Publishers Fail To Protect Print Sales

It has been apparent for quite some time that large publishers had been desperately trying to slow the (inevitable) transition to e-books – much as they might deny it.

Despite all the breathless talk of “transmedia” and “metadata” and the furious rate of backlist digitization, the overarching strategy was clear: protect print sales at all costs, and pray that e-books will plateau soon (and that international markets won’t take to them with quite the same relish).

This is the only logical conclusion from tactics that include pricing e-books artificially high (even, allegedly, going as far as price-fixing, for which they are being investigated by the EU, the (US) Justice Department, and are the subject of a number of class action suits which were recently combined), holding back the release of e-books until the print versions are ready, and (previously) releasing hardbacks well in advance of digital.

It has always been denied, of course, and the official position was always that publishers were embracing the digital future. However, in the last couple of weeks, two senior figures from large publishers spoke with unusual candor, belying that corporate stance.

Evan Schnittman – Bloomsbury’s worldwide MD of Sales and Marketing, Print and Digital –  was speaking at The Bookseller’s Futurebook conference in London, when he said:

For every print book we lose to an e-book, we lose money.

A few days before that, in an article in the New York Times on the recent spate of high-quality hardbacks from large publishers, Nan Graham – Senior VP and Editor-in-Chief at Scribner – said:

We hoped that a handsome object would slow the migration to e-book for [Stephen] King.

This really couldn’t be any clearer. Large publishers want to “slow the migration to e-book” because when that happens they “lose money”.

The obvious question is why are large publishers losing money on the transition to digital? They sell e-books too, are responsible for many of the books on the bestseller lists, and are charging a lot of money for them.

On top of that there are all sorts of costs associated with print books that disappear in a digital world: printing, warehouses, distribution, shipping, returns, higher retailer margins, the sales-force that flog print to bookstores, and then repeating all those costs if the book is successful and has to be re-printed (Stephen King’s recent hardcover 11/22/63, for example, is on its fourth printing).

Why don’t large publishers welcome a digital future? Why aren’t they attempting to speed the adoption of e-books rather than actively working to slow it?

To answer those questions, you need to look at what large publishers lose in a digital world.

Before the rise of e-books, large publishers essentially had a lock on distribution. If you self-published, the road to readers was fraught with logistical and financial peril. The only way to compete on price (or at least be in the ballpark) was to have a sufficiently high print run keep the cost per book down.

Aside from printing costs, a pre-digital self-publisher also incurred huge storage costs while they attempted (and usually failed) to get their books into stores. On the rare occasions they were successful, they had to offer them on similar terms that publishers did, meaning steep discounts and, of course, returns – which created their own set of problems.

Small publishers had to fight to get into stores too and rarely matched the distributive reach of a release from a large publisher. They often didn’t have the same relationships with the buyers for the book chains, or the budget to spend on crucial in-store placement.

Large publishers more or less monopolized print distribution, and largely only competed with themselves, especially in chains, supermarkets, box stores, and airport book-stands.

Much as they would like to, large publishers have nothing like the same control in a digital world. The distribution system is much more open. Anyone can upload a book to Amazon and reach millions and millions of readers around the world. Other retailers have some restrictions, but most can be reached through an distributor/aggregator like Smashwords in exchange for a minimal royalty cut.

In fact, self-publishers often have a greater distributive reach in digital because they are not bound by territorial restrictions – they can sell our books to anyone, worldwide.

The financial barriers-to-entry are much lower in a digital world too. Instead of the thousands of dollars a self-publisher formerly needed to release a print book, self-publishers commonly launch an e-book for $1,000 or less (sometimes a lot less).

And along with reduced costs, rewards are far greater: up to 70% of list price with retailers, more again if you sell direct. Given that all costs in a digital world are up-front costs, self-publishing is a lot more viable in a digital world.

Naturally this, combined with the huge uptake in e-reader adoption, has led to a surge in self-publishing – and not just from those that couldn’t get a publisher or agent, but also from those who had been successful in trade publishing, but decided to strike out own their own.

What they are all finding (along with small publishers and e-publishers) is a lot more level playing field. Instead of sending a reader to a bookstore where they would have to navigate the familiar names piled high on tables and order the book (and wait), self-publishers can send them directly to an Amazon page where they can purchase with one click from the comfort of their home and start reading immediately.

So, for self-publishers, not only is it far cheaper (and simpler) to publish books than it used to be, it’s much easier to sell them. And readers are buying them in droves.

Amazon recently announced their top ten bestsellers for all of 2011 (to date, obviously) – a list of combined print and digital – and there were two self-publishers on the list.

It’s striking, given that self-publishers tend to sell miniscule amounts of print books (and indeed often don’t even bother releasing a print edition, but should come as no real surprise to anyone who has been watching the Amazon e-book bestseller lists.

