Dec 13 2009
Hardcovers are the lifeblood of the trade publishing industry. Without hardcovers, the trade publishing industry will die.
David Young, CEO Hachette Book Group: “I can’t sit back and watch years of building authors sold off at bargain-basement prices. It’s about the future of the business.” (Via WSJ)
Facts. Trade publishing is referred to as such because books are sold to booksellers or wholesale distributors or “the trade”. According to Association of American Publishers report of 2008 (pdf), adult hardcovers accounted for $2,436,070 in net sales. Adult trade paperbacks were $2,435,070. The total trade net sales were $8,079,423. Therefore, adult hardcovers were 30% of the overall books considered to be “trade”. Adult trade paperbacks, however, were 29% of overall net trade sales. Juvenile book sales round out the remainder of the trade category.
In the tabulated statistics, mass markets accounted for $1,075,5666 in net sales but isn’t considered part of “trade publishing.”
Adult hardcovers make up a good portion of the big six conglomerates. One concern is that ebooks at the reduced price of $9.99 won’t be able to replace the revenue generated by hardcover sales. Problematically, is that hardcover sales have been declining for some time and before Amazon unveiled the $9.99 ebook price point. Trade paperbacks have become increasingly more profitable.
While Harlequin might not specialize in trade publishing, it was profitable relying primarily on volume sales of mass market and category books. Harlequin accounted for $418 million in net sales according to Business of Consumer Publishing 2006.
Hardcovers sell the best and at the highest prices in a physical retail market. Ebooks push down the price of hardcovers.
Facts. As of 2008, Amazon overtook Barnes & Noble as the largest bookseller in the U.S. Amazon Media took in $5.35 billion (books, music, DVDs) compared to Barnes&Noble which took in $4.68 billion. Barnes & Noble points to the backlist as comprising the majority of their business. (same link).
In 2007, Nielson reported that the number one purchase online were books and that 41% of internet users had bought books online. Bowker reported in May of 2009 that internet is the number 1 retail channel for books at 23% of the market followed by retail chains at 21% of the market.
Further, the majority of big book sales, the ones that are considered the “hits” like Edward Kennedy’s memoir or Dan Brown or Sarah Palin’s books, are sold at discounters like Sam’s, Wal-Mart, Costco, and Target. Very few hardcovers are purchased by consumers at non discounted prices. Thus the downward trend of pricing has been occurring for some time now by the publishers’ biggest accounts.
If ebooks are not available for the most popular hardcovers, adoption of ebooks will slow, some ebook readers will buy the physical copy, and those ebook readers that are left over are so statistically small as to not make a difference.
Facts. Ebook adoption has been rising steadily since the early 2000s. Because ebook sales are not broken out by category, we don’t know exactly how much of the trade market that ebooks comprise. 5% of Dan Brown’s The Lost Symbol were reportedly in ebook form. We do know that the ebook market is nearly doubling every month. The ebook market developed because consumers are becoming larger consumers of digital media. Every other form of entertainment can be had in digital format from music to movies to games. Consumers are now expecting every form of entertainment to be “on demand”. It is consumer demand that is driving adoption of ebooks not the availability of content. According to Rentrack, video on demand is up 14% this year.
Supposition. Based upon anecdotal evidence such as commenters here, it is unlikely that those who prefer to read ebooks will buy a physical copy of a book. Most likely those readers will buy either a different book, not buy a book, or will purchase some other form of on demand entertainment.
Truth. It is true the ebook readers are statistically small. Assuming that ebooks account for 5% of the overall sales of one book, ebook readers are only a tiny segment of the overall market. However, when hardcover sales are down by 15% as the CEO of HarperCollins noted, 5% can be meaningful on the balance sheet.
Print book sales are subsidizing ebook sales.
Facts. Currently this is untrue. While ebooks are not without expense, the publication costs of a book have largely been absorbed during the print book process. The editing, copyediting, cover art, and publicity are all part of the print book profit and loss statement. The production costs of the ebook include formatting and DRM. If ebooks were so costly as to require subsidies by print sales, it is unlikely that publishers would offer higher royalties for ebooks.
Ebooks are simply another format of book and can be subject to windowing.
Windowing is a term used by the trade to refer to periods of time in which it will sell one particular format. In movies, the windows are theatre release, DVD release, PPV (sometimes that comes first, premium channels and then regular tv. The traditional window for hardcover is 6 months followed by a trade paperback or a mass market release. Of course, the mass market doesn’t always come to fruition if the sales of the hardcover are limp.
