Adsense

Amazon Becomes America's Largest Book Buyer

The book selling wars that began four decades ago with the rise of the mall chains, followed by the growing power of the Barnes & Noble, Borders and BAM superstore chains, has been won by Amazon. Amazon sales are on track for double-digit gains again this year, aided in part by high fuel prices discouraging trips to the regional superstores that have replaced so many local bookstores. Amazon's North American growth in media sales (books, music and movies) may exceed the incredible 23% gain they turned in last year. Amazon is on pace to sell more books in the US than the entire Barnes & Noble chain in 2008, even allowing for a higher music and video mix. If you add Amazon's international stores to the mix, they will easily sell more books than Barnes & Nobles plus Borders this year.

On the bright side, large trade publishers may find that having Amazon as their #1 customer will free them from having to cater to the tastes of powerful chain buyers. In past years, buyers at the large chains had significant input in everything from the title mix at some large publishers to the physical format and design of new books. These chain buyers and a handful of review publications formed a cabal of gatekeepers in the American publishing industry, and while some may lament their waning power, I was never impressed by their choices. The exclusivity that they fostered contained the seeds of their own downfall. Amazon, to date, has offered the closest thing to a level playing field for booksellers that's existed in the publishing world since the beginning of time.

On the dark side, there's Amazon's attempt to force a new printing paradigm on the publishing industry. Strangely enough, they're in a better position to dictate surrender terms to the large trade publishers than to self publishers like myself. If Amazon changes the rules such that I no longer want too play their game, I may lose over half my sales and a third of my after tax earnings, but I'll still make a living thanks to diversification. Large trade publishers are only seeing their dependence on Amazon grow. If Barnes & Noble announced plans tomorrow to install print-on-demand machines to print ALL of the books they sell at each store location to save on fuel, what large publisher could afford to say no? Well, replace Barnes & Noble in the previous sentence with Amazon and replace "save on fuel" with "better serve our customers" and the economic decision remains the same. If Amazon actually builds the capacity to print all of the books they sell, the large trade publisher will be faced with an existential question. If the choice is to sign on or have the Amazon playing field tilt against their titles, they'll be forced to sign. Amazon is their buyer who is too big to fail.

And why am I revisiting this topic today? Since Amazon announced that they are are rolling out in-house print-on-demand services in the UK last week, several publishers with books printed in the UK by Lightning Source have seen them go "temporarily out of stock" in the international Amazon stores. Considering that the lead line of Amazon's press release begins "POD titles are effectively always in-stock" it appears that Amazon may be trying to draw a branding distinction. If it's not Amazon POD, it's not POD. Strangely enough, the Amazon relationship with Lightning Source in the UK had worked like a charm for the previous six years, maybe somebody changed their mailing address.

I can't predict exactly how far into the future the day of reckoning will arrive for large publishers, but it's clear that Amazon can control the timetable with the pace of their investment in POD and Kindle. Speaking strictly as a reader, I would prefer a world where Amazon dictates the physical form of books to one where a small number of chain buyers and opinion makers dictates the content and artwork. Speaking as a self publisher, I'd prefer to have the small publishing world continue just as it is today, with Lightning Source providing a single source solution for zero inventory publishing that encompasses both regular bookstores and Amazon at home and overseas.

But the bottom line is that the future of the publishing industry can no longer be extrapolated from past performance. The business of printing and warehousing large numbers of books, distribution through wholesalers and distributors, cozy relationships between buyers and publisher reps, is on the decline. The Internet is the infrastructure on which the publishing world of the future will depend, not the offset printer. And eventually, the transition from a "print and warehouse" business to a "data warehousing and print" business will do more to hasten the rise of ebooks than all the pretty devices in the world.

10 comments:

Zoe Winters said...

Very good points. I don't think it's a good time to get into mainstream publishing.

Morris Rosenthal said...

Zoe,

Well, I'm not sure that was my point. Just that the road is changing, and publishers should take it into account when they make their plans for the futue.

Morrs

Anonymous said...

