The Shatzkin Files

By one benchmark at least, we are probably halfway through the (r)evolution

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A couple of major (Big Six) publishers have acknowledged that ebook revenues for them have passed 20% of their revenues. Of the 80% that remains print, I think it would be conservative to estimate that 20% of that is sold online. That’s an additional 16 percent of their business. Adding those together tells us that, for at least some very major companies, 36 percent of of their sales are being transacted online. That would leave, on average, about 64% of the sales for print sold through brick-and-mortar retail and other more minor channels. “On average” should not be read as “typical” on a title-by-title basis. It isn’t. For immersive reading, or straight text like novels and biographies, the percentage sold in stores is already almost certainly substantially lower. My hunch, and nobody really keeps these figures (but I think I’ve found a way to get at them, which we’ll try to show at a future Publishers Launch conference) is that it may already be down to 50% print in stores for new titles.

(It adds both confirmation and confusion to note that Bowker’s PubTrack estimated that 30% of the dollars spent on books in 2010 were spent online. But they figured that only 2.2% of the dollars that year were ebooks. My own estimates are based on the picture of things we get from big publishers, who are perhaps more skewed to straight text than the industry as a whole. There are all sorts of explanations that would narrow the apparent differences between what Bowker describes and what I infer from what I know, but they’d require a different piece which, I think, would be less helpful in painting an overall understanding of where we’ve been and where we’re going than the one you’re about to read.)

Five years ago, early in 2007, it was a virtual certainty that 80%, and probably much more, of the sales of any trade book that sold a significant number of copies would take place in stores. There were almost no ebook sales. (The Kindle did not make its debut until November 2007; sometimes I feel like I was the only person reading ebooks before the Kindle arrived.)

Five years from now, by the start of 2017, I’d bet that 80% of the sales of any trade book that sells a significant number copies will be transacted online.

And that, even more than the ebook uptake that is a mere component of the store-to-online shift, is the story of our times that matters in trade publishing.

One thing I believe but won’t try to prove (which means “take it on faith”) is that more attention has been paid to the change from print reading to screen reading than to the change from store purchasing to screen purchasing. But the change in purchasing behavior is by far more significant in its affect on the industry than the change in consumption, at least in the medium term.

The shift in the way we consume what is now print may become more important as new presentation forms enabled by digital delivery — making use within the content itself of video, animiaton, links, social connections, and alternative content and navigation paths — are improved and gain commercial traction. (I’d argue that no enhanced or illustrated ebook solution has achieved that so far.)

But being halfway through the change in consumer buying habits in our decade of change has profound implications for all the big players in the publishing value chain. It would appear that publishers in both the US and UK are now accepting that the decline in numbers of bookstores and the shelf space they offer for merchandising is not temporary and not primarily recession-driven. (We heard that said more than once last year and the year before.) It is a fundamental societal shift that is inexorable and which shifts power away from publishers to their trading partners on both sides of them: the authors and the retailers.

In fact, even though the share of the overall business commanded by the brick-and-mortar retailers is declining, even they will, at least in the short term, gain clout with the publishers. The exposure they offer any book they carry will be increasingly appreciated as shelf space diminishes. And for illustrated books, print is really the only proven game in town because there is no digital presentation of such books that has demonstrated enduring viability in the marketplace.

The fact that we are halfway to a complete reversal of the online-offline sales ratio explains some conflicting behavior see in today’s marketplace. It is still true that brick-and-mortar placement is instrumental to building the reputation of a book or an author. And it is widely accepted that only a publisher employing a real infrastructure and customer network (its own or through effective use of a powerful distributor like Perseus or Ingram) can deliver that placement. At the same time, sales through online channels, particularly of ebooks, has reached a level of real commercial significance and those sales can be delivered with a fraction of the organizational capability that the declining model requires.

So we have authors like J.A. Konrath. He is perfectly content to eschew the bookstore exposure in favor of doing it himself. He keeps much fatter margins on the ebook sales, even though he probably has to charge lower prices for the same book than a publisher would. Konrath has argued for a long time that he is thinking of the future. He may be giving up some sales today, he acknowledges, but he believes he’ll be compensated for his foresight as the sales base moves away from bookstores and he has avoided forever paying 50% or 75% of his ebook royalties in an exchange for bookstore sales that will inexorably diminish.

Of course, he gives up advances against royalties too.

