Many, if not most, of the people in publishing houses I know have what they feel is a pretty clear picture of the changes we’re seeing in the business. There seems to be a strong consensus that the ebook share is leveling off or diminishing as opposed to print. And there is an enthusiasm about what is characterized as a vibrant and growing independent sector. And stronger print, too many (if not most) people (even inside the industry) figure, means stronger brick-and-mortar and a lessening of the power of Amazon.
But data is really elusive and confusing in our business. Nobody really counts everything in the same way with the same time periods and methodology.
Until now, there has never been a comprehensive look at industry data that accounts for the books with ISBNs and the books without ISBNs, the print books whose sales are captured by Bookscan (from most, but not all, of the cash registers) and the ebook sales reported by their sister operation Pubtrack Digital (from a group of large-ish publishers, but not all), and across all formats (print, ebooks, and audiobooks).
The challenge of aggregating that data and making sense of it has been tackled by Data Guy, the anonymous quant who put together the Author Earnings website with indie author star Hugh Howey. The original mission of Author Earnings was to get a handle on how much money indie authors earned in relation to conventionally-published ones. Indie authors often sell ebooks, particularly, at much lower prices than established publishers do, with the author getting a much larger share of the consumer dollar from those sales. But indie authors don’t get the same level of print sales (almost none in stores) and often don’t produce audiobooks, which require a separate creative effort.
So indie authors often make more per copy on ebooks, even when they are priced very low, than published authors do, ignoring, for the moment, that so many published books don’t earn out their advance so the effective royalty rate is higher than the contractual royalty rate. The indies also usually give up a big share of the potential market because many of them only get ebook sales through Amazon.
Doing the work Data Guy does is not nearly as straightforward as the data aggregating done by Bookscan and PubTrack, who are collating and analyzing data provided because it is being paid for. Although there is a lot of work and skill involved in harmonizing those numbers, Data Guy has to work to even approximate his core data. He translates Amazon “rankings” into sales numbers by using the titles for which he knows the numbers as anchors. But there is a lot of “interpretation” beyond that to what he does.
He has to estimate the impact of Amazon subscription sales on ebook sales.
Free and heavily-discounted Kindle First numbers skew Amazon Publishing sales and have to be accounted for.
Amazon US sells globally. This will have a widely variable but sometimes significant impact on a title’s sales.
So it requires a certain amount of faith to accept Data Guy’s analysis. It is almost certainly not 100% correct. But Bookscan doesn’t capture all the cash registers and PubTrack doesn’t get reports from all the publishers either. (Welcome to the world of publishing data!)
For DBW 2017, Data Guy combined the unique data sets that he has developed — tracking unreported indie, Amazon-published, and some smaller-publisher titles — with what is available through Bookscan and PubTrack to create a much broader consolidated picture of the reality of our business than we’ve ever had before. (The presentation slides are here, along with contact information.) There were really two large categories of insight this work enabled.
One of them is a very granular look at how the sales of books break down — with pricing data — across formats (print, ebook, audiobook) and publisher types (traditional, independent authors, Amazon) by genre. This is critical information for any publisher to guide their understanding of the real competition for each book they put out, including how pricing affects sales in the relevant category.
That’s analysis each publisher needs for each book they do, and should perhaps engage Data Guy to help them with. There are some stunning revelations even within his DBW slides but, as he spells out, he can get exceedingly granular with that analysis. If my commercial success depended on knowing the landscape, I’d want him to inform me about the market for each book I published.
The other set of insights provided blows away the picture of reality painted here in the opening graf. (Admittedly, the sophisticated quants inside the biggest publishers must know this picture isn’t accurate about their own books.) It documents that the strategy of the biggest publishers, going to agency pricing so it was harder for Amazon to discount ebooks, is not solving their “Amazon problem”. It is exacerbating it!
