The New World of Publishing: eBooks at 25%

This last week it was announced that ebooks are now about 25% of all trade book sales. (From a survey of over 1,200 publishers.) And the rate of increase has slowed and is leveling out.

Yup, about what I expected for the last year or so.

Over the last year I have been saying that I thought ebook sales would eventually climb to 30% of all trade book sales. Of course, my opinion pushes right back at all the people who think there will only be ebooks in the future and that all physical bookstores will die off.

And it pushes back at the people who thought ebooks would reach 50% of all trade, which for a time early on in the growth spurt, I thought it would as well. Now I can’t imagine that number ever happening, at least in my lifetime, and I plan on living another forty years or more.

Why I settled on the 30% range (with help from a foggy crystal ball) was because things have changed in the last year.

Initially, I figured electronic books would replace mass market paperbacks and put a dent in hardbacks. But interestingly enough, even though mass market paperback sales have dropped through the floor and adult trade hardbacks are down some, the decrease is now slowing. And mass market paperbacks are staying very strong in many genres. It seems that instead of replacing mass market, with electronic books we have just added in another form of distribution to readers.

That’s wonderful for all readers and for all writers. To get our stories to readers, we have five major distribution forms. Mass market, trade paper, hardback, electronic, and audio.

And our markets have expanded from regions to the entire world at the same time.

So why, right here at the time period (end of 2012) when so many people declared the end of traditional publishing would happen, did that doomsday picture not come true?

Two major reasons. First off, writers signed over most of the money from electronic books to traditional publishers. When those predictions were being made, electronic books were still getting 50% of cover price of electronic sales. Writers and agents signed over that amount and signed up for 25% of net, giving publishers a huge windfall.

Second reason is that the people figured that when paper sales dropped under the 25% decrease number, the math of the returns system and distribution system and labor contracts and shipping costs would tip over the industry. I thought it might happen as well. (And it will still cause problems with some publishers who haven’t moved very fast in the face of these problems.)

Many writers at workshops here two years ago heard me worry about this coming problem as well.

But those of us worrying didn’t count on the amount of money the publishers would have from their own electronic sales, enough to cover the losses from the paper side, thanks to the writers. (I still have contacts in play that I get 50% of electronic sales. I never signed one of those additions to contracts giving writers 25% of net.)

I have to admit I was one of the people worried about that 25% decrease in print sales swamping the industry and sending many major publishers into bankruptcy. Let me say simply: I was wrong.  And when I saw writers caving to the new rate, I knew then that there would be no major problems. There was just too much money to be made in electronic sales for publishers with writers only getting 25% of net.

So now we sit in late 2012 (a couple months before the end of the world (grin)) and major publishing is growing. And indie (small press) publishers are exploding everywhere.

It’s a great time to be a writer.

And even with the end of the world predicted near the end of December, I plan on redoing my series in early December on how to plan for the new year in your writing and publishing. (I republished my earlier posts a couple years ago and they are now dated. So time to redo them just in case the world doesn’t end.)

And I have one more post on promotions to join the first two. It is almost done.

Stay tuned. Publishing is great fun. Writing is more fun.

I do love this business.

And I am very thankful it’s not going anywhere.

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59 Responses to The New World of Publishing: eBooks at 25%

  1. Tom says:

    Yes, it’s a great time to be a writer. Personally, with indie publishing, it has become my Golden Age. I’m eagerly looking toward then new year.

  2. Spot on, Dean, as usual. I always thought folks were being a bit too optimistic in predicting the demise of paper books so quickly; I mean, it certainly took longer than five years from the widespread adoption of the automobile for for the horse and buggy to retreat to a faded memory. It’ll be a slow climb of years and decades for ebook adoption to creep north of 50% and beyond because a segment of the population is going to have to die out and be replace by a generation who knows nothing but reading on their Kindles and iPads, and that takes longer than five years or so.

    • dwsmith says:

      Robert, true, but I have no idea what generation you are talking about who is only reading on Kindles and iPads. Our publisher has a two year old who sits playing on an IPad one moment and the next she’s leafing through a paper book. It seems the next generation is getting trained on both.

      And that’s one thing that always bothers me. Why does it have to be either or? Why can’t there be electronic books and paper books and different delivery systems? And neither one has to replace the other? So I agree with you, Robert, except for the next generation thing. Of course, I won’t be around long enough I’m sure to find out. (grin)

      • Sorry, I didn’t mean to suggest that books would ever have to truly die out. I’m not that good of a prognosticator that I could say that with total certainty. I do think for ebook adoption rates to climb to north of 50% of the market it’s going to take a lot longer than the rosier projections I’ve heard. I just meant that there’s a part of the population that will NEVER adopt ebooks.

