The Shatzkin Files


From some perspectives, we are tipping right now and publishers’ metrics will show it


Sometimes, and it would seem quite often these days, the future comes faster than you expected it.

Followers of this blog, and of my speeches before there was a blog (this one’s from 2001!), know I’ve long been expecting ebook reading to supplant print book reading for many people. I’ve been wrong about the timing. (Ten years ago I’d have expected to be where we are now three or four years ago.) I’ve been wrong about whether a dedicated device for reading would make much of difference. (I read so comfortably on a phone, and before that on a PDA, that I figured few would want yet another device for reading only.) And I’m rethinking my expectations around enhanced ebooks and the utility of social reading.

But it has seemed clear to me for a long time that ebooks offered compelling advantages over print — portability, ease of purchase, and a lower cost basis that must inexorably lead to lower prices — that would increasingly sway many of the inevitably growing number of people who had a readable handheld screen in reach most of the time. And my long experience dealing with bookstore economics made it clear to me that the consequent sales subtraction from brick-and-mortar stores would lead to closures, which would lead to longer travel times for customers to get to the stores, which in turn would drive more people to purchase print or digital books online. And that would lead to more closures. This is a virtuous circle if you’re in the ebook business or sell print online. Or if you want to see Americans consume less gasoline.

It is a vicious cycle — a death spiral — if you’re a bookstore.

Michael Cader of Publishers Lunch reported (you have to subscribe to use the links) that BookScan numbers show a drop in unit sales of printed books of 4.4 % from 2009 to 2010. But don’t take that number to any bank. It is already out of date. Cader did a further analysis of more recent BookScan data shortly thereafter showing that print book sales have dropped by over 15% compared to the prior year over the first six weeks of 2011! And the share of print sold online keeps rising, so that almost certainly means that print sales in stores has fallen even faster. Could print sales in stores have dropped 20% or 25% from a year ago? They certainly could!

Sales of iPads, Kindles, and Nooks exceeded most expectations for Christmas 2010. Dominique Raccah, the head of independent publisher Sourcebook, a company with a diverse trade list, reported on her blog that dollar sales at her company in January were 35% digital!

No wonder she says, “We may well be at the tipping point. I suspect that we’re going to see some dramatic reassessment when publishers look at their numbers at the end of the first quarter, 2011.”

I have heard the argument from very smart people that ebook adoption will plateau at some point. Since it has been doubling or more for the past three years and was often placed in the mid-teens for new fiction and narrative non-fiction by the last quarter of 2010, we know that it can’t continue to double for the next three years without exceeding 100%. Nonetheless, predictions that ebook sales would achieve 50% in the next five years and that bookstore shelf space would drop by 50% in the next five years — which is what I thought would be the case — seemed pretty aggressive six months ago.

They don’t seem aggressive anymore.

The Borders share of the publishers’ revenue is estimated to be about 8%. They could be 10% or 12% of brick-and-mortar. So if Borders were to completely disappear tomorrow (and they aren’t about to do that) and even if every book they sold in their stores were somehow purchased at somebody else’s store (which won’t happen), the reduction of book sales in stores is so large that all the other stores would still, collectively, be looking at a substantial year-on-year sales decline.

All this means that 2011 that is going to be a real “fasten your seat belts” year for publishers. And Raccah is right that publishers are going to be a bit stunned at what they see when they look at their numbers for the first quarter of this year.

One impact that sophisticated publishers are well aware of but that is not obvious to the untrained eye is that as sales go down, returns percentages, inevitably and inexorably, go up. When a publisher calculates a returns percentage for any period — a week, a month, a quarter, or a year — they are measuring the returns received and credited in that period against the sales made in that period. But the returns actually come from the sales made in prior periods; even in the worst of situations, very few books are returned less than three months following their purchase.

So what’s happening right now is that shipments out are being depressed — no or very little Borders and diminished expectations everywhere else — while returns are rising because they’re coming back from orders placed against the higher expectations of the past six to 12 months. That means that the net sales numbers being created right now — shipments out minus returns — might, for many, be a disappointment verging on devastation.

And returns percentages aren’t the only percentages that are going to be troubling. Two others that publishers look at are also going to get more challenging.

The percentage of a book’s print price that is constituted by the “unit cost of manufacture” is one. The unit cost is extremely run-sensitive. If you’re printing fewer books and if you have to hold the line on retail prices (both of which will almost certainly be true), the percentage of revenue spent on creating the print books is going to rise.

The second trouble spot is that publishers like to think about the cost of “fixed overheads” as a percentage. Many publishers still follow the unwise practice of putting a percentage calculation of overhead into their unit cost calculations for every book. But if sales volume falls faster than overheads can be reduced, that percentage rises too. And you can’t fire your way to rapid overhead reductions very effectively. Shedding staff is often an illusion anyway; we keep hearing about freelancers getting work because publishers have fired the staff that used to do it. But, besides that, warehouse and office space costs and systems investments don’t rise or drop with volume (which is exactly why it is a logical error to calculate them as a percentage of revenue!) Publishers who are using a percent figure for overhead to calculate their margins on each title they acquire to sell are going to find those numbers need to be reconsidered as well.

While Barnes & Noble will be feeling the margin pain of all brick-and-mortar booksellers, they are, no doubt, also very well aware of their growing importance to all publishers in an upcoming Borders-less (or less-Borders) world. B&N will almost certainly be looking for better trading terms and publishers will almost certainly feel the weakness in their negotiating position dealing with those requests. And that’s aside from the fact that publishers really and truly want a healthy Barnes & Noble maintaining its ability to show their wares to the public.