Three of the big six US publishers are trying to create varying windows for ebook releases depending on the book itself, and I suppose, the success of a particular book. If a hardcover is selling well, there is no need to push out the ebook. For example, the Edward Kennedy memoir has been selling so well in hardcover that the publisher will not release a paperback until 2011. The ebook version is delayed indefinitely. According to Publishers Marketplace, the Kennedy book will be available in eform later this month. (PM, paid link)
Publishers will be experimenting with ebook releases, pushing back ebooks 3 weeks to 4 months on a whole variety of books. HarperCollins is looking at delayed releases for 5 to 10 books per month. Simon & Schuster will delay ebook releases for 35 books in early 2010.
Ironically, as publishers look to expand the publishing windows, there is a move toward day and date release in the movie industry. The movie Twilight was released in both DVD and on demand on the same day:
As the entertainment biz inevitably moves toward a day when discs will give way to product delivered directly to TVs and computers, the business is poised somewhat uneasily on a tightrope. Summit and some majors like the day and date VOD and DVD release strategy; others are worried it will cut into DVD sales.
But that didn’t happen with “Twilight”: The March release became — and still is — the year’s top home entertainment title. Almost 8.5 million copies have been sold on disc or via download on sites such as iTunes, while rentals have exceeded 14 million transactions on all formats, with VOD accounting for a healthy portion of that.
My other problem with windowing for ebooks is that publishers do not market books the same way that movies are marketed. Movies are marketed constantly throughout the various window period, from theatre release to TV showing. Books are not marketed in this way. Books are marketed, primarily, by appearing in bookstores and having buzz. Occasionally, a big book will engender a TV commercial or print ads. It is rare that a book is marketed both at the time of its hardcover release and its paperback release.
For an ebook, there is no “in store” advertising. When the ebook shows up in the online store, 3 weeks to 4 months or longer after all the hardcover publicity buzz has been spent, there is nothing to signal that the book is for sale. It is a forgotten title. At least with a paperback, it might show up on the new release table. If you’ve ever browsed a “new release” list at an online retailer, you’ll understand that finding a newly released ebook is very hit or miss. Those ebooks that are windowed are largely going to be lost sales.
It’s far better to do day and date release with pricing tiers and capture the sale versus windowing releases based on format. Those readers who are anxious to read can purchase the book in the format (paper v. print) she desires while the publisher maximizes profit through price discrimination.
Hardcovers are to Theatre release what ebooks are to DVD release.
Consumers don’t think like this. There is an event like quality about attending the movies. It is a shared experience and one that cannot be replicated at home very easily. Hardcovers provide no additional benefit over ebooks other than possibly being more durable. The other benefits of a print book such as sharing and resale are elements more akin to those that run with a DVD versus a theatrical experience.
It’s all about Amazon.
Mike Shatkzin posits that these delayed ebooks are really an effort to wrest power away from Amazon. If this is true, I find it terribly short sighted. I’m inclined to agree with Mike Cane who believes the book fight will come down to an epic one between Google and Apple. Already Google and Apple are sparring over music and online ad companies. Google is developing its own phone. Amazon and Barnes & Noble might have the Kindle and nook respectively but they are also making sure that there is an iPhone, PC, and Mac app.
According to Bowker (see aforementioned link), 48% of people who read ebooks read on their desktop and laptop. In the 2008 RWA reader survey, over half of romance readers read ebooks on multifunction devices including cell phones, laptops, desktops. Netbook sales are increasing while laptop sales are declining. Next year and in the ensuing years, we will be treated to a number of low cost multifunction devices like tablets and that will provide book reading platforms. (As a side note, here is an interesting article about how market leaders in the computing industry were able to catch the disruption of netbooks instead of being displaced by insurgents. It’s interesting because ebooks appear to pose a significant disruption in traditional publishing.).
The Reader As the Customer
I think one of the most fascinating things that I’ve learned in 2009 is that the reader is not the customer of the publisher. It is the trade. It is the reseller. Because we readers are not the customers, publishers don’t make consumer based decisions. They make reseller based decisions. Because the publisher is geared toward selling to the trade rather than the consumer, we readers are often bemused by their behavior. Understanding this goes a long way in explaining Carolyn Reidy’s acknowledgment that some people will be disappointed in the delayed release of ebooks while simultaneously recognizing that ebook readers are the most devoted of the reading population.
I have not bought into the idea that in order for there to be a robust publishing market that the big six publishers or the current marketplace has to survive intact. I do believe that hardcovers are likely on their way out as the dominant force in the industry. There may very well be a contraction in the market. I can see at least two of the big six publishing conglomerates sold off or broken up in the next few years. Random House and Simon & Schuster have had dismal financial news for the past few years. However, even if large publishing conglomerates reduce their number, publishing as a whole can still be a vibrant and lucrative market. The question is, of course, who will be the market leaders of this evolving industry. My opinion? It’s the publishers who start to recognize that in this new market, the customer is the reader and not the trade.