August, 2010

The other comparison: ebook royalties versus ebook self-publishing

My last post tried to lay out a comparison of royalties paid by big publishers to agented authors on ebooks against what they pay on print books. What it showed is that the authors suffer a bit on ebook sales that substitute for hardcover print sales, but that they do pretty well selling an ebook instead of a paperback. And the numbers also showed that a publisher selling ebooks under a wholesale arrangement pays the author a higher royalty than an agency publisher when the print is in its hardcover life, but that the agency publisher is actually paying more royalties if the printed edition is a mass-market paperback.

But this comparison has its limits. It helps an author or agent compare their economic prospects with an agency publisher as opposed to a wholesale one. But it doesn’t help an author understand the next comparison she’ll want to make, between doing her book with a publisher and doing it herself without a publisher at all

Fortunately for authors and agents, the benchmark for self-publishing revenue is clearly established by the ebook platform Smashwords, which I first wrote about at the end of a post 16 months ago. There are certainly alternatives to Smashwords: web-based solutions like Scribd, full-service offerings like our clients at Bookmasters, and things in between like Author Solutions. But Smashwords is the most automated, least expensive, and, at this point, most heavily used self-publishing solution for ebooks.

Smashwords pays authors 85% of the sales price for ebooks sold on its own site, and about 85% of the receipts for sales made through iBooks (Apple), Sony, B&N, Kobo, and the Diesel eBook Store. In other words, an author would get more than three times the “old” standard 25% ebook royalty offered by the big publishers and double the “new” possible 40% royalty implied as the new ceiling by the Random-Wylie agreement announced last week.

It is worth noting that Mark Coker of Smashwords says that all their deals will be agency going forward because control of the retail price is very important to their authors and publishers. The net to the author or publisher through their existing deals is 42.5% for sales made through Sony or B&N, 46.75% for sales made through Kobo, and 60% on their agency deals with Apple and the Diesel eBook Store.

And although Smashwords does not (yet) have an agreement to distribute through Kindle (though they’re working on it), the authors and publishers that use Smashwords would be free to make a separate deal with Kindle, giving them a possible 70% of their retail price if they can keep the potential discounters in line (that would be B&N, Kobo, and Sony.)

One thing very much in Smashwords’ favor is that the barriers to use them are very low. All you need is a doc file and a bright person to pay attention to quality control as you work through your conversion. They make metadata management simple.

What might give big authors pause about using Smashwords is that they distribute DRM-free (although the retailers listed above will be adding their own unless the publisher tells them not to) and that they depend on trust. Each retailer selling Smashwords titles has the content file and the metadata file in their possession and the sales reporting cannot effectively be audited.

But whether or not Smashwords is everybody’s solution, they certainly are establishing that pure automated ebook conversion and distribution services are worth 15% of what is collected from the consumer or from the intermediary selling to the consumer.

Smashwords is already pretty big and growing fast. They have 18,000 titles on offer from 8,000 different authors and publishers at the moment and Coker says they’ve added 2,500 titles in the past 30 days!

And I can personally attest to the fact that Smashwords has some books people will want. I found a title on iBooks called “A Year in Mudville” about the Mets first season — baseball history being a subject I know well and read broadly — which is terrific. It is well-researched, well-written, and well-edited. I found some presentation glitches (type fonts changing for no apparent reason) and pointed them out to Coker. He showed them to the author who then corrected the file. (The glitches didn’t interfere with reading the book at all.) And that book was priced at $8.99 on iBooks, which means the author was getting $5.40 from the sale! Look at that against the chart in my prior post! On a $9 list-price ebook, the author would be getting $1.125 from a wholesale publisher and $1.575 from an agency publisher at 25% royalty; $1.80 and $2.52 at 40%. (And, assuming they did an Amazon deal separately and could meet the restrictions required for the 70% royalty, that author would be getting $6.30 for each sale on Kindle!)

At per-unit revenues from ebook sales anywhere from 2.5-to-6 times what they could get from a publisher, and ebook sales rising inexorably as a percentage of total sales, authors and their agents are ultimately going to be doing their math against this option for each new book they have to offer. Some may be doing it already.

There are a few things publishers can tell authors to try to keep them from jumping.

1. “Don’t forget: we give you an advance!” That is the first, and for many authors the most powerful, argument. Agents like advances too, so they’re likely to be sympathetic to the publishers’ point here. But, of course, with that advance comes the publisher’s claim to more than half of what would otherwise be the author’s ebook profits.

2. “Don’t forget: print books are still 90% of your market!” This is really the reason established authors will be reluctant to jump to Smashwords. And as long as print is 90%, or even 80% (and it is falling to that level on many immersive reading books now), getting a multiple on the ebook sales still leaves a shortfall of revenue to the author unless they figure out how to also have the book available in print. The big publishers won’t be doing print-only deals for quite a while, but smaller publishers will certainly be available to work with brand-name authors on that basis. And when the print share falls to 50% of the total sales, which many of us believe it will over the next few years, this argument won’t be effective anymore. (There are many ways for the author to self-publish print too, but only the print-on-demand solutions don’t require big investment or risk, and you aren’t going to get what a publisher would deliver with POD alone.)

