It also had to delay closing its books for 2005 after auditing firm KPMG cited "material weaknesses" in Audible's internal accounting for its retail promotions.
"The problem they had in the past is that they had a management team that couldn't shoot straight," says Citigroup analyst Mark Mahaney. In addition, "They putzed around with a lot of pricing changes."
That changed beginning mid-2005 after Audible changed its CFO, COO and marketing team.
Now, "They're executing better" and have made user-friendly changes in Audible's software, which limits copying and where downloads can be played, Mahaney says. "They have a very nice ramp to profitability."
Although original content helps, Katz understands that no one can produce enough audiobooks to control the market. Unlike music, which is dominated by four companies, hundreds produce books, articles and performances buyers might want to hear.
Audible has partnerships with more than 470 companies — 64% of them for exclusive rights to audio material.
"It's our strategy to be good partners to people all around us on the value chain," he says.
His fascination with audiobooks grew out of his work in college with Invisible Man author Ralph Ellison, years as a reporter for magazines including Rolling Stone, Esquire, Sports Illustrated and Worth, and the writing of business books, including The Big Store: Inside the Crisis and Revolution at Sears and Just Do It: The Nike Spirit in the Corporate World.
Audiobooks, he realized, "could be in a world where there were no package costs, you're never out of stock, there's no reason to go out of print, and no returns."
Now Katz wants to expand Audible's presence in education, for example with audio versions of textbooks and study guides.
He's also looking at how audiobooks can help people with learning disabilities. His oldest daughter, now a college student, has a language-processing disorder and "learned to read by listening," he says.