The Shatzkin Files


Getting Mark Coker right this time and agreeing with him up to a point


On Tuesday, for the first time in the five years I have been writing this blog, I did a post I would like to take back. (But in the interest of the public record, and because there were several comments of value, I’m leaving it up.) This is the post that I should have written the first time.

Mark Coker, the founder of Smashwords, wrote a Huffington Post piece in which he asserted that indies are now responsible for 15% of the ebook market in dollars and on their way to 50% by 2020. The initial post of mine misread Mark, and assumed that the 15 percent and 50 percent claim were about units, not dollars. Mark set me straight, but, unfortunately, that other post focused on trying to translate what I thought were unit shares into dollar shares. Sorry…

At first I had thought I agreed with Coker’s overall numbers, because I thought an estimate that indie ebooks were 15 percent of the total units was reasonable, rising to 50 percent in six years. But dollars are another story. (Note: Michael Cader’s independent examination of the numbers determined that indie/self-published ebooks were, at most, 11 percent of the ebook dollars and probably less. Cader’s generous calculations put the unit share percentage at about double that, in the low 20s. I believe his logic and numbers would also support my view that it is something less than that, which would put me near to Coker’s dollar estimate for my units estimate: about 15%.)

If indie ebooks were 15 percent in dollars today, then they would be 30 or 40 percent of units because they are priced so much lower than publishers’ ebooks. Is that possible? I suppose it is. I thought in the middle of last year that in the aggregate indies sold the number of units equivalent to one Big Six publisher, but not anything like 30+% of unit sales (even though Howey’s examination of 50,000 Kindle titles led him to assign 27% of the units sold to indies.)

If they are 30 or 40 percent of units, and nobody I know has read any, does that suggest a cohort of people who really prefer indie ebooks and read them in big numbers? And if indie readers form a “separate” market, is it growing or is it static? In other words, do indie ebooks draw on a particular pool of readers, so that we have two separate competitions going on for eyeballs and ebook sales?

We note a piece this morning at Good EReader that calls for the segregation of the self-published titles at ebook stores, because their sheer number interfere with discoverability for publishers’ books. That’s bound to be an unpopular idea in many quarters, but it is something that could happen if any one retailer offers it as a choice to consumers (which is the way to do it: as a filtering choice, not a hard-wired default). If consumers liked it in one place, the practice could spread.

Regardless of whether there is one competition for readers for all books or separate ones for indies and publishers, wouldn’t we expect the flood of titles to make it harder for everybody to make sales? (This is a point that Peter Turner brought up in the comment string to the prior post.) Chances are, yes. And that could mean even more authors will be forced to go indie because publishers are likely to respond to a shrinking market and more challenging discovery by reducing their outputs.

But it is also true that more challenging discovery means more skill doing it and more tools to reach customers have value. So the ability of established publishers to have “better odds”, to get their books to rise above the “noise” of a large title output, should improve (relatively) over time.

Coker did a great service to all of us putting the ebook sales indies achieve into a larger perspective. And, in doing that, he might even have understated the current case for their importance.

What Coker did was point out that the 15% ebook dollar share for indies was within the estimated 30% of the market that is ebooks, 70% still being print. Doing math with his share number, he concludes that self-published ebooks are taking 4.5% of the dollars in the overall market. I’d put them at somewhere between half and two-thirds of that.

But, in fact, the 70% of the market that remains print contains a lot of titles that have very little, even no, ebook sales at all. These are illustrated books or reference books or even kids’ books that have not worked commercially in a digital version. We don’t know how much of the 70% of books that are print are “readerly” books that are equivalent to the 30% that sell in ebooks, but it isn’t nearly all of them. I think it would be conservative to assume that non-readerly books constitute 25% or more of the 70% of the market that is print, which would divide that portion of the market to be 52.5% books that have commercially viable ebooks (the 30%) and 17.5% books that don’t.