3. “You’ll have to do your own publicity and marketing.” This is true, but it is also true that publishers have wanted authors to do a lot of their own publicity and marketing already. From here, it would seem that the author’s marketing efforts will be critical either way. If the author is already big and branded (likely due at least in part to the prior efforts of a publisher, but that’s not necessarily relevant here), it’s less of a barrier than if they’re not. It might be no barrier at all. This is an uncomfortable point for publishers because the authors who need the least help are the ones they want to publish the most.

4. “If we publish you, you’re legitimatized.” I think this point carries almost no weight with any author who has had a bestseller already or has already had more than a couple of books published by established houses. I think it will carry less and less weight with everybody else. I just found my first great book by an unknown author on Smashwords. Sooner or later, you will too.

5. “We’ve built email lists and other direct contact with the consumers you want to sell to, plus we have relationships with the book retailers to get you more attractive placement and promotion through them than you can get without us.” Now, that would be attractive. Can any big publisher justify that claim?

6. “We will pay you 70% of receipts on ebooks to keep you in our stable. It isn’t the 85% you get from Smashwords, but with our advance, our print book sales, and taking all the admin and management off your hands, it’s a better deal for you.” That will probably work, but no publisher wants to let it get to that point.

Publishers better work on number five.


The royalty math: print, wholesale model, agency model

I have been helped in trying to parse the ebook royalty question by a numerate agent. While he helped with me the methodology, the numbers that appear in the tables below below are my responsibility. I hope that arraying the information this way will help everybody think through the question of ebook royalties with more precision. This is a subject we’ll have a panel talking about at Digital Book World Conference in January.

I want to think about this philosophically (I like to think about everything philosophically), but this post is about establishing a framework of understanding about what the real economic implications are, for the publisher and the author, of today’s sales practices and division of revenue. So this is pretty much a “just the facts, m’am” post.

We created three sets of tables: one to compare ebooks to hardcovers, another one comparing them to trade paperbacks, and the third comparing them to mass-market paperbacks. Because of the reports following the Random House-Wylie announcement that suggest that ebook royalties, at least on some backlist, might hit 40%, we have calculated how they work out under both the wholesale model and the agency model with the author getting 25% of net and with the author getting 40% of net.

Here’s the key to understanding the columns. For each grouping, we placed print on top, followed by two rows for 25% royalty (wholesale model and agency model), with the last two rows calculated at 40% royalty (wholesale model and agency model.) The retail price is the one the publisher establishes; the net is what they get from the channel partner for each unit sold. The cost is an estimate of print cost (10% of retail plus 25% for obsolescent inventory) or the unit cost of an ebook sale (50 cents in all cases, primarily to cover DRM.) The margin is simple subtraction of the cost from the net. The royalty rate is self-explanatory. The author royalty per unit is calculated from the rate and the price or net, as applicable. And the last column shows the percentage of the total margin that is claimed by the author at that royalty rate.

We did not factor in the cost of digitizing ebooks; nor did we include the cost of typesetting and page makeup for print books. Since we’re focused on royalties that would be paid after earn-out, the assumption is that those costs have already been amortized.



Format Retail Net Cost Margin Royalty
Author %
of Margin
Print $26 $13 $3.25 $9.75 15%
of retail
$3.90 40%
Ebook – Wholesale $26 $13 $0.50 $12.50 25%
of net
$3.25 26%
Ebook – Agency $13 $9.10 $0.50 $8.60 25%
of net
$2.275 26%
Wholesale at 40% $26 $13 $0.50 $12.50 40%
of net
$5.20 41%
Agency at 40% $13 $9.10 $0.50 $8.60 40%
of net
$3.67 42%


Trade Paperback

Format Retail Net Cost Margin Royalty
Author %
of Margin
Print $15 $7.50 $1.875 $5.625 7.5%
of retail
$1.125 20%
Ebook – Wholesale $15 $7.50 $0.50 $7 25%
of net
$1.875 27%
Ebook – Agency $10 $7 $0.50 $6.50 25%
of net
$1.75 27%
Wholesale at 40% $15 $7.50 $0.50 $7 40%
of net
$3 43%
Agency at 40% $10 $7 $0.50 $6.50 40%
of net
$2.80 43%


Mass Market Paperback

Format Retail Net Cost Margin Royalty
Author %
of Margin
Print $8 $4 $1 $3 10%
of retail
$0.80 27%
Ebook – Wholesale $8 $4 $0.50 $3.50 25%
of net
$1 29%
Ebook – Agency $8 $5.60 $0.50 $5.10 25%
of net
$1.40 27%
Wholesale at 40% $8 $4 $0.50 $3.50 40%
of net
$1.60 46%
Agency at 40% $8 $5.60 $0.50 $5.10 40%
of net
$2.24 44%


Here are a few things that jump out at me as I look at these numbers.

