The Shatzkin Files

Sometimes one more calculation can make what looked first like revolution resemble what it really is: evolution

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Author’s warning: this post is largely wrong! The following post was written based on a fundamental misunderstanding, assuming that Mark Coker’s post was talking about ebook sales in units when he was talking about dollars. 

So while there are some insights that may have value, the post is mostly wrong.
I am leaving it up because I have to admit to my errors (this is the first time in five years I have had to do this), and because there were some useful comments. (And who knows? We may get more.) I will write another post (and here it is!) reflecting on Mark’s in the next couple of days, this time giving observations based on a correct interpretation of what he says in his.

Mark Coker, the creator and owner of Smashwords, very likely the biggest service-provider (after Amazon) for ebook creation and distribution for the self-publishing community, wrote an article on Huffington Post today with the headline prediction that independent publishing could be responsible for 50 percent of ebook sales in 2020.

While Coker does engage in some red meat slinging that will please the indie author and publisher cohort that is his bread and butter (painting a Manichean view of heroic indies on one side who believe their growth is inevitable and the blinkered establishment on the other side that considers the indie view “delusional”), his methodology is sound and his predictions are pretty reasonable.

But, unfortunately, Coker’s analysis stops one calculation short of painting a meaningful picture. And that calculation is the one that counts. Literally.

Coker figures that the current share in 2013 of ebook sales garnered by indies is 15 percent. He posits that print is 70 percent, so the indie ebook share gives them about 4.5 percent of the total market. That’s correct, if you are talking about units sold. And that’s where he stopped, but shouldn’t have.

Because indie ebooks generally are priced between $0.99 and $2.99 (although some have pushed that to $3.99 lately), and publishers’ ebooks are generally priced from $7.99 to $14.99, what Coker calculates omits an important reality. We’d have to guess what the multiple should be to translate unit share into dollar share, with publishers’ books listed anywhere from three to ten times, or even more, over where indie ebooks are priced. I’ll guess that a multiple of three times is a conservative estimate, taking into account that publishers’ prices are often discounted by retailers. (And I hope Coker would agree with me which I think is possible because on the numbers he stated, I agree with him!)

If 3x is the right multiple (and it is a lot less than the 5 to 1 ratio Hugh Howey found at Amazon for traditional publisher dollars over indie dollars), then indie ebooks really amount to around one-and-a-half percent of the book market by consumer spend. More than six years into the ebook revolution (if dated from Kindle, which is where I’d begin), that’s not a number that would justify the strutting of the indie ebook advocates and the slamming (and frequently predicted demise) of the publishers.

Of course, Howey and others have insisted that calculating consumer spend is getting the question the wrong way around from the authors’ perspective. What matters, they would say, is what share of author earnings fall to independent authors. And it is, indeed, likely that the well less than 2 percent share of consumer dollars would be a poor proxy for author earnings because sometimes (but not nearly always) authors make more money on a lower-priced ebook than they would have from a publisher’s sale of a higher-priced ebook (or a print book.)

The problem is that we have no way to make that comparison. We can’t actually calculate published authors’ earnings from sales and contractual percentages because we know that published authors get a lot of money in unearned advances. And we don’t know what indie authors earn either; it isn’t the frequently-bandied 70 percent of the consumer dollar all the time. (In fact, it isn’t 70 percent all the time even on Amazon.) With the price differential and many indie ebooks selling at 99 cents with the author getting about 35 cents of that, my hunch is that published authors actually average more cents per unit sold than the self-published do. At the same time, published authors are getting their take calculated on the price from which the retailer discounted, a higher price than the selling price. That means their royalty on the selling price is higher than even knowing the contractual terms would lead you to guess. And that is before you even get to accounting for unearned advances. So even getting 4.5 percent of the units would probably give them no more than 2 or 3 percent of the royalty dollars. And almost certainly that 2 or 3 percent is divided among far more authors than the 98 percent that goes to the published.

The heart of Coker’s piece is a checklist of reasons why the indie ebook share will increase. Most of those make a lot of sense. And his ultimate conclusion and prognostication, which is that ebook unit sales will be 50 percent indie by 2020, is not crazy. Maybe it will be 40 percent. Maybe 50 percent will come in 2023. But surely over the next few years the indie share of the total is likely to get bigger and the publisher share is likely to get smaller, even though publishers and other big players will increasingly be providing services to indies and alternative ways for them to work with established publishers on something other than the advance-against-royalties basis that has been the industry standard for many years.

