Here’s the email authors received today:

“Dear [Author],

On June 30, we will be ending the $1 honoraria program. You will receive your final quarterly $1 honoraria report and check for April 1 – June 30 2013 in late August. From the outset, the $1 honoraria was only slated to be a one-year program to make you more aware of your audiobooks and their place in your growing book portfolio, alongside print books and eBooks. We are particularly grateful for your participation and feedback over the life of the program. Thanks to your insights, we’ve been able to launch new programs and features to better support all authors, including a sales dashboard for authors who make their titles available through ACX.com and distribution of free author copies of your audiobooks as they are released.

We hope you use this last month (June) to promote your audio heavily to earn those extra dollars. And even after the program has ended, we sincerely hope you continue to promote your audiobook anywhere and everywhere to generate royalties from audiobook sales at Audible, Amazon, and iTunes. Authors are doing creative things to promote their books. Audible’s ACX blog (
http://blog.acx.com
) is full of innovative ideas and success stories to promote your book.

We also encourage you to make sure all of your books – frontlist and backlist – are available as audiobooks. If you need help producing your work in audio, explore ACX (www.acx.com), where thousands of authors have linked up with actors and studios to get their books into the audiobook format. So check your backlist now; Audible’s Author Services team will still be here to help you get your audiobooks produced using ACX. And when you produce an audiobook on ACX, you get access to a sales dashboard that’s updated daily, high per-unit royalties, bonus bounty payments, and so much more.

Thank you.

Sincerely,
Jason Ojalvo
Vice President, Author Services
Audible Inc.”

“As you know, programs like this one do have a lifespan, and we initially forecast Audible Author Services through the end of 2012, but kept it going longer because it was so successful in getting some authors to recognize the value of their audiobooks and to raise awareness of their audiobooks alongside their print and ebooks,” Audible’s Matthew Thornton told me. “We’ve now shifted our focus to testing the potential of some other innovative author-focused programs, and you may well see a variation on Audible Author Services down the road.”

In an FAQ still posted on its website, Audible says it launched Audible Author Services because “It’s the right thing to do. There’s nothing much more challenging or meaningful than writing a good book” and “We want to foster direct relationships with more authors. We have had great success working directly with authors, and these partnerships have led to audience expansion and greater consumption of audiobooks.”

To sign up, authors must make their titles available as audiobooks through Audible.com. (Audible encourages them to do this via ACX, the audiobook rights marketplace it launched last year.) Once they enroll their books in the program, Audible says, they will:

• Receive an honorarium of $1 per unit sold at Audible.com, Audible.co.uk, and iTunes, and increase awareness of their book in audio format; [LHO note: Downloads via subscriptions count as sales]
• Obtain samples and links from Audible for use in social media, blogs, or on their websites – wherever they communicate most easily with their fans – as part of our “quick start” audio awareness plan;
• Gain direct interaction with Audible marketing and merchandising teams; and
• Obtain a free copy of their audiobook from Audible.

Authors get an “honorarium,” publishers get nothing

Significantly, the audiobooks’ publishers are cut out of the deal — the $1 per unit payment is an “honorarium,” “a direct payment from us to you, a way for us to reward you for promoting your work. Sharing the payment with your agent is at your discretion.” Audible continues to pay regular royalties on each audiobook sold.

While Audible encourages authors to market their audiobooks, they can get the $1/sale payment without doing any extra marketing at all. The authors get $1 whether the audiobook is sold outright or downloaded as part of a monthly or annual subscription.

The fund runs through December 31, 2012. After that, “If you want the program to continue in 2013, please help us by signing up and raising awareness of your audiobooks.”

“People buy a Neil Gaiman, not a HarperCollins or a Simon & Schuster”

As you may have imagined, Audible is not just doing this out of the good of its heart. CEO Donald Katz tells the Guardian, “The fact is people buy a Neil Gaiman, not a HarperCollins or a Simon & Schuster, so it is for us to connect with the writers and hopefully wake them up to what they can do. If it works it can become a channel of membership and sales.”