On the other hand, we have the author Amanda Hocking who built herself an online sales machine from scratch but yet happily sold her next four books to a publisher. She got significant advances, will now get bookstore exposure she never had before, and, from her perspective, also laid off many of the non-writing tasks of delivering a book to market. Those were tasks she found onerous; she’d rather write. I think she’s right that it is hard to do it oneself and I think it might get harder.

And then, taking a middle-ground position between these two, we have John Locke and Barry Eisler.

Locke was like Hocking. He started from scratch and built a big sales base online. He also was not getting the bookstore sales and exposure he’d get through a publisher. But Locke doesn’t mind the marketing work and he likes controlling his online presentation and pricing. So he made a “distribution deal” with Simon & Schuster for his print, getting the muscle of a real publishing sales and distribution organization working for him on a fee-for-services basis.

Eisler, who had done several books with major houses, turned down an advance from a publisher (ironically, the publisher was St. Martin’s, the same one who signed Hocking) and initially intended to self-publish. Instead, he took a deal with an Amazon imprint. This cuts the baby in half. He gets an advance. He gets the marketing attention of a big organization with unique capabilities. But he does not get bookstore exposure.

The reason all these different approaches actually make sense is that we are still in a period of transition. Konrath is banking on the fact that my analysis is right. From his perspective, he’s giving up bookstore revenue and marketing now because he doesn’t want to be paying forever for what he gets today. The same is true for Locke. Eisler and Hocking are pursuing more immediate benefits. Eisler is betting that Amazon’s direct marketing to consumers they know will propel him further and faster than going back to bookstores for sales yet again. And Hocking is banking on the fact that the bookstores and the publishers’ ability to place books in them will accelerate the growth of her fan base as well as laying off a lot of work she doesn’t want to do on somebody who is willing to fatten her bank account for the privilege.

The transition has another dynamic which is the growth of Amazon’s power in relation to every other player in the value chain. Going back to the stats at the top of the piece, the publisher who is seeing 36% of total sales and perhaps nearer 50% of immersive reading sales taking place online, is also seeing the percentage of their sales through Amazon grow as well. Amazon has about 60% of the ebook sales in the US and perhaps 90% of the online print sales. That would make Amazon (12% of the 20% sold as ebooks and 16% of the 80% print) about 28% of such a publisher’s volume now.

But using an overall number like that understates the reality of Amazon’s dominance. Their share of the sales of straight text books is almost certainly higher (because they sell most of the ebooks), so that share is almost certainly above 30% now. If things proceed as this piece contemplates for the next five years and nothing drastic has happened to change the shares retailers have of the ebook and online print channels, Amazon is likely to be something more than 50% of a big publisher’s business. All they won’t have is the 20% that is brick-and-mortar print, a sliver of online print, and the chunk of the ebook business that is sold by other vendors. And, as now, the percentage sold online will be higher on straight text.

Going from 80 to 90 percent of book sales being made in stores to that same percentage being made online in a decade’s time certainly justifies anybody’s pronouncement of profound and disruptive change. Having a single account that delivers half of publishers’ business — more on many titles — is unprecedented and perhaps unsustainable.

Although what we’ve seen in the past five years looks to me like it points very clearly to what we can expect in the next five years, it is hard to tell whether these realities are being taken on board by the players from whom power is shifting away. (Nobody is going to call me and say “Mike, our business is melting away!” even if that’s what they’re thinking.) I’m pretty sure it is all well understood, and expected, by the player who is seeing the power move in its direction. But they aren’t calling to tell me that either.

The death of the senior John Sargent last week — he was for a time my father’s boss at Doubleday in the 1950s — gave me reason to recall this piece I wrote in the blog’s very early days on Leonard Shatzkin breaking the color line at Doubleday in the 1950s. I didn’t have very many readers then compared to now. I thought it was worth calling my now-much-larger audience’s attention to it, even though it has nothing to do with today’s post. I think many of you will enjoy it.

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  •  I know I’m pissing in the wilderness on this one, but I’ve always thought that advances on royalties distorted the market in a very bad way and that the health of the industry would be much stronger if publishers simply paid royalties. Rarely do advances on big books by celebrities ever get paid back, so they represent a loss for publishers which then translates into less money available to publish other books which may have more merit. It’s the only business I know of where a creator may get paid for something he hasn’t sold. The advance system hurts more authors in the long run, helping only agents and celebrities.  The result is also higher book costs which hurts the book buyer, too.  A better system would be to negotiate different levels of royalties and pay authors based on actual sales. Much more fair, I would think and less distortion of the market.

    • The market for big authors demands advances. Thinking that something else might be “fairer” or “better” is kind of irrelevant. As long as the biggest books command advance payments, whatever you or anybody else thinks, advances will be part of our landscape.


