Will eBook Adoption Flatten out at 30% of the Market
Image from Big Stock Photo
Barnes & Noble had a big week in the news and none of it has been very positive. The reports started two weeks ago when B&N delayed the release of its 3d quarter 2012 earnings report. First came the news that B&N would be closing one third of its stores over the next ten years. Second was Len Riggio, the Chairman of B&N, filing SEC papers to acquire back only the retail portion of B&N, spinning off Nook Media. Finally was the actual earnings report which showed only a slight dip in retail sales (around 2 % drop) while the Nook Media division showed a loss of 26%, all of it coming from the depressed sales of its devices. Revenue earned from sales of digital content was up over 6%.
Len Riggio’s belief must be that adoption of ebooks will level off and slight physical losses can be reduced by shedding B&N of its higher leases and unprofitable stores. Over 95% of the stores, per the earnings call, are profitable.
B&N arguably benefitted the most from Agency pricing. They are unable or unwilling to play the discount game with Amazon on the ebook side. In store displays aren’t netting them the necessary growth. B&N wants to maintain its elite brand name and likely thinks that discounting is a fool’s game and that its business model is built on a higher profit margin.
In the past decade, the book industry has changed dramatically.
In 2004, the Association of American Publishers conservatively estimated total book publishing revenues at $23.7 billion, which was 152% more than the total box-office gross for all movies in theatrical release, 76% more than all the dollars generated by AM and FM radio stations, 60% more than the net dollar value of all recorded music shipments and North American concert revenues, and 39% more than the entire video and portable gaming industry, according to their respective trade associations.
In 2011, book sales have fallen to $27.2 billion. Box office revenues for 2011 in the US and Canada were $10.2 billion in 2011. Video game sales were down as well but account for $16 billion.
So is Len Riggio’s position a good bet? In other words, will ebook adoption peak at 30% of the marketplace and the remaining number of readers will continue to buy hardcovers and trade paperbacks?
Currently the AAP marks total ebook marketshare at around 22% of the trade market although individual publishers report higher figures such as Hachette at 26%.If Riggio is correct and that ebook adoption will peak and stabilize at 30% of the market and the 95% of the stores are still profitable, then discontinuing Nook production and moving away from digital to high margin physical goods makes sense.
I don’t see, however, B&N replacing its current retail space devoted to Nooks with more books but instead more games, paper goods, and maybe even high end cookware or other types items that would correspond with books on decorating or cooking. These are things people are more likely to buy in person.
The growth of ebook adoption has declined. This is not to say that overall numbers have declined but that the exponential growth has slowed down so dramatically that some industry individuals believe that the flight from paper to digital will be abating soon and leveling off.
According to this site, the compound average growth rate of ebook sales looked like a hockey stick:
- 2002-2006: 28%
- 2003-2007: 34%
- 2004-2008: 41%
- 2005-2009: 73%
Part of the exponential growth was actual availability. In 2005, there were 110K ebooks and in 2006, 135K. By 2011, after Amazon debuted the Kindle, it boasted over 950K titles. In May of 2011, Amazon announced for the first time that ebook sales outpaced the number of physical paperback and hardcover sales. In the first quarter of 2012, the AAP reported that ebook sales were 282.3 million whereas adult hardcover sales were 229.6 million.
Ebook sales by the year:
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| $9.6 | $10.8 | $20 | $31.8 | $61.80 | $287.00 | $349.50 | $807.70 |
Adult Massmarket
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| — | $1,109.6 bn | — | $1.1 bn | $1,085 bn | $1.0 bn | $673.5 M | $431.5 M |
Adult Hardcover
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| $2.61 bn | $2,606.3 bn | — | $2,800 bn | $2,436 bn | $2.6 bn | $2.012 bn | $2.016 bn |
Adult Trade
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| $1.51 bn | $ 1,506.4 bn | — | $2,282 bn | $2,364 bn | $2.2 bn | $2.13 bn | $2.04 bn |
*I did my best to compile the above numbers from various web articles because the AAP has removed all the past reports. (Or at least extensive googling did not reveal these reports)
The most dramatic decline is in the mass market category which has lost over 50% of its marketshare in the last decade. However, because these books have smaller margins both for publishers and bookstores, the decline isn’t one that is worrisome to Barnes & Noble.
