Friday, 15 November 2013

E-books and the Small Publishing Phenomenon, Sales and Revenue

It’s no secret that many readers are moving from paper books to e-books and as time goes on, it is expected that this trend will continue.  There are many reasons behind this transition, but the primary ones are probably price and convenience (check out the Dodecahedron Books blog “Imagine that you had a Magic Wine Glass” for some further thoughts on this).  A significant aspect of this transition is the move to self/independent/small publishing.   But it can be hard to gauge just how far along we are on this path - good data is hard to come by, and many parties have an interest in obfuscating the issue.

So, an October 2013 article in Publisher’s Weekly was quite timely.  It contained data on e-book sales that were the result of the recent anti-trust suit in the U.S. , where several of the major publishers and Apple were determined to be guilty of a price-fixing conspiracy.  This data is to be used to help estimate damages to be awarded from the suit, so we can assume that the accounting books have been opened and that a lot of scrutiny has been given to the data.  The data comes from sales by Amazon, Barnes & Noble, Apple, Sony, Kobo, Google, and Books-a-Million, which account for the vast majority of e-book sales in the U.S.

Among other result were the following (the period in question is April 1, 2010 to May 21, 2012, a bit over 2 years, and concerns sales by the Big Five named in the suit):

·         There were 1,348,121 unique e-book titles, that had at least one purchase.  Remember, this is separate titles, not total e- book sales. 

·         Of those, 83,463 were by the 5 biggest publishers.  That’s just 6% of these unique titles.

·         It seems reasonable to assume that Random House, the other member of the big six publishing houses, would have published several tens of thousands more titles.  So, if we add them in that would mean that about 10% of unique titles were published by the big six.

·         So, roughly 90% of the unique titles published during this time period were self-published, independently published, or published by smaller publishers.

In terms of money, over the same period:

·         The Big Five (Hachette, Harper Collins, Macmillan, Penguin, Simon & Schuster) earned $1,548.223,900, or about $1.55 billion through these e-book sales.

·         Dividing that dollar figure into the number of unique titles gives an average (mean) revenue per title of about $18,550.

·         We can estimate that the median revenue per title is probably about one third of that, or about $6000 per title.  The median is the point at which half the titles will make more money and half will make less.  Book sales follow a power law, and in that mathematical model, the mean is generally much higher than the median.  This simply reflects the “best-seller” phenomenon, where a few dozen titles might account for over half of all sales.  I will do a blog about the power law phenomenon in the future - it’s a fascinating subject on its own, as it shows up in everything from human cultural products (e.g. book sales, music) to earthquakes to galaxies.


Here’s where we have to make some assumptions about self-published titles, in order to estimate how much money they earned:

·         Let’s conservatively estimate that self-published and independently published e-book titles had a median revenue of about$150 to $200 during that period.  That’s in line with some estimates that I have read about, based on survey data.  Either way, it is a rough estimate, but useful to get a ballpark estimate.

·         Using the same power law mathematics as above, we can assume that the average (mean) earnings per self-published or independently-published title is about three times the mean, or about $450 to $600.  To remain on the conservative side, let’s use the lower figure of $450.

·         So, multiplying the roughly 1.2 million unique titles by $450 per title gives an estimated total revenue of about $550 million.

So, in summary:

·         About 6% of these unique titles sold were published by the Big Five, and they earned about three quarters  of the total revenue.

·         Conversely, about 90% of these unique titles sold were published by self/independent/small publishers, and they earned about a quarter of total revenue.

Kobo officials have been on record as saying over 10 percent of their sales are from self/independent/small publishers.  Many observers think the percentage may be as much as double for Amazon, as they are generally thought to have a website and corporate culture more conducive to sales by independents.   So, this estimate is probably not too bad.  If sales of Random House (who were not part of the suit) were included these calculations, the resulting percentages would probably be closer to those other lower estimates (i.e. around the 20 percent mark).

In fact, it is reasonable to think the e-book transition has, in fact, sped up since mid-2012 i.e. the percentage of sales going to independents has probably gone up.  Some reasons:

·         There are simply more independents e-publishing all the time and their titles are growing at a faster rate than those of the Big Five.

·         The acceptance of non Big Five publishing (self/independent/small publishing) is steadily increasing, according to surveys of readers and the general social phenomenon that something becomes normalized the longer it goes on.

·         The major block buster effect of Fifty Shades of Grey and The Hunger Games will be diminishing, and there has been no mega best-seller published by the big five since then, at least not on the scale of those books.

It is also well known that the e-book transition has progressed more quickly in some categories of book than others.  Those books that generally go by the name “genre”, have had the speediest  transition.  Key among these are Romance, Science Fiction (Dodecahedron Books category) and Thriller.  Some estimates have these categories as 50% transitioned to e-books, with self/independent/small publishers getting a significant share of that action.  Other categories, such as picture books, cookbooks and textbooks have been slower. Literary Fiction is probably somewhere in between.  In a later blog, I will do a content analysis of Chapters (Canada’s major book chain) advertising, which generally supports this notion.

Another transition that is affecting the paper book market is the increasing availability of print on demand books.  That means that readers who prefer paper can still read via their preferred medium, even without visiting a bookstore (these are generally ordered via Amazon and delivered to the customer’s door).  Independent publishers are increasingly making their books available in that format as well, at prices competitive with the Big Five.  As an example, Dodecahedron Books is working on this now, though we expect the majority of sales will continue to be e-books.

One other interesting finding in the Publishers Weekly report was that 98% of all U.S. sales during that period could be accounted for by Amazon, Barnes & Noble, Apple and Sony.  Kobo still has some way to go in the U.S., though its global presence has become stronger over the past few years.  So, writers and publishers, it may be a while before those Kobo sales do much more than trickle in, at least as far as the U.S. market is concerned.

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