So the 30% ebooks overall is really more than 35% for the books that are real ebook candidates (and probably nearer 100% for most of the indie ebooks which would have limited or no print sales). In other words, the ebook share for the books that can work as ebooks is already a bit bigger than an overall summary would suggest. But, despite that, indie ebooks are somewhere in the low single digits as a percentage of industry revenue.

I think that’s very important to keep in mind. Indie ebooks are not yet commercially important if we think about consumer dollars. (But, of course, as Hugh Howey and Coker point out, the author keeps a lot more of those dollars.)

There are two big questions going forward.

1. How fast will the indie self-publishing ebook market continue to grow at the expense of publishers who do it for profit? (All of the calculations from Coker and Howey about the benefits to indie authors assume they do it themselves, not through some new-fangled indie-first publisher or aggregator. If they do it through anybody else, new or old, the author share will decline. Every participant takes a cut.)

2. For any individual author, how does the decision of whether to do it themselves or sign with a publisher look?

On the first, I think one key question is whether we now have a bifurcated market: one group of people reading the bulk of indie books and another group reading the bulk of published books. There is certainly reason to believe that we do, although this is something that only the retailers really can know for sure.

I believe we do have two markets. Part of that is genre-driven. Many readers who habitually consume romance, thrillers, and sci-fi have found less expensive digital-first and author-published alternatives perfectly satisfying. They read lots of units. So it is likely that a concentrated cohort of readers is responsible for a big chunk of the indie books.

(There is probably a third market because we know there are also bargain shoppers. Though traditionally-published titles are discounted, there are still price bands where the indies largely own the marketplace.)

If that is the case, then indies compete with indies more than they do with publishers. And since we believe that a big part of indie sales growth will be driven by indie title growth, it could be that the sales will have trouble keeping up with the titles. That would mean the path to success for each individual indie author would get harder.

Note that this would not affect a self-published author who had built a name and a brand by being published first, except to the degree that self-publishing gets handled differently by retailers or that discovery metadata is not as professionally produced. In general, the distinction between authors who had publisher help building their brand before going indie and those who created success from a standing start has not been underscored as much as it should be in these discussions.

And that leads us to the second point. As Coker has pointed out in his piece and in the comment section of my previous post, some authors like to have “control” of their process. As print books become less and less important, those authors have more and more inherent reason to be attracted to a self-publishing model.

I believe that those authors who like “control” are already more ubiquitous in the self-publishing world than in the overall population of commercially-capable writers. It stands to reason that they would be early adopters of the digital self-publishing opportunity. My hunch is that most authors want to write, and to let publishers handle their business. They don’t want to do the administration and marketing work necessary to self-publish. And that’s even before they get to the difference between getting paid in advance for a book and having to spend money to put a book out.

But it is also true that the deals we see today are not necessarily forever. Publishers have held the line on 25% of their revenue as the author ebook share (apparently with some limited exceptions and, of course, situations for big authors where unearned advances effectively deliver higher royalty rates on everything). If they have to raise royalty rates to keep authors, they probably will. E-only publishers and digital-first imprints at traditional houses are already establishing new standards. Amazon just reduced the author take through their Audible subsidiary. Will the day come when they decide to take a bigger share of indie author ebook sales? Why not?

Authors will have a shifting set of commercial propositions to consider, along with their personal preferences for “control” or “help”. And that’s before we get to other things not reflected in any comparison of what they earn from a self-published ebook versus a publisher’s ebook: print revenue, unearned advances, and having somebody else doing a lot of work on your behalf.

So while I largely agree with Coker’s 10 trends that will lead to enormous growth in the number of indie-published ebooks we will see, I think a grain of salt is needed about how economically significant they will be either for the industry at large or for the vast majority of individual authors following that path even though they are bound to grow quickly. It turns out that the previous post started out with a misunderstanding that led me (and therefore my readers) on a wild goose chase but, in the end, the headline message was right. Even over the next few years, the changes we’ll see around how authors get their work to their readers are more about evolution than revolution.

