Penny Marshall

Amazon might lose interest in total hegemony over the book business before they achieve it


The industry got the news that Amazon was probably reassessing its own publishing program a couple of weeks ago when it was announced that Laurence Kirshbaum was stepping down as the head of Amazon Publishing and being replaced by a 14-year veteran of the Seattle company, Daphne Durham. Whatever are Durham’s strengths and connections, they don’t include the familiarity with the New York publishing scene and agents that Kirshbaum brought.

While this certainly does not suggest an overall reduction in Amazon’s publishing activity, it does signal a change in tactics. It would appear that the unorganized but united stand by Barnes & Noble and independent bookstores to boycott Amazon-published titles and refuse to give them shelf space made it virtually impossible for Amazon’s publishing enterprise to compete with the big houses for brand name authors. The few that they tried — Penny Marshall and Timothy Ferriss wrote the high-profile titles that were watched — had disappointing results. Whether that was largely because the stores wouldn’t play along or for other reasons (not all books by famous authors or celebrities are equally edited or equally appealing), the overall environment did not leave agents or the authors everybody wants panting for an Amazon publishing deal.

Retreats — apparent or real — by Amazon are rare. (The last one we can recall is when they pulled the buy buttons from Macmillan titles in 2010 to protest agency pricing and very quickly rescinded the action.) But it would be a mistake to think either that Amazon is less interested in publishing than they were before or that the threat they pose to publishers’ relationships with authors is no longer something publishers need to concern themselves with.

In fact, all the recent evidence suggests that Amazon’s market share is still rising. The Bowker numbers reported at the end of July of 2012, trying to measure who got the Borders sales (which were 10% of the total when the retailer went out of business) put Amazon’s total share of the book market at 29%, up from 23% a year earlier. In that same report, it was reported that B&N had gained a point of share, up from 19% to 20%. So Amazon out-benefited B&N from Borders’ collapse by six to one.

Earlier this year, it was reported in Britain that Amazon had a whopping 79% of the burgeoning ebook market. That’s more than they have in the US. It is also apparently the case that Amazon has the lion’s share of the online book sales market in the UK (and, along with their subsidiary company The Book Depository, most of Europe and the English-speaking world).

The share of total sales that goes through their registers is only one measure of Amazon’s disruptive growth. They’re also signing up more and more books directly to their imprints (the genre publishing growth continues unabated and was never heavily dependent on Kirshbaum) and getting more and more books through authors self-publishing. And as they disintermediate publishers by bringing in books directly by either means, they also threaten their competitive retailers in all venues. Although you can be self-published through Amazon and continue to distribute to other channels, they offer financial incentives to discourage that.

In fact, Hugh Howey, the enormously successful self-publisher of “Wool”, told us a year ago that the decision to broaden his distribution base to include Nook and other platforms cost him money. He did it because he thought it was the fan-friendly thing to do but he’d have made more money on his ebook sales if he’d sold fewer units and given up the other formats.

(KDP Select is the program that demands exclusivity. By enrolling, authors get their works in the Kindle Owners’ Lending Library, increased royalties on sales outside the US, and access to additional promotional tools. You can still have your book on sale in physical, “or in any format other than digital”.)

We see Amazon growing into a large and slightly separate book industry of its own. They don’t use the book business’s standard ebook format, epub; they use their own format, mobi. (The Amazon “flavor” is AZW, and they also have the newer KF8.) They don’t care much whether a book has an industry standard ID, the ISBN number. Amazon assigns its own number, unless the publisher has a 10-digit ISBN they can use, which they call an ASIN. They own a must-optimize author page (Amazon’s author page affects an author’s discoverability on Google; the converse is not true) and a must-use book readers’ social network (GoodReads). They have their own print-on-demand operation making it simple for an author to set up both ebooks and print at the same time.

