Is Amazon’s Kindle Killing Book Publishing?

Amazon filed their 10K annual report on Thursday and two numbers jumped off the virtual page at me. First, Amazon’s international media sales (no Kindle component to speak of) were up 19%, bringing the total to $6.8 billion. Amazon’s North American media sales were up 11%, bring the total to $5.94 billion. In the three years prior to Kindle’s release, Amazon’s International media sales (books, music, movies) grew just a little faster than their North American sales. Since the Kindle began to take off in late 2007/early 2008, the North American media rate of sales growth has lagged international media rate of sales growth by 37%. One possible explanation is the Kindle sales are cannibalizing growth from Amazon’s North American book sales, and Amazon is betting the future farm on capturing the eReader market.



Update: According to news feeds, Amazon has announced they will back down and compromise with Macmillan.

Most of the publishing world is Tweeting from the sidelines as Macmillan and Amazon face off in a power play over the future of book publishing. Trade publishers are finally waking up to the fact that Amazon’s growing power as the world’s leading book retailer puts their businesses in a precarious position of dependency. This isn’t a simple argument about the retail pricing of eBooks. Increasing eBook sales lowers the volume of paper books printed and forces up the marginal cost of publishing on paper. The result is a positive feedback loop for eBooks and a death spiral for paper books. Quoting myself from a couple years ago when pointing out that Amazon’s US book sales were poised to pass the bricks-and-mortar sales of the whole Barnes&Noble chain, "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." It appears for Macmillan, the day of reckoning has arrived.

On Friday Amazon stopped selling books published by Macmillan, one of the largest publishing groups in the world, in a dispute over eBook pricing and distribution control. Nobody outside of Macmillan and Amazon knows for sure what their existing deal was, though it’s widely reported that Amazon was losing money selling Kindle versions of Macmillan bestsellers by paying Macmillan more than Amazon’s selling price. Nor does anybody outside of Amazon and Macmillan know what percentage of Macmillan’s overall sales have been going through Amazon. Macmillan’s heavy presence in the education market, from elementary right through university, makes them less vulnerable to Amazon’s boycott of their books than publishers dependent entirely on leisure readers. It’s also unclear whether the whole issue would have come to a head this week without the announcement of Apples iPad, and their support for a pricing model that leaves more control in the hands of the publishers.

Make no mistake about what’s at stake here. Publishers don’t want to find themselves in a position couple years down the road where Amazon can start dictating the wholesale pricing for publisher content. This can only if Kindle remains the dominant eBook reader, something I suspect has grown a little less likely with Amazon's actions this week. The current stand-off has brought out the usual commentary by instant eBook experts who have never published a book on paper or electronically. They don’t have a clue about economics of publishing, the time invested by an author or the money invested by a publisher, and endlessly repeat the mantra that authors and publishers are all stupid and will earn more money through increased volume. If the volume doesn’t materialize, that can only mean that the price isn’t low enough. I guess there’s a quantity of alcohol or emotional age that makes watching people falling on their backs while trying to limbo under a pole hilarious, but substitute “going out of business” with “falling on their backs” and you may sober up. For a hair of the dog, consider the “creative destruction” preached by our economic sages and how well that’s turned out for us all.

Just a week ago, Booklocker and Amazon settled Booklocker's anti-trust class action lawsuit over Amazon’s threat to remove “Buy it now” buttons from Booklocker’s titles on Amazon if Booklocker didn’t agree to have Amazon print their books. At the time, Amazon claimed that the move was necessary to better serve their customers, a nonsensical claim at best, yet one that is being used today in regards to the eBook distribution model. In the settlement agreement, Booklocker won what they had sought, Amazon’s agreement not to remove their “Buy it now” buttons, and Amazon paid $300,000 to Booklocker’s law firm for the legal costs of the suit. One wonders if Amazon’s lawyers had kept the button removal monster in a cage during the lawsuit, and set him free once the settlement was signed.