So sales are going down, returns are going up, the cost of goods is going up, margins from sales are going down, and right-sizing overheads is going to be an accelerating problem. The good news is that ebook sales are rising and the margins from them — at least for now — have been pretty well preserved.

But the first significant sign that ebook prices are going to tumble has arrived with the news that 99 cent ebooks are now beginning to appear on the mainstream media’s ebook and combined bestsellers lists which come from The New York Times and USA Today. This creates some nasty problems. It puts previously unknown authors selling 99 cent books before the public as bestseller creators. And it encourages the established publishers to cut prices to register unit sales to get on those lists themselves.

At the very least, I’d expect publishers to start asking The Times and USA Today to consider the total revenue a book generates at retail (price times units) when creating the lists, not base them on unit sales alone. Since the established publishers buy a lot more ads than the 99-cent-book authors do, we should expect them to, at least, get a hearing.

Publishers are going to be scrambling to keep their business profitable and having second thoughts about many of their most time-honored practices in the weeks to come.

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  • http://francistapon.com Francis Tapon

    No, we're not there yet. However, we're close.
    The ebook market won't tip until computer screens have something as readable as eInk (or Mirasol). There's just too many people who don't want to invest in $100 eReader and/or who don't want to read on their LCD screens.
    What we're witnessing is the tipping of the innovators to the early adopters.
    However, the mainstream market won't tip until they have a nice screen by default.
    Mike, I know you like to read books on your iPhone, but most people (including me) would say you're a freak. I mean that in a good way. ;)
    Now if that iPhone had an eInk-like screen, then we can talk about tipping…..

    • /blog Mike Shatzkin

      Francis, tipping is partly driven by what will make huge numbers of people

      read on screens. And I know many people prefer e-ink to backlit. (But I'mn

      ot as much of a “freak” as you think; iPhone reading is widespread and iPad

      reading is apparently done by more than half of the people who buy iPads.

      That would indicate that screen *size* is a more important factor than

      backlit or not…)

      What also drives tipping in this case is when the print paradigm loses

      critical mass. We're going to start to see far more titles available in

      digital form than print form and we're about to see it being absolutely

      routine that print is significantly more costly than digital. Publishers

      will feel we've tipped if the economics don't work for them anymore.

      There's a bit of “how many angels are dancing on the head of that pin” to

      this discussion. We may disagree on semantics and not at all on substance.

      Mike

      • http://francistapon.com Francis Tapon

        When you say that 50%+ “read” on the iPad, it would be interesting to see what they mean by “reading.” Few have problems reading articles and book excerpts on LCDs, but most will throw the book at you if you ask them to read “War and Peace” on the iPad.

        However, you're right, we are quibbling. The trend is clear. I just don't think it will truly become mainstream until the screen issue is solved. The idea of including books with the eReader is great and I'm surprised it's not done. I'll be happy to include my book on such deal just to get the publicity. :)

      • /blog Mike Shatzkin

        Actually, the research conducted by iModerate indicated that people are

        really reading books on their iPads. I find it too heavy, but people I know

        think it is the best ereader of all. People have raised their eyebrows for

        years about the fact that I read books on small screens (PDAs, now iPhone).

        There is going to be a wide variety of book consumption habits going forward

        and publishers have to satisfy them all.

        Mike

    • David Sucher

      $100 reader? Retail, maybe.

      I wonder why publishers, Amazon, even some best-selling authors with a dozen titles. don't “bundle” a reader with commitment to buy, 10 titles.

      My prediction is that we'll see something like that: get a reader when you buy a dozen books..

      • /blog Mike Shatzkin

        That's a way to the subscription model. Here's another way.

        You buy our reader and you get X books for free or 50% off, etc. The barrier

        there is Agency, of course, but I think a retailer offering such a thing

        could present publishers with the choice of being in or out — with a

        payment for the book when it gets selected, of course — which would put

        some pressure on the publishers to waive prior requirements and be “in.”

        Your way is just like a book club. That quid pro quo was “get 4 books for a

        buck and then agree to buy X books at our normal price over the next year”.

        This one is “get a piece of hardware for a buck and then agree to buy X

        books at our normal price over the next year.”

        All of this can work. And it will all get tried.

        Mike

  • Chris

    Mike, I think you may find that some self-pubbed titles are already conspicuous by their absence on some bestseller lists!

    Go check B&N and see if you can find Hocking on theirs.

    “Now you see her… now you don't”

    And we're not even talking about a media outlet here. Interesting times.

    • /blog Mike Shatzkin

      I think B&N, like the big publishers, sees it as important that branded

      authors at branded prices be protected in their own interest.

      I don't see a fair and equitable solution to this bestseller problem except

      to index by total dollars traded on the books, not units. That was what was

      done crudely before with formats (hardcover, trade paper, mass paper) which

      kept titles within price bands competing with each other.

      Mike

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  • Lance C.

    Good discussion. About your last point: while I don't doubt the Big 6 will want to strongarm the NYT and USA Today into using a gross-retail measure for list inclusion, they should think about the impact on the credibility of those lists. An ebook selling 100,000 copies for $0.99 could be knocked down the list by a hardcover selling 3968 copies at $24.95. A good deal for Big Publishing, perhaps. But after the first couple of times it happens, a lot of people will decide the bestseller lists are games rigged in favor of the big boys and start paying more attention to the alternative measures that would inevitably spring up.

    The NYT lists could end up going the way of Borders if people decide those lists are as disposable as brick-and-mortar bookstores.

    • /blog Mike Shatzkin

      You're right. And I like the math, because it shows the real difference

      between the old competitors and the new competitors.