The site says “we want to foster direct relationships with more authors…authors whose books are unavailable in audio are disenfranchised from an exponentially growing audience for their work. Through Audible Author Services, we hope to increase awareness among those authors and encourage them to get into the game.”

Or, as Katz tells the Guardian roughly 1 million times more bluntly, “This is an era of self-reliance which is there for the taking. This is the last generation of authors who can think of themselves as Victorian gentlemen living above the marketplace, because publishers and agents don’t have the wherewithal to support them.”

Just as Amazon encourages authors to self-publish through KDP (and pays them extra for making their e-books available exclusively through the Kindle Owners’ Lending Library), Audible may hope that authors will self-publish their audiobooks through Audible instead of through a traditional publisher. Audiobook rights in publishing contracts are negotiable, so an author does not have to give away those rights to a traditional publisher.

Ultimately, of course, Amazon and Audible may hope that authors will simply self-publish their books — in all formats — through Amazon.

Audiobooks.com charges users $24.95 per month to listen to an unlimited number of audiobooks from a catalog of around 11,000 titles. Compare that to Audible.com, which has a catalog nearly ten times as large — over 100,000 titles for individual download — and requires users to purchase download credits. At Audible, one credit generally corresponds to one audiobook and a one-credit monthly plan is $14.95 (after an limited-time introductory rate).

Audiobooks’ pitch is that users can listen to as many audiobooks as they want “with no need to return audio books, no long-term contracts and no time constraints on audio book use.” The audiobooks sync automatically, so a user can stop listening on one device and pick up the story again later on a different one. The service works on iOS and Android as well as laptops and desktop computers. “There are no storage constraints because the content resides on the cloud,” the company promises, “and users can access and play audio books instantly with no downloading necessary.”

Yet as anybody who has tried to use the Pandora (NYSE: P) app on a 3G connection while walking around knows, streaming content can be a hassle without a WiFi connection. Since many people listen to audiobooks while they’re on the move–in the car or on the train, for example–relying on a cloud-based streaming service seems less than ideal, and in many cases it would be impossible. Sure, cloud-based streaming means the content isn’t taking up space on mobile devices, but many audiobooks are at least several hours long and so on a 3G plan data usage would be considerable. “This is a tricky question because audio book titles vary in size. “We suggest having at least 150MB of storage available,” the company says.

Audiobooks.com general manager Ian Small says “the cloud-based service delivers the book in parts so it will allow some time for lost connection–average a few minutes but we can increase this based on customer feedback.” And he says a Q2 2012 update to the Audiobooks.com app “will have the logic for ‘airplane mode’ preparation where the end user will be able to download the title to the app on their phone over WiFi and not need a 3G connection.” Overall, he says, “we’re limiting how much in advance we put on the portable device to save using up too much of their data plan.”

The service is clearly in its early stages and the selection is limited compared to Audible’s, but Audiobooks.com says titles from “Recorded Books, Simon & Schuster (NYSE: CBS), HarperCollins Random House Audio and Blackstone Audio” are available and more are being added. I have asked the company for more details on how publishers are compensated and will update the post with the new information.

Professional authors and publishers who hold unused audiobook rights can post them to ACX for producers and individual narrators to bid on. Audiobook producers can also scan the marketplace to find new titles to produce. The site is launching with over 1,000 titles; participating publishers include Random House, HarperCollins, Wiley and Pearson (NYSE: PSO) Education; participating literary agencies include Janklow & Nesbit, Writers House and Levine Greenberg.

Audiobook publishers can also search the ACX rights database to discover books to produce on their own; Tantor Audio said it will produce several titles from the marketplace each month. In addition, bestselling author and screenwriter Neil Gaiman will create his own audiobooks label using ACX titles.

Rights holders and producers will have the option to sell the rights for a flat fee or split royalties equally. Royalty rates will range from 25 percent to 90 percent based on sales and whether the rights holder chooses Audible as the audiobook’s exclusive distributor (which is required for royalty share arrangements). As part of Audible’s efforts to use their authors’ connections to gain new customers, rights holders will also earn $25 every time their audiobook is one of the first three titles purchased by a new Audible member. The ACX website contains extensive information on how authors and publishers can promote their audiobooks through Facebook, Twitter and Audible parent company Amazon.