But after the Borders decline, AAP (which is likely a pro brick and mortar organization) reported that the trade market increased .5% over 2010 and that brick and mortar retail remained the #1 sales distribution channel for publishers. However, Reuters said that while brick-and-mortar retail was still the biggest sales channel for publishers (31% of total net sales) that was a 12.6 percent decrease from 2010.
But direct to consumer sales increased as well, reaching $1 billion.
Further, self publishing really broke out in 2011 with the publication of EL James’ books, Colleen Hoover, Tammara Webber, Abbi Glines, and the new adult coterie. More consumers have moved to shopping on devices and Amazon is the number one retail destination for smartphone shoppers.
The most recent figures show that ebook sales for January through June have increased only 34.4% from 2011 to 2012 instead of the 100% plus growths in past years. It used to be that the ebook market would double every 6 months but now ebook growth isn’t even doubling in one year. This marked slowing growth is giving traditionalists hope that the digital adoption will level off. After all, digital music downloads only account for about 30% of the music industry revenues whereas physical sales account for 58%. (Subscription revenue is increasing and might reach 10% next year)
Do you think Riggio is correct and ebook adoption will level off at approximately 30% of the market? What types of predictions would you make based on that?
I think e-book reading will slowly erode. Increasingly, young people will have a tablet or other device that makes e-reading easy and books are heavy and take up space. What do you do when you’ve filled up the dinky bookshelf in your dorm room? How many back-breaking book boxes do you have to carry to from apartment to apartment in your 20s to decide you’re done with dead trees? So, I think more people in each generation will move to E.
Over what time span will this erosion take place? That I can’t predict.
B&N’s problem is that their bricks and mortar model is based on superstores — being able to offer a huge range of books. As dead-tree book buyers erode, their stores will get lower traffic and they will be tempted to shrink the book offerings, making their stores less attractive than on-line offerings. So, I think B&N’s bricks and mortar stores will eventually run into problems.
In the short term, with the demise of Borders and the closing of some marginal stores, they might do well. Len Riggio might very well make a killing on the short term prospects of a long-term lost cause.
I think the e-book market is mostly leveling off, but I also think it will very slowly erode the physical book market over time as the generations who grew up with paper books are no longer around. Of all the book options available, I prefer MMPB and I think it’s because this is what I grew up reading (after children’s books). I love the way a MMPB fits in my hand. As the next generation grows up with electronic devices, it will feel more natural to use e. Dead tree books will become a niche market, still available, but more as novelty or collector’s items. Thankfully, I don’t believe this will happen in my lifetime. Or even the next generation.
For now, I’m glad B&N’s physical stores are remaining profitable; the more physical spaces for books, the better. Their online presence sucks big time and at some point I’ll ditch my first generation Nook, probably for a Kindle.
I’m not very knowledgeable about the inner workings of the book publishing and retailing business, but I can’t help wondering what effect the DRM debate is going to have on the issue. I buy mainly ebooks and used books, and use the library, simply because I can’t afford to support a 200+ book/year habit at retail prices. But when I find a book a know I’ll want to share and reread, I buy it in paper. Ebooks still don’t “feel” permanent to me. Probably silly, but there it is.
The problem with this argument and the projections of growth is that I don’t believe they are properly counting self-pubbed books. I might agree that ebooks will level off at 30% of books published by publishers. However, I think a market has been created that didn’t exist before, consisting of self-pubbed ebooks, and this market has both expanded the overall market for books, and replaced purchases of physical books (and even purchases of ebook releases from traditional publishers). Because this market is functioning independently of traditional publishing, (and because Amazon doesn’t release sales figures) it is not being accurately accounted for, but anyone in the book business who discounts it will end up making faulty business decisions.