      Plan B would be to have a tiered list. Bestsellers under $2.99. Bestsellers

      $3-$5.99. Bestsellers $6-$8.99. Bestsellers $9 and up.

      But we can't have 99 cent books competing with $11.99 and $14.99 books as if

      it makes sense to compare their sales without any weighting or fudge factor.

      That doesn't make any sense either.

      Mike

      • http://twitter.com/queridapatricia Patricia Arancibia

        Thanks Mike! The Plan B is what online retailers have adopted as part of their merchandising—because there are different behaviors and sales patterns in every tier. Buying because is cheap and shopping for a topic, genre, or author are very different attitudes by shoppers expecting different experiences.

        Not only it is unfair to have $14.99 competing with $0.99, but also, the shopper looking for a specific kind of content (over 60% of humans buying content) doesn't want to navigate the clutter of thousands of products showing up just because they are cheaper. eCommerce companies run usability tests and look at patterns of many kinds obsessively to make sure that the customer experience goes from good to better.

        I think that the average NYT reader and book buyer appreciates the hard work that the NYT team puts in making the list. And hourly sales rank has nothing to do with that, and doesn't pretend to. The fact that the same retailers who merchandise based on low pricing also promote the NYT list, as well as categories, series, and authors at higher prices is an indication.

      • /blog Mike Shatzkin

        Patricia, I really needed you on an email list I'm on a couple of weeks ago

        when I was arguing the point that the NY Times was really thinking of its *

        readers* when it “curated” bestseller lists rather than just taking raw

        numbers as all the necessary information. My voice was rather lonely and I

        made an incorrect assumption at that time that they had weeded out all the

        cheap books. Since then, they've reported a couple.

        Mike

      • http://twitter.com/queridapatricia Patricia Arancibia

        I am always happy to read you because you tend to be the lonely voice of reason. I am sorry you are lonely, but I am happy you are there!

      • Chris

        I'm guessing curated lists will go the way of the printed book…. unless they are curated by the readers themselves, ie Goodreads.

      • /blog Mike Shatzkin

        I don't think so. I think they'll be curated by all kinds of authorities who

        apply some editorial filter that their readers value over objective volume

        information. How else would you do a bestseller list for biographies or

        baseball history? You'd have to make choices. The New York Times brand has

        meaning to people and they *expect* some curation from The Times.

        The important rule here is “know your audience.” That's often an advantage

        that new media and web media have. But in the case of the New York Times

        Book Review, I'd say they actually have a pretty good handle on it.

        Mike

      • Chris

        That's fine as long there is transparency ie, the reader (audience) knowing that you, as curator, are excluding titles based solely on price or self-pub status.

        I'm recalling the baseball ebook you bought off Smashwords here (if I remember correctly). That book would be excluded on B&N's list as a self-pubbed effort.

      • /blog Mike Shatzkin

        Everybody's got to have their own rules, and, no matter what rules anybody

        makes, situations will arise where they'd want to change them or make an

        exception. I personally don't think “self-published” is an issue. I do think

        price is.

        Ultimately, I'm hopeful that there will be reliable crowd-sourced

        repositories of baseball history reviews and ratings from interested and

        informed people that my online bookstores will give me access to. I consider

        this part of the new digital infrastructure which just hasn't been built

        yet.

        The book was “A Season in Mudville” and it was great.

        Mike

      • Lance C.

        Was the Times really thinking of its readers when it shunted the Harry Potter and Twilight books off into the kids' ghetto once those books started posting truly phenomenal numbers, even though it was no secret that large numbers of adults were reading those books? Or was its message, “We know you're reading these books, but we don't think they're worthy of sitting at the grown-ups' table.”

        It's easy to take a conspiratorial view of the NYT lists because they go to so much effort to hide how those lists are compiled. The wonder is that so many people still take those lists seriously, even though the list pathologies are well known.

      • /blog Mike Shatzkin

        When we try to anthropomorphize the decisions of a bureaucracy composed of

        many anthropods, we come up with some pretty silly characterizations.

        I don't know how the decision(s) got made, but this was one made by a

        committee, not by a single person's logic.

        Mike

      • http://twitter.com/queridapatricia Patricia Arancibia

        Those titles were acquired, sold, and merchandised as Kids and YA titles from the start by their authors, editors and publishers. And being in the Kids or YA list is not being shunned. Actually, books in those usually sell more than the others.

        You are the one seeing pathos and conspiracies, not everybody, or most people, or 20, or 10 percent of the people who buy books. It is hard to follow the very many different issues you have with the issue. The only option would be putting you in charge. One can not understand something and/or disagree with something, but that doesn't mean that the others are heinous.

      • Chris

        “Honey, I know I've been buying all those great ebooks off the $0.99 bestseller list, but you know what, I think I might give some of those ones on the $14.99 list a shot.”

        Do what you say and I'm thinking the $0.99 list will become the most powerful list in publishing. Then you really will hasten the race to the bottom.

      • /blog Mike Shatzkin

        If there is only one list, it is unit-driven, and it is price-independent,

        there will ultimately be ONLY 99 cent books on it, because they'll move the

        most units.

        Mike

      • Chris

        May not even be $0.99 … maybe every ebook will be free.

        Authors will write for nothing. Even good authors.

        The stupid pricks!

      • /blog Mike Shatzkin

        A lot of people WILL write for free. And spend a lot of time at it.

        I'm one of them.

        Mike

      • Chris

        Yeah, me too.

        Kinda was hoping to make some money out of it though.

        On a side note: it appears Stieg Larsson's books have been pulled off the Amazon Kindle bestseller list. No ranking listed on the product description.

        Very weird.

        Anyway, thanks for the comments.

        Must go back to my blank word document.