But even then, we’re probably looking at something that is more like evolution than revolution. If indie authors have 50 percent of the ebook units by 2020, they’ll probably have half of 50 to 60 percent of the total market, assuming that print sales slip from 70 percent today to 40–to-50 percent in six years. If indies sold half of what might be a 60 percent ebook share of the market, they’d have 30 percent of the unit sales. But the pricing differential will still exist. (If it goes away, then indie sales won’t grow so fast.)

That means that, even by 2020, and even accepting indie champion Coker’s calculations, indie ebook sales will be around 10 percent of the dollar volume of the book business. And their share of total author revenue will be more impressive, perhaps in the teens, but still divided among far more authors than the much bigger number going to the published.

These calculations are not intended to disparage the indie writing and publishing community (most of whom get significant help from very big companies, starting with Amazon, to make them possible). It is intended to provide a reality check. The industry is still run by the establishment, and it will be for the foreseeable future. There are expanding opportunities for independent action and it is the right course for many authors, but the idea that we’re about to see some total reversal of fortune can be, and often is, wildly overstated.

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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  • Ted Weinstein

    Thoughtful post with one error:

    “At the same time, published authors are getting their take calculated on the price from which the retailer discounted, a higher price than the selling price. That means their royalty on the selling price is higher than even knowing the contractual terms would lead you to guess.”

    No, *ebook* royalties from publishers are 25% NET.

    • Ted, that’s 25 percent of the *publishers’ *net. But the *publishers’ *net can be based on the price the publisher sets, not the price Amazon (or another retailer) charges. The discount to the consumer generally comes out of the retailer’s hide.

      • Ted Weinstein

        “Can” be, but very few ebooks are being sold at a
        retailer-funded discount (i.e. paying the publisher more than 70% of consumer purchase price).

      • I am assuming that affects everybody equally (indies being discounted as well as publishers), except that the most powerful publishers would be affected least, I don’t think that would change much in the calculations. Certainly not by any order of magnitude. So indie ebooks are still under 2 percent of the business today and not likely to be more than 10 percent of the business when they get to 50 percent of ebooks. Thanks for the correction; I’d rather get things right than wrong. But in this case it doesn’t really change the core argument.

    • Ted, it is *not *an error. Their “contractual terms” are 25 percent. I didn’t argue that. But if somebody detached tried to apply that concept of terms to the *selling *price of the book, rather than the publisher’s *list *price for the book, they would calculate the author’s royalty too low. And the percentage the author gets (25 percent of the publisher’s net) will be a higher part of the retail price if the store discounts (which I keep confirming outside of talking to you comes out of the store’s share most of the time) the book. I am obviously not being clear enough if a smart guy like you thinks I made a mistake, but I think you’re not reading me literally or carefully enough.

  • Peter Turner

    I know this comment is somewhat off topic, but I wonder if the question of, “How to publish–indie/self vs. traditional”–isn’t really more intimately tied to less tangible considers than units sold or dollars earned. Being an author, a publisher, or both, is a very personal business. So the benefits (in the broad sense) like “prestige,” “investment,” “control,” “identity,” and so forth are a big part of the (somewhat subconcious) considerations.

    • Yes, Peter. This doesn’t get talked about enough. When you talk to an indie authors about what they love about self publishing, they’ll often cite creative control and faster time-to-market above the higher “royalty” rates. They’ll talk about the pleasure of it all. Writers often write and publish for reasons that are different from why publishers publish.

      • Some authors want to control the process. Some authors want somebody else to manage it for them. I wouldn’t make a value judgment about it and I wouldn’t begin to guess what the overall mix is. Of course, publishers have recognized that dichotomy for years. There are big authors who are very involved in their marketing and there are big authors who let their publishers and business people handle it.

      • Peter Turner

        Thanks, Mark, I wonder what you think about the comment above:

        “It seems like there’s a missing dynamic here. The number of people with eyeballs who are willing to pay for eBooks isn’t growing (at least I assume). Sure there are emerging markets but they’re not without real limits and governors. Does the sheer number of books available reduce the likelihood of any particular books selling and thereby reducing the desirability of publishing at all?”

      • I think your statement is mostly correct. There’s growth opportunity in emerging markets, but I doubt the growth will fully compensate for the flood of new high-quality books coming to market. The pie of reader eyeballs will probably increase due to the availability of more better-quality lower-cost books than ever before. I doubt the increased reading and increased quality will compensate for the number of flood of books published, however. It’s going to get a lot tougher to make money in publishing for writers and publishers.

        But will it reduce the desirability of publishing? The answer to that question depends upon the publisher’s (or author’s) objectives, and here I think authors have a significant survivability advantage.

        Publishers that continue to add incredible value by publishing reader-pleasing books will continue to do well. Some publishers will quit because there’s too much competition for too few eyeballs. The business of publishing is driven by dollars (it’s a business), even though most of the people who work in publishing are driven by the love of books.

