AAP

When Amazon talks about how ebooks are selling in relation to print books, as they did again this week, they are comparing apples to apples. They are comparing what their customers bought in digital form versus what they bought in print in any given period of time.

When PW or the AAP or even the publishers themselves talk about how the industry is doing selling ebooks in relation to print books, they are usually comparing apples to oranges. They are comparing what actual consumers bought from retailers in digital form with what retailers and wholesalers bought from publishers in print form for any period of time. So they are comparing ebooks that consumers actually bought now with print books that consumers might, or might not, buy later.

(It is true that sometimes Nielsen BookScan numbers are referenced in these comparisons and, in that case, they are apples to apples because BookScan measures cash register sales which are legitimately comparable to the ebook numbers. PW, for example, reported that BookScan sales were down 26% for paperbacks and AAP numbers were down 36%, which underscores the effect being explained in this post.)

The ubiquitously flawed comparison is fundamental to understanding many things. It is part of the explanation of why ebook penetration numbers appear to fall sometimes, even though it is counterintuitive that they would.

There is probably a difference in the month-to-month fluctuations in consumer behavior purchasing print and digital books. For one thing, Christmas presents of print would tend to be purchased before December 25 and Christmas presents of ebook-capable devices would tend to result in ebook sales after December 25. (The devices would have been sold before Christmas, of course.) It might be true that people buy more ebooks in the first month or two that they own a device than they do on an ongoing basis.

But analyzing ebook pentration from these numbers is much more complicated than that because we must also take into account the fluctuations in trade ordering behavior which are also partly driven by the publishers’ collective decision about when to issue new books.

As frontlist-oriented as ebook consumption seems to be, the reporting of print book shipments would be even more so because big slugs of of big books are shipped to stores for publication date. Publishers tend to issue far fewer big books in January and February than at any other time of the year. The data suggest that returns fluctuation isn’t as great as shipment fluctuation, but the same returns on a lower sales base yield a higher returns percentage, or a relatively higher impact in depressing apparent print sales.

The lower the print number, the higher the percentage of total sales will be of the same ebook number.

So for the period left in our time of transition when Christmas presents of devices add new digital reading converts — and we certainly have one or two more Christmases like that coming, if not three or four — we can expect ebook sales surges right after Christmas that calm down in March and later.

For the period left in our time of transition when there’s a significant brick infrastructure requiring inventory in anticipation of Christmas sales — and we have some more years of that to expect too — sales of print measured by publisher shipments will look much higher in the fourth quarter of the year than in the first quarter of the following year. Then, assuming the amount of shelf space lost in the post-Christmas period doesn’t cancel out the effect of more big titles coming from publishers in March and after, print sales will rise again.

And for the period left in our time of transition when big publishers continue to slot big books to come in Fall in time for Christmas, hold them back at the turn of the year, and start issuing them again as we move toward the second quarter, and that also most certainly will continue for a couple more years or more because these patterns are deeply ingrained in companies resistant to change of this kind, the ordering pattern of the stores will be reinforced by the issuing pattern of the publishers.

There are always other factors in play. When publishers went to agency, ebook sales briefly went down because the big publishers’ take per copy went down. A smaller version of that impact was just registered when Random House went to agency on March 1. We also have a real impact, if one that is hard to calculate, from the Borders troubles. Publishers aren’t shipping to them, and other retailers are being cautious because so much Borders inventory is competing with them at distressed prices at the moment.

But the apples-to-oranges comparison, where print shipments to the sales channels are lumped with ebook consumer sales for the purposes of analysis, assures us that we’ll see some optical illusions. One of them is the apparent drop in ebook share that will be a seasonal feature of conversation for at least a couple more years.

Next Tuesday afternoon there will be a memorial celebration for the life of Ruth Cavin, the longtime mystery editor at the St. Martin’s division of Macmillan, who died at age 92 in January. It convenes at 5:30 at the Salmagundi Club at 5th Avenue and 11th Street. Ruth was a childhood friend of my mother’s, close to both of my parents from their days in college, and I knew her from my Day One to her Day Last. She was a wonderful person and I hope to see many of the people who knew and loved her at the event.

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

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

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

The two are connected.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I find myself with a lot of pages open on my web browser. Even before Amazon’s announcement yesterday about ebooks passing hardcovers in sales this past quarter, there has been a lot going on.

There had been some suggestions, which I never bought into, that ebook sales were slowing in 2009. (Is this a meme that started with somebody anti-Agency? More on that later…) I look at the IDPF chart as it stands today and it is headlined 2010 Sales  ”OFF THE CHART” vs. Previous Quarters and that’s how it looks to me. A major publisher told me yesterday that AAP figures suggest ebook sales are up 210% this year and that house’s numbers are up 225%, so they feel they’re rising with the tide. That’s about what PW said the AAP said with the additional information that hardcover sales were up and paperback sales, trade and mass market, were down.