        Cheers
        Chris

      • /blog Mike Shatzkin

        Now, *that*, if true for more than an hour, is *very* strange!

        Mike

      • http://freesf.strandedinoz.com Blue Tyson

        You could definitely package this stuff and sell it on Amazon for 99c+ though! :)

      • Chris

        Geez, don't tell him that, dude. He'll get ideas about setting up a pay wall on this site!

        So, ummm, yeah, just forget it, Mike. Your opinions are worth nuthin'… not now, not ever. :)

        Okay, so away you go… back to your desk and keep writing.

        Ignore everything Blue Tyson said. He's just another weird SF reader full of crazy make-believe notions!

      • /blog Mike Shatzkin

        Stay tuned. The Shatzkin Files WILL be collected into an ebook sometime

        soon, according to plans now being made outside my office.

        Mike

      • T Mastersheinrichs

        Ah, Mike Shatzkin, I'm happy you can afford to give your writing away for free. Unfortunately, most people can't afford to work for free.
        Is it that a creative person does something because they love it and thus should not be paid for it? Why then are we paying for the services of other creative individuals, such as engineers, architects or plastic surgeons?
        If, as the corporate argument goes, the consumer will only buy the cheapest product on the market, until such time as it is the only product on the market, then the future is clear. In twenty or so years, when our current top authors are done and people who give their writing away because they have other incomes or are retired, are also gone, we shall be left with what we (the consumers) have nourished.

      • /blog Mike Shatzkin

        Hey, don't shoot the messenger. I'm not *advocating* that things move to

        free; I'm just *expecting* it.

        And the corporates aren't to blame. The corporates are doing everything in

        their power to maintain the value perception and price of content. With my

        support.

        It isn't that I can “afford” to write for free; it is that my free writing

        is marketing for my consulting and conference-creating services. It's

        promotion.

        Mike

      • Chris

        Just checked Amazon: only two ebooks in the top ten that are priced $9.99, everything else is significantly less.

      • Judyashore

        Some authors may write for nothing, as a promotional gambit, but authors need to ear, as well, and pay the mortgage, so I don't see many “good” authors doing that for long. I notice all the chatter here seems to be pretty much about books Big House Publisher is releasing in print and e-format, with the emphasis on print first. Many E-Pubs are releasing first in electronic, then in print, and trying to sell print books for 15 bucks. Some authors are taking that second option as soon as it's offered, so they have something concrete to give away, or ask brick & mortar stores to carry and sell for them, or donate them to libraries to gain name recognition. I think we'll see less and less of that as more people adopt e-reading devices from cell phones, PDAs, to Kindle, Nook and Sony. I started e-reading with the ancient Rocket, and haven't looked back. Now the selection is getting better every week, and I very much doubt I'm going to be buying any books for 99 cents unless they're by authors whose names and quality of writing I'm familiar with. I'm also quite happy to pay $14.95 for Audible.com books–again, if they're author's of quality.

    • http://twitter.com/queridapatricia Patricia Arancibia

      I think that you are not understanding the difference between what are the hourly top sellers in a retailer website (0.99 erotica with steamy covers mostly) with what Bestseller lists actually reflect—consistent sales all over the states during a period of time.

      There is no conspiracy to theorize about here. Believe it or not, James Patterson sells very many times more in a week than a 0.99 not matter who hot the cover. And believe it or not very very few of the many titles under 2 dollars keep themselves on the top for more than a day or two—and not every hour of the 24 in which the list and ranks are refreshed every day. By comparison, NYT bestsellers can be in the top 1o of a Top 100 rank that refreshes every hour for months.

      Frankly, all these ideas about conspiracies and lack of basic understanding of technology and sales and reality and whatever on the part of the publishign industry get tired. It would be more wholesome trying to understand how the industry works before assuming it. Thanks.

      • /blog Mike Shatzkin

        Patricia, what you say is true (most of the time) but it is also true that a

        lower-priced book has a distinct sales advantage, whether online as digital

        or print, or in a store in print. Publishers have always thought about that,

        but the ground shifts under their feet with ebooks, since there is no “cost”

        anchor to keep them from dropping the price. What I believe we'll start to

        see is established publishers doing price-cutting on branded authors to get

        unit sales and bestseller list position. This is a very slippery slope.

        Mike

      • http://twitter.com/queridapatricia Patricia Arancibia

        Absolutely agree with you. I was not trying to say that price did not matter, but that the reading of price impact in an hourly rank has nothing to do with volume sales in a week for instance.

        This creates an interesting Agency paradox. Before Agency, retailers were taking the heat. I don't think that any big bookseller made money with Harry Potter discounted as it was. Pubs made money, retailers often sold at loss making money with extra sales by HP readers. Now the price war or not is mostly on the publisher side. I would find that more worrisome.

      • /blog Mike Shatzkin

        More worrisome in some ways, because publishers take (share) the margin hit.

        Less worrisome in others, because the situation is within publishers'

        control.

        Mike

      • Lance C.

        The naive view is that bestseller lists are supposed to report…er, bestsellers, that is, the books that more people have dropped in their shopping baskets over a period of time. It's not a matter of hourly sales. Amanda Hocking supposedly sold 99,000 units in December — granted, not all of one title, but she posted some very decent numbers of single titles also. She sold 140-something thousand units in January. J.A. Konrath has sold God-knows-how-many ebooks over the past year. People are buying those books. Shouldn't they be reflected in lists that purport to show what people are buying?

        When I hear “curated bestseller lists,” I begin to wonder what the standards are, especially when (as is the case with the NYT lists) the publishers take some effort to make it hard to figure out how sales are measured or who gets included. Curation is fine as long as we're told how it's done, and then can judge whether we find the criteria valid.

