E-Book Sales: Behind the Stats

There is mixed news with regard to book sales in May of this year. Store sales were down 2.6% but publisher sales were up by 9.8%. Read all the various stats here. Remember these are simply comparison of 2010 monthly numbers with 2009.

The biggest area of growth, percentage-wise, is in e-books (up 162.8%).

But lets look at actual dollars, not percentages.

Publisher sales (according to the Association of American Publishers) were $715.3 million in May. Of that total, e-books accounted for $29.3 million…or about 4%. If this was a 162% jump over 2009, then e-book sales in May of last year were $11.2 million.

There is no question that this is a huge leap. But it still means that 96% of all sales are still in hard copy.

Many experts claim that in five years (by the year 2015) that e-books will “tip” and account for over 50% of all book sales. I’ve heard this from two major publishers (one was the head of the digital initiatives for that publisher) and from my friend Randy Ingermanson in his excellent e-zine (read pages 2-11 for his full report on the issue).

For that to happen a 100% growth rate would have to be sustained. That would mean 2011 would have e-books at 8% of sales, 2012 at 16% of sales, 2013 at 32%, etc.

I’m not arguing that it won’t happen. Just that it may not happen quite so fast. Sustaining that rate of growth is a lot harder than it looks on paper (no pun intended). Please read my earlier blog post “Is Print Dead” to go further behind these type of statistics (in that post I attempt to show that hard copy CDs still account for nearly 70% of all music sales).

I’ve written earlier that I own a Kindle and like it. I have bought a number of books for the device. And in fact have purchased many books that I already owned in paper…sort of a “best of” or “favorites” bookshelf. Why? Because I’m a collector. And having those books with me at all times is a neat thing. Plus they become searchable. It also means that I can have access to these books forever and from wherever I am. And I’m not in fear of losing books when the corner of the garage collapses in a big rain storm (true story). However, if there are a lot of people like me, then the “growth” is somewhat skewed.

I hesitantly compare this to the transition from record albums to cassette tapes to compact discs. Or the transition from VHS to DVD (and now to Blue-Ray). I suspect many of you purchased albums or movies that you already owned because you wanted them in the new format, for whatever reason. They were your favorites. So initially some of your expenditures were not for new material. Of course, eventually we began purchasing 100% of all new music or movies in the new format. And that is where the direct comparison with books breaks down.

There are legion of readers who will not convert to e-books. An amateur poll I’ve taken of folks (family, friends, professional acquaintances) has been very interesting. Most are intrigued by the Kindle device. One showed me their iPad (with an accompanying gloat). But few were ready to embrace switching from p-books (paper) to e-books (electronic). And none were prepared to go all digital any time soon.

I reiterate what I’ve said before. This is one of the most exciting times to be in this industry. The changes are rapid, they are innovative, and they are creative. Writers who can create dynamic content have nothing to fear. The consumer continues to demand great content in whatever form they can get it. Literary agents like myself, make it our job to watch these developments carefully and to continue to safeguard our client’s revenue and their ideas.

16 Responses to E-Book Sales: Behind the Stats

  1. Stan Baldwin July 19, 2010 at 9:29 am #

    Thanks, Steve. This is a helpful comment on the rapidly changing publishing industry, so it constitutes a useful service to writers. Personal greetings!

  2. Becky Minor July 19, 2010 at 1:17 pm #

    Steve, what a great article. I cannot agree more that this is an exciting time to watch how the print industry is changing. With the rise of the ebook, it seems to me that both authors and readers win, since they both benefit from books being available in multiple formats. Thanks for unraveling some of the nuts and bolts on this.

  3. Randy Ingermanson July 19, 2010 at 3:02 pm #

    Hi Steve:
    Good article! I think you and I both agree that print is not dead and will never die. p-books and e-books are different media and both will flourish in the coming years. It’s clear that p-books are currently flat in sales and e-books are massively on the rise and will continue for some time.

    Note that if e-books continue to increase at a rate of 168%, then in 2011, we’d see a market share of 10.72% and in 2012 we’d see a share of 28.73%. At some point, those numbers won’t be sustainable, obviously. Adoption of a new product often follows an “S-shaped curve” where there is exponential growth early on and then the market saturates.

    It’s anybody’s guess what the saturation level is. Will books be like music, where (as you pointed out), electronic sales have not yet reached 50%? Or will books be like e-mail, which probably has more than 90% share of the mail market? (I get no more than 10 letters per day in the US mail but I get at least 100 emails per day).

    My hunch is that books will be more like e-mail. Note that there are several ways to get music electronically other than by downloads: you can turn on the radio; you can watch it on YouTube; you can listen via Pandora.com or other streaming outlets. In some sense, they count as e-downloads. For example, I rarely buy on iTunes anymore because I mostly listen to Pandora on my computer.