        And yes, good point, my 1 and 3 year old still read paper books AND fiddle with the Kindle fire.

  3. Andrew says:

    Hi Dean,

    The 25% of the market sounds about right. One thing I’ve been doing is getting my works into audiobook form. Even the short stories are selling about 5 a month — about 30 minutes of narration starting at 6.95. I get about $1.70 apiece. When you add that up across all short stories, that’s quite a bit. I’ve been using the ACX royalty share plan, since I don’t currently have the funds for up-front $200 per finished hour.

    All these professional writers with tons of short story sales are sitting on a large pile of money. I have only published in semi-pro magazines, so if I’m selling that much a month then surely they would make much more per unit. My sales have risen exponentially since last month, when I got my first two audiobooks up.

    I still need to work at getting them into print. I want to use MS word for the interior formatting because InDesign is more than I can afford. Covers are probably my greatest weakness, so once I have the funds I might hire it out. I would use stock art but hire someone to do the text.

    My “indie publishing” company is all set in a shared world, so I want to include a map of the region where each book takes place. I want to have distinctive spines, too, for when I have enough novel-length works to try getting into bookstores.

    • dwsmith says:

      Andrew, InDesign is only about $40 per month now for a subscription plan that you can start and then drop when needed. It takes a learning curve, so you might also want to subscribe to Lynda.com for lessons for the month you start. That’s about $25.00 per month and can be started and stopped at will. Cheaper than hiring someone to design your cover. And that way you wouldn’t have to fight Word for the interior. It can be done and some people use it, but it’s a pain.

      Good luck, sounds like you are spot on track.

      • Patrick R says:

        Hi Dean

        Which parts of Lynda.com are key for you/WMG, and do you/WMG have some fav vid instructors to recommend/suggest on key aspects of publishing? Thanks.

        Pat

        • dwsmith says:

          Elements of (blank) program. Like elements of CS6. Those answer most questions you would ever need and are easy to jump around and get three or four minutes on exact topics if you need it.

      • Josh says:

        Fight word or fight inDesign. At least I’m trained on Word, and already own it.

    • allynh says:

      Andrew, check out Scribus instead of InDesign.

      Scribus
      http://en.wikipedia.org/wiki/Scribus

      I’m shooting for all of my software to be free or next to free from now on. Wiki the following:

      LibreOffice – word processor, spreadsheet, slide show, drawing, etc…
      InkScape – vector graphics
      Gimp – raster graphic
      Blender – animation

      • E. R. Paskey says:

        I tried using Scribus to do the layout for my 150,000 word manuscript last summer. (The idea of using open-source software appeals to me as well.) The problem I ran into as I learned more about the program is that it doesn’t seem to work well with projects over 25 pages long. You can get around that by breaking a novel into chunks, printing the formatted pages as PDFs, and then joining those PDFs together, but that struck me as a huge waste of my time. I ended up using Word to do the POD formatting on that novel while I shopped around for a good deal on InDesign.

        Granted, Scribus may have changed in that regard in the last year–I hope it has–but it’s something to take into consideration.

      • D J Mills says:

        Thanks, allynh, for pointing out Scribus. Downloaded and played around. Looks good so far.

      • Andrew says:

        Thanks!

  4. The thing to get excited about is that “only 25 percent” is still massive. And some of the growth we saw in ebooks was NEW people coming back to reading.

    I will add one reservation to your optimism, though: It’s a great time to be a writer, unless you are one of those writers who signed those contracts that are saving traditional publishing. Those people are locked in to some pretty horrid terms.

  5. Don’t we have to keep in mind that the number–25%–refers only to traditionally published books and doesn’t count indie authors at all?

    BTW, I was at a small writer’s conference in eastern Oregon yesterday and I thought I’d mention 2 things: 1) I was on a panel about the future of publishing with the heads of 4 small presses, none of whom were in ebooks at all and none of which had a vision as to how to incorporate them in their business model; and 2) A long established writer said, ‘only 250 writers in America make their living writing’–which is both absurd and higher than other numbers bandied about.

    It was good to see this end of the spectrum because it’s easy as an indie author to get caught up in the indie world and not realize what’s going on outside of it. My take away from the conference, however, is that the ebook revolution has a long way to go to penetrate these spaces and is only just getting started.

