Audible's returns policy -- who wins, who loses?

Audible is one of the world's largest suppliers of audiobooks. Its main appeal is probably convenience -- Audible has a large catalogue, making it easy to find content from different publishers and studios all in one place.

Audible certainly won't win any prizes for sound quality -- although recent titles have improved in this area, most of the catalogue is still recorded using 22kHz audio sampling, in a lossy format with a bitrate of about 64 kbits/sec. And it's often possible to get better prices directly from studios. Going directly to the source has the advantage that you'll usually be able to get better-quality recordings, without digital rights management (DRM) concerns. To be fair, Audible does have some good deals and, of course, some of its catalogue is not available anywhere else. In the end, though, it's convenience that is Audible's main selling point.

One aspect of that convenience is Audible's returns policy. Historically, Audible has had a very customer-friendly returns policy. On the Company's website it says:

"Our return policy allows active Audible members to take a chance on a new narrator or story without losing a credit, or return titles purchased in error. Returns must be made within 365 days of purchase."

Note that customers are actively encourage to purchase books speculatively.

It's worth thinking a little about what "returning" a digital title amounts to. All Audible's content is DRM-protected, so there's little risk that somebody could just copy the material and then return it. All that really happens when you "return" an Audible title is that it's removed from the list of titles you're allowed to play.

Still, returns are not cost-free, either for Audible or the content creators. The real risk to both has always been that a customer will actually listen to most of the audiobook, and only then return it. That's effectively a lost sale.

Still, Audible has always made a big selling point of the fact that purchases are risk-free for customers. Until recently, returning an audiobook was a matter of clicking the "Return this title" button on the website. The customer would be issued, within a few seconds, a token to purchase something else. I've typically bought about a hundred audiobooks a year from Audible, and returned 10%-20% of them, for a variety of reasons. While Audible has never published -- and still does not publish -- any actual policy on the number or frequency of books that can be returned, I've never had any problem replacing books that I don't want to keep.

Until now.

Recently, like many customers, I've noticed that the "Return this title" button has been replaced by a label saying "Not eligible for return." This links to an invitation to call their Customer Services department. To be fair to Audible, when I have called, they've been willing to refund my purchases. Still, this is not convenient. It's not, I think, what people use Audible for. It's certainly a radical change in policy -- needing to call and discuss the matter is certainly a disincentive to returning a title, even if the return is eventually honoured.

It's not entirely clear why the policy has changed and, in my conversations with their customer services team, Audible has largely denied the fact that it's changed at all. Still, in the last year or so, there has been a lot of reaction from content creators over who must bear the cost of the lost sale when somebody returns at title, and that's probably at the root of the decision.

Audible's business relationship with its content creators is essentially based on royalties -- as most publishing contracts are. In general, Audible does not buy content and then re-sell it: Audible pays a proportion of the sale price as a royalty. This means that a lost sale from Audible is a lost royalty payment for the content creator. It appears -- at least at first -- to be in the interest of content creators that Audible should discourage returns.

Audible, being part of Amazon, certainly has no problems with cash-flow. The same cannot be said for many of its content suppliers, unfortunately. Many are small, specialist businesses, so it's not just the lost royalties that are the problem: the real problem is that royalties can be lost up to a year after the sale. This means that the suppliers cannot tell, except on a rolling annual basis, what their royalty income is. This is a cash-flow problem, rather than a cash receipts problem, but it's a problem, all the same.

I suspect that many Audible customers do not understand this business model. Many probably think that Audible is paying out the royalties, and then swallowing the loss when a title is returned. But that's not true -- the losses are shared with the content provider, who is usually less well-placed to manage that loss.

On the other hand, Audible's returns policy is not at all unusual in the publishing world. In fact, I think it is entirely mainstream. My (printed) books (when they were still in print) were supplied by the publisher to retailers, who could return any they did not sell. Any returns led to deductions from my royalty payments. To the best of my knowledge, my publishers did not impose limits on the number of books that retailers could return and, in practice, I think that about 10% overall were returned. In short, what Audible is doing with its content suppliers is not unusual. It is the norm in the publishing industry.

There are two significant differences, however. First, my publishers always supplied an itemized statement, showing exactly how my royalty payment was calculated. It was clear how many books had been sold, and how many returned, in each accounting period. Audible has notoriously not provided its suppliers with this information (I'm not sure if this has now changed).

Second, it's much easier to return a digital title when it's a one-click operation, than it is to return a printed book. To return printed books means that the retailer has to collect them from the shelves, organize them, and ship them back to their various publishers. Consequently, retailers are generally going to try to sell books, rather than return them.

So where does this leave us? Who wins, and who loses, by Audible's change of heart? Almost certainly fewer audiobooks will be returned to Audible, and that might be because customers will take more trouble to determine whether they are likely to like a book before purchase. I confess that I've ordered from Audible speculatively -- as they Company encouraged customers to do -- based on nothing more than the cover artwork. Now, if I want to carry on dealing with Audible, I'll have to do more research. Nobody loses in pure financial terms -- my returns are simply converted into non-sales. Royalty losses are converted in royalty non-payments. Arguably, this is better for the content creator's cash-flow situation: it's better not to receive the money, than to receive it and have it taken away unexpectedly.

However, content creators will not gain by the change in policy. Whatever they might hope, they aren't going to end up with more royalties, because people will just buy fewer books.

In fact, the person who probably gains most is myself: it's perhaps a better use of my time to spend ten minutes reading reviews, than to listen to the first hour or an audiobook and then decide I don't like it. All things considered, the change in returns policy appears to be beneficial for Audible, for the content creator, and even for the customer.

And yet... something just doesn't smell right here. The question that doesn't seem to be asked in the various, somewhat heated, discussions on this subject is: why are so many books returned in the first place? The sad fact is that the market is flooded with poor-quality books, and consequently poor-quality audiobooks. When I lost royalties because my books were returned, it made me wonder: what's wrong with my book? And: how can I do better next time? It never occurred to me to think: why don't retailers try harder to sell my books? Or: why don't retailers do better research, to find out how many copies they'll actually sell?

The fact is that the harder it is to get a product -- any product -- refunded, the less the incentive is for the supplier to produce a decent product. The logical extension of caveat emptor is non emere -- don't buy it. The row about Audible's returns policy has come about, not because customers are fickle, but because so much media content is rubbish. When Audible offered immediate, no-questions returns, that could be seen as a necessary reaction in a market that is flooded with poor books. By changing that policy, the Company is simply contributing to that lamentable situation.

So who loses? In the end, we all do.