1. In the print world, authors are getting a much bigger share of the margin for hardcovers than they are for paperbacks.

2. Although it is true that an author gets a much bigger royalty on a hardcover under the wholesale model than under the agency model, that is not true for paperbacks. The ebook royalty for a trade paperback equivalent is quite close in the two models, although wholesale still yields more. But in mass-market, the author actually gets significantly more under the agency model than they do under the wholesale model!

3. The author suffers a real shortfall in revenue for each copy sold in hardcover at the prevailing 25% royalty. However, the author makes more money on each ebook than they do on each trade paperback or mass-market paperback.

4. Our margin calculations are strictly cost-of-sale based and include no calculations for overhead. Looking at these numbers, one can see why publishers believe, at least on paperbacks, that the 25% royalty is more than fair. (The author is getting more per copy sold and the percentage of the total margin they’re getting is as good or better than for a paper edition.) While we’re in a time where digitizing for epub is an extra step, not a simple alternative output of an XML-based pre-press process, the ebook seems freighted with extra costs. But in the longer run, that won’t be true. Ebooks should put less strain on overheads and require less of an organization to support them: no warehouse, no cash tied up in inventory, no need to monitor stock in the warehouse and in the supply chain.

Looking at these numbers it is easy to see why publishers are fighting to hold the line on ebook royalties. But ultimately the determination of what will work will not be based on what is fair or equitable; it will be be based on what the market says is the right level. That will be worth exploring in another post.


There’s only one Seth Godin, but there are other authors who might emulate him

What shoved other news aside this morning was the word from Seth Godin that he won’t be publishing books with publishers anymore. This is another early indication that it is going to get harder and harder for trade publishers to sign up books.

It is not the first one. Thriller writer J.A. Konrath discovered the virtues of publishing through Kindle about 16 months ago. With the help of audience-building through his own blog, plus completed manuscripts that the New York publishers didn’t buy, he was pushed into learning how to monetize his own work without a publisher.

Last December, the news was that S&S author Stephen Covey had taken his backlist to ebook publisher Rosetta which had, in turn, made a temporary exclusive deal with Amazon. The motivations, apparently, were a bigger share of the ebook pie and the unique marketing capability Amazon has to really push something direct to appropriate consumers. That deal seemed to be with the original publisher’s explicit consent. (Agent Andrew Wylie recently formed an imprint to do the same thing with a batch of his clients’ backlist apparently without prearranging consent, although no lawsuits have been filed to date.)

At the last BookExpo, one of the leading agents in New York told me he is working hard to learn about self-publishing options because his authors are asking him about it.

Last week, one of the leading publishing consultants to “brands” told me that the 25% standard ebook royalty was pushing her company’s clients to think harder about self-publishing.

And it happens that right now I’m reading a book about my favorite subject (baseball history) called “A Year in Mudville” (about the Mets inaugural season) that was self-published through Smashwords but which, in editorial quality, exceeds many titles I’ve read from established houses. I don’t know whether author David Bagdade didn’t want to bother with the bureaucracy of pitching trade publishers, was rejected by them, or just chose the control and better margins of Smashwords, but Smashwords rather than one of the established players is dividing with the author 70% of the nine bucks I gave iBooks for the purchase

This way lies destruction.

Many years ago, my friend and sometimes colleague Mark Bide and I were talking about threats to the scholarly journal paradigm. For those not familiar with how journals work, it might be an eyebrow-lifter. Universities pay professors’ salaries and encourage them to write peer-reviewed articles. The journals get the articles for free, operate the peer-review and publication process, and then sell the collection of articles back to the university’s library. So the university both pays for the content’s creation and purchases it in its published form. Since the beginning of the web awareness, it has been predicted that disintermediation of journal publishers would occur.

What Mark told me was “watch the level of submissions.” That is, he believes the first sign that journal publishing is in trouble will be if the professors stop sending in their articles. So far, that hasn’t happened (that I’m aware of.)

But it’s going to be happening in trade.

On an email list I read, you can detect the annoyance of publishers who point out that neither Konrath nor Godin would be where they are today if publishers hadn’t invested in them and built their fame. There’s some resentment that neither Konrath nor Godin emphasize this point and, by not doing so, seem to suggest “anybody can do this.” I’m not sure that they’re saying “anybody can”, but it isn’t necessary to push that idea to do real damage to publishers’ futures, because the authors who can do this are among the the ones publishers need the most.

Starting in the 1990s, publishers started to ask “what’s the author’s platform” when they signed up books. In those days, they were asking whether the author had a radio show, a newspaper column, a speaking circuit, or extensive media contacts that could give them a leg up to promote the author’s book. But with the turn of the century and the development of inexpensive websites and blogs, authors were able to build their own platforms. And, lo and behold, they were able to build them faster and better if they had legitimately published books in the marketplace.

Publishers should have remembered the axiom that you should be careful what you wish for. This was, perhaps, the beginning of the unbundling of the publisher’s suite of services to the author. It used to be that the publication of a book was the platform and the publishers’ publicity and marketing efforts worked to capitalize on it. This was all part and parcel of the package: paying an advance; editing and shaping the book; putting it into a distributable (printed and bound) form; getting it known; and, of course, getting it into a store where a customer could buy it.