In the latest statistics available, the Audio Publishers Association estimated the total size of the audiobook industry at $900 million in 2009. Digital downloads accounted for 29 percent of that revenue, but represented 49 percent of all units sold. Audible, which only sells digital audiobooks, has not released sales figures since it was purchased by Amazon in 2008, but Katz claims its membership base and sales are growing at over 40 percent a year, and the average member listens to 17 audiobooks annually.

Production costs for some audiobooks can be in the thousands of dollars, says Audiobook Publishers Association President Janet Benson. Costs involved include directing, narrating, editing, and marketing, though those numbers are starting to fall thanks to new technology and digital distribution. While ACX doesn’t necessarily reduce those costs, it creates a centralized location for the production of audiobooks. And because of Audible’s relationship with Amazon, distribution of the finished product is easier, Audible says.

Most analysts had expected a smaller drop off in earnings per share during the quarter because of increasing fulfillment and shipping costs. Amazon has also been spending on new digital offerings like Prime Instant Video and Cloud Drive, both of which launched over the last three months. During a call with reporters, CFO Tom Szkutak said that the company was increasing its spending because of its growing sales, citing the need to add capacity to “service that growth.”

As for what’s next for the company’s growing number of digital businesses, executives said little new. Asked about the success so far of Instant Video, Szkutak said Amazon was “very pleased with the adoption so far” but said “it’s very early.” He declined to say anything specific about the company’s strategy for licensing new content for the service, only saying “we will be adding some more content over time.” There have been reports that Amazon is preparing some new push into online advertising, but Szkutak was vague about that too, saying “we’ll have to wait and see what we do further.”

In response to a question about the recent outage of Amazon Web Services, he said he did not have “a lot to add” but did say none of the company’s clients had defected to the competition.

But $25 off the $139 WiFi-only model in exchange for being served ads doesn’t sound that hefty. Not so, counters Jay Marine, director of Amazon Kindle, as he discussed the new version announced late Monday afternoon. “We’re pretty excited about it. It’s meaningful and we think we’ll see a meaningful response.”

If the savings stopped at the 18 percent discount, it still might not seem that meaningful to some prospective buyers. But the ad-supported Kindle is also an Amazon deal delivery system. “Not only do you save the $25,” Marine said in an interview. “You can save more money down the road.”

One of the first offers will be a $20 gift card for $10, similar to the massively popular deal LivingSocial ran soon after Amazon invested in the deals company. That’s enough to buy the top three books on the Kindle bestseller list right now and still have almost $5 left over — or two New York Times bestsellers in Kindle editions if you shop carefully now that some are priced at $12.99 or higher.

Other examples from the company include six audiobooks from its Audible.com unit for $6, $1 for an album at the Amazon MP3 Store or $10 for $30 of products at one of its clothing stores. (A Zappos special edition with nothing but shoe deals probably could get traction among a certain set.) So far, none of the examples directly subsidize ebooks. “Today is all about finding a way to make Kindle affordable for more people,” Marine said, adding that every time Amazon finds a way to lower the price, sales surge. (You want numbers? That’s even less likely than the New York Times saying how many digital-only subscribers it has.) Marine said Amazon isn’t using LivingSocial for the Kindle offers.

Marine stressed that the ads and deal offers are designed not to be an intrusive experience: “We were very careful about that.” They show up on a screensaver and at the bottom of the homepage. Amazon also has layered in a user-gen option of sorts via a new app called AdMash and AdMash.com (not live yet). Anyone can download the app, due around the time of the May 3 ship date for the Kindle with Special Offers (sounds so much better than Kindle with Ads) and vote for the most attractive ads. Kindle owners can set preferences, too.

AdMash results can only be delivered through the $114 Kindle, which is available only in the U.S. It’s not clear if Amazon could send ads to the third-gen Kindle or to Kindle apps on other devices.

