In trying to piece together a snapshot of the rapidly changing publishing landscape, we have taken a look at the challenges facing the traditional houses, the rise of the digital tide, how the price of a book breaks out, piracy, and the sudden ascension of the e-book to being the #1 selling format in the U.S.
Today we are going to talk about the 800 Pound Gorilla.
Amazon opened its doors in 1995 and has been making headlines ever since, aggressively pursuing market share over profits. Less than two years after they started trading, they were being sued by Barnes & Noble for claiming to be the world’s largest bookstore. That matter was settled out of court (and Amazon continued to use the slogan), but nobody would challenge that now.
The company expanded quickly, opening four European sites, one in Canada, and one each in Japan and China, in the process changing the shopping habits of customers across the globe.
Today, the company sells a wide range of products and services, but more importantly for the purposes of this blog, they currently control 55% of the e-book market and are on the way to controlling 50% of the overall U.S. book market by the end of 2012.
In addition, Amazon partners with specialist, independent, and used bookstores, provides the most popular digital self-publishing platform, and has expanded into Print-on-Demand, audiobooks, and social-networking. And if that wasn’t enough, they also manufacture the #1 dedicated e-reader.
E-readers had been knocking around in one form or another since the late 1990s, but they didn’t really take off until Amazon got into the game.
The very first Kindle was released in November 2007, retailing at $399. It sold out in five-and-a-half hours, remaining out of stock until late April 2008. In the face of competition from B&N, Sony, Kobo, and Apple, successive versions were released with greater memory capacity, expanded functionality, wireless capability, rudimentary browsers, and greatly reduced price. The market exploded.
In January this year, the Kindle 3, on sale for just 4 months, overtook the final book in the Harry Potter series to become the top-selling item in Amazon’s history. While the company has remained tight-lipped on exactly how many Kindles they have shipped since day one, industry estimates place this figure at 15 million, and a market share of 59%.
And to highlight the challenge facing bricks and mortar booksellers, Amazon was estimated to have sold 4 million e-books on Christmas Day alone (along with another 1 million by B&N).
Kindle Direct Publishing
In 2007 Amazon launched their digital publishing platform, allowing anybody who owned the rights to a book to upload an electronic version for sale to the general public. The rights-holder (i.e. the publisher or author) could set the price they chose, and receive 35% commission, with Amazon keeping the rest.
But it wasn’t until 2009, when the Kindle started to sell in real numbers, that successful print authors, such as Joe Konrath, started to experiment with selling e-books. Konrath, who had enjoyed a solid, if unspectacular, mid-list career, decided to e-publish books which had been rejected by his publishers, books that he had previously been giving away for free on his website. Straight away he was making $1000 a month.
Sony, B&N, Kobo, and Apple all began offering digital platforms for authors to sell their work. For the first time, self-publishers had access to a distribution network that could rival anything trade publishing could access. And the low cost of publishing an e-book meant that many writers could consider self-publishing for the first time.
Trade-published writers, who had backlists that had fallen out-of-print, starting publishing them as e-books. Unpublished writers, unable to crack New York, began publishing themselves. By the end of 2010, Konrath had forsaken traditional publishing, released a string of titles as a self-publisher, and was selling 1,000 copies a day. He had become a full-on evangelist for self-publishing, and his numbers were a thorn in the side of the trade publishing world.
Previously unpublished writers were raking it in too. Amanda Hocking, who couldn’t get an agent to take her on, sold a million e-books in nine months. And then John Locke, who never even sent a query letter to an agent, became the first indie writer to hold the top spot in the Amazon Kindle 100, selling a staggering 350,000 copies in the first two months of 2011.
The Agency Agreement
Amazon was approaching a virtual monopoly of the e-book market at the beginning of 2010, and trade-publishing houses knew they had to do something. If a business sells all their widgets to one customer, that customer then controls your pricing policy. Publishers could not allow Amazon to continue heavily-discounting e-books in an effort to win the e-reader war. They needed to allow other players (such as Apple, Google, Kobo, Sony, and B&N to gain some foothold in the market, so that Amazon wouldn’t be able to abuse its dominant position in the future.
The Big 6 Publishers proposed the Agency Agreement, which stated that e-book prices would be set by the publisher, not the retailer, and that no discounting would be allowed. It also set the 70/30 split where retailers kept 30% of the cover price of the e-book, and the rest went to the publisher to divvy out as they saw fit.
Amazon fought hard against the agreement, going as far as to remove Macmillan’s books from sale. The publishers were backed by the agents, and with Apple cosying up to the publishers, Amazon was forced to back down and sign the Agency Agreement.
Once Amazon couldn’t price new entrants out of the market anymore, its competitors’ sales boomed, and now the marketplace has levelled out a little. And while the rest of the world is far behind the U.S. in terms of e-book market share and e-reader sales, some trends are emerging. Apple is a emerging as a key competitor in Europe. Kobo have been making inroads in Australia. Amazon is losing market share to hungry competitors.
That 55% U.S. e-book market share I mentioned at the top of the post sounds impressive, but that has dropped from a high of 80% to 90%. B&N, with their Nook reader, are grabbing 25%, while Kobo, Sony, Apple, and Google share out 20% (source).
But while Amazon’s slice of the pie is getting narrower, the pie itself is growing so rapidly that the company can be quite confident as it looks ahead to the future. Self-publishers, and trade-published authors with reverted rights on their backlist titles, are in pretty good shape too, now able to earn double the royalty rate since the agency agreement, keeping 70% of their cover price at certain price points.
At the start of the year, Amazon VP Russ Grandinetti declared that “however fast you think this change is happening, it’s probably happening faster than you think”.
It’s probably happening faster than anyone thinks, except for Joe Konrath.