Publishers still pay advances although they’re doing their best to scale them back. Many don’t provide the same level of editing services that they used to; they often expect more books to be delivered by each of their editors and they also lean to agents they can trust to do a lot of the work of putting a book in shape. Putting it into distributable form isn’t nearly as hard as it used to be and doesn’t require inventory investment if the form is digital. Getting it known is something that Godin very articulately and accurately suggests he can do better himself. He is not alone and authors who can do this are explicitly what publishers are seeking. And getting the content into the customer’s hands is a drastically different proposition in a digital context than it was in the pure print world of 20 years ago, and digital distribution can be done with far less investment and far less organizational muscle.

So there’s less for a publisher to do for an author than there once was. And the publishers sent that signal when they started to focus on the author’s own ability to promote and then, over time, turned that ability into a frequent requirement for publication. If the publisher is going to do less, the author wants to pay less for it. Joe Konrath is very clear about the advantages he sees in getting the lion’s share of the revenue his books generate, rather than a mere author’s royalty.

But, somewhat more ominously, making more money through disintermediation does not appear to be the primary driver for Seth Godin. What Seth seems to be saying is “I want flexibility. I want to use what I write in whatever is the best way to build my overall career, revenues, and audience. I don’t want to be locked into publishers’ schedules and bureaucracy.”

That’s a massive challenge for big trade houses but it will be of increasing importance to big authors, particularly big non-fiction authors. It is much easier for a publisher to provide real value if they’re vertical. On the same mailing list I mentioned above, we got a comment from a biggish independent publisher who claims that the house is finding more and better ways to work with authors and really investing in them. But, we are told, they are all in verticals.

Godin may be a unique case. There are unique aspects to Covey and Konrath too. But it is not comforting for trade publishers to see that authors have alternatives, that as ebook sales rise the viability of the alternatives grows, and that the authors most likely to strike out on their own or look for new partners are those with the strongest existing connections to audiences.


The printed book’s path to oblivion

The “death” of the printed book has been under discussion for a long time. (I gave a speech with that subject as the title to publishers in Spain in 1997 — with a question mark after it and predicting correctly that the most immediate impact of digital change would be that we’d sell more printed books online and that the then-current interest in expensive-to-produce CD-Roms was a distraction.)

Nicholas Negroponte made headlines last week when he was quoted as saying that the printed book would be “dead” within five years. A deeper dive into what Negroponte actually said clarifies that he doesn’t mean there wouldn’t be any paper books anymore after 2015, but that the ebook would become the “dominant” form by then. I think even that might be going too far.

It seems reasonable to me (although not to every forward-thinking observer of the march of digital events) that by five years from now half of immersive reading — straight text novels and non-fiction — could have moved from paper to devices.

But for those who question the idea that the switch from paper to screens will ultimately be just about total, let me offer a way to think about it.

The critical thing to remember is that, indeed, the book was more-or-less perfected hundreds of years ago. There have been improvements in printing, binding, typography, and paper quality that are not trivial, but that also represent no quantum leap in user benefit. Indeed, defenders of the paper book and advocates suggesting it has a permanent role, point to that fact as support for their belief.

I think it argues the opposite.

The ebook, unlike the paper book, advances every month, if not every day. Screens and the reading platforms they run just keep improving: they get cheaper, lighter, more flexible, more capabilities-rich and there are ever more choices of them. Battery life gets longer. They develop the ability to take your notes, keyed in or handwritten. They develop the ability to share your notes or organize your notes automatically. They’ve had built-in dictionaries for a long time (a feature of the very first Kindle nearly three years ago) and now they often offer the ability to get to Wikipedia or a Google search in a click as well.

If facing pages or pages that are flexible and “turn” are your requirement, the beginnings of that have already appeared. Facing pages is a feature of the iPad’s iBooks app and just about every reader now offers a choice of “effects” for page turns. The challenge of delivering highly designed pages with pictures and captions and call-outs and on-page footnotes is being tackled, notably by Blio but they’re not alone. One of the reasons I restrict my predictions about ebook penetration in 2015 to narrative books is that it is harder to see yet how fast the development of that presentation capability and the corollary ability to make and reflow those pages for different screen sizes will be. But it will come.

Indeed, the insistence by some people that they will “never” give up the printed book — which leads to rather ludicrous glorification of the smell of the paper, ink, and glue and the nonsensical objections that the screen would be unsuitable for the beach (depends on the screen) or the bathtub (I can’t even imagine what the presumed advantage of the printed book is there) — must ignore the fundamental dynamic. Print books aren’t getting better. Ebooks are.

The biggest tipping point mechanisms for ebooks so far have been the advocacy by the three most important retailers of books (Amazon, B&N, and, less significantly so far but still important, Borders) for dedicated ereading devices; the ability of consumers to download books just about anytime directly into those devices; and, to my mind most important of all, the availability of just about all the most popular straight text books as ebooks at about the same time the content is available in print.