        Price is not a valid measure of quality. I've never read Hocking or Konrath, but they seem to appeal to a bunch of readers and can't be worse than some number of books in hardcovers selling for $24.95. If quality was a consideration in the bestseller lists, it's unlikely that Twilight or Snooki would be on them. Then again, the most brilliant writing in the world is of no account if only fifty people buy it.

      • http://twitter.com/queridapatricia Patricia Arancibia

        First, there are curated lists and bestseller lists, they are different animals. There is nothing naive with a Bestseller list reflecting what the bestsellers are in a period of time. And there is nothing secret or hidden about that.

        No one is talking price = quality or sales = quality here. I don't get into those arguments and don't care. I was talking about actual sales volume, which is what NYT reflects. There are single titles that sell more than 200,000 copies a week. And bestsellers lists are based on title, not aggregated sales by author.

        It sounds like you would only consider honest or valid a list that reflects exactly what you want or otherwise you would accuse NYT and publishers of conspiring. So far, NYT gets sales figures weekly from booksellers and similar sources, cleans bulk sales, and reflects the highest single unit order volumes per ISBN. You may want a different list that aggregates total author sales, and then you would complain because that list would for the next ten years be filled by the same names (Paterson, King, Meyer, etc.).
        But the current list by category, age, and format, are honest and well done.

      • Lance C.

        I'm not proposing author-aggregation or anything of the sort. Just the opposite — a list that purports to show the highest-selling titles (by unit) over a week/month/whatever should do just that, no matter how those books are pubbed or by whom or what they cost. Let the chips fall as they may.

        What does seem questionable is suggesting a book's sales shouldn't be counted because the book is too cheap, or it doesn't come from a Big 6 publisher. The $7.95/$14.95/$24.95 price hierarchy is there because that's what the major publishers have decided they want/need to make their quarterly numbers, not because it's part of natural law. If a publisher (whatever that is these days) decides it can make money at $1.99 and sells a boatload of a title, shouldn't that title end up on a list that claims to measure bestsellers? If that publisher happens to also be the author, does that really matter if the name of the game is unit sales?

        I have no particular attachment to the status quo, or stake in overthrowing same. I have no dog in this fight other than to try to make sense of all the conflicting claims and figures flying around. I'm also not trying to make this personal.

      • /blog Mike Shatzkin

        It's certainly not personal.

        But there are those of us who see it as our job to get authors as much money

        as we can for their work. And part of how we do that is by establishing

        “brands” which can attract premium prices, which is the same thing that all

        sorts of other purveyors of goods from movies to automobiles to beer do.

        I am sorry to say that where I think we're going is that we'll have fewer

        really terrific writers because far fewer people will be able to make a

        living writing. Lots MORE people will make some money (not a living) and

        lots more books will be read. That's what I expect the market and the

        internet to deliver us. Over time.

        In the meantime, it is still possible for writers who produce great work

        like Ken Follett and Ron Chernow to bring in enormous sums by selling tons

        of books for more than $30 and tons of ebooks for $19.99. That supports

        bookstores and online vendors. It supports a big publishing house. And it

        gave me far cheaper enjoyment by the hour than any movie I could see, or

        rent. In Chernow's case, it takes many years to create a massive biography

        and lots of staff people. He will never sell enough at 99 cents to make it

        possible. And he'll never sell enough at $20 in a 99 cent world (which is

        coming) either.

        So, yes, I do have a dog in the fight. I am part of a commercial industry

        that is trying to keep price connected to value in the world of books. It is

        a widely accepted notion that the greatest value is delivering things for

        the lowest price. From my perspective, the fact that the notion is widely

        accepted is just too bad.

        So I want a scorecard that gives an author credit for making people real

        money for his or her work. You're entitled to yours, but I prefer mine.

        Mike

  • http://www.davidderrico.com/blog/ David Derrico

    I agree that a bestseller e-book list by total revenue would in many ways be more fair, and could be more meaningful to some people. (I was in favor of Amazon splitting the free and paid bestseller lists for the same reason.) Obviously the large publishers would prefer it.

    But you feel that putting “previously unknown authors selling 99 cent books before the public as bestseller creators” is a “nasty problem”? Ouch (says the still-unknown author).

    • /blog Mike Shatzkin

      It's a nasty problem for established publishers and authors and *anybody* who

      is trying to establish that a book is “worth” ten bucks or more. And, sorry

      to say this, David, but when books aren't worth ten bucks or more — or when

      books are routinely worth three or four bucks or less — very few people are

      going to be making a living writing books. Far fewer than now. So it's a

      nasty problem for the vast majority of authors who make a living writing.

      It is *not *a nasty problem, but is, indeed, an opportunity, for

      *aspiring* authors

      who today want to use price to build an audience.

      Mike

      • http://www.davidderrico.com/blog/ David Derrico

        That's why I felt publishers should be thanking Amazon for ingraining $9.99 as a fair price for e-books, instead of fighting them on it. With half the Amazon Top 100 at $5 or less, $9.99 is starting to look pretty good.

        I'm afraid of the “race to the bottom” as well. There are plenty of authors who will give their work away (either for the love of readership, or because their odds of success were already so low under the old system they have nothing to lose), and I fear a tragedy of the commons effect with free and $0.99 titles jockeying for publicity. Heck, through Baen and promos and pre-orders, I can legally get plenty of trad-pubbed titles for free (let alone great classics), so why pay?

        Personally, I think Amazon has more knowledge of e-book sales stats than anyone else, and I think their $2.99 – $9.99 preferred price range is a reasonable and sustainable one.