Count one more vote for a long slow grade as opposed to a plateau. I think eventually (as in 100 years from now) paper books will be a tiny part of the market, but it’s going to be a long, slow journey to get there. Paper is fading everywhere. I get my bills via email; I pay my recurring bills with e-checks. I haven’t sent a personal letter (on paper) in over a decade. Most of the “mail” I get at home is advertising and requests from charities.
I will also say that I don’t think paper will lose the battle until ebooks are more “portable” across platforms.
I don’t see how digital will level off–not if the unscientific polling of my family is any indication–but, OK, let’s say that’s true for the immediate future. Thirty percent of any market is still significant and while one hardcover may be more profitable than one digital book, what are they selling more of per title? It’s like gold Cross pens vs. Bics: Would you rather make $1,000 on one pen or .10 on 10 billion (wild exaggeration here, but work with me)?
I think Riggio is wrong to so easily dismiss the digital business; then again, B&N has been consistently wrong-footed many times lately. I don’t want retail bookstores to disappear (I also don’t want to see pots and pans in the cookbook section), but, hey, when the zombie apocalypse comes, we’ll all be reading wireless-delivered digital content from the safety of our homes anyway.
When you state that mass market sales have declined–does that take into account in any way that publishers are using that format less? The last 3 books I’ve ordered (without paying attention to anything but the price of about 7.99) were in the “larger” format. Even the last Robert Crais book I ordered a couple of years ago was a larger format mass market (unlike the larger format I just received, which is more of a 9 by 6 trade book.) It may not be possible to know whether the decline is because less mass market are being produced?
I know the publishers like the larger format. These books usually run 9.99 or 12.99 and I often end up buying them used.
I can see where the ebook market might become saturated (if not already). I wonder if the flood of freebies from Amazon actually helped slow down book sales or if much of it is economic problems.
After reading your post I did a mini poll with my siblings and parents regarding digital vs paper-
2 siblings haven’t picked up a book in more than six months.
1 sibling estimates that she is reading 60% used books to 40% digital books.
4 siblings, 2 parents and myself have not read a fiction book in paper in more than six months.
I didn’t specifically ask questions about the nieces and nephews but two siblings volunteered that their kids are mostly reading digital as well.
Considering that many of the nieces and nephews are under ten and so many of their parents are digital readers, I see our purchasing dollars increasing rather than plateauing.
Based upon the admittedly small sample size, I think Mr. Riggio is incorrect. I would bet on Carmen’s long, slow grade scenario given above.
Thank you for the post, it was responsible for many interesting discussions around here today.
To be fair, I haven’t actually read the articles that closely, and it’s Sunday evening and I’m pining for unattainable chocolate confectionaries (unless I start baking, and I don’t wanna). But. Are they looking the numbers of e-books sold over the last couple of years as declining? Those same couple of years when the publishers were jerking around readers with geo-restrictions and agency pricing? Do their numbers include the self-pubbed books and smaller publishing houses that a bunch of us discovered/fled to when we couldn’t get e-books from the mainstream publishers?
@Wahoo Suze – the exclusion of the self published market is truly wreaking havoc with statistics. I was at BEA last year and I asked Bowker about how they were including self pubbed books in their stats and they really werent. A lot of readers don’t know that they are buying self pubbed books and a lot of authors don’t buy ISBNs or have an easy way to track self pubbed sales volume.
@Maria – I did not find any breakout between the super sized mass market and the regular mass market.
I think Riggio is right for the near-term, say the next 25 years, and I think Jeff Bezos agrees with Riggio’s thinking. The reason I think Bezos agrees is the recent brouhaha regarding affiliates and free ebooks. I think Bezos’ numbers are telling him that the ebook market is leveling off and therefore he needs to convert “buyers” of free ebooks into buyers of paid-for ebooks.