    • dwsmith says:

      Sarah, yup. That’s the normal world out beyond the indie presses. Even traditional small presses have no idea what’s happening yet. It is stunning when you hear it. (grin) And that 250 number is a myth that has been around for fifty years and was never at any point true or even close. Even without the new world of indie publishing.

  6. Mark says:

    How do sales for fiction break out regarding trade vs. ebook?

    • dwsmith says:

      From the numbers I have seen, which are not many to be honest, it totally depends on genre. For example, Cozy mystery is tiny, mystery is small, while Science Fiction and romance are large by percentage. I saw on number saying 40% of all sf is electronic now. Erotica is huge by percentage because of the difficulty of paper books in that genre. So it varies all over the place and from the studies I have read, it pretty much matches overall the trade number, which in this case is a term describing most book sales.

      Realize that in some areas where mass market was strong, electronic is now strong. And some mass market areas, again like Cozy mystery, it is weak and the mass market form is holding.

      And, of course, everything is shifting all the time. Just not growing overall at a huge rate like it was. I think 30% is a reality inside of two years. But that’s just me and my foggy crystal ball. I saw one study that said we wouldn’t reach 30% in any near future. Another said we might be at 40% of all trade in two years. So foggy is my crystal ball. Got to get that sucker cleaned. (grin)

      • Patrick R says:

        Would be great to get a ranked listing of genres. I had thought the mysteries and also thrillers, in general, would have been boxing at near the same weight as sci-fi, but appears not.

        If possible to get the ranked listing then that would be food for thought for planning pen names, considering affinity to the genre as well as size of market/appetite.

        best, Pat

        • dwsmith says:

          Pat, I teach an entire online class on this topic. Pretty hard to describe in one answer, but let me give you the general (very general) fiction genre rankings. Ranked on number of sales

          1… Romance
          2… Mystery
          3… Fantasy
          4… Thriller (used to be under mystery, now stands alone)
          5… Bestseller (yes, this is a genre…ranked about here because of how few books there are in it every month that are not under another genre)
          6… Science Fiction
          7… Western
          8… Literary (yes, this is a genre as well)

          Young adult and Christian fiction are umbrella genres that cover all of the above. Horror wants to return as a genre but has no major line from any publisher in traditional publishing and most horror novels are called something else, such as suspense. Historical fiction is the same way, and is usually grouped under another genre. That help?

          • Patrick R says:

            Hi Dean

            Thanks – yes, helpful, and appreciated. Didn’t quite realise the separation of thrillers (my main interest – so far!) from mysteries. What sub-genres for mysteries – crime, etc? Crime does dominate sections of bookshops in UK.

            I thought Sci-Fi would have been higher, although perhaps that is a carry over in my thinking from the Sci-Fi & Fantasy grouping – similar, perhaps, to thrillers being grouped with crime, etc, in some places.

            Can I check how the rankings sit/change in any way for ebooks only, if at all, in your view?

            The umbrella groupings are interesting too, and the re-branding of horror to suspense. All too fit remaining shelf space or…?

            Thanks, again. Best, Pat

          • dwsmith says:

            Patrick, far too many subgenres to talk about, actually. (And I teach an entire online class on genre structure that helps writers understand the elements that makes a book go one way or another.) The gaming world is dominated by science fiction and fantasy, no doubt. And so are the top movies. But not the books. And there are a ton of reasons for that, mostly historical. The sf books killed themselves about thirty years ago and have never recovered or changed, sadly.

            Rankings on ebook sales by genre. Never seen one, actually. You get lots of people shouting that because a few indie writers sell one way or another, it has to be high. But no real data at all.

            And only readers pushing this, not shelf space. Only what sells.

          • gingeroni says:

            Dean, could you someday do a post on how scifi killed itself? 25 years ago seems to be about the time I finally stopped reading magazines (analog and fantasty & sf) and cut down on new authors. At the time, I thought it was just me but now I wonder if it was whatever you saw.

          • dwsmith says:

            I might do that some day, but it would be a series of blogs. And actually, the real start was back in the 1960s. It just entrenched in the late 1970s and 1980s.

            You realize that most of the writers in the book community when Star Wars came out hated it. Not kidding. Same with Trek. And that should illustrate the problem all by itself. (grin)

            Also, they converted science fiction from a genre of good vs evil (whatever that evil might be, alien, machine, so on) with the good guys always coming out ahead in the end (like Star Trek and Star Wars) and made it into a genre of no set endings, so readers buying for escape could not be sure what they were picking up, so they went other directions.