      • /blog Mike Shatzkin

        It's complicated, David. I've read two $19.99 ebooks in the past few months

        and I was happy to pay for them. Both bestsellers, of course. And both books

        that will sell for a long time so the publisher can capture the cheaper

        market later and still get it.

        Things will change over time. I don't think any particular price is

        “sustainable” over the very long run. But it will take a long time to play

        out.

        And books that have a commercially-productive print edition have a second

        consideration, which is not devaluing the print *too* much trying to

        maximize ebook revenues.

        Mike

      • Chris

        “…books that will sell for a long time so the publisher can capture the cheaper market later and still get it.”

        Which is what is happening with the likes of Stieg Larrson's novels. The first now being set at a cheaper price point. The others will, of course, follow. No different to the HC, TPB, MMPB model.

        If I were a publisher I would price based on the popularity of my titles. If Larrson had a new book (quite difficult I know… but not for Ludlum etc!) then that title will most likely overheat an Amazon server even at $12.95 – despite their continued desire to remove him from the bestseller ranking system!

        Mike, you mentioned paying $19.99 for ebooks. I too have paid out above the $9.99 mark. Especially for name authors that represent decent value in my eyes.

        No one has to be sheep here. Plenty of room to experiment.

        There is no way in hell that I would price an ebook at $0.99 if it was selling several hundred copies a day. There's plenty of time for that price point later. Just be patient.

      • /blog Mike Shatzkin

        Loved your comment and I agree with all except one thing.

        Ludlum would have as hard a time creating a new book than Stieg would. He's

        been dead even longer!

        Mike

      • Chris

        … and yet Ludlum still managed to produced four extra novels, plus eight co-authored ones!

        None of which I enjoyed.

      • /blog Mike Shatzkin

        There is little doubt that Robert Ludlum has had one of the greatest

        post-end-of-life careers of any writer of the 20th century. Mark Twain's

        posthumous autobiography is doing pretty well, but he's still several

        bestsellers short of matching Ludlum.

        Mike

      • Barbarake21

        I disagree with your comment that 'very few people are going to be making a living writing books' (when books are priced at three or four dollars). I think *more* writers will be able to make a living (compared to now).

        It's very simple. Royalty rates on e-pub books are higher. Much higher.

        Let's say you're a best-selling author whose book routinely sell 100,000 copies in hardcover. You make 15% or $3.75 per $25.00 book. Or you can e-pub it yourself for $10.00 per book and make $7.00 per book (royalty rate of 70% on Kindle). Or e-pub it for five dollars. Now you make $3.50 per book (compared to the $3.75 for hardcover). But I bet you'll sell a lot more books.

        Or let's say you're a mid-list and/or genre offer whose books usually come out as a paperback. Normal price $8.00 of which you're lucky to get 80 cents. E-pub it yourself for $4.00 and you get to keep $2.80. At $3.00, you keep $2.10. That's a heck of an improvement over 80 cents. And – again – you'll probably sell more.

        The real losers will be publishers. They've gotten by with giving authors 10-15 percent of the gross price because authors didn't have any other real choices.

        That's changing fast.

      • /blog Mike Shatzkin

        You say “it's very simple.” I'd say “it's oversimplified.”

        You posit that an author can self-publish at ten bucks. I doubt it works for

        very many authors to do that. And, today, we'd expect more than half the

        sales to be print; maybe more than 75%. How is your self-published $10 ebook

        author with her 70% royalty going to get THAT?

        And your midlist example also elides the loss of paper book sales. And on

        the $8 paperback which would also be damn near an $8 ebook (if done by a

        publisher), the author would get $2 a copy.

        But that's not really what I was talking about. What concerns me is that

        we're on an inexorable march to 99 cent books. You're right that there will

        be no publishers to speak of if that happens. And there will also be damn

        few authors making a living, Your math multiplying the author's take at

        current royalty rates and current ebook prices doesn't address my concerns.

        Mike

  • http://twitter.com/38enso Jack W Perry

    I like the idea of eBook bestseller lists being done by dollars. The movie industry does it – so why not eBooks?

    • /blog Mike Shatzkin

      Jack, it's an opportunity for any bestseller list publisher to do. BookScan

      could do it. The Times could do it. USA could do it. If you're deciding how

      many copies things have sold, or even relatively how many this one has sold

      in relation to that one, you can do the math to deliver the list that way.

      You might then see Ron Chernow's George Washington and Ken Follett's Fall of

      Giants in an entirely different position. Those ebooks are $19.99. I know

      that because I've bought them both and I got great value out of them.

      They're both VERY long books.

      Mike

    • Lance C.

      Movie tickets sell in a fairly narrow price band within a market. Here, it's $8-12. The $2 second-run houses and the $20 Muvicos are outliers and don't have a significant effect on receipts. In theory, two movies playing in the same mix of markets can be compared by gross receipts, since everyone in those markets is paying roughly the same amount for their tickets.

      However, the gross receipts model is flawed. Tickets for 3D films sell for higher prices and artificially boost their receipts. One ticket bought in Los Angeles or Manhattan is equal to two tickets bought in Omaha, since the relative average ticket prices are different. Movie rankings would be more accurate if reported by paid admissions instead of receipts.

      This is why the lists of all-time box office hits need to be expressed in constant-year dollars in order to be meaningful. Avatar might be the all-time champ until you put everything into 2010 dollars; then you start seeing Gone with the Wind and some of the older films rise up the league table.

      The prices for books are all over the map, from those infamous $0.99 ebooks up through the $30 prestige hardcovers, and they're available everywhere. Just as with films, book receipts would be highly misleading. The sale of one $24.95 hardbound would outweigh the sale of 24 $1 ebooks if we just measure revenue.