        Writers write for reasons that can be very different from the reasons publishers publish. There’s a pleasure and satisfaction that comes from self publishing that cannot be measured by the dollars. Many writers will continue to write and publish without pay, a luxury publishers cannot afford. Writers who must write primarily for the monetary reward may be forced to quit.

        The publishing environment of the future will favor leaner publishers that can operate at lower costs (both to customers and the cost to writers in the form of earnings they give up in exchange for publishers services).

      • Peter Turner

        I’m of the school of thought that the core value publishers provide authors is exposure to readers who buy read and buy an author’s books, I find it hard to believe that authors gain a sense of satisfaction from merely having their book producing. They want it read and, ideally, paid for. Everything else a publisher does is window dressing, nice though it is. The trick of course, given the trending dynamics of how we discover and purchase books these days is effective and scalable digital marketing, such that authors welcome whatever cut is divined reasonable to both. My guess is that the ecosystems that make that possible are just emerging and diverse–or at least I hope so.

  • Nate

    This might be a shock for a known indie enthusiast to say, but I think Mark’s numbers and expectation of growth are optimistic.

    One thing Mark leaves out is that in order to be successful as an indie author you have to be both a good writer and a good businessperson. I’m not convinced there are enough people out there that have both traits. Sure, by 2020 there will be significantly more indie authors out there, but how many of them will be good enough at marketing and get readers attention through all the noise?

    And if someone is good at publishing their own books, couldn’t they devote those skills to books by other authors? I would think that it would make them more money, but it would also make them publishers.

    And if we take that one step further, we see that the current indie gold rush could be followed by a period of consolidation. That is a common pattern and it has happened in a lot of industries.

    Am I crazy?

    • Nate, indie numbers are what they are because of masses. A very small portion of indie authors succeed today. I don’t know if that percentage will go up or down, but the *denominator *we use for the calculation (the *number
      of indie authors*) is going to keep going up for a long time. Even if the success rate falls, and it probably will, the indie share will continue to grow.

      Will it hit 50 percent of units by 2020? I don’t know. But a) I don’t think it is a crazy guess and b) I wouldn’t consider it “wrong” if he’s too fast by a year or three or short by 5 or 10 points. The top line headline is near right and an attention-grabber. The problem is that it doesn’t mean what the indie champions want you to think it means about who’s running the industry.

      • Peter Turner

        It seems like there’s a missing dynamic here. The number of people with eyeballs who are willing to pay for eBooks isn’t growing (at least I assume). Sure there are emerging markets but they’re not without real limits and governors. Does the sheer number of books available reduce the likelihood of any particular books selling and thereby reducing the desirability of publishing at all?

      • The short answer to your question is “yes”. Everybody will find it harder than last year every year. But you know that’s been going on for 20 years; first Amazon made everything that existed available for sale. Then Lightning created a situation where nothing ever dies and old stuff comes back to life. Each book has been competing against more books than the ones last year did for *at least *20 years.

  • Hi Mike, I appreciate your added perspective. My estimates are based on dollars, not units, so apologies if that wasn’t front and center clear. I mentioned that inside the downloadable spreadsheet at

    One of the most valuable contributions Hugh Howey made to the discussion surrounds money in the author’s pocket. I’m now taking a stab at calculating that for a possible follow-on post based on my original spreadsheet estimates. Attached below is a *preliminary* stab, which assumes indie authors earn 60% of an ebook’s digital list price and trad authors earn 15% of dlp. I multipled the percentage of the ebook market going to indies by .6, and the percentage going to trad authors by .15. It’s tough to be precise on actuals. For Smashwords-distributed authors, they’re earning 60% list for prices $.99 and up in most markets. For Amazon authors it’s 35% list for sub $2.99 and $10+, and 35% for some markets if they’re not exclusive. For trad authors, I might be a bit generous here. If the publisher is pricing everything everywhere between $2.99 and $9.99 (and we know they’re not), AND they’re under agency, then they’re earning 70% list and 25% net of 70% list would be 17.5% list to the author. But if it’s wholesale at 50%, it’s 12.5% list to the author, and that’s not counting the trad pubs that offer authors less than 25% net. And none of this figures in unearned advances. Anyway, these numbers are all estimates anyway, and I invite anyone to download my spreadsheet and develop and share a more robust model. What’s initially striking to me from the graph below is that 2014 (assuming my initial estimates are even close) will be the first year that the total dollars earned by indies at retail will equal dollars earned by traditional authors. The next most striking thing is the slope of the curves. Because indies earn a net that is a multiple more than traditional, the linear marketshare growth I modeled for indies leads to an exponential differential in terms of the dollars going into indie authors’ pockets vs. trad authors’ pockets. It means indies are poised to capture a bigger share of the author profits if print continues to decline in importance. Of course, an additional limitation of such a graph is that it assumes the current net rates stay the same. Amazon could gut indie rates over the next few years, or trad publishers could increase their rates, or everyone could raise them. If my chart is even approximately accurate, though, it means when trad authors count their beans, they’re going to start feeling some indie envy if the patterns play out, which could lead more authors to the indie camp, which would break my linear models as too conservative. None of this means indie authorship is the road to riches. It just means there will be much more competition for reader eyeballs than most people expect because there will be a glut of high-quality books that never go out of print and incredible pricing pressure on those books.