          • gingeroni says:

            I enjoyed John Brunner’s “The Sheep Look Up” and “Stand on Zanzibar” but there’s only so much nihilistic fiction I can take in a lifetime.

          • Mercy Loomis says:

            Just a thought, but if you ever decided to do an ebook on the history of genre in fiction, I would totally buy that.

    • Romance is a sold 40% ebooks, and 50% or more in some cases. Yes, there will be exceptions, but I’ve seen solid evidence for these figures. :)

  7. John Brown says:

    Dean,

    Can you link to the details or summary of that AAP press release you’re referring to? The only one I could find was this on PW http://www.publishersweekly.com/pw/by-topic/industry-news/financial-reporting/article/54446-a-solid-six-months-for-trade-sales.html

    These numbers still shows massive growth. E-books had astronomical growth rates these last few years because they started from very small numbers. But the first six month comparison from 2011 to 2012 shows e-books as the second largest category with a 34% growth rate while other formats are growing at 2% (adult hardcover), 5.2% (trade), -20.3% (mass market), and 15.4% (childrens).

    If you were 1 or 2% and growing at 34% that would be one thing. But when you’re 28% of the adult market and growing 34%, that’s massive.

    Let’s do some back of the envelop projections. Let’s just extend that growth rate out three years. And then compare it to the total using its 8.3% growth. I know, we should look at the trends of all the categories over the last few periods to get better numbers. But this is rough. Let’s also do another projection using a much slower 25% growth rate–9% less than this last year. Where will e-books be?

    @ 34.4% growth rate for ebooks, 8.3% growth for whole
    2013 ebook $835, whole 2390, ebooks 34%
    2014 ebook 1122, whole 2589, ebooks 43%
    2015 ebook 1580, whole 2804, ebooks 53%

    @ 25% growth rate for ebooks, 8.3% growth for whole
    2013 ebook $776, whole 2390, ebooks 32%
    2014 ebook 970, whole 2589, ebooks 37%
    2015 ebook 1213, whole 2804, ebooks 43%

    This seems to suggest your projections are way low. What numbers are you using?

    Even with those projections above, print’s going to still be a big part, but 40-50% of the market in 3 or 4 years is a huge deal.

    Furthermore, the idea that at some point it becomes difficult to have big book retail like B&N seems to still have merit.

    For example, I was talking to a buddy of mine about a year ago who wholesales & merchandises books to retailers (grocery stores etc.) He indicated that airport book stores had seen huge drops in sales and were getting hit hard. They were reducing book space. It seemed that lots of the frequent fliers were more e-enabled than others.

    Interestingly enough, just about a month ago I took another trip and noticed the two bookstores in the Delta terminal of my local airport in SLC had disappeared. I flew into Sacramento. I looked for a bookstore at that airport. Saw a Hudson Books shuttered instead. The only displays I saw in either airport were small drug store like displays.

    Of course, my sample is nowhere near rigorous. But if it is representative of that sector, it’s telling. At some point print books will not bring in the $/sq foot that other items can, and their space will be shrunk or eliminated.

    Also the latest PEW Research Center report on their Younger American’s Reading Habits shows something interesting. Only about 18% of those 16-29 have an e-reader or tablet. It’s true that those who do read e-books do a lot of reading on the phone or computer, but if you look at the % by age who read an e-book in 2011, it’s still very small. Which suggests to me that ebooks still have lots of room to grow. We’re still in the early adopter phase.

    As soon as children’s school texts go online and middle-graders and high-schoolers start seeing an ereader as one of the things you need for school, this is going to make a huge jump again. And that’s not 40 years down the road.

    At least, that’s what the numbers say to me.

    PEW Report: http://libraries.pewinternet.org/2012/10/23/part-1-younger-americans-changing-reading-habits/

    • dwsmith says:

      John, all good ways of looking at things. Where you extend a growth rate, I see it leveling, and that’s our main difference. I can’t imagine how ebooks could continue that growth rate over the next three years that you extend. I may be wrong, you may be wrong, we shall see. (grin)

      As for continued shrinking of shelf space in physical locations, yup that is happening and will continue on for some time I imagine until it also finds its logical new balance. But remember, a large percentage (and we talked about this at lunch and none of us can find a number, actually) of print books are now sold online.