The “advantage” a publisher has pursuing authors is that they can offer a much broader distribution base as well as their honed skill at marketing and publicity. But there’s a price for that; self-publishing with Amazon brings an author four times the revenue for ebooks and somewhat more for every print copy sold as well. Whether Amazon is a quarter, a third, a half, or more of a book’s sale depends on the book, but authors will be increasingly facing the choice Hugh Howey faced: publish exclusively with Amazon and sell a bit less but make a bit more, or publish to a broader audience through a publisher (or on your own) and make less money. Apparently, many authors are doing 90-day runs of KDP Select to get a boost at Amazon, then switching back to broader distribution

Fortunately for the rest of the publishing business, the shift to ebooks and to online purchasing may have stalled. In the US, Amazon appears to have about 60-70% of the ebook business, and ebooks constitute about 30% of the total business. But the ebook share is much higher for immersive reading, higher still for fiction. For fiction, more than half the sales of many titles can be digital. And the print sales are anywhere from 25% to 35% online. So for fiction, Amazon may already be nearing half the total sales for many titles.

We wouldn’t expect the slowdown of the shift in sales to last. New offerings of ever-cheaper and more-flexible devices, more and more cheap ebooks in the market (discounting the backlist ebooks seems to be publishing’s latest most common marketing trick), and the natural growth in digital interaction as older people exit and younger people with new credit cards replace them, pretty much assure that the online sale will continue to grow in relation to the store sale. As that happens, as the 2012 measurements after the demise of Borders showed, Amazon experiences organic growth.

So, when does Amazon’s share growth stop? And who is left standing when it does? Here we have to enter a realm of pure speculation; there are no data points that can help us figure this out.

To answer these questions, we need to look at the book business in segments.

For narrative text, books that one reads from the first page to the last, we’d expect continuing growth of digital. For genre fiction (including YA), which has the additional characteristic of having audiences that consume many titles a year, we’d expect a lion’s share digital market — 80 percent or more — to be common within a couple of years. For those books, Amazon will continue to just eat away at the publishers’ position. More and more of the genre readers will migrate to them because they’ll have an increasing number of titles on an exclusive basis, more — and more aggressive — price promotion, and probably a variety of subscription opportunities. That should lead inexorably to more and more of the genre authors being willing to publish with them exclusively because they’ll be able to reach an increasingly large percentage of the reader base through digital and Amazon alone.

If I were looking for the first candidates not to be “left standing”, we’d expect to find them in genre publishing. In time, the big publishers will increasingly focus on “big” genre titles, rather than lengthy genre lists.

I also expect more DRM-free trials, particularly in genre fiction, so that publishers and third-parties can sell mobi files to existing Kindle customers. For while genres are where Amazon has their greatest potential strength, it is also true that genres are where publishers have the best chance at building brands and direct customer relationships that matter.

More general fiction and non-fiction will be read mostly in digital form in a short time too, although the hardcovers for those books will continue to exist. But for the big players in general trade, there’s another problem besides Amazon to deal with. That’s the new publishing behemoth: Penguin Random House. I would guess (all we can do) that by three or four years from now, the first choice for most authors will be either PRH or Amazon. PRH will provide the biggest reach; Amazon will often provide the biggest potential revenue. The other general trade houses will fight each other for the authors that don’t want to be part of either behemoth.

For illustrated books and children’s books, the environment will be different. Stores will remain important, but there will be fewer of them (and therefore fewer books of this kind published). The bookstore I’d imagine in several years will have far more illustrated and gift books in it as a percentage of the total title mix than it does now.

What I think will save publishers from disappearing, oddly enough, will be a loss of interest at Amazon in taking more market share. This conclusion comes from a combination of something I learned from people at Google about Google and what is clear from Stone’s book.

Last spring, I visited a Google installation that was not about the book business, but about an online game. The game is a big online experiment in engagement. Googlers showing us around were thinking about the revenue potential of the game, which was not supposed to be their primary concern. They had come to the conclusion that $100 million in annual revenue would be achievable, but they didn’t think they’d be able to go after it. Why? Because nobody in a responsible position at Google would take ownership of something as small as $100 million in revenue.

Brad Stone paints a picture in “The Everything Store” of Amazon as, above all, a highly rational company. Jeff Bezos can be impetuous, but he’s not nuts. He is zealous about the things he cares about because he believes they matter: customer happiness being number one on the list. As the book business becomes a smaller and smaller part of the total Amazon picture and the challenges that matter to the business revolve around delivering your fresh produce in 30 minutes, not 90, it is likely that Amazon will have less and less interest in squeezing just a little bit more margin out of the book business. There will be easier places and easier ways to make money.