      • /blog Mike Shatzkin

        Lance, “misleading” is in the eye of the beholder. In your last graf, you

        suggest that reporting dollars would be misleading. I look at the same

        example and say that reporting by units would be misleading.

        Mike

      • Lance C.

        Perhaps the discussion should be, “what is the purpose of a bestseller list”? Is it supposed to show which titles are making the most money, or which ones sell the most units?

        Automakers report their model sales by units; that's how we know there are far more Hondas on the road than Ferraris. If model sales were reported by revenue instead, we'd see Rollers and Maybachs and Ferraris way up the lists of bestselling cars.

        If the bestseller lists are instead supposed to show which books make the most money for their publishers, then they can use the same model as does Hollywood to report box-office receipts (discussed elsewhere in these comments). But then, they'd be “most profitable” or “highest revenue” lists, not “bestsellers.”

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  • http://www.smashwords.com/profile/view/michaelallen Michael Allen

    Ah, the joys of the bestseller lists. I am old enough to remember when bestseller lists were regarded by UK newspapers as rather vulgar, and not something which a newspaper with any class would get involved in. Then they realised that there was a demand for them from readers. So they would set about 'organising' one. Initially, in pre-EPOS days, these lists might well be based on sales from six shops in central London. And the convincing rumour was that, when time came to send in the figures, the sales manager of each shop would stick his head out of the door, see which was the biggest pile left on the table, and label that no. 1, in the hope of shifting a few copies. Personally I've never had much faith in them since then.

    • /blog Mike Shatzkin

      They've gotten a wee bit more scientific since then. Many people use them. I

      think, in one form or another, “charts” are here to stay.

      Mike

  • Chris

    Seems like B&N has their solution to the bestseller list thing:

    - Bestseller BOOK list (trad. Print book)
    - Bestseller NOOK list (trad. ebook)
    - Bestseller PubIt list (self-pub ebook)

    The PubIt list is quite difficult to find. You have to navigate to the dedicated Nook page, then find the PubIt link at the bottom of the left menu bar!

    This will force self-pubbers to be a lot smarter with their marketing. I imagine unit sales will drop for any of those self-pubbed authors that were previously in the main list.

    I think I kinda agree with B&N's list set up. Although, I would prefer to see each list made easily accessible on the home page.

    Personally, I don't buy self-pubbed work but if there wasn't any trad. pubbed stuff on the list I was interested in then I might be inclined to trawl an easily accessible PubIt list, just in case I find something interesting.

    If I did find something of interest then that would convert to a sale. It may be a small sale but it is still a sale. That, of course, translates as a 'transaction' between B&N and their customer, ie a relationship. It's stupid business if you fail to facilitate that.

    Hide the PubIt list and you may let a potential customer leave unsatisfied. You miss a sale. Maybe you lose a repeat customer. Not to mention valuable buyer data on which you hang further email promotions on.

    Create a sales funnel … from any sale. Even the small ones.

    Okay, I gotta get off this bloody blog of yours, Mike – if only to give you and your readers a break from my pointless comments!

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  • Fishmael

    $9.99 or above for an e-book, no matter how good, is insanity. If you take that approach, the public will simple make a technological end-run around you…. especially if, as part of the deal, publishers want to take away the “doctrine of first sale”, that allows users to re-sell, loan, or otherwise dispose of titles they've paid for. And, there are plenty of musicians now making a living in a world where they sell tracks for 99 cents.

    Also, note that Barnes & Noble, at Lincoln Center in Manhattan, a prime location, is doomed, yet indie bookstores are thriving in NYC.

    • /blog Mike Shatzkin

      Sorry, but the facts and logic stand up against your comment.

      1. Musicians make less money than they used to. And musicians make money

      performing, which author after author (most recently Margaret Atwood at

      Tools of Change) point out has nothing to do with them.

      2. LOTS of people are buying LOTS of ebooks for more than $9.99. As I

      pointed out, there are bestselling ebooks which are $19.99!

      3. Yes, all bookstores in “prime locations” are in deep trouble. Rents are

      high in “prime locations.” But it would be more accurate to say*

      some*indies are thriving. Most of the indies that were in this city

      ten years ago

      have closed. (Remember the great Coliseum Books? for example…) And I

      guarantee you the indies who are thriving are not in “prime locations.”

      Mike

  • John Warren

    Great post Mike. I've been thinking a lot about these things as I've been finishing up “Merchants of Culture” by John Thompson. I'm pretty sure that prices of e-books will continue to drop until at some point, I couldn't say how long, .99 will be close to average. It seems fairly inevitable to me.

    • /blog Mike Shatzkin

      I am sad to say that I agree with you.

      Are you struck, as I am, by the fact that Thompson's no-doubt brilliant book

      (haven't read it, but I have spent time talking to him) is not available as

      an ebook?

      Mike

      • Chris

        Mike… worst case scenario? Eventually ebooks are free. Right?

        So the $64,000 question is how to monetise that market.

        Well, we already know about the artistic industries that have gone before us – music, film, gaming.

        Music – Artists forced to tour in order to bring in some cash.

        Film – Film-makers forced to rely on box-office openings in cinemas. Product placement etc.

        Games – Developers use subscription models for online MMORPGs.

        In each of the above cases the barriers to entry have fallen – no distribution costs, easier production.

        Unfortunately the revenue has been ravaged because most of the above are now pirated.

        Books?

        Revenues are declining. Price reducing. No barriers to entry. Self-pub is simpler. But where is the additional revenue raiser on the back-end?

