Friday, October 14, 2016

Propsects for Indie Publishing Look Dim

Ebooks and the simplicity of self publishing have ushered in a golden era for both readers and writers. Metaphorically. When it comes to real gold, the intensely competitive nature of the ebook market dooms any prospect for a long term commercial business or professional career in writing and selling ebooks. The same characteristics of ebooks that bedevil traditional publishers – their vast number and cheapness – applies to indie ebook publishers as well – the vast number of cheaper ebooks. While fortunes have been made in indie publishing and money will still be made in the future, it will be increasingly difficult to make enough money, reliably, year in year out, to build anything more than a cottage industry once the price of indie ebooks falls to $.99 or less – as it will. It is simply a matter of basic economics.

Traditional publishers manage their business – publishing only enough books to satisfy the market. One book, out of hundreds of submissions, is published, with the unpublished ones finding a home in the bottom drawers of desks. Ebooks and self publishing have changed publishing. Stories, novels, and nonfiction writing once consigned to a drawer can now be easily and inexpensively published as ebooks. Anyone who can produce a manuscript can convert it to a book – at little or no cost – and offer it for sale alongside the traditional publishers in a market that reaches millions of readers. With hundreds of unpublished writers for every published one, there is every reason to expect that the ebook market will continue its rapid growth. In this easily accessible, unfettered market, with more than a hundred thousand individual producers already offerings 4+ million ebooks, with tens of thousands more being added each month, the ultimate selling price of ebooks will be determined by the law of supply and demand. And since ebooks can be produced with just a home computer and spare time – no money required – one can expect intense competition to eventually drive indie ebook prices down to Amazon's minimum price of $.99 over the next five to ten years.

The theory of supply and demand says that when the supply of a product exceeds the demand for the product, the price will fall. Prices fall because the producers cut prices to sell unsold inventory and drive the less efficient and weaker producers out of the market. When enough producers have abandoned the market and the surplus inventory dries up, the remaining producers can then raise prices. Since ebooks can cost so little to produce and writers are accustomed to producing books with little chance of making money, it will be impossible to drive enough producers out of the ebook market to raise prices. And those who do exit the market, have no incentive to take their existing ebooks with them, so the surplus will continue to grow. Given the number of new writers entering the ebook market, it seem unlikely that the mechanism of supply and demand will stem the rapid increase in the number of indie ebooks, or keep prices from falling.

Assuming, of course, that there is an oversupply of ebooks in the market. Lets look at some numbers.

At the time of this writing, Amazon has added 109,086 new ebooks in the last 30 days, including 11,757 new romance titles, 2,597 science fiction titles 3,704 fantasy titles, and 6,077 thrillers. This is in addition to the 4,000,000 plus ebooks already in stock. Intuitively, this seems like far more books than the market can profitably support.

Still, this has been the case for several years now, and it has not driven all prices down to $.99. Indeed, the average price of indie ebooks has stayed fairly stable, moving between $3.67 to $4.25. In Jan. 2016 it was $3.76. The percent of $.99 has also been fairly stable. Author Earnings' “Data Guy” has provided these figures:
36.3% of all indie unit sales in May 2015
40.4% of all indie unit sales in September 2015
43.0% of all indie unit sales in November 2015
37.7% of all indie unit sales in January 2016
30.9% of all indie unit sales in May 2016
40.4% of all indie unit sales in October 2016

Clearly, prices are not going to fall over night. However, the market is still a very young one and still in flux. Since the indie publishing market has been growing in both revenue and market share, this growth may have protected it from some of the competitive pressure that would tend to drive down prices. Recently, it has stopped growing and revenues have fallen, which might explain the nearly 10% jump in $.99 ebooks from May to October. Still, change in the market will be a slow process for a number of reasons.

One reason is that only a small portion of the market is actively in competition. Despite the size of the market, only about 2.5% or so of the the ebooks on the market sell in any meaningful quantities at all.

Author Earnings provides the chart below from their presentation at the Digital Book World Conference.