Amazon achieved the position it has in the book ecosystem through a combination of brilliance, execution, natural forces, and some good luck but, above all, focus. It had to take some big chances with pricing and margin to get where it has gotten, but that’s not really necessary anymore. Doing some very logical and natural things, like the new Matchbook program and rolling out more subscription and pricing offerings (like their new “Countdown Clock” discounts for new Kindle titles) will keep their share growing and their competitors scrambling. They will also almost certainly be coming after publishers for more margin (as will their equally dominant counterparts on the store side, Barnes & Noble), but it would seem unlikely that they’ll see the need to extend themselves to sign up authors or build out their ability to distribute print to other people’s stores.

Amazon will certainly continue to make it difficult for publishers to use price offers as a way of teasing away some of the direct ebook business. Publishers are finding that increasingly tempting as more and more vendors emerge who can solve the tech challenges for them. But even with publishers taking some ebook share directly, and more of them will, chances are that the ebook business will grow faster than the publishers’ shares and that Amazon’s growth, partly at the expense of other ecosystems, will not stop.

So the good news for publishers is that the business they now have will look less and less appealing compared to other worlds Amazon might conquer. That should save them from having a bulls-eye on their backs, but it will remain a very challenging environment where their biggest customer is the most powerful force in the marketplace and growth outside that customer is harder and harder to achieve. The publishing activities of Amazon will continue to get bigger; the industry of other publishers will continue to get smaller. But we are probably in for a period of slow and steady shifts rather than cataclysms.

As long as Barnes & Noble can stay healthy and the other ebook platforms aren’t crushed by losing titles to Kindle exclusives, that will remain the case. And that means “for quite a while” but not “forever”.

Remember that Brad Stone will be joined onstage by analyst Benedict Evans and publishing sage Joseph J. Esposito for a wide-ranging discussion about Amazon at Digital Book World in January.

Note that I also posted on Amazon yesterday. That piece describes three important pieces of their story that didn’t make it into Stone’s book.

And, if you’re from a start-up or your job at a publisher includes meeting with and evaluating start-ups, we really want your response to our survey, which will inform our dialogue about start-ups at Digital Book World.

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Amazon as a threat to steal big titles from big publishers is still a ways off


When Larry Kirshbaum, the longtime head of TimeWarner Publishing (purchased right after he left in 2007 by Hachette and now the company called Hachette Book Group USA) joined Amazon many people thought — I among them — that Amazon was about to become a threat to take big titles away from the major publishers and, by doing so, also put pressure on competing retailers who would either have to buy from Amazon or do without major books.

An article last week in The Wall Street Journal spells out just how futile have been Amazon’s efforts so far to upend the Big Six. Their two biggest headline acquisitions — a celebrity bio from actress Penny Marshall and the latest from bestselling non-fiction writer Tim Ferriss — are achieving paltry sales outside Amazon as measured by BookScan.

Michael Cader does some deeper digging to suggest that the high-profile books are not the place to be looking for the successes in Amazon’s publishing. They’re publishing lots of genre fiction and buying up some backlists.

Yet, I can’t believe that the high-profile output from the New York office meets Amazon’s original expectations or Kirshbaum’s. If they miscalculated the impact they could make, maybe it was for the same reason I did. An abrupt slowdown in ebook switchover took hold at about the same moment the Kirshbaum era at Amazon began. Big publishers are reporting that ebook sales are now approaching 30% of their revenue, which is about a 50% increase from what they said last year. That follows several years when ebook uptake increased by 100% or more.

(It is important to note here that the reported figures are a percentage of all revenue. Many titles are not “ebookable”: they’re illustrated books or little kids’ books and, if they have ebook equivalents at all, they don’t sell nearly that percentage. So the digital sales of immersive reading would constitute a somewhat higher percentage than that.)

Amazon as a publisher has advantages and disadvantages against more traditional competitors. They have the advantages of direct customer contact, which pay off in two ways. They can send you an email pitching a book as the logical next one to the one you just read; general publishers can’t do that. And, as the publisher, they have more margin to either pay the author more or charge the customer less, which, either way, increases an author’s revenue through online channels.

But their disadvantages are also significant. For most books, and particularly non-fiction (as both of which the high-profile releases the Wall Street Journal wrote about are), more than half of the sales still come from brick-and-mortar stores. Despite their attempt to secure that exposure by a licensing deal with Houghton Harcourt, the resistance to Amazon from Barnes & Noble and many independent stores and mass merchants has curtailed that distribution.