        - Author as speaker (knowledge keeper).
        - Author as creative base (film, game idea for markets that have learned to monetise – ie JK Rowling)

        Maybe a baseball historian will have to work a deal for affiliate/commission sales with a team (ticket sales) or memorabilia outfit (product sales). Maybe a subscription site (updated knowledge base) for community involvement.

        If you're a industry consultant like you then you blog or write ebooks to become the industry soothsayer, therefore enabling you to charge for your genius.

        This is all a big ask but the precedents have already been set. Price will go down to $0.99 and, in fact, they will go down to zero because people will pirate just like in the three other markets I mentioned.

        I'm sure we will have an industry dominated by bestsellers because they will be the only titles that can be monetised into other markets – Twilight, Potter etc.

        In fact, $0.99 just may be the industry's saviour – because at that price it is easier to pay for a kindle title then it is to pirate and transfer it.

        That said, I can't remember the last time I paid for music or a film. I'm still buying ebooks but that is changing too – pirate copies are getting extremely easy to come by.

        I'm reading Eat Pray Love right now … I didn't pay for it. Ditto Dan Brown, Le Carre. I'm pirating and I'm someone who wants to make money out of writing for Gods-sake! So how do you monetise ME?

        Eat, Pray, Love – link me to the sites mentioned in the book. Affiliate link the air tickets, the hotels.

        Dan Brown – Same as above. Maybe I want to be part of Brown's community. Maybe I'll pay a subscription for that (highly doubtful!).

        Le Carre – Give me stuff behind a paywall for Mr Cornwell (videos, thought, early drafts) and I'll pay. I'll buy signed copies of HC for Le Carre too. I'll watch the cinema versions to his books too. Happily pay $10 for the experience.

        Sorry for the long comment. I don't expect a reply… just spitballing at seven o'clock in the morning!

      • /blog Mike Shatzkin

        I think the creative stretches you went to summarize the problem very well.

        I actually don't think it is piracy that is going to drive us down to 99

        cents or less so much as the market. Authors already use books as

        credibility-enhancers, to establish their *author*ity about a subject.

        That's not going to get easier to do in a free books world; it's actually

        going to get harder.

        Mike

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  • Chris

    Mike, link you might be interested in.

    http://www.kk.org/thetechnium/

    • /blog Mike Shatzkin

      Chris: great link. Worth building a post around. Thanks for sending it.

      Yes, the ereader is going to get close to free. Amazon is in the perfect

      position to institute a blade-and-razors marketing strategy.

      Mike

      • Chris

        Maybe we'll get a Kindle price drop once Apple releases the new iPad in March.

        I guess the good news for authors in a Kindle blade-and-razors strategy is that Bezos' will need ebooks to be anything but free.

      • /blog Mike Shatzkin

        Good point!

        And, frankly, it is tough to implement blade-and-razors when you're not the

        one who manufactures the blades.

        Mike

      • Chris

        They'll be in the manufacturing game, Mike.

        They'll edit, format, publish and market their own titles … they'll only need authors. Who, I might add, will be knocking at Amazon's door.

        If Bezos owns the whole eco-system – he can control the price, royalty, etc, etc.

        Sometimes I wonder if Bezos is of Chinese ancestry… he certainly runs his business the way the Chinese would … very aggressive and very long-term.

      • /blog Mike Shatzkin

        Chris, fortunately for the rest of us, we don't battle an Amazon monopoly on

        our own. Google and Apple will be glad to help! And others are still coming

        into the game. I don't see clear sailing to a monopoly for anybody. Not even

        Amazon.

        Mike

      • Chris

        Mike, I think you're right.

        The online landscape changes so dramatically every twelve months that no single company seems to be able to rest on their laurels.

        Who would have thought Google felt intimidated by Facebook?

        I'd be surprised if people even own a kindle in five years time.

        And in ten? Forget it. My 5 and 3 year old kids have to be pulled away from an iPhone. And I'm sure they would gravitate to a Nook before a Kindle.

        Apps. Apps, Apps.

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    I believe that the standard NYT person who reads and book buyer appreciates the hard work that the NYT team puts in making the list.

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  • Abz

    If you'd look at the 2010 Census figures and note the rise in the “baby boomers + post boomer age brackets” and compare that to medical stats on longevity prospects for 62+ bracket you'll find a rising demographic for print read material! How so you say grasping your cold steely e-reader or Ipad as a Holy Grail” ? Well-with age, the comforts of reading a printed book without the fear of battery running low and no charger within reach or coveting a “find” at a local indie shop while on a “browsing” hunt as if it were a spanish “dubloon”.. ah the sweetness of a mature mind far outweighs the speed and agility of the youthful offsprings of the digetal age. Besides if you are to also look at where the $ is in terms of disposal income you won't find it in the 20-40 age crowd where gizmo readers are prevelant.

    Good luck to your self fulling metric analyses–I'll continue laughing all the way to the bank with sales of printed matter.

    “Bricks & Mortar” Indie Booksell

    • /blog Mike Shatzkin

      I wish you nothing but the best but I think being cocky won't get you there.

      First of all, you don't sell books exclusively to boomers. Secondly, you're

      mistaken if you think they're a demographic that is resistant to ereading.

      In fact, the font-changing capability of Kindle and Nook is a big plus for

      aging eyes and the ability to turn pages by pressing a button or lever is

      advantageous when you have arthritic fingers.

      Borders closing will give you a bit of a boost but the writing on the wall

      is that the reading will increasingly be on the screens.

      Mike

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  • http://www.oksgroup.com ebook publishing

    electronic publishing & e library had swallowed the public library in the name of technology advancement. no more people get the subscription for public attempt to think about it.

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