      For example, of the five physical bookstores in our little town here on the coast, four of them sell books online as well as out the front door. And in the off season, that keeps them alive. Their physical store is their “warehouse” in a fashion. Powells, one of the top two largest physical bookstores in the world, does the same. (I was in there last week and it was a zoo, as they tell me it always is from eight in the morning until eleven at night.)

      No one has any idea what percentage of physical books are being sold online now. And that’s a factor no one seems to consider when talking about the demise of paper books.

      So while I don’t agree with your numbers, they are as valid a projection as anything. Your crystal ball is just about as good as mine, or anyones. (grin)

      Thanks for taking the time to lay out your ideas.

      Oh, one place I don’t agree on again is your belief that we are in the early adapter phase. I think we just came through that this year. I believe this year we will have a huge Christmas season for sales of tablets and reading devices, but gain very few new readers from it like we did last year. The new sales will just be upgrades. I believe we are in the new normal now, and the slowing growth of ebook sales tends to back that up.

      Again, just my opinion. Nothing more. And I’ll link to that 25% article that came out late last week when I stumble back on it.

      • Alan Spade says:

        What would strike someone who would not be familiar with the publishing industry is the incredible waste of traditionnal offset publishing, like 50% books sold for 50% dumped.

        As you said, Dean, there are more books being sold online now, and I would guess these books being sold online are mostly POD books. I’m happy with that. But being sold online, they are competing directly with ebooks. People are now getting more and more used to use price-matchers when buying online. Ebooks are cheaper, so for an increasing bunch of people, the choice is a no-brainer.

        So the growth of ebooks seems unavoidable for me, because they are more convenient and cheap for the readers, and way more profitable for publishers, with the incredibly outdated system of returns. We are still in my opinion in a phase of reluctance towards new medias from trad pub. But they are businesses, and as such, driven by money.

        The good news is, the more publishers will rely on the profitability of ebooks, the more power for the authors, provided they are not stuck with egregious contracts. Because they can choose to self-publish at any time. There will always be print books, sure, but the “operational ground” of authors is greatly shifting.

      • Patrick R says:

        Hi

        To add to the thinking on the shakedown of projections, growth rates, etc, here are a few observations from today in UK: some determined strides by high street retailers – Waterstone’s is now pushing Kindle, WS Smiths is giving floor space to Kobo, and now London’s top independent bookstore (probably biggest left in UK, and huge in the heart of the capital) is giving its backing to Nook. What looks to be happening though is a push on multi-media mobile capability; ebooks will be only part of the mix. Would seem, then, that will also be the case alongside print in the future – just a richer mix, with ebooks only part of the play.

        So, geographically there will be further surges but otherwise percentage growth rates probably have to fall, they can’t be sustained on basic math. That leaves the question of how big the e-book share has reached. But does that matter to each individual writer? Perhaps the need is for focus on craft and output. Whatever will happen for the aggregate numbers will happen, but how a writer takes part will be the issue.

        Should focus be: write for quality; write for craft; write to genre. Repeat! And, get to grips with business – presentation of the product (covers, design, blurb) and pricing, and how to hold IP, pen names, cash-flow, etc!?

        best, Pat

      • John Brown says:

        True, it’s all in the assumptions :)

        If you’re assumption is correct about where we are in the adoption cycle, then we’re getting close to 40-50% of to market of ebook readers. See this definition of how the phases break out.

        http://en.wikipedia.org/wiki/File:DiffusionOfInnovation.png

        If the PEW usage stats are correct, the result of that assumption is that ebooks will only be used by something like 20-30% of readers in most of the age demographics.

        That just doesn’t seem reasonable to me. But that too is an assumption. I think the numbers for the first quarter of 2013 are going to be very interesting. They will give us an early indicator of whether we’re going to see high growth continue.

        • dwsmith says:

          Remember, John, we won’t see that number until summer. (grin) And it will be interesting because it will include the Christmas sales boom. The really interesting one will be for the second quarter which we will see early fall. That will be a more accurate one and will be lower than the first quarter if trends continue.

      • Kevin O. McLaughlin says:

        I agree, Dean. I’ve been watching these numbers as closely as you have for the last two years, and I’m seeing the trend begin to flatten. Remember, from 2009 to 2010, and again from 2010 to 2011, we saw reported ebook sales revenue triple! That sort of thing simply can’t continue forever; sooner or later, logic suggests that ebook growth will begin to taper off. And I suspect we saw that taper begin in late 2011, continuing into 2012.