I started reading on a Palm Pilot in 1999 or so. Until 2008, when the Kindle’s launch began to have a real impact on publishers’ digitization practices, I was compelled to read some print books because much of what I wanted to read just wasn’t available as an ebook. When Kindle took hold, that problem went away. I can’t remember the last time I looked for an ebook I wanted and didn’t find it available. That’s why I haven’t read a print book since late 2007; if publishers had moved faster, that date could have been as early as 2000 or 2001 for me.

Now, of course, we have the news (long expected in these quarters) that the availability question is being turned on its head. The announcement last week by Hachette that their Little Brown imprint will be publishing a short non-fiction title by Pete Hamill about immigration only as an ebook now means the print reader is denied. (It will be interesting to see what, if any, print-on-demand option evolves for this experiment.) Of course, this makes complete sense. Genre publishing, particularly romance fiction, has had ebook only publications for years. Maybe that’s why romance readers — which one would not expect are necessarily more advanced technologically or economically than most of the rest of us — have apparently made the switch to digital reading more quickly than book consumers at large.

Romance publishers were not the only precursors to the forthcoming Hamill publication. Simon and Schuster announced last November that they’d be selling books by the chapter for digital purchase, an option not being offered to consumers of print. And Perseus has a deal with the web site Daily Beast which pushes the ebooks out first in the interests of timeliness.

It is very hard for me to grasp why anybody would prefer a printed book 30 or 40 years from now. I’m sure by then screen technology will be able to simulate any aspect of the printed book that could possibly be of interest (except, perhaps, for the smell of the paper, ink, and glue, but, then maybe a companion air-wick would do the trick. I wonder if you can use the same aromas for all titles, or whether some customization will be required.)

This Hamill-Little Brown experiment will be repeated with increasing frequency. (And so will what Perseus and Simon & Schuster are doing!) The screens will get better and cheaper. The platforms will deliver more and more features. The opportunities to find and buy printed books in physical locations will diminish. However one sees the balance today between printed books and ebooks, it will need to be reassessed next month. And the month after that. Maybe it will take the waterproof ereader with pages that turn to drag some of the holdouts across the paper-to-digital line, but even that can’t be as much as a decade away.

The printed book will not “die” in our lifetimes: there are too many of them already around for that. And I don’t even think the ebook will be “the dominant commercial form” (Negroponte’s position) in as short a time as five years. But it almost surely will in ten and I’d say that in no more than twenty the person choosing to read a printed book will not be unheard of or unknown, but will definitely qualify as “eccentric.”


Learning some things at dinner in Sao Paolo

I was struck when I visited Australia three years ago at how the protection of thousands of miles of ocean had kept their book trade looking like ours did three decades ago. Prices of books were very high in stores and there were lots of stores and lots of independent stores. But the biggest moat in the world couldn’t keep the forces of digital change at bay forever. All of the forces of online bookselling, discounting, and ebooks are now hitting Oz, and booksellers are feeling a dramatic impact. When an old publishing salt brought two Australian booksellers in to visit me last May and I was pretty apocalyptic describing what they should expect, they didn’t disagree with me. They were feeling it.

So a purely anecdotal report of the difficulties of one specialist independent in Australia resonates, even though I generally don’t put much truck in one person’s opinion about one entity’s fate.

This week I am in Brazil. My new friend Ricardo Costa, who runs Publish News, a local operation reminiscent of our Publishers Lunch (and who has been translating a post from The Shatzkin Files into Portuguese for his audience weekly for several months) gathered a group of publishers and a bookseller to join me for dinner on Monday night so I could learn a bit about the state of the Brazilian book trade. Because they were not joining us to be put on the record, I’m keeping my dinner companions anonymous.

For many reasons, the situation on the ground in Brazil is much more like Australia three years ago than it is like the US today. There has been very little take up of ebooks. One major reason for that is that there is a paucity of devices. Brazil charges punitive taxes on electronics assembled outside the country, which all ereaders are. The only device that got any play in the market previously was the Cool-er Reader, and that company has gone bust. One of our dinner companions is a bookstore owner (a small but very important chain) that started selling a new ereader yesterday. This e-ink device with no wifi or 3G, requiring (like Sony) that you import to your computer and then transfer to the device, will sell for the equivalent of just under $400. That’s about triple what Kindle is charging US consumers for its new wifi-enabled device.

I got to handle the device. It’s smaller and lighter than a Kindle, with touch-screen capability and a built-in dictionary, and a more solid feel. But at its high price and without the direct connectivity to enable acquiring new books directly into the machine, it is no more than a step on the path to widespread ebook uptake.

Discounting through online resellers has entered the market. (The retailer in the crowd, which has a very successful web operation, refuses to discount his online sales below his store prices. “That would be telling my customers not to visit my stores!”) My dinner companions were concerned about the effects of the discounting. The online resellers get books from publishers totally on consignment (no inventory carrying cost) and are selling at very deep discounts. This inevitably will have negative consequences for brick-and-mortar stores.