      •  Of course you are absolutely correct, I was thinking of the long-term health of the industry which is forced to pay such huge advances to the detriment of publishing more, and perhaps, better works that would make it more profitable.

      • I never thought the demand for large advances was the key problem with publishing. Instead I’d point to the failure to promote books which were acquired for a small sum, but proved themselves to have legs. This is even more critical in a period where books are being treated like periodicals, so they have very little time on the shelf. A dollop of promotion after launch could boost sales.

        If the industry isn’t willing to make the most of what it already has (a large backlist) and is constantly courting an unsustainable front list economy; it’s just tossing money away left and right. (And don’t even get me started on the poor ebook editions of backlist titles.)

      • More online purchasing should be good news for the backlist, just as it is presenting discovery difficulties for new titles. I agree with the general thrust of your statement. I used to use the analogy that publishers launch books like “rockets”. They blast off and either go into orbit or crash to earth. But what’s needed is a “guided missile” model where you keep steering the projectile until it hits a target. That requires staying with it longer than most publishers have historically done for most books.


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  • Mike,

    Only 20% of the Big6’s sales are eBooks? I guess it isn’t surprising. Most of them are overpricing their eBooks. Baen seems to be the only publisher which has gotten pricing for eBooks right. Curiously they only sell direct from their own store.

    It does seem like we’ve hit the accelerating part of the curve. The question now is how fast will the change occur? My guess is fairly fast. We have several factors working in tandem:

    1) Decreasing shelf space for print books
    2) Decreasing selection for print books due to decreasing shelf space
    3) Shipping issues with Amazon (U.S. Postal Service cutbacks)
    4) Decreasing price of eReaders
    5) Increasing familiarity with eReaders
    6) Wide variety of free/inexpensive eBooks (Gutenberg for example)
    7) Continuing Depression in the United States driving people to lower cost entertainment
    8) Major writers going independent (Lawrence Block)

    It is fascinating to watch it play out. Totally fascinating.


    • Wayne, the big publishers (or at least some of them) have done some testing. Yes, sales go up as you cut price, but revenues don’t, necessarily. And if the big publishers were to cut their ebook prices dramatically, the collateral damage would be the indies trying to attract attention and sales at low prices.

      Twenty percent revenues means sales of of immersive reading titles in units are probably closer to 25 or 30 percent. There are a lot of titles in big houses that aren’t “ebookable”.


        I don’t know their cost structure, so it is hard to comment. I do know Industrial Economics though. If they are already at the sweet spot for pricing, they are in deep trouble. That would indicate that their internal cost structures are far too high.

        I’m not sure what you mean when you say titles aren’t “ebookable.” Are you referring to books with a high image content? I’ve had no problems with those, I just avoided producing versions for eReaders with monochrome screens. In fact I’ve got one particular title that we are discussing moving to Apple’s iBook format from ePub2. It is a specialty book. Normally I wouldn’t consider iBook, but in this one case it might work.

        One of the biggest issues I’m seeing is Amazon, and their inability to keep the trash out. By trash I’m talking Wikiscrape companies like Hephaestus Books, the Private Label Rights books crowd, and all of the other get rich quick operators.

        Smashwords can keep these people under control. Why can’t Amazon? If Amazon doesn’t do something soon, it is going to end up tainting their brand. They’ll end up like Microsoft, a big company, that no one loves.


      • By not “ebookable” I don’t mean they literally “can’t be rendered.” I mean both that the illustrated books are more expensive to do and that they just don’t sell. Mostly the latter. They’re a lousy commercial proposition and no publisher is converting them at scale.

        Dunno why Amazon can’t control the crap better but it is in their interests to do so. I’m sure they’ll figure it out.


  • Barry Eisler

    Mike, thanks for a typically interesting, informative, and insightful post.  FWIW, the advance Amazon paid me wasn’t a huge part of why I did the deal.  Every exclusive intellectual property license should have some form of minimum performance guarantee (otherwise, the licensee could sit on the rights or otherwise underperform and the licensor would be stuck), and in publishing, the traditional form of that guarantee is the advance.  But I expect new and innovative forms of guarantees will emerge as publishing evolves.