Something I've been pondering lately is the elasticity of demand, meaning, how much do people need what you publish.

If you publish fluffy novels, you had better start thinking about new ways to reach your readers since they won't really miss you all that much if they stop buying your books because you are selling in the wrong - or outdated - format.

On the other hand, if you sell medical books on key health topics that people can't get anywhere else, then people will probably be willing to buy those books in any format you sell them in. e.g., inelastic demand. If this is the case and you want to keep selling them as paper books instead of e-books, then the real questions are: can you still get them printed affordably, do you have a place to store them, is shipping affordable enough to expect customers to pay for, and do you have a good platform to sell the books. The question is not: will people buy them even if they are not in the "preferred modern techy" e-book format.

Just some things I've been pondering.

Bryan

Morris Rosenthal said...

Bryan,

More depression worries, eh? Keep in mind that escapisim is a big seller in bad times, golden age of the movies was the Depression, movie theatres were decked out like palaces.

Morris

Walt said...

Good post, Morris.

I have been saying for some time now that publishers -- especially small indies -- need to stop thinking of ourselves as in the book business. Instead, we should consider ourselves to be in the information business.

Is Publishing a Book Business?

Thinking Outside the Book?

How our information is formatted and delivered to customers, in fact even how it's aggregated, is of less importance than that we can provide it the way the customer wants it.

Morris Rosenthal said...

Walt,

Information entrepreneurs - at least for nonfiction:-)

Morris

Zoe Winters said...

eh, I wasn't trying to obscure your point. It just was another good reason for ME not to try to get into mainstream publishing. In the sense of...people are going to tighten their belts all around.

Morris Rosenthal said...

A couple people asked me how I can make this estimate when Amazon and B&N don't publicly report how much of their sales are books vs DVDs, CDs, etc. The napkin math is below, please excuse the formatting, the comment window view is horrible:

Neither Amazon nor B&N break out their CDs and DVD's, both did $4.6 Bn in North American Media last year. The one time Amazon slipped into into a press release back in 2000 or 2001, it was less than a third of their business. CD sales have certainly cratered for everybody and Amazon isn't making it up in downloads, plus NetFlix limits the online DVD sales business. But let's say non-books are a third of Amazon media, which I strongly doubt. At a 25% growth rate, Amazon will do $5.75 Bn for North America media this year. Knock off a third and you get $3.85 Bn for books. B&N won't grow this year, so they stay at $4.6 Bn, so for them to sell more books than Amazon, their mix of "other" has to be less than 16%. Is it likely that Amazon's proportion for music and DVD's (even with Long Tail availability) would be twice as
high as the walk-in proportion? And if Amazon's proportion of music
and movies has dropped below 20%, which I think is possible given
music and movie downloads and NetFlix/cable movie-on-demand, they'll sell more in books even if B&N's sales were 100% books.

I know the general reaction from people who have talked to large trade publishers (excluding elhi and college text) about it in the last couple years was that B&N still rules. But consider their different growth rates the last three years (SEC filings I track athttp://www.fonerbooks.com/booksale.htm goes back seven years if you're
interested).

Amazon media growth : +23%(2007) +15% (2006) +18% (2005)

B&N media growth: +4% (2007) +2% (2006) +3% (2005)

So in the last three years, Amazon's media sales in the US are up 66.9%, where B&N is only up 9.3%, if I did the math right:-) And B&N has been very dependent on Harry Potter years for growth, which Amazon hasn't. Things may be changing faster than people are paying close attention, and Amazon is on course for a banner year.

Morris

hubert artus said...

Hello,
I' m a french literary journalist, and I have a question : how many books (copies) AmazonUK has selled this year ? And how many books did M&N sell ?

Morris Rosenthal said...

Hubert,

The short answer is that those numbers aren't public. The long answer is that by doing a lot of detective work, you can make some guesstimates, but it's too involved for a blog comment. E-mail me directly if it's something you're really willing to work at over time and I'll try to help you with the approach.

Morris