audio programs from books, broadcasts, entertainers, magazines and newspapers. It remains the top provider of spoken-word content at Amazon and the Apple iTunes Music Store, and its digital downloads are compatible with more than 135 devices.

Revenue is projected to go as high as $65 million this year, nearly double the $34 million in sales that Audible posted in 2004. The company lost $8.3 million last year.

However, analyst David Sterman of Halpern Capital, noted that a rival such as Microsoft Corp. or Yahoo! Inc. could quickly grab a big chunk of the market by offering audio books on music platforms they are now developing. (MSNBC is a Microsoft - NBC joint venture.)

"Someone like Microsoft and Yahoo could lose money for several years to build market share, but Audible is not in a position to do that," Sterman said.

A buyout of the company is not out of the question, he said. "It is very clear that there is a great deal of value in the Audible business model," Sterman said. "Whoever buys Audible is very quickly the No. 1 player in the market."

Audible is not standing pat.

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