MediaBay goes digital

Trying to keep up with the changing technology and reverse a dozen years of operating losses, Cedar Knoll, NJ-based MediaBay is transitioning from selling spoken-word CDs and cassettes via catalogs to offering downloads of its products via Websites such as Microsoft’s MSN Music.

In addition to its Radio Spirits catalog of vintage radio programming and other audio entertainment, MediaBay operates the Audio Book Club, a continuity plan with its own print catalog.

The company is adopting a two-prong distribution strategy. First, it plans to wholesale its audio content to leading music services and broadband companies. In the past year MediaBay has partnered not only with MSN Music but also with satellite radio providers Sirius and XM. It is also affiliated with the Larry King Audiobook Club and is seeking similar partnerships.

Second, MediaBay intends to operate its own downloadable content Web stores and subscription services, which it hopes to brand via partnerships with celebrities and corporate affiliates.

Jeff Dittus, MediaBay’s CEO since February 2004 — and the company’s fifth CEO in five years — sees the partnerships as a low-cost way to acquire customers while at the same time getting to critical mass. “That’s probably our biggest challenge,” he says. “Developing a brand today from scratch is extremely expensive, and by our partnerships we think we can grow with them.”

Growth would be good, as the 12-year-old company has yet to turn a profit. For the year ended Dec. 31, MediaBay reported sales of $18.8 million, down 49% from $36.6 million in 2003. Net loss for 2004 was $30.7 million, compared with $6.9 million in 2003. This past March, the company attracted $35 million in investments from several institutional investors to pay off its debt and help finance its foray into digital downloads.

“They are doing some of the right things, but the company still has a long way to go,” says George Mihalos, an analyst with New York-based investment bank Gilford Securities. “They don’t have the resources, the cash. They need to be out there establishing more partnerships, and that takes time.”

MediaBay still plans to mail its Radio Spirits and Audio Book Club catalogs, but with less frequency and fewer page counts. In past years, MediaBay dropped as many as 17 editions a year. The company is testing mailing once a quarter, Dittus says. “More than 80% of our sales are front-listed titles,” he notes. “So maybe we’ll mail less with fewer pages but augment our message with e-mails to customers.”

The Audio Book Club is structured on what Dittus refers to as the “negative option,” in which books are mailed to members every month unless they indicate ahead of time that they don’t want them. Dittus determined that the negative-option club would never make much, if any, profit, and it has ceased prospecting. But the company hopes that the club’s 2.5 million members will form the base of its customer list for digital downloads.

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