As one of my dinner companions, who runs a large publisher, said, “we want to know what happens in the US because it is what will happen in Brazil five or ten years later.” Both he and the bookstore owner could see that the future for stores will get increasingly difficult.

The entire table agreed that retail price maintenance, such as exists in France and Germany but which is almost universally sneered at by the Americans and British, would be a boon to the entire book trade.

One of the party, a children’s book publisher, reported that Mexico had just introduced retail price maintenance. As a result, her company was renegotiating all their terms with retailers and wholesalers in Mexico to take discounts down. And, at the same time, they will be lowering the prices of their books. From her perspective, the prices to the consumer will remain pretty much the same as they were with discounting, her take will remain pretty much the same as it was with the lower prices and lower discounts, and the effective margin to the retailers will also be pretty much unchanged. But the market will be more stable and less subject to control by the biggest players who can afford to be the most aggressive discounters.

This is not the picture that is painted by most powers-that-be and economic experts in the US and the UK.

One thing that became abundantly clear here in Brazil is that epub conversion in smaller languages is going to be a bottleneck. Most of the ebooks available in this market are PDFs because the market is too small to encourage publishers to invest in the conversions. Of course, PDFs don’t deliver nearly as attractive a reading experience. But there aren’t the same resources available for epub conversions in Portuguese that there are in English (and, presumably, in Spanish or French). That is going to slow down adoption of ereading in many parts of the world and, furthermore, tilt those who do use ebooks to read in English rather than their local language so they can get the benefits of reflowed delivery. I’ve seen ebooks as a potential boon to publishers in smaller languages, enabling them to reach a scattered diaspora, but it isn’t going be as effective if putting Welsh or Danish into epub is expensive.


Where do we lose the shelf space and how much do we lose?

There are two questions about the impact of digital change on publishing that are just about impossible to answer.

One is: how much of the sale of ebooks is incremental business and how much of it is cannibalization of prior print sales?

The other is: what will be the fate of independent bookstores?

The two are connected.

As we watch the (long-term) inexorable but (short- and medium-term) unpredictable growth in ebook sales, it is really not possible to tell to what extent we’re just selling established customers the same purchases in a different form (certainly some of it and my personal guess would be the lion’s share of it) and to what extent we’re finding new customers (also certainly some of it and, to my way of thinking, more likely to the user of a multi-function device than a dedicated book reader like Kindle or Nook) or making incremental sales to established customers.

(We plan to address the whether the multi-function device users have a different consumption profile at the Digital Book World conference in January. It’s a knotty question but we think we have a way to get at it.)

The measurements of industry sales have been far too imprecise and muddied to address a sophisticated question like that. (The AAP and BISG are making a serious joint effort to remedy that situation; I have seen some of the great work in building a new data model that has been led by Tina Jordan of AAP and Scott Lubeck of BISG. More on that very promising initiative some other day.) The aggregate industry numbers that we’re used to probably won’t be sufficient to change any closely-held opinions any time soon.

Individual publishers might see data worth intepreting in the total unit sales of major authors that  have established clear sales patterns over time, if they can analyze their way past the fluctuations that must inevitably occur in the sales of each new major release by an established bestseller writer. One place one might expect to see an uptick is in the prior titles in a series (but, even then, you don’t know if the extra sales of four prior Carl Hiaasson titles weren’t instead of sales of four other books, do you?)

My own analysis has been simplistic, assuming pretty much flat sales into the digital future because that has been the case in our overwhelmingly non-digital recent past. When I do the calculations that lead me to think that the sales available to brick-and-mortar stores will decline drastically over the next five years, I’m assuming that the rise of digital sales results in a pretty much equivalent decline in print sales. I also assume that the increase in ebook sales and the reduction in retail shelf space allocated to books accelerates the movement of print book sales to online. If ebook sales aren’t largely cannibalizing, and they don’t themselves reduce the sales available to be made in stores as much as their growth would suggest, then shelf space might not disappear as fast.

My back-of-the-envelope calculations (which have been endorsed in a series of private conversations with publishers, booksellers, and analysts but also strongly resisted in a private conversation by at least one person whose judgment I really trust and also apparently contradicted by the expectations expressed by Random House CEO Markus Dohle in his recent interview) are that brick-and-mortar’s share of total trade book sales will reduce from around 80% today (some say it is higher) to about 30% five years from now. That would be a reduction of more than 60%. Let’s say the share is still 50% in five years (which I speculated might be the number in 2-1/2 years). That would still constitute a 35-40% reduction from where we are today. That’s drastic.

But it still doesn’t tell us “who fails?” Shelf space reductions can come in a variety of ways. Stores can be closed, chain and independent. Dedicated bookstores of all kinds can become less dedicated and turn over shelf space to other items. And mass merchants can decide to reduce the space they gave books or to eliminate them. All three things will happen to varying degrees.