As it happens, The Great Debate at the London Book Fair is about whether big publishers or small publishers will “win” over time. Ken Brooks of McGraw Hill Education and I have the “big” side; Stephen Page of Faber and Scott Waxman, who is both a literary agent and owner of an ebook publishing house called Diversion, tout the “small”. Michael Healy of CCC moderates. If you’ll be at LBF, check this out.

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  • William Ockham

    ***
    So the ability of established publishers to have “better odds”, to get their books to rise above the “noise” of a large title output, should improve (relatively) over time.
    ***
    That is very unlikely to be true. Large, established successful organizations have great difficulty learning to compete effectively in new markets that open up because existing barriers to entry are eliminated due to technological change. It’s far more likely that established publishers will never learn to effectively compete in the ebook market place because doing so puts their bigger print business at risk.
    If you look at the documents released in the Apple ebook price-fixing case, you will see that the publishers prepared spreadsheets that laid out the costs of various “cannibalization” rates (the rate at which an ebook sale reduced the sales of hardcover print). They were taking a very rational approach to their business and realized that effectively marketing ebooks is bad for their business.
    It’s much more likely that marketing innovation will come from digital-first entities that don’t have an existing print product to protect.

    • http://idealog.com/blog Mike Shatzkin

      It’s a good theory. And in some big publishers it may be true. But I also know specifically about big publishers who are making substantial investments in expertise and capabilities for digital marketing that would be very hard for upstarts to match. You are absolutely correct that for some time (and certainly well into the early days of ebooks), the publishers saw (correctly) that the shift from print to digital, and particularly from bookstores to Internet purchasing, was not in their interests. But even if they still see that as the case, there’s nobody among the Big Five with leadership so dumb that they don’t accept the inevitably of the trend. You’d have to be pretty thick, as you apparently think they are. There’s no doubt there is a difference in capabilities and we’ll start to see that play out as the Big Five merge into a smaller number, which is something we’ll see over the next few years. (I’d bet we agree on that.)

      • Steven Zacharius

        I agree with Mike that publishers whether big publishers are small, generally aren’t stupid. We’ve all noticed the trends in ebooks. We’ve also noticed the decline in print and the leveling off of ebook sales. That being said we’d be foolish to not know that we make more money on an ebook sale than we do on a print sale because of the lack of manufacturing, distribution, warehousing and handling. There is of course a higher royalty rate to offset this savings. I think the real question is going to be as publishers start looking at backlist titles that are no longer available in print and we lower our ebook prices, how is the consumer going to decide what they want to read? Are they going to read a book from a traditional publisher at a low price or pick an ebook for the same low price or a bit lower whom they may have never seen before? Making your book stand out is the name of the game.

    • Peter Turner

      I tend to agree with Ockham on this, though for different reasons. I think there’s now less (now at least) concern over “cannibalization” than how to stretch marketing resources. The cost of marketing across even the existing channels and platforms is profoundly burdensome, which is why so many publishers don’t do a particularly good job at it when compared to other industries. I don’t see how major general trade houses (specifically) can be successful at the marketing requirements of the digital space without (at least) fundamentally reorganizing how marketing is integrated with their entire workflow from author onward.

      I agree with Mike that “it is also true that more challenging discovery means more skill doing it and more tools to reach [the right] customers have value.”

      But, I’m not sure the “better odds” that established publishers enjoy will be sufficient. Over time, it seems much more likely to me that content-focused eCommerce brands will emerge and become more attractive as publishers (to authors and readers).

      • http://idealog.com/blog Mike Shatzkin

        Everybody I know who has come into big house publishing from outside in the past 5 years or so has been shocked at the ratio of marketers to sales people. Publishing has always had far more of the latter, going back to the day when getting books into stores was really the most effective marketing. That ratio is slowly changing. You’re right that marketing resources are really stretched, and you’re right that it gets much easier to do if you’re vertical. But they’re all trying to varying degrees. I wrote a post two or three years ago about Macmillan sending 600,000 emails in a month for Tor.com (and getting 250,000 opened and 60,000 people to “take an action” if memory serves.) So big house resources wedded to vertical actually provides the most leverage. I wonder how deep in 7 figures those lists are now.