    It’s very hard to make predictions, but my gut instinct is that things will level out with e-books above 50%. Part of that is based on my recent purchase of an iPad. It’s a far better reading experience than my Kindle. The iPad, for fiction at least, is even a nicer reading experience than a p-book, because I don’t have to bend the spine on my iPad and I can change the font size as needed on my iPad. And also I can read my iPad in the dark. I have the book Pride & Prejudice as a p-book, a Kindle book, and an iBook. Last time I read it, I chose to read it on the iPad because that was most comfortable for me.

    I’m quite certain p-books will never die. I’d be sad if they did, but I just don’t see that happening.

    I welcome the rise of e-books. When shipping charges don’t matter, I can deliver an e-book to customers in South Africa or Australia or China or Israel as easily as to customers in Topeka. That’s huge in a low-margin industry like books. When warehousing costs don’t matter, my book need never go out of print. When shelf space doesn’t matter, my book is never out of stock. When the cost of paper doesn’t matter, an author can set the price of a book to its natural value — which I define as “the price that earns the most money”. If that is a dollar, then so be it. I have a p-book that is currently on sale on CBD.com for 99 cents, which means the publisher lost money on that copy in terms of marginal cost to produce and deliver the book. The publisher wouldn’t lose money if that were an e-book.

    It’s going to be an interesting few years, but I believe authors, agents, and publishers will all come out of it just fine, and the majority of us will do better than we had in a p-book-only economy.

  4. Sharon Durling July 19, 2010 at 4:33 pm #

    Hey Steve, really enjoy reading what you’re thinking about–love to hear your (valuable and well-informed) opinions. Makes me realize that I am a super-uber oddity, as I have never have read the same book twice (well, ‘cept my own, because I had to, of course. And there is the Bible…)

    Nor do I watch the same movie twice (well, maybe one romantic comedy in the 80s), but I do not own movies, have never re-purchased music in updated formats, just always moved on to the Next New New Thing. Okay, Michael Lewis might just be one author I would read twice. But only when I find myself in a POW camp and I’ve already read everything else in that nice library to which they are going to allow me access. Seriously, there is so much new to read that I don’t want to go do any repeats. I sorta wish I were the type who could re-read and re-cogitate and enjoy the way most people do.

  5. Steve July 19, 2010 at 5:04 pm #

    Thank you Randy for such an extensive comment. Makes the whole column that much better.

    However, I could have to disagree slightly on the economics of that 99 cent book. The publisher does have costs associated with the e-book. The only thing eliminated is printing cost, warehousing, and returns. But everything else is in place (digital rights management, legal, accounting, marketing, administration, editorial, cover design, etc.) All those costs have to be covered somehow, somewhere.

    I’m thinking of a series of posts on the economics of book publishing to help explain some of these nuances.

    I wish it were as simple as “e-books have no associated costs” and “p-books only kill trees.” LOL!!!!

  6. Steve July 19, 2010 at 5:13 pm #

    One other thing. Randy mentioned the ease of global bookselling with e-books. Unfortunately that is a very complex issue. Not every book is sold with world rights included in the contract. That is why Europe is having a tough time with e-book sales, not just because of delays in the devices being made available.

    For example, say I sold a book to a publisher in English for North American rights only. At the same time I included in that contract all foreign language licenses, except for Korea. Then I sold the same book to a Korean publisher for Korean translation rights. THEN I sold the same book to a UK publisher for English rights in the Commonwealth (which includes England, Australia, New Zealand, and South Africa). (By the way, this is an actual series of deals done by our agency.)

    Then which publisher gets to enjoy the ebook sales in which countries?

    There is the rub. If you are in Australia and have a Kindle and try to buy it from the US Amazon web site, you should not be able to do so because you should be buying the book from the Australian Amazon web site so that the right publisher gets the revenue.

    This get extremely complex among the European languages. Imagine if I had retained German, French, Dutch, Italian, Portuguese, etc. rights and sold those to the publishers located in those countries. Each country licenses the rights to sell the book in their particular language.

    Entire digital software and IP tracking has to be monitored to make sure this is done appropriately and recognizes international borders.

    My point is that it isn’t quite as simple as it first sounds.

  7. Rebecca LuEllaMiller July 19, 2010 at 7:52 pm #

    Steve, thanks for your perspective on this topic.

    I agree that the popularity of e-books may not rise as fast as some predict, but I tend to think when today’s tweeners are adults, they will be more comfortable reading from a screen than from a page and will most likely favor e-books. The shift will come … eventually.

    Becky

  8. Lenore Buth July 19, 2010 at 7:52 pm #

    Thanks, Steve. Between your post and the comments this identifies so many elements of the question of e-books and their larger impact. Your last response makes it plain how much this complicates the question of rights signed away on a contract.

    Sounds as if you know how to pick your way through this mine-field.