Given the lack of solidarity within the publishing "community" during Amazon's POD take-over, I doubt that Macmillan will see a groundswell of support from self publishers or small trades. The question of who will “win” the Amazon vs Macmillan war (and the winner appears to be Macmillan)can be influenced by the other large publishing groups. As much as they depend on Amazon for sales, Amazon depends on them even more for books. Nobody outside those publishers and Amazon knows if they have contractual commitments that will prevent them from telling Amazon that they are changing model under which they are will to provide Amazon with eBooks. But even if the CEO’s of the other publishing groups have the legal ability to turn the tables on Amazon, they may not have the desire. For the time being, Macmillan’s loss is their gain, and as far as anybody knows, the large publishing groups aren’t losing money on their Kindle titles under the current regime. The future? Well, that’s off in the future somewhere, and it’s much more fun to make money today and not worry about it.

Amazon also surprised the small publishing world last week with the announcement of a new Kindle business model to be launched this summer. The new model for Digital Text Platform users will up the author/publisher share from 35% to roughly 70%, in return for the author/publisher agreeing to a maximum list price of $9.99 and a minimum 20% discount from the paper price. The 70% royalty will be based on the sales price, which will be determined by Amazon in a manner that's not entirely clear at this point. The deal is nearly irrelevant for my own self publishing business since I only sell my weakest title through Kindle due to formatting constraints, but all of these events stacking up since the first of the year should serve as a welcome reminder that absolute power makes a negative impression. Or maybe that’s absolute numbers make negative signs positive, or some CEO's found courage in a bottle of Absolut and stood by Macmillan.

eBook Case Study And Experience Selling eBooks

First, I should point out some major differences between my own eBook sales and selling eBooks for Kindle or iPhone. I am selling PDF files using eJunkie as the download service and PayPal as the credit card processor. This is a very different than selling to registered customers who are buying yet another eBook for their sunk-cost device with a single-click through from a trusted big name vendor. It also means that my eBook sales have zero dependence on the cataloging or ranking of a retailer site. This case study is a follow up to an earlier post in which I tried to establish if eBook sales were hurting print sales.

I chose the awkward time period of this case study, May 9th to Dec 31st of four successive years, because the eBook edition of my business title went on sale May 9th of 2008 and I wanted to compare apples-to-apples as much as possible. The reason I give paper book sales data for two years prior to the release of the eBook is to show that a downward trend was already in place for this eight year old title. In addition to actual eBook sales, I show Ingram sales (which represent the majority of paper book sales for this title), Amazon Associate sales (direct buyers from the FonerBooks website) and the number of hits on the order pages for the book. Now, on to the sales data:

Period May 9 to Dec 31st, Paper $14.95 (Amazon $13.45), eBook $11.95:

2006 – 807 Ingram, 0 eBooks
2007 - 694 Ingram, 0 eBooks
2008 – 498 Ingram, 159 eBooks
2009 – 569 Ingram, 165 eBooks

Now the combined unit sales and a look at the website marketing, including Amazon Associates sales and hits on the order page(s) for the book:

2006 – 807 unit sales, 183 Associates, 5,348 Order Page
2007 – 694 unit sales, 160 Associates, 4,648 Order Page
2008 – 657 unit sales, 83 Associates, 4,691 Order Page, 777 eOrder Page
2009 – 734 unit sales, 97 Associates, 5,115 Order Page, 805 eOrder Page

Perhaps the economic events of 2008 had a direct impact on the sales for this title about starting a business. It’s also important to note that two directly competing titles appeared on Amazon in late 2007. The sell through for the eBook, once customers click through to the eOrder page and are confronted by the license agreement and the PayPal symbol, is higher than 20% for both years. The Amazon Associates sales for the paper book dropped by almost 50% when I started selling eBooks direct, yet the eBook sales nearly doubled the lost Associate sales. International eBook buyers who suddenly have a low cost way to get the book account for part of that difference.

