The Current Economics of E-Books

The mass market paperback book is rapidly becoming a threatened species. Now, I knew that the paperback market has largely collapsed, as least for science fiction and fantasy, but until I talked with my longtime editor last week and went over some numbers, I hadn’t realized just how bad it had gotten. I did know that my own paperback sales had dropped off, but the increase in ebook sales has largely compensated for the paperback decline in my own case…. but only because I have a large backlist, since the increase in ebook sales from more current titles has not compensated for the drop-off in mass market sales of those titles.

Historically speaking, for most authors, more than half, if not more than eighty percent, of paperback sales of a title occur in the year or so after the initial paperback release. Because the decline in mass market paperback sales has been so precipitous, more and more authors sold by major publishers, especially midlist authors, are discovering that their only print publication is either in hardcover or trade paperback, after which the titles are only available in ebook format.

At the same time, it appears that self-publishing in ebook format is becoming increasingly competitive and that, as a result, for many authors who’ve chosen this route their ebook revenues are also dwindling. Then add to this the fact that Amazon is still pressing, if less obviously, for the top price for ebooks to be $9.99, and the fact that author revenues for ebooks are calculated as a percentage of the net revenues based on the sales price and not the list price. In addition, Amazon’s Kindle Unlimited program in a very convoluted way [involving an opaque pooling system] that I’m not about to try to explain in a blog will reduce the revenues of participating authors considerably. Then add in the impact of the shift/increase in VAT tax rates for EU countries, and the likely decrease in revenues from that, one way or another.

While industry-wide publishing statistics indicate that ebooks only comprise around a quarter of total book sales, I have serious doubts about the applicability of those statistics to fiction publishing and especially to F&SF sales, since Nielsen statistics indicate that for the last quarter of 2014, 65% of all ebook sales were adult fiction of some sort.

The bottom line is pretty simple from what I can see. On average, the very top authors will continue to sell about as many units as they recently have, but will make somewhat less money. Best-selling authors below the top hundred [that’s an estimate] will see noticeable declines in revenues per title released… and authors below that level will likely see even greater decreases in income unless they increase their output and/or marketing efforts. This is, of course, a prediction of a general pattern, and there will always be some authors who will prove the exception… but I doubt there will be many.

18 thoughts on “The Current Economics of E-Books”

  1. Plovdiv says:

    Is the mass market paperback dead then? Most books in the UK are now B-format trade paperbacks, and have been for around 5-7 years. However, the publishers have kept prices closer to mmp’s by keeping the paper cheap, so the binding can be worse.

    1. The mass market paperback isn’t dead yet in the U.S. but it’s certainly only a shadow of its former self. At mostnews stands or bookstores, it isn’t obvious, until you look closely. In almost all except the largest bookstores the vast majority of mass market paperbacks are either those part of popular series or those by mega-selling authors. It’s getting harder and harder to find mass market paperbacks by less-known authors, or even backlist mass market paperbacks of well-known authors.

      1. R. Hamilton says:

        Which died first – the book or the bookstore? The days of a Walden’s or B. Dalton’s in every mall are long gone. Borders died. Aside from independents, B&N and Books-a-Million seem to be all that’s left, and they’re thinly spread enough to be less than convenient. Amazon is very convenient, and more easily searchable, but less easily browsable than a well-organized physical store, which may make discovering new material more difficult, although their attempts to offer suggestions based on previous purchases or searches partly offset that.

        I’d suppose that if books were doing well, most of the stores should have survived, although the buyouts and consolidations didn’t help, with Borders buying Walden’s and then dying. OTOH, Amazon (and other online sellers) had to have put a big dent in physical stores; and if the buying public buys differently from one than the other, that could be a big factor too.

  2. Tom says:

    I finally tracked down copies (paper) of your short stories in the 1970’s volumes of magazines and books. In other words those prior to ebook format. These paper publications are available through individuals and other booksellers; but you need to know how to find them. Yours were easy as the conduit was via Barnes and Nobles for me, but they were also available via Amazon. My main problem with the disappearance of the paperback market is that I will need to find a new way to peruse before purchase – I hate reading other peoples opinion about books (if I do not know them personaly). I have difficulty with ebooks, I love the feel of a ‘tome’ in my hands. But then I am ancient and one of your 1970’s stories was only available as an ebook, so ofcourse I had to have it.

  3. Tom says:

    What is the logical reason put forward by the book sellers of ebooks as to why the author gets less than from paperback sales? The overhead is obviously less than that of producing paper books; so the authors should be able to get an increased percentaage from the sales.

    1. Authors usually do get more per unit from an ebook than from a mass market paperback. The problem is that, while everyone touts ebooks, the total number of units sold [for most authors] is less than what mass market paperbacks used to sell.

  4. Plovdiv says:

    Is that because there are more ebooks available than mmp’s? It might also have something to do with scarcity re physical books vs abundance re ebooks, as mmp’s in physical locations were all readers could get hold of so that’s what they read most?

    1. It can’t be just the greater availability of ebooks because if readers were merely switching from paperbacks to ebooks, ebook sales would be far higher than they are — unless we’re talking massive piracy. While I believe piracy is a far greater factor than almost anyone will admit, it still doesn’t explain the falloff in mass market paperback sales, particularly since the decline began before the rise in ebook sales began. It may be that people are just reading fewer novels and more short snippets electronically. Or it could be other things, but it’s certainly not the greater availability of ebooks… or just not that.

  5. Tim says:

    I have not bought a paperback in years. On reflection this is probably because when younger, if I had to travel somewhere remote, as well as a newspaper, I usually bought a paperback from the airport. I did use to read work-related documents, but after an hour or so, I picked up the paperback and read for relaxation.