  9. Dennis Brooke July 20, 2010 at 6:03 am #

    What I really like about these trends is that it lets the market decide, rather than someone who believes they know what the market wants. Randy Ingermanson had an interesting prediction in his July E-zine when he said, “E Books Will Become the Minor Leagues”

    There’s a related posting on “Who Needs a Publisher” by Jeff Gerke on the Northwest Christian Writers Association blog at http://nwchristianwriters.wordpress.com/

    The people of Gutenburg’s time witnessed a sea change in the way books were published. Looks like we’re witnessing our own.

  10. Robin Caroll July 20, 2010 at 10:47 am #

    Thanks for posting this informative insight, Steve. All this makes my head hurt, but I’ll say I do love reading a book on my iPad…but not nearly as much as curling up with a print book. :)

  11. Randy Ingermanson July 20, 2010 at 11:21 am #

    A quick reply to Steve’s point in response to my earlier comment. Steve is quite right that the production of an e-book has certain upfront costs for editorial work, sales, marketing, etc. Those costs are the same, whether a copy sold is an e-book or a p-book.

    When I referred to the marginal cost of the book, I was referring to the costs of producing, warehousing, transporting, and selling one additional unit of the book. For an e-book, that is only about 30 to 35 cents (the fixed cost of the credit-card validation process). It costs essentially nothing to produce, warehouse, and transport an e-book (less than a penny).

    So when an e-book is sold for 99 cents, the marginal costs are less than the sale price. This means that it is possible for the distributor and the publisher to earn a gross profit on the sale.

    The marginal costs for printing that same book would probably be between 1 and 2 dollars for paper, ink, and the printing process. The marginal cost to warehouse it would probably add at least few cents (don’t know the exact number). The marginal cost to ship the product is going to be a few dollars (some of which is charged to the buyer, but some of which is borne by the publisher). The marginal cost to sell the book online is the same as for an e-book, 30 to 35 cents. So a p-book sold for 99 cents earns less than the total marginal cost to produce it. The distributor will almost certainly make a profit on the deal, which means that the publisher loses money.

    Returning to those pesky upfront costs for creating the product in the first place, those have to be amortized over many copies, and they add an extra cost to each unit sold. So in my comment yesterday, I was explicitly leaving those out of the calculation. A unit sale may sometimes earn a gross profit but not a net profit.

  12. Ben Whiting July 20, 2010 at 6:31 pm #

    I always appreciate your thoughts on the industry, Steve.

    I’ve heard your comparison of the electronic/hard copy transitions of music and books before. You make some good points–music isn’t as digital as we sometimes think.

    However, one thing that is different between the two is transferability. I can buy a CD and still use it in a digital format by ripping it as an MP3 or AAC. Likewise, songs that I purchase electronically can be compiled and burned to a CD. Books currently allow neither, as each format must be purchased separately.

    I’d be interested to hear your thoughts on how this difference will affect eBook sales growth. Readers who want to get the electronic version will be forced to commit to the format far more than music listeners were, but that commitment will also likely discourage some from testing the waters. Thoughts?

  13. Melinda Evaul July 21, 2010 at 6:49 am #

    Interesting and timely post. The publishing industry faces a challenge as it learns to navigate the e-book market. E-books may change the face of publishing but writers are still in demand. As a writer I must still provide the best book possible to earn money in either market.

  14. Alex Bruski July 28, 2010 at 7:56 pm #

    I thought it interesting that one of your previous comments compares music and books, putting forth the view that readers of books must buy both to have both formats, but listeners of music don’t have to… They get both when they buy a cd by ripping it on their computer. I suggest that the book is more like an album. It can still be recorded digitally and then used much like a book can be scanned! Granted, it is a much bigger job to scan a book than record a song or album. Electronic books may also be printed. It would be cost prohibitive to do so, but it can be done. Which is much along the lines of taking digital music and cutting a vinyl record. Yes it is true that it is easy to burn a cd and rip a cd to computer, but that is still digital to digital, not analog to digital or vice versa!

  15. desgreene September 15, 2010 at 10:02 am #

    Maybe it’s time to cut the umbilical chord between ebooks and paperbooks! Or rather between ebooks and traditional publishers!

    The ebook market is a separate, new, market focusing on those who are inclined to own a reader device of some sort. These types are not the usual browser in the romantic bookstores of our towns and cities. They are a generation brought up in the digital age and expect their world to be digitised.

    The decline in the traditional book market cannot be laid at the door of ebooks. Neither for that matter should traditional publishers have hegemony over publishing in the digital world. To date the penny has not dropped for traditional publishers as they cling to their stores of backcopy rights and tranform them into digital form expecting still a similar price to paperbooks.

    The paradigm has changed utterly – a terrible beauty is born! The modern writer will retain control over his/her work and will go direct to digital bypassing the ‘publisher’.

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  1. More E-Book News: Behind the Stats | The Steve Laube Agency - September 1, 2011

    […] the way, take a look at the comments section of yesterday’s blog entry. Randy Ingermanson provided some great thoughts and I responded with a couple other things to […]

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