Data Guy delivers a much clearer picture of the real market by including and integrating data for what Bookscan and PubTrack leave uncounted: the indie-published books (and even some from publishers) that don’t carry ISBNs and Amazon-published books that aren’t reported. He estimates the total “non-traditional” market at $1.25 billion consumer dollars, almost 300 million units across formats, with the lion’s share — 263 million of the 297 million units — being ebooks. The ebooks are on the cheaper side (he says an average of $2.92 per unit for the self-published and $4.38 per unit for Amazon-published). The ninety-nine cent price is pretty much a relic, except for windowed promotions. Amazon made that happen with their royalty structure, encouraging authors to price at $2.99 or above.
This shadow market constitutes 43% of the units purchased on Amazon and 24% of the dollars spent.
Those 263 million ebooks that Data Guy counts and Bookscan doesn’t are the difference between the flat or shrinking ebook market that publishers see and the perhaps-still-growing ebook market that Amazon sales suggest. (Other ebook retailers are not having that same recent success.) Because indies are gaining share, it clearly feels like a shrinking market to publishers.
But it isn’t.
There is another truth that the holistic Data Guy analysis reveals that upsets the entire paradigm that is being accepted by many as reality. No, the strategy of forcing Amazon to eschew discounting of ebooks — the agency pricing publishers have fought for and accomplished over the past several years — is not fostering an ecosystem more hospitable to the publishers.
In fact, it is making it more difficult for them.
This is clearly revealed through Data Guy’s consolidated picture of print book sales (only) in 2015 and 2016. In fact, the year-to-year change over those two years showed that the percentage of sales delivered through B&N, Walmart/Target, and “other” (smaller chains, airport stores, non-bookstores) all fell. The celebrated independent bookstores held their own, at a pretty paltry 6 percent of the sales.
But Amazon increased its share substantially, from 38 percent of the print units to 42 percent.
So if the original point to the agency strategy was to reduce the power of Amazon, it isn’t working. (This is the case even though “modified agency”, created by the negotiations mandated by the courts after the DoJ sued, restored some discounting capability to the retailers.) And if the assumption was that increased print sales meant a rise in the power of brick-and-mortar retailing, that is being debunked by the data as well.
Data Guy provides more detail that seems to explain how this happened. Starting from May to September of 2015 and continuing for many months thereafter, Amazon changed its strategy to discount print books more aggressively, using the promotional pricing margin they had been dedicating to increasing ebook share to instead increase print book share. (And this was after the courts had forced the publishers to allow some ebook discounting. Amazon had adjusted its thinking about what was in its own best interests.) Meanwhile, natural forces — a superior ebook ecosystem, a slew of indie- and Amazon-published titles their competitors don’t have, and the power of being the dominant online bookseller — protected their ebook share quite well in an environment where price competition among the majors was eliminated.
So what appears to have happened is that the publishers’ strategy freed Amazon to turn its attention, expressed as discounting off the list price, to increasing print share. They have done that successfully. The independents have held their own, but at a paltry percentage of the total sales. Everybody else has lost actual unit sales and share.
It is an incredible irony that the publishers had a strategy to hobble Amazon: stop ebook discounting. The courts found that unpalatable, so the publishers were forced to relent a bit. But, Amazon effectively said “no, thank you, we’re okay with what you did originally” and changed tactics to create a different pressure point.
We now live in a world where 69 percent (shout it out: SIXTY-NINE PERCENT) of book sales — print, digital, and audio — are online and only 31% in brick-and-mortar stores. For kids books, fiction and non-fiction, that’s a bit under half. For adult books, fiction and non-fiction, that’s about three-quarters!
Almost exactly five years ago, a Shatzkin Files post speculated that Amazon’s share was growing relentlessly and I, at least, didn’t see what would stop it. Five years later, the picture is the same.
Agency pricing didn’t reduce Amazon’s power and share; it increased it. Having failed to restrain Amazon, publishers need to accept that the most critical thing they have to do is succeed with Amazon: figure out how to sell books through them more efficiently and effectively. And it would be good to focus on that before the big Amazon store build out that could very well be coming next.