When Nick Palmer, a screenwriter based in Los Angeles, first started downloading audiobooks in the early 2000s, he describes a process only slightly less intensive than a medieval monk copying a manuscript.

Palmer used Audible—which originated in the late ’90s as a manufacturer of portable music players and is now the major provider of downloadable audiobooks. But during Audible’s infancy, the process of downloading content was unwieldy.

“This was pre-iPod, so I had to download these things and record them to a cassette,” Palmer recalls. “Who would take time to record an audiobook to a cassette except me?”

Very few people, as it turned out. But the emergence of the iPod and ubiquity of the Internet were a combined game changer. “Audiobooks in digital downloads took off due to the iPod,” says Michele Cobb, APA president and vice-president of sales and marketing at AudioGO.

Today, the way people acquire songs—and movies and books—has changed dramatically. Gone are the familiar bricks-and-mortar outlets like Blockbuster and Borders in favor of online services like Netflix and Amazon. In the process, new markets have opened as demand for electronic media surged. And it is no different for digital audiobooks.

According to the Audio Publishers Association, audiobook downloads now constitute more than one-third of the audio publishing market in terms of revenue (300% growth over the past five years) and amount to more than half of the market in terms of unit sales.

This is not surprising. After all, downloading is easier than traveling to a store where selection is often limited; moreover, a downloadable audiobook is significantly cheaper for customers to purchase than its hard format counterpart. At the same time, audio publishers are relishing the opportunity to create more audiobooks for online distribution, while reconciling a new set of challenges created by that very same distribution model.

The biggest benefit of digital distribution—because of its convenience and low cost—is that it has enabled audio publishers to expand their market.

“My hope is that we continue to chip away at the percentage of people who don’t listen to audiobooks,” says Anthony Goff, APA board member and vice-president of Hachette Audio.

While it might seem self-evident that a business would want more customers, digital distribution opens up tremendous opportunities to acquire new business. This is consistent with the characteristics of Audible’s customer base. “Of Audible members, more than 45% had never purchased an audiobook before joining,” says Audible senior editor Matthew Thornton.

This change in the audiobooks distribution model means customers listen under different circumstances than they did in the past. Traditionally, people listened to audiobooks in a car or when they were busy with other jobs. Browsing through an online catalogue, however, is now its own casual activity, a way for individuals to unwind.

It’s a shift that has been noted by the APA. “In the last consumer survey, people used [audiobooks] to relax, which we hadn’t really considered,” Cobb says. Moreover, while audiobook listeners had traditionally been affluent people in their 40s, the rise of digital downloading has captured a younger demographic.

But this cycle, in which easier and cheaper access to audiobooks boosts customer interest, which in turn generates the creation of even more online media, has had effects on the audio publishing industry beyond increased unit sales.

For instance, while the rise of Web-based startups selling digital downloads creates numerous outlets for audio publishers, the audio publishing industry still must contend with the dwindling retail outlets that sell CDs. The closing of Borders superstores in February 2011 essentially halved the physical stores that stocked audiobooks.

“Losing Borders was bad,” says Cobb. “And now there’s only B&N.” More than anything, Cobb says, the closing of Borders signified a format shift—away from CDs to digital downloads.

While sales to libraries still revolve primarily around CDs and other hard formats, many audio publishers have cut back on CD production and focused exclusively on downloadable goods. This is due largely to expediency, as the separate manufacturing processes for creating, packaging, and shipping CDs tends to lengthen the distribution process. Digital goods can be made available to the market significantly faster.

Despite the ease of digital distribution, it’s not as straightforward as, say, uploading a YouTube video. There are a number of subtle challenges audio publishers must now deal with. For instance, the hassles of manufacturing and packaging a CD are mitigated by the fact that the actual delivery is simple: you send the same package to a distributor, who sends it to various retail outlets.

Digital files, however, are more complex. Different online distributors specializing in audiobooks have different requirements for the delivery of files. These include how each file is encoded and the type of information that goes along with it. The fact that there is no single industry standard requires a significant amount of time be spent in preparing each digital package for each online distributor, whether Audible, AmblingBooks, or eMusic.

Additionally, audio publishers have a second headache: managing the retail price of digital content. While unit sales of audiobooks grew 10% over the past year, according to the APA’s recent survey, customers expect to pay less for downloaded goods. An audiobook delivered as a CD often costs $30 to $40 per unit. A monthly Platinum subscription to Audible, which offers two “credits” per month—essentially two audiobooks—is $23. The value of this new economic model focuses less on an individual product and more on a service, which disrupts the way audio publishers traditionally sold their wares.

Consequently, while unit sales of downloadable audiobooks constitute 52% of the total audio publishing market, this is only 36% in terms of revenue. Unfortunately, creating the audio product isn’t significantly cheaper than creating a CD package.

“People think it’s the CD and the packaging that costs a lot,” says Cobb. “For audio publishers, it’s in producing the [audio] file. Those are the heavy costs.” These costs vary substantially depending on who is producing the audiobook. For instance, while some print publishers have studios to produce their own audiobooks, there are also many audio-only publishers who purchase the rights for each audiobook they create.

The cost of hiring a narrator ranges drastically. Some narrators might also be paid to edit and proof their work before providing it to the publishing house. Finally, there is often a quality control cost, in which publishers send the product to an outside proofer who is paid to follow each word and critique the performance.

“So you could be paying one person to do all those jobs or four or five different people to do them,” says Cobb. “Then you must edit the file in a particular way. When you have the recording done, you have to produce metadata that goes along with the file, then you have to produce artwork that can match the [printed] book or it can be produced by an in-house designer. There’s no set formula.”

But while sales of CDs decreased in 2010 (statistics compiled prior to Borders’s closing) from 65% of total revenues to 58%, the audio publishing industry is optimistic that demand for hard formats will continue in the immediate future. “CDs will still be around in the next few years,” says Goff. “Hachette Audio physical goods were up 5% in 2011, which in this economic environment and time, we were all very proud of.”

Goff’s figures notwithstanding, Audible’s Thornton believes digital distribution has pretty much already replaced hard formats. “The physical audio market is in rapid decline and digital downloads are growing rapidly,” he says.

Regardless of the format, the latest figures published by the APA bear out that the industry continues to increase, with total revenues up approximately $2 million over the past year. Cobb points out that even though the publishing industry in general has scaled back its output and become more conservative with the rise of online distribution and economic uncertainty, audio publishers are in fact producing significantly more.

“It’s exciting to think we’re creating a much larger body of work,” says Cobb. “But sometimes when you take a breath and stop, it’s, ‘Wow, how am I getting all this done?’ ”

For Goff, the digital download versus CD debate isn’t a central focus. “The important point is that audio publishers continue to sell more units, no matter which format,” he says.

Ryan Joe has worked as a tech reporter, a research analyst, a writer, an illustrator, and a host at Jimmy Buffett’s Margaritaville. He is based in Manhattan.