      • Steven Zacharius

        I’d like to point out that our marketing department has more people than our sales department at Kensington. There are only a handful of large accounts left, less than a dozen especially since News Group was sold.

      • http://idealog.com/blog Mike Shatzkin

        As it should be, Steve. It would be interesting to see how that ratio has changed across many houses over the last 10 years.

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  • Joseph Sanchez

    There are a couple of other issues here:
    1. Intellectual Property: Artists in every medium are seeing IP as a significant issue in their decision making process. There is a deep seeded instinct to maintain the “control” Mike refers to above. That is really all about IP and copyright.
    2. Pottermore proves that an artist, at least an established artist, can go solo, and make a lot of money without the publisher or Amazon. I think we are in a critical evolutionary stage where the actions of a few well-established artists in this regard could really change the future.

    I appreciate that you recognize the divergent market, as it is a question that has plagued me for some time now. As a librarian, I can tell you that the huge bulk of our circulation is the bestsellers list. I was involved in the first Smashwords/library coop and my concerns were that our readers represented the market that is less genre driven and more market/name driven. To date, our indie author circs remain woefully low.

    Finally, there are lots of great analogues that can be derived from the music industry. Many artists outside of the Billboard 100 are withdrawing from Spotify and Pandora because it is commercially unviable for them. I believe this reality is what is keeping author’s from jumping to quickly into one market or another. Music is inherently different in that it does not require the complete and total focus a book does, but the revenue losses in that industry are making authors pause.

    Great post Mike. Lots of food for thought as usual.

    • http://idealog.com/blog Mike Shatzkin

      Thanks for the kind words, Joseph. I wonder what Pottermore proves about authors and publishers. Clearly, without the efforts of Bloomsbury and Scholastic, we really don’t know whether Rowling would have achieved the extraordinary success she has. What Pottermore demonstrates is that an author with a massive brand can do things without a publisher that are (apparently) remunerative. But even the biggest of the purely self-published (Howey, for example) have not achieved a fraction of the success of Rowling. (In fairness: perhaps only James Patterson has among all authors!) 50 Shades got where it got with Random House’s impetus and probably wouldn’t have without it. So we still have plenty of evidence that publishers add value, quite aside from advances to support writers and the still not-trivial-for-sales reach they have into brick-and-mortar retail.

      • Joseph Sanchez

        Sorry, Mike. I should have clarified more. All I meant is that it is feasible, which fits your analysis. I come from a tech perspective and and usually arguing against my peers, which tends to think open content, and new methods of monetization will solve all the problems (just read Engadget or Doctorow). Trent Reznor of Nine Inch Nails has done this remarkably well (well before Pottermore), but I have been arguing with my crowd that a better understanding of the ecosystem and artists behaviors indicates that even a lot of indie successes tend to go back into the traditional support systems (publishers and record companies) as soon as they are successful. Plus, Reznor and Rowling are proving something entirely different- that once you have established a market you can do just about anything and still be successful.

        I forgot that I was not talking to my messianic tech crowd that thinks all we need to do is free content and everything will be ok. I do think that a number of successful authors may eventually band together and sell direct, as they are looking at Pottermore and thinking why not? But it will take time and a lot of investment and risk. I think that is probably why we haven’t seen more Pottermore attempts.

      • http://idealog.com/blog Mike Shatzkin

        One reason we haven’t seen more Pottermore attempts is because Rowling and Potter are sui generis. Patterson probably has a bigger audience than Rowling, but he doesn’t have a self-contained world and a constant set of characters across his output. Who else could do what Rowling did? VERY few people…

        Mike