This is a bit like trying to do a weather forecast based on one’s confident knowledge of climate change. The two are related but there are local factors in addition to global ones. Each time a store closes or reduces its shelf space (or, for that matter, in the rarer cases where a new store opens or one increases its shelf space), it affects the fate of the other stores in its vicinity.

On Tuesday night, I came home from a late meeting with a former Cabinet official who was thinking about buying an independent bookstore and seeking my advice, which, based on no specific knowledge, was “don’t.” I walked in to receive a call from a reporter who asked me for my comment on the Barnes & Noble “news.” “What was that?” I asked. “They’re putting themselves up for sale,” he said. “What has happened recently that would motivate that?”

Without having read the press release, which would have signaled to me that they weren’t actually putting themselves up for sale so much as beginning the process of taking themselves private, I strived to answer the question. I thought the acceleration of ebook uptake, some of it fueled by B&N’s Nook device, was recent news that didn’t bode well for physical bookstores. I thought the recent rescue of Borders, which could postpone their demise or shrinking, wasn’t happy news for Barnes & Noble. And I wondered whether the Ron Burkle lawsuit might make the Riggios less interested in owning the business.

Of course, all of those things are true but none of them apply because the premise was wrong. The Riggios are probably not trying to sell the business; they’re more likely trying to buy the business.

Then I checked with a commission rep friend of mine about the bookstore the former politician I met earlier that evening wanted to buy. It turns out to be an independent with a relatively solid future, with knowledgeable staff underneath its owners and a great reputation with the publishers which assures a continuing flow of traffic-building author appearances. In other words, “don’t” might not be the right advice in this particular case.

Whether the brick-and-mortar share of the business falls by 25%, 50%, or 75% over the next five years from what it is now (and all are possible), the reduction in shelf space depends on whether that reduction is against a rising base of total sales or a stable one. And how it affects any one particular store depends on what has happened to the shelf space allocations by others in that store’s immediate vicinity. That will be very hard for anybody to track.

I am still extremely skeptical of recent celebrations of the successes of independent stores, which we’ve seen coming out of New York City and Pittsburgh in the past couple of weeks. Anecdotal information is not projectable data; it is often misleading data. Nobody seems to be making the claim that bookstore shelf space is increasing in New York or Pittsburgh or anyplace else. Any one bookstore might still, for a while, be a reasonable bet. But this is a case where the usual laws of investment (diversify as much as you can) would likely not apply. It is hard to imagine bets on five or ten or twenty independent stores paying off in the aggregate in the years to come. Unless you were making those bets with knowledge about exactly where Barnes & Noble, Borders, Books-a-Million,Walmart, Target, and Costco were reducing their shelf space the odds will be against you, and I’m pretty sure there won’t be anybody who knows all those facts in a timely way.


Three new ebook platforms nearing their debut

A year ago — even six months ago — it seemed like Amazon and its Kindle device had an insurmountable advantage in the ebook device and platform competition. Despite our admonition that Amazon’s dominance of ebooks was much more fragile than their dominance in online print bookselling, even we were impressed and sometimes daunted by the enormous percentage of ebook sales that were being made through the Kindle ecosystem.

Then Barnes & Noble introduced the Nook through their 700 stores last December and Apple brought the iPad to market in April. Nearly overnight, it seems, Amazon has gone from the dominant player to the leading player with a share that was often in the 80s for many titles having fallen to the 50s.

Three entirely new ebook platforms are now poised to make their debut. Each of them has an angle, or a USP, that the others don’t and that the vendors, devices, and platforms that preceded them — notably Kindle, iBooks, Kobo, and Sony — don’t. The three new platforms are Google Editions, Blio, and Copia.

Google’s special proposition is ubiquity; Blio’s special proposition is enhanced feature sets; and Copia’s special proposition is building social networking right into the content consumption platform.

The new entrant that is subject to the greatest anticipation, of course, is Google Editions. Whenever they go live (which they say they “hope” will be sometime this summer, which has another 6 weeks or so to run), they are likely to be offering the largest selection of ebooks from any single source. Google has a staggering number — millions — of public domain books but they will also have professional and scientific books not published on most of the prior ebook platforms. Their well-promoted proposition is their cloud model, which will allow their ebooks to be read on any device that can support a browser.

Google is also offering a wholesaling service to enable any bookstore or any web site to sell their ebooks. (What that means, of course, is that their “largest single source” claim could be usurped by their own resellers, who might have added other titles from other places.) Their arrival adds another option for potential ebook sellers who had previously been served by Ingram’s wholesaling operation or their competitor, Content Reserve, which has also reached the book trade through Baker & Taylor.

Google is working the OEM channel as well and not limiting themselves to Android-powered devices in doing so. They’ll have apps available in multiple marketplaces, including Apple. And they are offering to power sales on publishers’ own sites. We’ve seen no announcement of publishers who have accepted this proposition, but it would seem likely that some, particularly smaller ones, will find it attractive.

