On Publishing Economics & Cannibalism


UPDATE: The Sunday Times (Ireland) has picked the post up in an edited version for their Think Tank column today.


There has been some debate over whether cannibalisation of print sales by digital sales is actually occurring and what’s more some debate about whether, if it is occurring, it matters a great deal, all mostly prompted by The Bookseller’s recent piece on ebook sales beginning to impact sales of print books:

For example, the e-book market share of the science fiction and fantasy sector globally for the 10 weeks since June was 10%, more than treble the genre’s market share of print book sales. The share taken by romance and saga books was 14%, seven times its print market share.

Julie Meynink, business development director of Nielsen BookScan, said though it was early days, data from Nielsen BookScan US, which globally represents the biggest share of e-book sales, showed a decline in print sales within these two sectors. In the year to date sales of romance books in the US are down 7.5%, while science-fiction and fantasy sales are down, even when the effect of Stephenie Meyer is stripped out. Estimated e-book sales from the Association of American Publishers show that the e-book market has risen 10-times since 2008, with sales accelerating this year with sales over the first two quarters up 180% on 2009.

Ahead of the seminar, Meynink said: “There has been over-performance in the growth in e-book sales in the romance and science fiction categories, when compared to the market share of print book sales, and this correlates with a fall in print book sales in those sectors.

Sorry for the long quote, you should read the whole piece. The highlighting is mine. I want you think through that bit as you read this. Meynink is telling us that ebooks are pushing aside print sales in specific genres that are at the forefront of digital adoption. No messing there, no room for shifting the territory or fluffing the message – the rise correlates with the fall.

Evan Schnittman has an interesting analysis in which he posits that ebooks are not the issue, it is the changing way people interact with books when they shift towards digital and that it’s not such a problem in the medium to long run:

The good news is that the same Nielsen study shows a significant portion of the ereading market buys more ebooks than they did print books. Furthermore, the study also shows that 80% surveyed would never consider buying a dedicated ebook reading device. So in the end, the book-selling world may lose 25% or so of its print customers to ebooks, but those customers will likely buy more product than they would have if they didn’t use an ereader.

Publishers must face the vibrant and growing market of ebooks with a view that their print runs and print sell-through have been and will continue to be downwardly affected by the loss of consumers to ebook reading devices. However, this isn’t cannibalization, it’s an opportunity for market expansion by feeding ereading consumers more of what they want to find.

I Think People Are Misunderstanding The Issue Here
I’m not sold on this market expansion argument. And I’m not sold on it for a specific reason. We are looking at the problem through the wrong end of the lens. The customer isn’t the issue, the publisher is. Simply put, for most publishers and on most titles a 10-20% shift to from print to digital undermines their economic model. Costs per unit will rise and revenue per title will drop if that kind of shift happens, and coping with it won’t be easy.

A loss of 10% or even 20% of print sales when the print run is over 10,000 isn’t catastrophic, especially if ebook revenues bring in some of that lost revenue. It won’t help the economics of a title, but it won’t kill them either. The more you print the less and less it costs per unit and the more and more room for manoeuvre you have regarding price and discounts. Sure, you’ll feel some profit pinch, and your revenue per title will dip, but overall if most of your books sell in excess of 10,000, you will be able to cope with a reduction in the region of 10-20% (though if the digital share grows beyond that it MIGHT become an issue).

But most books are not printed in quantities in excess of 10,000. In fact, in Ireland, I’d warrant that the average print run is circa 3,000 if not a little bit lower. From what I know of the US and the UK, this figure might be slightly higher, perhaps 4-5,000.

Those kind of books (hardback or paperback) are only just viable at current price levels. It’s one of the major issues publishers face. Paper prices have risen dramatically this year, but book prices haven’t risen to reflect that. If publishers are forced to cut print runs on top of absorbing cost increases, the profit per book sold will decrease dramatically.

Looking At It Clinically
If ebook starts to take 20% of a books sales, the print run becomes increasingly non-viable. Only two decisions really remain at that point, reduce costs or increase price.

Suppose a publisher looked to reduce costs, they might cut the print run even more, but each unit would then be more expensive and printers don’t really like doing runs below 3000 so the price might end up being pretty much the same. They could use cheaper materials and thus reduce the attractiveness of the product. They might squeeze the author’s percentage, but authors could self-publish when the deal gets bad enough and if an agent’s involved that’ll probably not happen.