    • There’s a lot in here, but Peter’s comments alongside ours have hit the nail on the head. You’re looking at the aggregate revenue to the author pool for publishers and the indie author pool. What *matters *is revenue divided by the people sharing it, to tell each *person *what the best course of action would be for them. Your magic trick of indie sales growth is created by driving more and more indie authors (which is why you are writing your blogposts, posting on this blog, and generally cheerleading the situation.) The publisher share, whatever happens to the numerator (author dollars) will have a pretty stable denominator (authors sharing it). Not true for you at all. Not true for indie authors at all. Now the fact is that the flood of books makes life more difficult for *all *the other books (not just the indies, the publishers’ too.) That is why you and I agree that the market share will shift. But that’s not the same thing as saying to *each author *that your better choice is to do it yourself. You can’t assume equivalent sales numbers either. And that’s *before *we get to print revenue, unearned advances, and having somebody else doing a lot of work on your behalf. Sorry, Mark, your equations just don’t take everything into account.

      • The magic of increased indie sales will be driven by multiple factors discussed at some of which include:

        1. Increased numbers of indie ebooks hitting the market each year.

        2. Indie authors learning to publish more professionally, which will lead to more higher-quality indie ebooks, which will increase their quality-competitiveness against traditionally published books.

        3. Indie authors evolving their previously published books with better covers, better editing, better everything. Immortal books, ever-evolving, becoming more quality-competitive. Zombies resurrected as healthier living creatures as authors adopt best practices. 🙂

        4. Increased percentage of first-time authors aspiring to self publish as their first choice, whereas six years ago virtually 0% of authors aspired to self-publish. Those who make indie publishing their first choice won’t bother shopping their books to agents and publishers. These books will hit market as indie-first. Trad publishers will be able to recruit some of the better sellers, but not all.

        5. Authors who’ve remained loyal to traditional publishers will increase their dabbling in the indie pool. Some will leave.

        I touched on the increased competion in point 6 of the HuffPost piece: “Every publisher — even indie authors — will face increased competition
        from the glut of high quality works that never go out of print.”

        I agree that the best choice isn’t black and white. For some writers, it’s indie, and for others, it’s traditional. And for some, it’s both.

        Print constrained the supply of books. Ebooks will lead to a glut of high quality books where good enough isn’t good enough for authors anymore.

      • I think number one is number one. And therein lies the problem for all the competitors, indie and published.

    • Mark, having taken some time to reflect, I realize I owe you an apology for having taken off on a misunderstanding about your data (I worked from your post, not the spreadsheet). I don’t *buy *the idea that indies are 15 percent of the ebook revenue now, but that’s a different thing than arguing with something you didn’t mean to say. While what I said earlier about the per-author share being the important metric when considering the balance between indie and published author earnings is still an important point, much of the rest of what I said here has to be rethought. First time this kind of “whoops” has happened to me. Thanks for your patience.

      • No apology necessary! One of the reasons I shared the spreadsheet is for others to add and argue their own estimates. Although I think my estimates through 2013 are pretty close and my estimates beyond 2014 could turn out to be on the conservative side, if someone disagrees I’m not offended. There are a lot of assumptions built into this, and it’s simplistic by design. My primary interest here is help people consider the implications if a few of these trends continue.

      • Mark, the post is just wrong. I am writing a new one based on understanding you correctly! It would seem to me that 15 percent revenue for indie ebooks today would suggest unit sales of indie ebooks must exceed those of publisher ebooks. I just find that very hard to believe. So there are useful things to say about what you posit (and we do agree about the overall forces if not about where things stand right now), but I didn’t say it here. I am actually trying to figure out now how to take it down. But I’ll replace it!

        And YOU are a Good Guy.

      • Nothing would make me happier than for my 15% number to be proven way too high. If retailers disclosed tomorrow that the indie percentage is only 5%, it would mean Smashwords has that much more opportunity ahead of it! 🙂

      • Good point!

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