        Crystal ball prediction: the 2012 ebook revenue the AAP reports will not be three times the 2011 ebook revenue they reported. It’ll be a lot bigger, but not three times as much.

    • flutterby says:

      John,

      Thank you for adding your analysis. While I’m waiting for the link to the original statistics to judge their quality, I’m skeptical of their value. As acknowledged elsewhere in the comments, the % of a market that is digital is influenced by genre. Numbers are higher for romance, erotic romance and probably through the roof for erotica. These three categories also have a lot of independent authors in them. In fact, for erotic romance, some of this summer’s biggest sellers (USA Today charting book sales) were exclusively digital but they would not have been captured because they were independent author sales. Any set of statistics leaving out authors clearing 100k a month in royalties seems pretty flawed to me.

      • dwsmith says:

        flutterby, I know this is a topic of yours, and I agree that more data besides 1,200 publishers should be included. (I’ll go find the survey and link it… it was two weeks ago.) But yours and others impression that indie authors make up a huge number of sales is just not supported by an understanding of the scale of publishing. For example, WMG Publishing Inc is a small press on the scale of publishing and it will take us a bunch of years, if ever to climb to medium-sized press with over 500 million in sales. (grin) We have 282 books out at the moment. That means we would cover at least 28-40 indie authors. Easily. And again, we’re tiny, not even a blip on the big map.

        Scale is everything. Indie authors maybe make up less than 1% total of book sales. Maybe. Sorry, I wish I had hard numbers on that. That opinion is just coming from being around major publishing for thirty years.

  8. Thomas E says:

    My personal feeling is that the next stage of ebook growth will come when kindle does a deal with newspapers to give away basic readers free with an electronic subscription.

    At the moment the biggest barrier is the price of ereaders. But it’s like calculators : soon ereaders will cost $10, and come preloaded with the latest bestselling novel.

    I think in 10 years, ebooks will be around 40% of the market, but there will be more print books sold than today. The difference will come because publishing hasn’t ever had the type of distribution where it can easily reach every home.

  9. Interesting. I agree that e-books won’t eliminate the paperback as we know it anytime in the near future. But, I think, the percentage of sale might creep toward 50% in the next five years just because the readers will get better and cheaper…wouldn’t be surprised if Amazon starts giving them away at some point. Most readers I know who try and e-reader end up buying more books and using it regularly, although it doesn’t mean they stop reading paper.
    We’ll see…

  10. David Young says:

    My opinion? Ebooks will go to 95% at least…though current retailers may or may not last the distance. In my view, their similarities to traditional publishers are more pronounced than most seem to notice. They can’t possibly continue in their current form.

    Anyway, I did a 3-part blog series on this topic a few days ago:

    http://davidhyoung.net/2012/10/23/who-owns-your-ebooks-again/

  11. Dean, when major publishers start uploading all of their extensive backlist as e-books, where do you see pricing and cost/revenues per title going?

    • dwsmith says:

      Well, Louis, they are already doing that as much as they can. The problem is that each book is different, each book has a contract associated with it, and each book must therefore be approached as a single title, so major companies can’t just upload backlist in mass. And because of the old days and ways of thinking, many, many companies don’t have that much backlist to upload. They put the books out of print and reverted the rights to authors.

      Not sure about the rest of your question. As all indie publishers know, it takes time and a little money to put up a book electronically. And for corporations, that time is expensive in overhead and labor costs and contract costs. So I don’t see any costs changing that way at all. But I have a hunch you were asking something else. Try me again. (grin)

  12. Gary Young says:

    You say that the publishers are using revenue from selling ebooks to subsidise the traditional paper book distribution system. I believe this to be true, but I can’t prove it.

    This however means that there is another “cliff” looming in the future. That cliff is the day when it costs more to subsidise paper book distribution, than is earned by selling paper books.

    Imagine, for example that a big publisher is using $100 of ebook revenue to subsidise warehousing, shipping, and returns of paper books, but that the sale of paper books earns that publisher $1000. Obviously, this makes sense for the publisher. They are ahead by 900 dollars.

    Now imagine that the number of paper books sold decreases in the future. It might then take a subsidy of 200 dollars of ebook revenue to earn of 900 dollars from selling paper books. Continuing to subsidise the paper book distribution system still makes sense for the publisher. They are still ahead by $700.

    Of course, if the publishers are sensible, they will be doing everything they can to streamline the paper book distribution system, to reduce the overhead costs. This will delay the day of reckoning.