So the other option is to increase the price. This is likely to reduce the demand from readers in the bookstore, and make it harder to get shelf space in physical stores. Even independent bookstores are wary of taking books that they know are more expensive than readers expect and readers have come to expect good prices.

On top of which the higher prices could shift more readers towards digital editions exacerbating the problem that kicked this all off to begin with!

I suspect that leaves the publisher in a pretty tough spot, they are pushed on costs and they have no flexibility on price. They can’t really dramatically increase the price and they cannot dramatically reduce their costs. UNLESS…

They Go Digital
The left-field option is to cut the print cost out of the equation and with it the cost of distribution and go digital only (perhaps with a print-on-demand option) with a title. That changes the economics of the project and is scary as hell for traditional publishers, because then pricing is weird for them, involving only fixed costs and very little in marginal costs per unit sold.

But, and this is the crucial point, if they follow this route, they have the prospect of profitable sales whereas if they stick with a mixed print and digital set up they will lose money.

What would you do?
I suspect that many publishers, those at least who fit squarely into this bracket I’ve described here, will start to see this logic. They will begin to adapt their model to reflect the changes they need to make. They will pull physical books and release ebook editions, at first they’ll also do print on demand or short run digital editions. Over time, they will actively recruit their readers to digital, because they know they have to do these things to survive and profit from the changed realities. It may or may not be enough.

Those that don’t, unless they actually are lucky or good enough to move from titles that routinely sell around 3,000 to titles that sell in excess of 10,000 units, will definitely perish. That’s not fair you might say, but they have the option to change. If they just think it through and start making those changes now or VERY soon.

Of course you see now why we were looking at the problem through the wrong end of the lens, if publishers shift to digital to enable profitable publishing, that may very well mean readers don’t get to choose if they shift to digital because for certain books they may very well be forced to.


Related:
I’ve talked about how this reduction in print runs will affect physical bookshops here

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16 comments

  1. My guess is that you will see mass markets replaced by trade paperbacks combined with some version of digital first publishing and then a super cheap mass market that is printed on very cheap paper.

    1. Jane,
      I think super cheap is gonna be a big part of the market, but even then I suspect only for large print run titles.

      Trade makes more sense when your strategy revolves around POD and small digital runs.

      Eoin

      1. I see a lot more of the trade books in romance these days which readers became used to with the advent of digital presses putting out print editions. I think that the rise of the trade book in romance, at least, can be traced back to the decision of Ellora’s Cave to print and of course printing to order was most profitable in trade paperback.

        Berkley/NAL, for example, is one of the major romance players behind Harlequin. They put out almost an equal number of trade v. mass markets. Most of the trades are the very sexy titles aimed, my guess is, at the readers who have been conditioned to purchase erotic romance at the higher price point.

        Historical romances are also pushed out in trade and I think that correlates with the success of titles from authors like Philippa Gregory (I could be spelling her name wrong).

        The super cheap mass market brings to mind this book type. One of the readers of Dear Author bought one and reported that it wasn’t that bad of an experience reading on the dwarsligger.

        So we could see a trade publication for some titles. Digital for most and then something like the dwarsligger for others.

  2. While your logic here is sound, any established publisher that eschews print outright to go digital-only (with or without POD) either doesn’t have much of a presence in the brick-and-mortar world to begin with, or is crazy.

    The expansion of the market Schnittman foresees (and with which I agree with) comes from a strategy that views digital as the opportunity to publish more books, allowing print to be limited to proven authors and franchises, and higher-quality/higher-priced special editions. eg: Subterranean Press and Cherie Priest’s Clementine

    1. Guy,

      Clearly there’s no need to eschew print in a one day print next day digital way. There’s room for a much more moderate approach, one that sees the decision as a title by title issue and not a blanket response.

      I think the decision to abandon print for some titles will increasingly make sense despite what you say, precisely because the bricks and mortar stores are just too expensive to operate with for smaller publishers on such low print runs and because the economics of the situation dictate a response of SOME kind.

      In practice, limited editions, while great for many titles, just won’t work for large numbers of them (especially non-fiction). It is also not necessarily going to increase overall revenue or indeed revenue per title published. At worst it may simply reduce output and concentrate capital and revenue on a small number of successful titles making each book a bigger bet and each failure more damaging, hardly a recipe for sustainability (see my comment below where I suggest there is space for this kind of publishing though).