In fact, Amazon, in the face of the apparently-stiff competition from the Nook and the iPad, says Kindle book sales have tripled in the first half of the year!

Nonetheless, Madeline McIntosh at Random House doesn’t see ebooks causing problems for paperback sales. She’s quoted in the Wall Street Journal saying, “Our conclusion is that there’s no data to prove any connection—good or bad—between growth in e-books and the growth or decline, in trade paperback sales. … If anything, we may be seeing a positive effect in which the steady pace of e-book sales helps to keep a book in front-of-mind for a growing number of consumers after hardcover momentum slows.”

Kat Meyer, blogging for O’Reilly, got an indie ebookseller to talk on the record about the difficulties they’re having with the transition to Agency. This would seem to undercut the idea (which I agree with) that Agency is good for smaller sellers, because the little guys will get squashed in a price war with big guys. A seminal figure in the online book retailing world who has worked with smaller stores on these challenges for years told me in a phone conversation this week that he completely agrees with me. But the problems Kat lays out for the smaller guys during the transition are real. Let’s hope we don’t lose too many of them while this all gets figured out.

Meanwhile, Knopf made some news with the announcement that they are converting more of their backlist to ebooks. We were wondering what titles they could have missed so far. Random House has never been a laggard at ebook conversion and we’re scratching our heads wondering about a conversion initiative that would be imprint-specific. But this shows that the ebook sales records being broken are occurring without the gun being fully loaded; they’re still making ebullets out of old books.

Joe Wikert wrote a blog about the emerging ebook landscape in which he imagines that the various indies selling Google Editions will, all together, constitute a big Amazon. I don’t think so. I don’t think Google can save indies with what they’re doing. But it is good that they’re trying.

Joe also thinks that Amazon will abandon the Kindle device in favor of the Kindle as a platform. I don’t agree with that either. The device is reportedly still selling like hotcakes with sales rising quickly since a recent price cut, even while the Nook has established itself and iPad has been “competing.” I think there’s room for tablet computers and ereaders, which might be a minority position at the moment. (Being in the minority is perfectly comfortable for me.)

You know we’re all about vertical here at The Shatzkin Files. It looks like some authors from big houses are taking this vertical thing into their own hands. A bunch of gardening authors have created their own garden experts speakers bureau.  It won’t surprise anybody if I predict that this effort will be more successful than the “horizontal” speakers bureaus launched by some of the major houses over the past few years. I checked with the folks at Cool Springs Press, the gardening publisher I featured here a couple of weeks ago, and, of course, they’re involved.

I had written a blogpost recently saying that I thought ebook selling nodes would explode and be all over the web. It looks like Oprah is fueling that idea in a way that I hadn’t entertained: with an app. Why not? Who has a better brand than Oprah for “curation”? Maybe Barnes & Noble. But maybe not.

It also seems that self-publishing is growing in ubiquity and respectability. PW announced the plans of an author who told his agent not to bother selling his rights. If this isn’t the major trade houses’ worse nightmare, it should be! Joe Konrath, who may go down in history as the trailblazer who proved that some authors, at least, can make money without publishers, is reporting his rising Amazon revenues on books the New York houses have turned down, and they’re eye-catching.

And the last thing I note in this pot-pourri is the news from Farrar Straus & Giroux that they’re launching an online literary magazine. On the one hand, this is the kind of niche marketing we’ve been advocating that larger houses pursue. On the other hand, the story suggests this is all about promoting FS&G books, not about building a community of like-minded readers, few of whom would know or care which publisher put out the last book they liked.

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While the AAP reports that US book sales are definitely down and my friends in major houses report a decline of 10% or more across the board, that’s not what we’re hearing from Canada and it’s not what we hard from small and midsize publishers responding to our BISG “Shifting Sales Channels” survey.

BookNet Canada reports 665 “same stores” in Canada reported units up 6.7% and dollar volume up 5% year on year in the first quarter! Michael Tamblyn tries to fish for reasons on the BNC blog, but there is no cause immediately apparent. Michael decides that it isn’t a Stephenie Meyer effect because there something like the Meyer effect happens just about every year.

The BISG and Idea Logical survey for “Sales Channels” was nowhere near as scientific, but we did get 245 responses which suggests the results are worthy of serious consideration.

One response in particular blew me away. We asked whether “overall sales for the past 12 months have been considerably weaker than for the two years prior?” Every large publisher we talked to said “yes” to that. Three significant smaller publishers we talked to said emphatically “no”, they just had record years. In the survey, 73% of large publishers said “yes” (sales had been much weaker) and 65% of smaller and midsize publishers said “no”!

We got a similar split on the question “have sales of your books fallen substantially any specific channels or accounts over the past three years?” Only 44.9% of the medium and small publishers said “yes” to that but 63% of the large publishers did!

So sales seem to be stronger for smaller publishers and smaller countries.

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