Screen shifting: In a way, what Amazon is doing is screen shifting deals. The more time I spend on a Kindle or in a Kindle app on another device, the less time I’m spending at Amazon.com — and quite possibly, the less money. I’m not looking at the daily deals tied to my profile or seeing serendipitous products that match an interest.

It’s also reminiscent of Amazon Prime, the $79 annual membership with free shipping that now includes some free streaming movies and TV shows. I could see Amazon offering a Kindle version of Prime, perhaps including access to some books or even adding the device into the membership. Prime isn’t Marine’s area and he was careful to say that nothing in this announcement is about Prime. (The connection is purely mine; I’m a Prime member.) But Prime is an example, he said, of Amazon’s “long history of finding new ways to lower prices for customers.”

It’s also an example of Amazon’s willingness to experiment with ways of tethering customers closer to the site. Another is the very recent launch of Cloud Drive, a way to store songs or other data with 5 GB of free storage for customers and up to 20 GB free if you buy an album from the MP3 Store.

And at $114, the next obvious dance step for this Kindle edition is to limbo below $100.

To honor the occasion, we have just published our five-year forecast for eBooks in the U.S. The punchline is this: 2010 will end with $966 million in e-books sold to consumers. By 2015, the industry will have nearly tripled to almost $3 billion, a point at which the industry will be forever altered.

Right now, the number to track – and the one that determines how many e-books will sell – is the percent of a consumer’s books that are bought and consumed digitally. To get at this number, we have to understand how people get books today. Did you know that the two most common ways people get books today is borrowing them from a friend or getting them from the library? Evidently content – at least in the book business – is already quite free, even without the help of digital.

e-book buying falls very low down on this list of how people acquire books. Just 7% of online adults who read books read e-books. But that 7% happens to be a very attractive bunch: they read the most books and spend the most money on books. And here’s the kicker – the average e-book reader already consumes 41% of books in digital form. Oh, and that includes the people who don’t have an e-reader yet, which is nearly half of them. For those that have a Kindle or other e-reader, they read 66% of their books digitally.

I’m sure you’re ahead of me on this one, but let’s just spell it out. We have plenty of room to grow beyond the 7% that read e-books today and, once they get the hang of it, e-book readers quickly shift a majority of their book reading to a digital form. More e-book readers reading a greater percentage of their books in digital form means our nearly $3 billion figure in 2015 will be easy to hit, even if nothing else changes in the industry. Meaning even if we never get color e-Ink screens, if publishers never experiment with e-book subscriptions, and interactive e-book formats never succeed, we will still see digital get close to $3 billion in size by the middle of the decade.

At that size and higher, not only do publishers need to take digital seriously — they must make it the new default for publishing, preparing for a day in which physical book publishing is an adjunct activity that supports the digital publishing business. And this dramatic reversal will have happened faster in book publishing than in any other media business. Not just because publishers have had years to watch other media industries face the digital transition, but also because book publishing is a single-revenue business.

Music used to generate revenue from the radio, from CD sales, and from concert tickets. Changing that business required upsetting several apple carts at once. TV is similarly complex, revenue is derived from advertising, cable carriage or retransmission fees, and direct sales of DVDs. You can’t go digital without first rethinking the entire business (and not every player in the ecosystem takes that lying down). But not publishing. Books are published and sold at retail. In the end, once the only channel from which revenue is derived starts to get remodeled, it’s not long before the whole structure gets torn down and rebuilt to accommodate the new dominant distribution model.

That’s why we pause to commemorate the crossing of the billion-dollar threshold, because from here things will move so quickly that by the time the dust settles, the book business may actually be the most digital of all media industries, even if it got the latest start.

James McQuivey is an analyst at Forrester Research, where he serves Consumer Product Strategy professionals. James blogs here.

This article originally appeared in Forrester Research.

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Then the role of Allen & Co: “We question Allen & Company

Release

Disclaimer: Our investor Alan Patricof served as one of Audible

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