Apparently Amazon led at least some people to believe with their success on the recent Barry Eisler book that they could sell more copies through their own channels than big publishers could through the entire network. The claim that they had outsold all his previous NY Times bestsellers was made to literary agents in a letter that also cited other great successes, all with genre fiction. Without questioning anybody’s numbers, I was skeptical about the significance of the relative Eisler sales because, it seemed to me, whatever they could do for Eisler (whom they published) they could do for any other book they wanted to, whether they published it or not. So it seems illogical to me that they would somehow magically sell more than the whole trade combined on a book because they were publishing it.  It seems apparent that Amazon isn’t succeeding at persuading agents that the Eisler case, even if it is as portrayed, is replicable.

I saw reports of bitter comments from Tim Ferriss, complaining about Barnes & Noble’s apparently-effective boycott of their competitor’s publishing program. Maybe he would be doing that even if Amazon is selling more than his conventional publishers did before. But I doubt it.

This is not a final answer. Amazon’s share of the trade market — ebooks and online print combined — is still growing and shows no sign of abating. Most publishers would still report that Amazon is their fastest-growing account.

But shelf space erosion — a metric with no reliable index anywhere — seems to have slowed down. That means that, at the moment, we have a more stable book trade than we’ve had for at least five years. It is smaller, but it is more stable. In the US at least, our market of three big ebook players (Amazon, B&N, Apple) and two sturdy and persistent upstarts (Kobo and Google) is still welcoming some new entrants. Zola eBooks, promising some interesting merchandising innovations, and Bookish — the repeatedly postponed effort from three major publishers — are expected to join the fray soon. Sony and Copia and Blio are still trying to gain traction, but they’re also still here.

Amazon definitely has the most advantages. Their Kindle ecosystem is still the best-functioning, deepest in title selection, and benefits in numerous ways from having more readers and selling more ebooks (and books, for that matter) than anybody else. The growth in their genre title base that Cader points out increases their market share of dedicated genre readers, who read other things too. They have the most self-published titles and the best ecosystem for self-published authors to make money. And the big title growth enables them to build subscription or subscription-like capabilities like KOLL (Kindle Owners Lending Library) which do take customers out of the game for everybody else.

As their share of the market grows — as long as it continues to grow — their argument to authors to cast their lot with them gets stronger.

But, for now, it would seem that B&N definitely did the right thing for their own good by boycotting Amazon’s titles. And, for now, it would seem that most of the authors Amazon will get for their general list will be those who are annoyed at the publishing establishment like Konrath and Eisler or curious about working with a tech-oriented publisher like Ferriss.

Authors who want bookstore exposure or to maximize their total sales across the US bookselling universe will remain hard to persuade for the forseeable future. But probably a little less so with each passing day.

I note with sadness the passing of Senator George McGovern. I am proud to have worked on all three of his presidential campaigns: 1968 at the Democratic National Convention working for Pierre Salinger, two years on the 1972 campaign, and a weekend in New Hampshire trying to light a fire in 1984.

What motivated us to join Senator McGovern was primarily his opposition to America’s involvement in Vietnam, but his personal and political appeal went far beyond that. He was extraordinarily decent and straightforward. In my stretch of two years working for him in the early 70s, it was remarkable how consistently he took issue positions we young idealists could be proud of. A poorly-vetted choice for vice-president will always be part of the explanation for why he was crushed, but my friend Professor Wade — one of McGovern’s top strategists — told me years ago that it was the assassination attempt that crippled George Wallace that actually was responsible for the defeat. 

Nixon had won the 1968 election with a little over 40% of the vote. Wallace had taken a share in the high teens. The McGovern planning from the beginning assumed a similar race in 1972. When Wallace was eliminated by the assassination attempt, Nixon’s “Southern Strategy” made him the heir to the Wallace vote and a landslide victory.

In the end, of course, it was Nixon’s vice-president, Spiro Agnew, who went to jail and his administration that ended in disgrace. McGovern was always gracious and never bitterBut, as a country, we’ve never spent enough time contemplating how different things could have been if Bobby Kennedy hadn’t been shot in 1968 or if McGovern had won in 1972.

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