      I just don’t see the expansion argument. I see an explosion of content for sure as both publishers and others produce more titles. I see increased “potential” access to audiences as digital titles are made available across platforms. I see increased competition for attention both within books as established and new publishers/authors struggle to gain readers attention and against other forms of entertainment (hello Scrabble) across those platforms as every form of entertainment we currently partake in or might conceivable partake in goes digital and mobile. I see reading struggling to capture that potential audience as rival forms of entertainment win the attention war.

      In a sense though, that all stands as a red herring to the economic issue that remains pressing. Even if I believe in a possible market expansion, how big is that? How soon? Can it prevent the title p&l of small publishers with modest print runs taking the hit it looks like it might if 10-20% of a books audience shifted online and stopped buying print books? That remains no!
      Eoin

  3. People currently buying ebooks are those who really like the idea of them (at £100 for an ereader, they have to really like the idea). It’s all about the gadget so of course they are indulging in new gadget accessorising right now with ebook buying. However, novelty also plays a part here and what consumers do right now is not necessarily an indication of what they will do forever more. If publishers react as you suggest, they will be focussing on the short-term in a very dangerous way. Lots of people in the book blogging world (and beyond) are clinging to paper and are unwilling to move across to digital. Do publishers really want to lose all that market just for the sake of a few potentially misleading trends? It would be a bit Faschist to tell us all we have to have ebooks even if we don’t want them.

    I also think that publishers like Persephone have made an important place for themselves. Books where the book-as-object is the point, where high-end design is the selling point coupled with a good story, have worked fantastically well. Look at Penguin’s success with its reissued classics in special editions. So much as super-cheap may well be popular, beautiful and a bit more expensive will also have its place.

    1. Litlove,

      There’s not much I’d disagree with you with there. People are using digital readers in a novel way right now but the trend established over nearly four years of usage is a) 20% or more of readers want them and b) they tend to flip pretty dramatically towards digital when the buy them. Not exclusively, but predominantly

      There is most certainly a huge place for print in the new world of digital publishing. I’m not heralding the death of print, just that a certain portion of publishers will be forced to make hard decisions based on economics, not their desires or even their readers desires.

      I totally agree that publishers like Persephone will make money and thrive. In fact I’d imagine there will be an emergence of even more hardback publishers who charge more for a finer product dedicated to really enthused book buyers. However, that’s not a possible reaction for all publishers. Books-object reduces the audience for the product, there are only so many publishers of that nature who CAN exist. What’s more many books just don’t warrant that treatment.

      Penguin and it’s classics is totally the point I’m making, those print runs are well in excess of 3,000 which enables them to gain economies of scale unavailable to smaller publishers.

      But what about the history title that has a market of 3 or 4,000 max. If 20%-25% of that market shift towards digital, the revenue per title will fall, the price per unit will rise and the publisher will have to respond somehow.

      It’s those difficult and unpalatable decisions that publishers need to grapple with on an economic reality basis, not a paper vs print idealogical thing.

      Eoin

  4. First, let me apologize, because this will be a long post.

    I’m an author currently living in Kildare. I write romance (not chicklit) for the American market. I’ve been in the business for many years in various guises, from reviewer to editor, researcher to published writer. I’ve also been in the digital business long before the aforementioned Ellora’s Cave. I’ve been following your blog for a while now and enjoy the topics. I feel compelled to post a note on this topic because I wanted to share some information on the romance industry as it is in America.

    Since around 1972, romance novels have dominated mass market book sales. That was when encounters stopped leaving it at the door, so to speak, and readers could follow the couple into the bedroom. I published an article in June called Blowing the Curtains which explains the advent and continued popularity of romance novels brought about in 1972 . . .

    http://kemberleeshortland.blogspot.com/2010/06/blowing-curtains.html

    Since that time, romance has held 55-65% of the market share. Quickly behind that has been crime/thriller/mysteries, which I’ll just call thrillers for the sake discussion. In the early 1990s, for the first time, romance fell below the 50% mark. Then cross genre romance became popular — paranormal, romantic suspense, futuristic, sci fi, etc. — and the romance genre exploded back up to it’s previous high percentage and continues to dominate the market share today.