    Eventually, however, **IF** the sales of paper books continues to fall, you could reach a point where the publisher has to use 501 dollars of ebook revenue to earn 499 dollars of revenue from selling paper books. **IF** this day ever happens, then the publisher will be strongly tempted to abandon the production and sale of paper books, and to sell only ebooks.

    Since we do not have access to the publisher’s internal cost accounting data, we would have essentially no warning of any such major change in the market.

    To summarise, I think that the mass production, distribution, and sale of printed paper books will eventually become uneconomic. I have no idea, however, _when_ this might happen. Print-on-demand and limited print runs for paper book collectors, however, will enseure that paper books are with us forever.

    • dwsmith says:

      Gary, for 95% or more of the major companies, what you described, which is very logical, isn’t going to happen. They are all adjusting. Two years ago I told a class here to watch for certain signs that traditional publishers are shifting, and the signs are closing of warehouses and merging of imprints. The warehouse cuts have been happening now, usually out of any news because it’s a dull thing, for over a year now. Contracts because of the recession have been redone with union workers and truckers and costs per unit have come down over the last two years dramatically. Also, the returns system has been cut dramatically also as ordering tightened up and programs from publishers changed to stores. While we were at 50% returns and higher for a long time, we’re down under 25% industry wide in the last two years, and that’s saving a ton as well.

      So a really slow, slow company might get caught a little in what you suggest, but it won’t happen to most. You will see massive consolidation, however, of imprints and some corporation structures. That’s just starting.

  13. Mark says:

    My takeaway is more about what concerns me. While ebooks may be at 25% of sales overall my feeling is they represent a larger share of fiction sales, which is what I write. My guess is ebook sales account for 35% (probably more) of fiction sales. Also, paperback sales are plummeting, which leads me to believe that ebooks are displacing paperbacks. Well, my stuff would always have been geared towards the paperback market anyway.

    I’m actually hoping that ebook sales increase and become the dominant form of books. I have access to ebook marketplaces. My access to paper book sellers is much more limited and it takes much more effort to get a book into a brick and mortar store, which the AAP article I read cited as the top source of paper book sales.

    So from my vantage point my interests are better served if more readers switch to ebooks.

    • dwsmith says:

      Mark, no numbers on genre fiction that I can find, so I’m not going to take a guess. But I too think inside of some genres the number is higher, and it is higher company to company depending how the company is functioning and how fast they moved. So even inside a genre, the number can vary from corporation to corporation dramatically. One company will report 50% sale of ebooks on a title and another will report 10% ebook sales. Part of this transition.

      And it is showing that yes, ebooks are really hitting mass market, combined with declining rack space for mass market paperbacks. But it is looking now like it won’t replace mass market. And trade paperbacks are booming.

      And one more point. Most of the paper books sold online are not POD. At least not yet. Most are major release titles from major publishers. POD publications are just not that large a number yet when you compare them to major release presses, however the POD printing process is growing at light speed. It’s just not that big yet.

  14. Out of curiosity, when you say ebooks will only be 30% of total sales, what kind of timeline are you talking about? In the first six months of publication? The first year? The lifetime of the book? Because the book my publisher released in paper in January didn’t have an ebook release until five months later and the ebook sales have already reached almost 30% with sales going strong in ebook, but nothing but returns for the past few months for the paper version. I can track sales a whole lot more accurately with them than most publishers since the royalty reports come monthly and are actually readable (I know, big shock).

    So how long do you expect ebook sales to only be 25-30% of total sales before stores sending back overstock push ebooks as the major version of the book being sold?

    • dwsmith says:

      Heather, not talking about any one book. I’m talking about the entire industry of trade books in general. Every book in every genre is different.

  15. Kevin O. McLaughlin says:

    I think we can all chuckle about the idea suggested two years ago that the first major publishers would go under in the summer of 2012 (sorry, I like Mike Stackpole, but I think he’d be the first to admit he was wrong here!).

    That said, we are seeing signs of stress.

    1) B&N is prepping for bankruptcy in their brick and mortar business. If you scan their last four years of stockholder reports, you’ll see that their brick and mortar stores have lost money each year, buoyed up the last few of those years mostly by their college bookstores. And although they have been investing more money in the Nook and online store than they’ve earned so far, that channel has seen serious growth and is the #2 contender for ebook retail in the US right now, with plans to begin working abroad. But the new corporation they are forming with Microsoft is farming out the profitable and future-oriented elements of the company, leaving only the money-sink brick and mortar stores in the main corp. The general sense is that they are working to protect their good, money making assets from the impending dissolution of the money-losing one.