The main sales drivers for this title are the extensive excerpts available for free on the FonerBooks website and its visibility on Amazon (paper book only), which was built over the years. The book seems to be widely available through piracy sites, and likely was before I even began selling an unprotected PDF version. I haven’t gone through the exercise of trying to download pirated copies because I don’t put that much trust in my antivirus software and I don’t find it beneficial to my mental health. Going by Google's auto complete results, there are plenty of people looking for a freebie on file sharing sites (my more popular titles also show similar queries, including the word "free"):



The experience of selling eBooks using the simple combination of eJunkie and PayPal is working very well. Of the 1207 eBooks sold (four different titles) in 2009, there were a total of eight PayPal disputes initiated, less than one tenth of one percent. Six of the eight disputes resulted in somebody getting a free eBook, whether or not it was the intended customer isn’t clear. PayPal labeled two as “bank returns”, two as “temporary holds” that apparently became permanent, one as “non receipt” (I assume they couldn’t find the file on their hard drive) and one as a credit card company “charge back” which resulted in a $10 loss. Two of the disputes were resolved in my favor. I also issued six refunds unilaterally after noticing customers never downloaded the eBook they had paid for, and I don’t believe I ever heard from any of them. The only other overhead has been regular requests, perhaps one a month, to replace lost eBooks. Overall, I may spend fifteen or twenty minutes a week managing the eBook sales. The graph shows a strong seasonality to my eBook sales, I wonder if other publishers have seen anything similar?



I also started selling my most recent print title as an eBook for the first time this month, and overall eBook sales are up around 40% over the previous January. This should give me some data to contrast with the book published earlier that year, when I started selling the eBook a couple months before releasing the print book. Now that I’m selling three eBooks on a related subject, I’ve started seeing triple orders, one a week so far. When somebody purchases an eBook, comes back a half hour later and purchases the next one, and then returns an hour after that and purchases the last one, I take it as a vote of confidence in the quality. Only one of the three eBooks makes any mention of one of the others, and that’s at the very back, so it’s not a question of push marketing.

Readers may also be interested in a full life cycle, six year case study for a POD book I posted a few months ago. Also note that Andrew Savakis of O'Reilly has published several interesting number posts on O'Reilly's eBook sales in the past couple months, along with an argument that smartphones are the future of eBooks.

Advertising Revenue For Book Publishers

Update:

I dropped Adsense from my FonerBooks website in 2011 in protest of their support of copyright infringements. Thanks to DMCA dashboard, it's gotten easier to combat infringements, so I'm reconsidering.

Back to 2010 I had written:

Foner Books earns a little over $25,000 a year from the Google Adsense program for publishers. It’s been fairly consistent over the past four years, with the total amount over $100,000. I don’t show Adsense ads on all of my pages, in fact, Adsense appeared on less than a quarter of the total page views my site attracted during this period. I’ve never tried running more than one ad block on a page, and I prioritize book marketing, sending potential customers to Amazon or selling eBooks direct, over generating advertising revenue. It seems to me that advertising on the top of the page works best when the audience is primarily interested in purchasing a product or a service, and that advertising at the bottom of the page works best when the audience is primarily interested in information, i.e., how-to material. I once worried about advertising making the site look spammy and reducing organic linking, but Adsense has come to be seen as a standard design feature for professional websites, and is a welcome addition for active shoppers.

The best feature of online advertising for Foner Books is that it allows us to earn something for our publishing efforts without having to sell a book or an eBook (we don’t sell subscriptions). It opens up a whole world of monetizing content on a chapter or article basis, and importantly, allows us to earn some return on research and time spent developing material for books that may never reach the publication stage for one reason or another. Traditional book publishing is a hugely inefficient enterprise, with a small number of “hits” paying for a large number of “misses”, but through the distinct economics of online advertising, the “misses” may earn more from advertising in the long run than some of the “hits” in print. For authors and publishers who follow the approach of publishing draft material online to generate feedback and gauge demand, early advertising revenue offers another metric to predict the ultimate commercial viability of the work.

So, given all of the upside to advertising, why do I bother with books or eBook at all? For starters, paper books remain my primary source of revenue. I earn more from my paper books printed through Lightning Source on demand than I do through eBooks, Adsense, Amazon Associates and special sales combined. Next, Google Adsense is essentially a black box for publishers. I don’t know how they choose the advertisers for my pages, how they decide on my share of the advertising revenue (the ads themselves are sold through the Adwords auction process), or what they have in mind for next month, much less next year. Book sales, while greatly dependent on my “partnerships” with Lightning Source and Amazon, neither of which would notice if Foner Books ceased to exist, are less dependent on Google. Direct eBook sales, the fastest growing share of my publishing revenue, are heavily dependent on Google as the main source of search traffic and potential eBook customers.