    In recent years, thrillers have also gained in popularity on the backs of popular crime programs. They’re now in second place regards to market share

    What does this have to do with digital books and ereaders? As in Bookseller’s article – “The share taken by romance and saga books was 14%, seven times its print market share.” Why? Because readers, ie traditional book collectors, are now re-establishing their collections as digital ones. With less expensive digital copies, a reader can replace bedraggled paperbacks practically 2-for-1. Thriller fans are doing the same.

    Traditional publishers (TP) are in a really tough spot, as you suggested. One of America’s top romance publishers, Dorchester, recently announced they’re immediately going digital. Every book they publish will be available first and foremost as digital, and top earners may see their books go into print on demand (POD) in 6-12 months. This doesn’t bode well for Dorchester simply because there are already loads of digital publishers (DP) on the market who know how this side of the industry works — because they created it.

    TPs scoffed and insulted the digital industry for years, and now they’re trying to get their own foothold. At the same time they’re in the line of fire from the digital industry because TPs are trying rewrite previously established digital publication rules. TPs are missing the point. Not only can they not rewrite the rules of DP, they’re also can’t justify the high cover prices, not to mention they’re not offering authors digital industry standard royalties. At this point, with TPs getting into DP, what’s the point of TP? There’s always been more money in DP, even if there aren’t any advances. The only thing a TP can offer an author today is professional editing? It’s cheaper to hire a professional editor oneself than to take such low royalties at a TP just to have their editors work on the book. J.A. Konrath recently published a great scenario in which an author is discussing his/her book contract with the publisher. It’s well worth a read. Funny, but eerily realistic, because it IS happening with increased regularity as authors regain control of their work . . .

    http://jakonrath.blogspot.com/2010/09/acquisitions-editor.html

    With the sudden increase in popularity of digital books and ereaders, what’s stopping people from self publishing? Nothing but good editing. What this means for the romance industry is another huge push of the market share for digital romances, and thrillers. There are thousands of great stories going unpublished because TPs only have the ability to publish a certain number of books each month. And with household names — Nora Roberts, J.K. Rowling, Stephen King, etc — headlining those coveted slots, new writers hardly have a chance at a TP career. And if a writer writes something outside the box — vampire space cowboys, medieval jousting dinosaur riders, etc — there’s no way a traditional publisher will take them on. BUT, this is where digital publication got started. Groups of people writing similarly uncommon stories saw a market for them, and a few smart people started publishing electronically. And because TPs still won’t publish much outside the norm, save vampire stories, authors are going digital and making a lot more money (remember, higher royalties on reasonably priced books) than if they’d gone traditional. And because of this, digital readers are becoming evermore popular. I’m betting we’ll see an ereader under $100 for Xmas sales.

    On top of this, we’ll soon see the KindlePad, Android and other similar iPad-style tablet platforms, not to mention non-dedicated ereaders, for not just reading mass market digital books, but eventually for reading books that offer full color photos — historical texts (what I’d call research books), cookbooks, travel guides, and other educational or utilitarian books. Can you imagine an ereader offering full color photo travel guides, GPS and online maps for travelers? That’s a ways down the road though because ereaders are specifically geared for mass market readers at the moment, but not too far down the road. These days, with all the electronic gadgets out there, it’s only a matter of time before an all-in-one, easily transportable tablet or reader is released. For all I know, it could be out this Xmas!

    Long story short, digital sales on mass market romance and thrillers are and will continue to outsell their print versions, not just because they have nearly 40 years of established market share, but also because they’re cheaper, portable, and author royalties are higher on reasonably prices books. Writers can take advantage of the digital industry’s acceptance of plots TPs won’t publish. And readers can re-establish collections of their favorite stories without sacrificing huge amounts of money in today’s economy.

    Apologies again for a long post. I hope some of what I’ve said has added to the discussion.

  5. I am of the opinion that publishers are underestimating there own power in influencing the direction this issue takes. It’s kind of a tip-toey approach to engaging wholly with digital, not wanting to break the current status-quo. As Seth Godin says, the risk of putting everything on the line is you might lose, but the risk of not putting everything on the line is nothing will ever really change.

    I also agree that the wholesale move to digital will result in the big publishers putting out more books. I don’t think this is a good thing. The future for me is with the small publishers (although these may be part of larger groups) publishing in a verticle way to specific communities.

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