    Anyway, the main thing for me was Amazon’s unparalleled direct-to-consumer marketing machine.  The fundamental value-add of legacy publishing has always been paper distribution.  But in digital, an author needs no distribution partner, so a publisher can’t offer digital distribution as a value-add.  So I think what’s happening as publishing shifts to digital is that the fundamental value-add of publishing is also shifting, from distribution in paper to direct-to-consumer marketing in digital.  As a genre writer whose sales are increasingly skewed to digital, the value-add of a legacy publisher was becoming less important to me while the value-add of a player like Amazon was becoming more important.  So as much as I appreciated the Amazon advance, both as a necessary performance guarantee and also because money now is usually better than money later, what I was really playing for was the kind of marketing that’s already the foundation of digital publishing and that will become even more important as the trends you discuss in your post continue.

    • Thanks so much for chiming in personally, Barry.

      The question going forward is whether the direct marketing efforts can “scale”. How many titles can Amazon promote this way before they start getting in their own way? But that’s not your problem. You’re in early and clearly it is working for you.


  • Bob Mayer

    Someone commented on my blog today that a book I’m giving away free via Kindle Select today. costs almost $50 for a print version, since the publisher ran out of the stock they retained the right to sell.  And I never put it into print via Lightning Source and POD trade paperback.  It only costs $75 to do so, but based on sales of other fiction I’ve put in print, it almost isn’t worth the effort.  (We will anyway, because, it’s another venue and the more venues the better).
    Where I am putting the effort and money is in audio via ACX with over $50,000 already invested in bringing my huge backlist and front list to the light of, well the sound of sound.  And foreign, where we are investing a considerable sum for translations into Spanish, German, Italian and, well, wherever Amazon goes, there we will go.  We view this as investing in our future.
    At Digital Book World on the self-publishing panel, Bella Andre and I were asked by the moderator what traditional publishing could do to entice us back into the fold.  We both sat there a while and finally said we couldn’t come up with anything.  I’m sure there might be something– I understand why Amanda Hocking went the way she did.  And I consider Amazon to be a form of corporate publishing, but not traditional.  When Amazon originally wanted all my backlist in their Encore program, I couldn’t go with it because of the exclusivity.  However, I think their various imprints hold a great allure for authors.  And they are indeed the future of the majority of book sales.  Last year Amazon reps basically told me they couldn’t help me more than I was already doing, but I don’t think that’s true any more, even as Who Dares Wins Publishing has broken through seven figures in earnings in less than two years.
    I firmly believe the print numbers for fiction are greatly skewed by the top 5% of authors whose books are brought in by the pallet load into Costco, Sams and Walmart.  For the other 95% of traditionally published authors, the present (not the future) is eBooks. 
    I look at Barbara Freethy, who few ever mention, and Bella Andre, as two of the most successful authors around and they are doing it on their own.
    What the authors you mention have isn’t just the talent to write books, but the ability to be astute business people for their own particular situation. 

    • Thanks for the insight, Bob. We were quite impressed when we interviewed Bella Andre for the DBW slot and learned about *her* foreign translation efforts. Didn’t realize you were on the same track. Both that and the audio investments make enormous sense; they capitalize on the brand you’re building with your books.

      Not sure I agree about the ebook numbers, though. In fact, some of the biggest authors are showing very high ebook percentage figures. Discovery online is still very hit and miss. You had a lot of books before you started doing this yourself. But the point you raise as conjecture, which I am only answering with conjecture, demonstrates how much we have to learn about what works and what doesn’t. And, of course, the marketplace isn’t static. It is shifting more to ebooks on the one hand, but it is getting more crowded which will make establishing new brands harder and harder, I believe.


  • Michael Wallace

    I’m another Thomas & Mercer author like Eisler and Konrath, but my path has been more like Amanda Hocking’s, albeit on a smaller scale. I started selling my unpublished ebooks about a year ago, thanks to the generous bread trail left by Konrath on his blog, and found great success, selling over 80,000 books in my first year. I signed with Thomas & Mercer for my series of thrillers set in a polygamist enclave with the first three books being released on February 21. I now have a large NY publisher who has expressed interest in my WWII thriller and I am seriously considering that, as well. My main goal is to make a living as a writer and so I’m pursuing a mixed strategy of traditional (NY), semi-traditional (Amazon’s imprint), and straight self-publishing. One of these three strategies is bound to be the correct one, but I look at it as buying bonds when equities are roaring. It’s a hedge. The industry is in such a state of flux that almost nothing would surprise me.

    For now, I’ve been very happy with my Thomas & Mercer experience. I’ve had great editors and they accept a lot of input about covers, marketing, etc.

    • Thanks for this, Michael. The key thing for the future is building your brand (your name and reputation) and it could well be that the work of a NY house on your behalf could pay dividends through any and all channels on anything you do. Congratulations on your success so far.


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