    2) Harper and Penguin are talking merger. That would create an enormous super-size publisher, if they do. It would also probably result in some creative downsizing in each company (and their various imprints) as they remove redundant elements. This is a big deal. Major corporations don’t generally merge with other major corporations unless both are under stress.

    I could probably yank out another bit or two. I’m deliberately not talking about the DOJ lawsuit, which is another huge stressor on all companies involved. And let’s remember that writers are speaking out loud and long against the 25% royalties on ebooks which have allowed publishers to do well; not enough yet to make a huge impact, but the groundswell is growing, and pushing more well known writers into the indie world.

    The point is: we ARE seeing warning signs that some of these companies are under extreme stress still. I don’t know that any of it will mean a major publisher goes bankrupt. I’m inclined to say no, right now, although that could change. But they are under enormous pressure, and that pressure is continuing to mount, not dissipate.

    • dwsmith says:

      Kevin, I’m reading those quarterly reports of B&N different than you are I’m afraid. I’m seeing no signs at all of any kind of bankruptcy movement. In fact, they are undervalued at the moment because of bad press. And the merger is Random and Penguin, and I see that as just a sign of the consolidation I talked about. One of many large and small to come in my opinion.

      • Re: Harper/Penguin, I agree. Consolidation is a normal part of large corporate business when those corporations are under economic pressure. Not that they’re anywhere near going under, mind. That’s not what it means. But it IS a clear sign of heavy stress. Large corporations rarely merge when everything us rosy. ;)

        Re: B&N, you’re again right. I concur that B&N as a whole is undervalued. But they are taking all they money making elements of the company and sticking them into Newcorp, or whatever they’ve decided to call it. They’re leaving the elements of the company which have consistently lost money for years – namely the brick and mortar stores – under the old corp. Without the college bookstores to prop up the brick and mortar retail sites, they cannot stay solvent.

        If they were just putting the online store and Nook into the new corp, I’d feel like they had confidence in the brick and mortar. But by moving the highly profitable college stores as well, they’re giving a clear signal. They are moving the profitable elements to the new corp to protect them against a liquidation bankruptcy. Only real reason why a company would be doing what they are, and that’s why investors are turning up their noses at B&N stock. B&N has through their actions basically announced they will be putting their brick and mortar into bankruptcy, probably within the next two years.

  16. Ramon Terrell says:

    Dean,

    Audio books were mentioned above. I’ve floated through audible.com but can’t find how to do it. I really want to get my work into audiobooks. Can you recommend something, or do a post on it?

  17. This data supports what I think, too–paper books aren’t going anywhere fast. I personally know two people who have ereaders and one of them still prefers paper copies. My daughter in high school doesn’t have any friends who reads ebooks. They all read paperbacks.

    Yes, the devices are cool, and my kids and their friends have gadgets to read ebooks, but they don’t.

    Thanks for sharing.

  18. I don’t even try to aim my crystal ball at the near term, so I won’t try to dispute your near-term numbers.

    However, I believe in the long-run, ebooks will become dominant. They are superior in many ways for many different things — except to read while eating! Even there, there are about equal to hardcover books.

    Plus, there’re the international markets. In The Philippines The National Book Store chain brings both locally published and American ordinary paperbacks to every big mall, but I suspect in many developing countries most of the population is nowhere near a bookstore. And, unlike in the US, they can’t depend on the mail or UPS to deliver paper books ordered online.

    I suspect that just as such countries adopted cellphones in huge numbers, because their national POTS was inadequate, they’re going to adopt ereaders in huge numbers because paper books are too expensive and/or unavailable.

    If your main point is that self-published authors should go POD as well as electronic, I agree. I don’t sell as many POD books as I do Kindle, but it’s nothing to sneer at. Once the work is done, it costs nothing to keep them available, so even the poor-sellers are a long-term investment.

    I agree now is the best time to be a writer.

    We may all disagree on the details, but the future looks bright to me.

  19. Justin Jordan says:

    I’d note that digital MUSIC sales are just now overtopping physical sales in the US (and may not have, but it was expected to happen by year’s end) and have yet to do so globally.

    This is eleven years after the iPod. And the actual delivery system means way less in music than it does in books.

    So yeah, anyone who thinks ebooks will overtake it anytime soon are probably waaaay optimistic.

  20. dwsmith says:

    Audible.com through their ACX program is a good way to start.

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