Baker & Taylor has been developing its own ebook platform, Blio, in concert with futurist Ray Kurzweil and the National Federation of the Blind. We were first shown Blio last December and were really impressed with its crisp presentation of integrated text-and-pictures pages. They showed us a tool kit that made it pretty easy for publishers to enhance their print books for electronic delivery with sound and video, and even to fiddle with the design in the Blio platform. Because of Blio’s roots as a tool to bring reading to the sight-impaired, the ability to adjust font sizes, a capability which all ebooks offer, had to be integrated into their delivery of complex page layouts.

We have been expecting Blio’s debut in the market for some time, and we’ve been expecting to see many highly-illustrated books, like college texts, that have not previously been in the offerings of Kindle, Nook, and Kobo. Highly illustrated books would work fine on the iPad, of course, but they were not a priority for initial inclusion for iBooks (the dedicated Apple ebookstore) and they were not what publishers would put into the eink-reader platforms that didn’t handle that material well.

Blio has announced that it will power the store Toshiba is creating to support its tablet release. Since that is expected in the next month or so, Toshiba’s offering of Blio titles will probably be their debut in the marketplace.

The tool set for Blio was what really captivated us when we saw it last December. When we saw it at the time, Blio was delivering a Blio-ready ebook from the publishers’ print PDF, and then, within Blio, the publisher could enhance the ebook. At the Untethered conference in June, Blio announced a partnership with Quark by which Blio files could be created directly from Quark. Blio says they expect the Quark release to be in beta later this Fall. Blio plans to integrate its tools into other creation software in the months to follow.

Blio introduces another format into the ebook world: rather than epub or PDF, they are using Microsoft’s XPS platform. Right now, Blio itself is handling the conversion of titles from either PDF or epub into XPS, but the Quark arrangement and the others that will take place will allow publishers to deliver XPS-ready files to Blio, cutting past the conversion queue that now exists.

The open questions have been: when will Blio arrive and what will be the retailing environment for it when it arrives? They say they have 200,000 titles committed to their platform. (They can’t just pick up the ebooks of others; they’re not vanilla epub.) The Toshiba store won’t contain them all because titles are coming in faster than the conversion process can ramp up. Blio, like Google and Copia, expects lots of OEM installation. They project that Blio could be on more than 50 million devices by the end of 2011 and that they will be working with “traditional retail partners” in 2011 as well.

Copia made a splash last week when they announced their line of ereaders, including a larger-than-a-phone-screen color model which will be $99 when it comes out in September. Since Copia is a creation of DMC, and DMC is historically a hardware company, using their own hardware to launch the platform makes great sense. But OEM relationships, and an ability to deliver their platform to any device through client apps as well as through web browsers, are part of the strategy too.

The Copia platform’s unique proposition is that they combine social networking right into the platform in which content purchasing and consumption take place. Amazon’s announcement of an integration with Facebook moves them in a similar direction, but Copia would seem to be going much further than Amazon: enabling the sharing of the content consumption experience itself among friends or a personal network. This could be critical for reading groups, areas of common (vertical) interest, or for educational applications. Inside the Copia network, users can readily share their notes and annotations. And to make it easy for people to get started on their platform, Copia enables the import of existing contacts from Facebook, Twitter, and LinkedIn.

Other ebook platforms have demonstrated the power of syncing the reading experience across platforms; you can pick up your book on one device and it will tell you where you left off on the last device. Copia takes that a step further, syncing the social experience, including the sharing of notes and recommendations as well as the reading itself, across all the devices you want: smartphones, tablets, computers, or ereaders. We saw this demonstrated on their forthcoming iPad app.

What also impressed us about the last Copia demo we saw is that they have apparently licked the problem of allowing an epub file using Adobe DRM to move painlessly into their platform, regardless of from what ebook store it was purchased.

In addition to the hardware plans they revealed last week, Copia has also announced that they will be a launch partner for Windows Phone 7, the mobile operating system Microsoft is putting forth to compete with iPhone and Android. [Maybe we know a bit more about Copia than others do because they are our client, but like all the players in this very competitive market, they’re not tipping their cards before they play their hand any more than their competitors. Even to us.]

All three of these operating systems come from substantial players. Blio is being delivered by one of the two book wholesalers in America with true national and international reach and relationships with every publisher in the country. Copia is being delivered by a company with long hardware development experience and a long history of partnership with consumer electronics retailers and phone companies. And Google Editions, of course, is coming from a tech company that has had deep involvement with virtually every book publisher in the world as it has developed Google Book Search over the last seven years.

Of all the current players, Sony would seem to be the most challenged. They have the weakest device, the weakest store, and the weakest strategic position with the industry and with the public. All of the rest either have something important and unique for the developing ebook marketplace and, in many cases, they also have an outside proposition that will keep them in the ebook game regardless of how well they do in it. Whether Google’s ebooks sell 10% of their projections or 10 times their projections, they won’t be going away. Same with Apple. Same with Amazon. So I think we can expect a multi-player ebook market, with some incompatible formats and a lot of incompatible DRM for some years to come. And the players currently in the game can expect their sales to go up but their market share to go down when the three new entrants join the fray this fall. That much seems certain, but very little else does.