There is another trend that I find worrisome as regards the leveling off of the ebook market: the decline in sales of dedicated reading devices and of ecosystem linked tablets in favor of tablets with apps (i.e., the declining growth of sales of the Nook Tablet and Kindle Fire vs. the increasing growth of the Samsung and Apple tablets). This trend indicates to me that the core readers, that is, those who will buy more than a couple of ebooks a year have already joined the ebook world and thus there is no longer a market for the publishers and retailers to tap — they already have that market.
OTOH, I do think Riggio is making a mistake in his plans for B&N. But then, I do not think Riggio is much of a visionary or leader for volatile times. B&N’s b&m stores could be made into gold mines for the ebook experience with the exertion of some effort. The BPH publishers need those b&m stores and need B&N to survive; they have already experienced Amazon’s cutthroat business dealings. Which means that B&N could be in a position to extract a bargain that would be good for both B&N and traditional publishers, such as a 90-day exclusive on the release of new titles in which B&N can sell — in store — not only the hardcover but provide a free copy of the ebook as a joint purchase. Amazon could still sell both the ebook and the hardcover but not create a joint bonus package for those 90 days unless Amazon also opened up b&m stores. The deal would be only for people who bought at the b&m thus B&N online would be like Amazon — without the exclusive deal.
There are other things that could be done to enhance both the Nook slaes (both hardware and ebook) as well as the value of the b&m stores but it takes effort and imagination, things that B&N leadership sorely lacks.
Our two greatest gods at work here: Denial and Rationalization. The changes underway for books are not coming from within the book industry so why ask them? This would have been akin to asking Polaroid and Kodak in 1995 if they thought digital photos would even off at 30 percent. The question should have been asked of Steve Jobs. Or asking the wooden ship builders 100 years ago what they thought would happen. I think Mr. Riggio may love what he built enough to go down with his ship instead of seeing the changes coming and well underway. I am happy for the indies who will be able to survive the big-box changes coming.
@Publerati: Exactly.
I’ve switched from Nook to iPad/Kindle/Stanza apps. I found the pricing at B&N ridiculously high (only outdone by iBooks). I also have found the DRM on Nook Books overly restrictive and my CS experience if there are problems with files to be really sub-par. I’ve never had problems accessing my Kindle library. I don’t know if ebook adoption will level out or not, but BN is losing b/c its product (the actual ebook file(s) as well as the app) is not really user friendly.
It’s hard to form good industry numbers because of Amazon and how they don’t share sales info. However, we do know Amazon has a majority share of the overall ebook market in the US and that their ebook sales grew 70% over last year. Someone mentioned above that self-published ebooks aren’t being counted. This factor will only increase as the stigma against it disappears and more writers accept it as a legitimate alternative.
Also, I think we should look at how digital reading devices are spreading. Smartphones, tablets, and even dedicated ereaders are still being adopted. Virtually every household in the US has one of these devices (even households in poverty average one smartphone).
A good question is, what barrier is there to ebook adoption? I don’t know where the 30% is coming from, honestly. Does that number assume that 70% of readers themselves will refuse to read digital or strongly prefer paper? I don’t believe that at all. If we look at the pros and cons of digital vs. paper, then compare it to how other media went digital in the past, I don’t see how books can avoid going mostly digital. Pricing and convenience of digital destroyed music CD’s. They might account for 30% of big music corps’ revenue, but the industry today is radically different. When was the last time you bought music versus radio or internet radio? There’s the “touch and smell of paper” factor for books, but still, I don’t see a real barrier to ebook adoption.
Paper books will always exist, but they will soon become luxury items/conversation pieces. The children’s market is different, but it will catch up eventually.