Advertising is a brilliant match for publishing, but as newspapers and many other publishers have learned, that doesn’t mean that the economic model that worked in the pre-Internet print world can be migrated online without serious modification. One reason publishers give for ignoring the potential of advertising revenue has nothing to do with economics and everything to do with snobbery. It’s the perception that serious book publishers shouldn’t sully themselves with advertising, which by definition, they assert, targets the great unwashed. Unfortunately, by holding back quality book content from the Internet, publishers are hurting themselves and the public. Perhaps one in a thousand of the people who read my work online buy a book from me, but many of the other nine-hundred and ninety nine find exactly what they need or learn that my books and writing approach don’t suit them, which is equally valuable. The individuals finding my website through search don’t glance at the page and say, “Oh, here’s another scam site where they’ve published tens of millions of pages about nothing to cash in on advertising.” Ironically, the reason that a large chunk of web searches lead to pages whose only content is automatically generated questions (without an answers) or top ten lists ground out by contract writers for a low hourly wage is because they don’t have any competition on those search queries.

Another argument book publishers make against online advertising is, “We tried that once and it didn’t work.” At the risk of creating more competition for myself, let me suggest that you try it again, and make a real effort this time. Experimenting with monetizing a high traffic website isn’t something you can leave to the intern or assign to the web design team, it has to be carried out by somebody with a business head and the authority to carry out large scale trials on the website. That person needs to be able to modify web pages without calling three meetings and writing an action plan for committee approval for each trial. It doesn’t take weeks or months to figure out whether advertising will work well with particular content, days or hours can be sufficient on a high traffic site. Just make sure the person in charge has hands-on experience with online advertising, even if it’s through a hobby site. If you need outside help, make sure you find a consultant who has experience with advertising on a publisher site where the primary goal remains selling the publisher’s books and media products.

Some publishers simply believe that their content won’t do well with advertising. I don’t know any way of determining that without systematically experimenting with an ad network like Adsense and its nearly infinite universe of advertisers. If all of your books are about getting through life with nothing but old newspapers and masking tape, there may be a limited number of advertisers interested in that content and they probably won’t pay very much. But you never know. A book about traveling overseas while dressed in newspapers may monetize well with ads for high fashion or mental health services while abroad. I’ve been pleasantly surprised by the Adsense’s ability to find relevant products and services for even the most eclectic content on my website. Although the Foner Books advertising revenue is all brokered by Adsense, it’s diversified across a dozen topics within the site, the largest of which accounts for less than a third of the total.

Advertising alongside book content or professional journalism isn’t some get rich quick scheme based on shady search engine manipulation or requiring wholesale link generation. If your content is good, the search traffic side of the equation will largely take care of itself. Book publishers have a tremendous advantage over community websites and newspapers when it comes to advertising because they can be assured of generating a large portion of their visitors from people looking for information or products (also known as shopping), as opposed to people who are simply socializing or getting their daily fix of aggravation. The main question you’ll be faced with is whether you want to establish your own ad sales effort, or simply sign up with a network like Adsense, let them do all the heavy lifting and be satisfied with the results. If nothing else, take a look at your competition and see if they are monetizing any of their book content through advertising, because any incremental income they earn will directly impact your ability to compete with them in the print book world.

Negotiating A Book Contract by Mark L. Levine

Disclaimer: The author sent me a free copy, so the FCC says you can ignore my opinions.

I just finished reading "Negotiating A Book Contract: A Guide for Authors, Agents and Lawyers" by Mark L. Levine. It's certainly the best text about book contracts I've read, and very up-to-date with electronics rights and Internet issues. Unlike the other legal books for authors and publishers I've read, Levine sticks 98% to book contracts, with a minor excursion into author/agent contracts. There's no speculation about the true meaning of intellectual property, the vagarities of copyright law or the stages of the creative process - it's all about contracts. I highly recommend this book to any authors who are negotiating a trade contract or who are submitting manuscripts to trade publishers. You can purchase the book from Amazon for $17.96.

