NewStar Takes Virtual Road to Sell Audio Books Direct

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NewStar Media Inc., Los Angeles, fresh off the launch of its e-commerce site, plans to swagger deeper into the online market for books on cassette this year with moves on several business fronts. But the virtual road won't be easy going.


As president Peter Engel of NewStar's publishing and Internet division sees it, audio books haven't reached their revenue potential because they aren't sold in enough places. He said the company mainly competes with talk radio and other distractions that occupy people's thoughts while they're driving or carrying out simple tasks.


"Our demand is from everybody doing something with their hands but not with their minds," Engel said. NewStar wants to meet that demand through its site at www.audiouniverse.com. The virtual store began peddling about 15,000 titles in June.


More than just talk radio is arrayed against NewStar, however. Amazon.com Inc. and barnesandnoble.com Inc. sell audio books. Now NewStar hopes the Net will help it leapfrog those bigger players.


NewStar has big hopes from e-commerce and plans aggressive -- and sometimes novel -- moves over the next six months. The principal advantage for NewStar, especially over larger retailers like Amazon, is that the company is itself a publisher of books on tape. The company owns the rights to more than 2,000 titles it bought from authors, publishers or agents.


And in what could turn out to be a Web retailer's dream, NewStar plans this year to begin taking the audio books it has rights to and distributing them via direct encrypted downloads onto Web surfers' PCs -- thus completely eliminating distribution costs.


"We don't have to have the Amazon warehouse," Engel said. NewStar already gets higher margins from the titles it owns than the cassette books it resells.


The download strategy would get a boost from development of hand-held units similar to Palm Pilots that can take the audio books from a consumer's PC and interface with tape players. Engel admitted that such technology is only recently emerging, but some large electronics companies have such products in the early stages.


In June, NewStar announced a planned purchase of Audio Literature, San Francisco, and Engel said the firm is talking now with "quite a few" other possible takeover targets. NewStar also is negotiating with undisclosed magazines about putting excerpts of their content onto audio tape.


The company is broadening its inventory in other ways as well, amassing snippets of speeches, comedy routines, classic sports highlights and other bits that NewStar plans to make available on its site on a subscription basis. The company expects to have about half a million short audio pieces accumulated by the end of the year, and the archive -- much of which is public domain material -- will be searchable by subject.


NewStar will market itself this year through both online and offline co-venture deals. The company's broad variety of subjects lend themselves to promotions with a variety of sites, said Engel.


"Anybody who has a site on just about anything is a legitimate cross-promotional opportunity," he said.


Elsewhere on the competition front, a second firm of comparable size, Audio Book Club Inc., Boca Raton, FL, specializes in the market as well. That company says it is adding 4,500 members a month through the Internet.


And unlike NewStar, Audio Book Club's revenue is heading in the right direction over the last three quarters -- from $3.88 million in the three months ended Sept. 30 to $9.93 million in the first quarter of 1999. NewStar's quarterly topline slid from $3.71 million to $1.45 million over the same period.


Though Engel said NewStar "absolutely" will move into the black, neither his firm nor Audio Book Club has made much money over the last three years. Between the two of them, there have been only two profitable quarters since the beginning of 1997.


Of course, those figures largely represent the two companies' pre-digital commerce days. Both firms are publicly held, but neither yet breaks out what part of its revenue comes via the Net.
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