There’s an enormous difference between ‘ebook sales’ and the ‘ebook share’ of books read. Anecdotally, ebook readership is continuing to soar at the same time that ebook sales are leveling off. This is almost entirely due to the publisher’s own shenanigans. Windowing, $12+ for ebooks and georestrictions have combined with the ready availability of pirated copies to create a market where the heaviest consumers are drawn away from the commercial market place. After fruitless weeks of waiting for an ebook to become available at a reasonable price, people just help themselves to a free copy – especially the younger demographic who don’t even suffer the slightest pang of consciousness when they pirate. The publishers themselves are conditioning the next generation of readers to be pirates, not buyers.
I think the buyers will come back when they can access a legal copy at a reasonable price within a reasonable time of the first release date. I’d suggest that a huge chunk of the potential market has already accessed their ebook through alternate sources by the time publishers are willing to sell it to them at an attractive price. Ebooks at $5, two weeks after hardcover release would be reasonable and would see a return of sales IMHO – but only if publishers make it clear that the book will be available at that price, that soon. Potential customers will hang in there for a couple of weeks but if there’s no indication of when an ebook will be available at a reasonable price, then readers will just pirate it.
The large publishers have all confessed to a conspiracy not to sell e books, as such all the figures do is reflect the success of the conspiracy. Now that the conspiracy is broken it will be fascinating to see if one of the large publishers retools for an e-book first future. If they do the digital switch will be fast, if they do not the cheaper more agile new digital publishers will slowly erode the market share of the incumbents.
I think there are four major reasons why your conclusion – that e-book growth is plateauing at or near 30% of the market – is seriously flawed.
1. The AAP numbers aren’t comprehensive
As other commenters have noted, there is a problem drawing conclusions about the market as a whole solely from the AAP numbers. The AAP collates figures from its members only and doesn’t count any self-publishers or many digital-heavy small publishers. By my estimates, self-publishers have captured around 25% (in unit terms) of the Amazon e-book market – which itself is about 60% of the overall US market. This means that a significant portion of the market is not being measured by the AAP.
2. Fiction is already way beyond 30%
I think it’s instructive to drill down a little further. As we all know, certain segments have transitioned to digital quicker. Fiction went before non-fiction. Romance went before literary fiction or picture books. There are a variety of reasons why one genre moved to digital before another, but I think that if you want to get an idea where the market is headed, you need to look at those first movers. Even if you just look at fiction in isolation, it’s well passed 30%. If you ask publishers about frontlist new releases, they will tell you that number is often greater than 50%. That’s where the rest of the market is headed.
3. CD sales don’t tell us anything
It’s tempting to draw parallels between CDs and books, but there is one key factor keeping CD sales afloat that won’t apply in our world. A significant portion of CD purchasers don’t *consume* in that format. They purchase the physical CD so that they can rip it onto various devices. If you look at the figures for how people *consume* music, that 30% figure falls dramatically. There is nothing analogous in book publishing to ripping a CD – except perhaps bundling the e-book with a print book, something that has yet to be tried on a large scale (and something that, while smart, I can’t see taking over a significant share of the market). If you are looking for an analogy between music and books, it’s like we’ve gone straight from vinyl to MP3. The scale of disruption is that large.
4. Technological adoption always follows the same curve
Yes, growth is slowing, but that’s what always happens. It’s literally impossible for that hockey stick growth to continue – there’s only a limited amount of people to shuffle around. But just because the *rate of growth* is slowing, it doesn’t mean that the market isn’t growing.
In any event, we don’t need analogies or instincts or educated guesses to guide us on this front. Technological adoption always follows the same curve. As a rough rule of thumb, if you can pinpoint the moment the rate of growth began to slow, you can pretty much double the market share number at to see where it will end up.
I urge you to check out this amazingly prescient article from Tim Spalding at LibraryThing. It was written on November 1st, 2010, just before the e-book market first exploded. The article doesn’t just predict the dominance of e-books, but also explains why that dominance is inevitable (and why no such plateauing will occur): http://www.librarything.com/blogs/thingology/2010/11/feedback-loops-in-ebook-success/
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