    Nowadays, the ubiquitous laptop is taken so you can continue to work and catch up on email etc. and with wi-fi now available in the sky, you even get responses! So no time to relax with a book.

    If I look at younger folks, they are usually watching a movie on a tablet, gaming or listening to music. Rarely reading anything.

    This is only my experience, however.

  6. william says:

    I for one hope print never dies I love Hard Cover and enjoy paperback. Renting a digital copy is not the same as owning a book.

    1. R. Hamilton says:

      However much I may enjoy holding a physical book, I’m disorganized enough that clutter will easily overwhelm me, and voracious enough that I’d need space for at least 50,000 titles or so eventually. Paperbacks are printed on cheap paper that gets brittle quickly (and I’d gladly read many again enough later to for that to be a problem), but hardcovers cost more and take up more space.

      Given those drawbacks, I find e-books on a high-resolution screen (3rd-gen – “Retina” – iPad in my case) to be quite acceptable, and nearly as convenient at home as when traveling. I can certainly finish most novels on one charge, but have a high capacity (> 25,000 mAh) external battery pack that can triple the run time, although I wouldn’t bother with that except when traveling.

  7. R. Hamilton says:

    Many products that were once creative (and well-compensated) became commoditized over time. Surely Amazon, Apple, and other non-traditional distributors desire to commoditize music, literature, movies, and anything else where their profits are large and physical costs small. That the result is to treat the creators as little more than glorified factory or fast food workers is little concern of theirs, at least until quality and variety are impacted to the point that people stop buying.

    And of course most younger people believe that the negligible unit cost of e-content means they shouldn’t have to pay for it at all (which ignores the substantial fixed cost). So even the distributors are getting squeezed, with paid downloads being replaced with streaming (either subscription or advertiser supported) and even lower shares for the artist. Presumably the mentioned Kindle pooling arrangement is an attempt to find an equivalent to streaming for e-books.

    In music, the money now is probably in either live performances, or occasionally for those who find creative marketing outlets – something they can create almost entirely themselves, and crowd-fund, with some degree of responsiveness to requests. I have no idea what the equivalent to that could be for books – maybe author-read audio books? (for those whose voice is suited) Or live talks, for those authors with wide knowledge? I recall Clarke speaking at Phoenix College in early 1970 (I would have been 11 at the time). OTOH, the admission, if there was one, was as best I (barely) recall fairly nominal; if there’s anything in it for the speaker, I doubt it more than covers their expenses for the trip.

  8. Arin says:

    It would be interesting to see the trend of mass market paperbacks since the early part of the 20th century graphed by year alongside a graph of the orders out to distribution channels (book store, grocery store, drug store, etc.)

    Until Penguin took off in the US, was the mass market paperback really a viable format?

    One could argue that the downfall of the nonbookstore distribution lines (drug stores, grocery stores, etc) put the format on a poorer footing, and once bookstores started to fail, then the format was definitely on a downturn.

    …but this is conjecture without numbers to back it up.

    1. Actually, there are statistics to back up your conjecture. Tom Doherty [publisher of Tor] actually came up through the ranks of the sales channels, and presents a solid case with numbers of how the collapse of wholesale distribution and the cannibalization of the Mall stores — B. Dalton and Waldenbooks, in particular — combined with the demands by grocery chains to “simplify” distribution channels result in the current situation. I don’t remember all the numbers, but at one point in the 1980s, there were hundreds of independent distributors, each of whom knew their local market. Either Safeway or Kroger [I don’t remember which] told the publishing industry unless it came up with a much smaller number of distributors they wouldn’t carry books at all. By the early 1990s there were only five wholesale distributors in the U.S., and now I think there are only two or three. While Waldenbooks was an independent chain, it was profitable, but the margins were low. Once Borders bought Waldenbooks, the accountants insisted on higher unit margins, but the smaller stores couldn’t do that. What none of the accounting shirts realized [or cared about] was that the near-ubiquitous small mall bookstores were creating readers because they were more convenient than libraries and paperbacks were still affordable then. Those readers then eventually patronized the mega stores. With the smaller stores largely gone, that source of book-buyer has greatly decreased.

      1. R. Hamilton says:

        I’m trying to remember the timing of complaints from a friend about clueless stocking of books at both bookstores and stores like Target. I think that was in the early 2000’s. That would fit with your description of the reduced number of distributors. As I recall, her impression was that the stores were also losing expertise, so that the distributors would unload on such stores those books that weren’t moving.

        How has the whole returns process, whereby retailers can return or provide evidence of destruction (for mass market paperbacks) affected sales? As I understand it, that began a long time ago (Great Depression? WWII?) to reduce risk on bookstores. Reduced risk might make them more willing to consider unknown authors, but on the other hand, it reduces their incentive to be knowledgable about what sells best. Distributors and retailers trying to shift risk elsewhere seems to me a lot like finger-pointing.

        1. The existing returns process has been around since before I was first published more than forty years ago, but when it began, I can’t say. The local distributors — back before 1990 — had an incentive to know their markets, simply because taking returns cost them effort, time, and money. Once the huge centralized distributor got into the act, they have tended to treat books like hammers, bananas, and other undifferentiated products. To many of them, a book was a book, and there was little difference between Bimbos of the Death Star or The Eye of the World or Ringworld. B&N has tried to avoid this by establishing “model” stocking, but now I understand that they make it difficult for at least some local stores to order significant numbers of titles that depart from the “model” [that’s just what I’ve been told in some B&N stores].

  9. Plovdiv says:

    Also, large discounts on new release hard covers have also had the effect of curtailing mmp sales, I suppose. I miss the mmp in the UK. All the books in Waterstones etc are now trade paperback. MMP’s were just a nicer size, easier to read and cheaper to buy, while compensating the author more for each sale.

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