Self-publishers regularly capture a third of the top spots in the Kindle Store – and not just the Top 10 or Top 20, this pattern stretches all the way down to the Top 400 or so (beyond that is relatively unknown).

If you drill down to where readers have switched over to digital first (and thus in larger proportions so far), self-publishers’ success is even more pronounced; they regularly dominate those lists, capturing half, or more, of the top spots.

What seems to be happening here, as I have argued before, is that when readers switch to digital, they are faced with a range of books they never would have been exposed to when they frequented bookstores – great books from small publishers, e-publishers, and self-publishers instead of the familiar names from the large publishers.

In fact, I would also argue (based on the changing shape of genre bestseller lists) that the longer a reader is exposed to that increased selection, the more likely they are to try these new writers, and become fans.

Does this spell danger for large publishers? Well, that depends. While they might be losing market share, if the pie is growing enough to accommodate all this new competition, then it won’t necessarily hurt them. However, worryingly for them, the monthly AAP figures indicate that new revenue from digital is not replacing the collapsing print revenue.

The monthly AAP figures always come with a number of caveats – primarily that only a limited number of publishers (usually the larger ones) report numbers. As such, things like revenue totals only reflect participating publishers (and no self-publishers).

Remember, this is in terms of revenue, not units sold. Here’s the chart (figures in millions of dollars):

Adult Hardcover181.1148.3-18.1%
Adult Trade Paperback111.7111.6-0.1%
Adult Mass Market PB67.831.0-54.3%
Children’s/YA Hardcover76.978.5+2.1%
Children’s/YA Paperback52.344.7-21.2%

From the American Association of Publishers (AAP), via Galleycat.

These are the same trends we have seen all year (aside from a relatively respectable performance in Adult Trade Paperback). What will catch attention – aside from the continuing abysmal performance of Mass Market Paperback is that overall revenue is dropping. In these six primary categories, trade is down 6.7%

There can be monthly blips, though, so let’s look at the totals for the year to date and see if that huge increase in e-book revenue is replacing the massive losses in paper.

These figures are for the first nine months of 2011 versus the same period in 2010 (revenue figures are in millions of dollars).

Adult Hardcover965.4790.0-18.2%
Adult Trade Paperback1058.9884.1-16.5%
Adult Mass Market PB508.6341.4-32.9%
Children’s/YA Hardcover471.8417.0-11.6%
Children’s/YA Paperback404.8344.6-14.9%

These numbers are calculated from adding the September totals above to the YTD totals to August released by the AAP last month, via MediaBistro.

Aside from collapsing print numbers and surging e-book growth, one thing is worth noting: overall revenue is shrinking. Year to date totals are down 5.6% and the revenue gap with 2010 widens as the year goes on (and as e-books increase their market share).

From all the above, it should be clear that as e-books gain market share, large publishers lose market share to new competitors in digital that were locked out of the print distribution system. Furthermore, it seems that while the digital pie may be growing, publishers are losing too much of that new business to replace the collapse of print revenue.

There are more forces at work, though, than readers just being exposed to titles that don’t come from large publishers.

With each bookstore that closes its doors forever (or a whole nationwide chain in the case of Borders), publishers don’t just lose all those spots to sell books, they are losing all those spots to advertise books.

In a recent survey reported in the New York Times, 39% of readers who had bought print books from Amazon had looked at the book in a physical bookstore first. Aside from this “showrooming” being bad for bookstores, it underlines the advertising value of all those books in stores (for publishers).

As more and more bookstores close, large publishers are essentially losing a whole bunch of free (and effective) advertising too.

And something more fundamental is happening. As readers switch to digital, large publishers aren’t just losing control of which books are being published, or where they are distributed, they are also losing control of which books are recommended.

That whole traditional recommendation system from table displays, endcaps, and handselling, to New York Times ads, Publishers Weekly starred reviews, and literary critics is losing its influence too.  And what’s taking its place is something that is far more disposed to recommending self-published work (or books from small publishers and e-publishers).

People fret about the disappearance of one ecosystem: the closure of stores, the slimming down of book sections in newspapers, or Oprah cancelling her book club, and don’t take into account the diverse, decentralized, vibrant system that is taking its place through crowdsourced reviews, hugely popular book blogs, Kindle fan newsletters that have fifty thousand subscribers, Kindle owner Facebook Pages with thirty thousand fans, e-reader forums with tens of thousands of members, huge social networks exclusively for books, as well as the millions and millions of conversations about books and their authors which are happening every day on social media, and by email.

It’s a chaotic and messy recommendation engine, but it’s also one that allows word-of-mouth to spread like wildfire. And it doesn’t care who published the book.

David Gaughran

Born in Ireland, he now lives in a little fishing village in Portugal, although this hasn’t increased the time spent outside. He writes novels under another name, has helped thousands of authors build a readership with his books, blogs, workshops, and courses, and has created marketing campaigns for some of the biggest self-publishers on the planet. Friend to all dogs.