The best thing about Levine's approach is that he is evenhanded in his treatment of authors, agents and publishers. You'll frequently come across phrases like, "a prudent publisher" or "a prudent author" as he clues in both parties to clauses they should seek to protect themselves and establish a fair relationship, rather than treating contract negotiation as a confrontational "winner takes all" process. In fact, it could be that publishers need this book even more than authors:-) Publishers and agents who are deeply familiar with contracts might benefit from reading the book straight through, but I think for most authors, it will serve best as a reference. There is simply too much detail about various book contract clauses and unfortunate situations that may arise through minor differences in wording for the typical author to absorb in several readings. The ideal situation would be to sit down with a contract offer and this book, and to spend a day going through the contract, clause by clause, reading each corresponding book section as you go.

The funny thing I can say about publishing contracts in general is that I wouldn't be a successful self publisher today, earning more than I ever did as a bestselling trade author of how-to books, if I hadn't signed several contracts in complete ignorance of what I was getting into. When I finally learned what was in those contracts I had signed, and worse, how likely it was that the publisher would have simply dropped the objectionable clauses if I had asked before signing, it soured me on trade publishing. I came out of the experience believing that I had been greatly put upon, and if I was to work with a trade publisher again, I would only do so under a contract that was strongly in my favor. Since agreeing to contracts that strongly favor the author makes little sense for trade publishers, I haven't signed a trade contract since. But that's what happens when a publisher takes advantage of an author's ignorance to create a contract that serves the needs of the publisher to the exclusion of the needs of the author. Yes, it's a caveat emptor world, but at least in my case, the publisher lost an author who delivered every book ahead of schedule and contributed greatly to the promotion of the books.

My own experiences led me to write some basic book contact negotiation advice myself, which has led to many an interesting correspondence over the years. Unfortunately, some of that correspondence comes from authors who have signed up with various self publishing companies or vanity presses, paid a fee to get published AND signed bad contracts. There is no common ground between trade publishing contracts and self publishing company contracts. Trade publishers make their money through selling books, self publishing companies make their money through selling publishing services to authors. If you plan to use a self publishing company to publish a book rather than seeking a contact from a trade publisher or establishing your own publishing company as I did, a different Mark Levine has a different book for you. It's "The Fine Print of Self Publishing: The Contracts & Services of 45 Self-Publishing Companies Analyzed Ranked & Exposed." You can order that book through Amazon for $12.92, I think the title pretty much describes the content.

Here's a fun video on contract clauses from the WSJ, if it's still active, excuse their commercial lead, it's just 15 seconds:

Music Downloads Pass Retail Book Sales

Two news items featuring Nielsen data caught my eye today. The first was a report in the PW Newsletter saying that Nielsen BookScan put retail book sales for 2009 at 751.7 million units. Since Nielsen estimates that BookScan accounts for 75% of retail book sales, that would put 2009 retail book sales in the U.S. at 1 billion units.

An article in the WSJ today quoted the Nielsen SoundScan numbers for the music recorded 1.16 billion individual paid downloads of songs, the majority probably coming from iTunes. In addition, they reported some 373.9 million albums sold in 2009, both as CDs and as downloads. Some of these "songs" are no doubt audiobooks, but I have no idea if anybody tracks those percentages.

What struck me, if you trust Nielsen data and their error band, is that in 2009 the number of paid downloads of music singles was greater than the number of books sold at retailers. That's a pretty stupendous social statistic, especially if you make the assumption that most singles are purchased by younger people and most books are purchased by older people.

I couldn't find the Nielsen VideoScan numbers for 2009 anywhere, it would have been interesting to see how DVD sales stack up against books and music.

If you want another context for these numbers, on their busiest day this year, Amazon shipped over 7 million items, worldwide. Amazon actually sells more books overseas these days than in the U.S., but just for fun, let’s say that half of all Amazon item shipments that day were in the U.S., totaling 3.5 million. Now let’s assume Amazon could get that many items packaged for shipping 365 days a year. That would mean that Amazon alone has an operation capable of shipping over a billion books a year, equal to the entire retail book market in the U.S. as estimated by Nielsen.

It's something to wonder at:-)

What Is Book Marketing, Anyway?

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