Amazon Strengthens Its Digital Hand With Purchase of Audible

Amazon (AMZN) is betting big on digital media. Thursday morning it announced the $300 million acquisition of Audible (ADBL) (a 7 percent premium to Audible’s $280 million market cap at the time of this writing). Audible is the leading provider of audio books in digital form, with a library of 80,000 titles. As Amazon begins to generate a greater share of its revenues from digital media, owning a digital publisher will help its margins. It should be able to offer audiobooks at a lower cost, which in turn will help grow that segment of its sales.

There is no doubt that as media becomes more digital, Amazon sees it as critical for its future. Media accounts for 59 percent of Amazon’s sales, most of that still being physical books , CDs, and DVDs. But towards the end of yesterday’s earnings call, Amazon CEO Jeff Bezos hinted at the growing importance of digital media for Amazon:

When media was largely physical, it made sense to buy it in the physical world. But as media becomes digital it does not make so much sense to buy them in the physical world. The bulk of the sales now are in the physical world. So our relative advantage over time should improve.

Amazon will be able to sells Audible’s audio books through its MP3 download store, in its regular book section, or directly to its Kindle electronic book reader, which has a headphone jack and can play MP3s. It is not clear how the deal will effect Audible’s relationship with Apple, though, since Audible’s books are sold through the iTunes Store as well. But Amazon just added about $90 million in annual sales to its revenues with this acquisition, and a leadership position in spoken-word digital content.

Comments

[Long-Short Guy:]

Amazon's stock should take a hit for this. If Amazon was confident that it could maintain its market share in media as the market moves to digital downloads, it wouldn't need to do this acquisition. But it realizes that the shift to digital will result in a hit to its media market share. So it's just paid $300MM to stay in the game. And that's probably only a first move.

2008 Jan 31 11:36 AM

[Lisa:]

Not so sure this is negative. Amazon gets the best distribution for audiobooks on other platforms, and positions itself for the creation of its own audiobooks.

2008 Jan 31 12:18 PM

[Dan Jacome:]

It is a cheap $300M real option on a platform expansion agenda, probably a good move for AMZN and a long time coming.......

2008 Jan 31 02:18 PM

[Lisa:]

What do you mean by "a platform expansion agenda"?

2008 Jan 31 02:41 PM

[svattikuti:]

Well it seems like Amazon may be able to cut a lot of the expenses that Audible has had to incur as a standalone entity. Technology and development had a huge increase in costs. It is interesting that Audible stated in its last 10-K that it did not have a comprehensive backup system/plan. I would bet if Amazon is too aggressive with its plans for Audible, that Apple would start seeing if it could strike separate deals with the publishers and prop up an alternate digital publisher. I am a little surprised that Adobe is not in this spoke-word business.

2008 Jan 31 07:04 PM