The top selling 100,000 books from all publishers (the upper 2.5%) account for 75% of the sales. This top 2.5% includes books selling at a rate of one book a day, or 365 books a year. The fact is that even today the vast majority of indie authors don't have enough sales to constitute a commercial enterprise even with the average price at $3.76.

As I mentioned, writers are unlikely to be easily discouraged and will stay in the market even if it can not be justified as a business. The reverse is also likely to be true; they are in the in the market not as a business but as a way getting their work "out there" for people to read, and so, may not act as a business and may not respond to the usual market pressures. This being the case, the functional indie ebook market is likely much smaller than the numbers would suggest, and the over supply issue not as pressing. To date. However, with the market continuing to grow, every day is bring active competitors with viable products into the market, so competition will only increase.

Ironically, another reason for price stability may be that the high price of traditional published ebooks which makes indie ebooks that sell in the $1 to $5 range seem like a bargain, and thus, giving them breathing room to maintain their price structure. Indie authors often criticize traditionally published books – often in the $12 - $15 range for new releases, as being far too high, but those prices may well be providing a price umbrella that protects indie publishers' current prices.

As I mentioned, the indie publishing market has been growing, and gaining market share from traditional publishers – so the future looked rosy for the successful indie publishers as a group, giving them no incentive to cut prices. That may have been changing over the last several months. The Author Earning's October 2016 Survey
shows that indie publishing took a fairly steep nosedive in sales – giving up a year's worth of growth. There are a number of theories why this happened, but the most likely seem to revolve around traditional publishers putting more effort into to advertising and special price deals – both on Amazon and on BookBub, a popular newsletter for readers that offers special deals and is a driving force for sales.It seems that it has become increasingly hard for indie publishers to get their books selected for inclusion in BookBub, and paid advertising is too expensive for most indie publishers. In addition, Amazon may be tilting its pricing practices in a way that favors bigger publishers. This is only a single quarter survey, so nothing can be said for certain about the future, but from what indie publishers are saying, the industry might be facing more headwinds from some deep pocket competitors than it had before. We will see how it responds.

One other factor may come into play as well, and that is Amazon's Kindle Unlimited program, which offers subscribers unlimited access to over a million largely indie published ebooks for free. Amazon pays publishers based on the number of pages in the book read. Seeing that they are already offering their books to readers for free in this program, publishers have little incentive to cut the price of their stand alone sales book since a $4.99 book for free looks like a better deal than a $.99 one.

The mechanism of supply and demand is not an automatic one. Individual producers must make the decision to cut prices in response to the sales environment. In the indie publishing world, that decision has to be made by thousands of producers within the small best selling sector. While 35%-43% of indie books are priced at $.99 is not an insignificant number, it appear that the indie publishers selling most of the books have not felt a pressing need lower their prices. Since it would be very hard – and likely impossible – to build an indie publishing business at the $.99 price point, it is easy to understand their reluctance to do so. The $.99 price is used as an introductory or sale price. Using it as a regular price is little better than making no sales at higher prices, so prices are not going to fall fast. But as more and better ebooks enter the market -- often at the $.99 price point -- in the coming years, it is going to be increasingly hard to maintain the higher price points.

I should make it clear that the universal $.99 ebook will be an indie published ebook and clearly, it is not going to happen over night. Traditional publishers are very unlikely to let their ebooks fall to this level. Traditional publishers' main business is in print sales, and they are likely in the ebook market simply to hedge their bets. They have absolutely no incentive to underprice their print books by offering their ebooks too cheaply, even if it means few, if any ebook sales. 

Will the demand side ride to indie publishing's rescue before indie ebooks sell for $.99? Ebooks, after all, are touted to be the future of books. Not likely. The 2016 Pew Research Survey
chart below, shows that ebook readership rose from from 14% to 28% in 2014 and has since plateaued.



While three years is not long enough to prove that ebooks have found and filled their niche, it certainly hints that they have. We have further evidence of this from a survey commissioned by Kobo.(https://www.theguardian.com/books/2016/apr/15/digital-reading-driven-by-older-women-study-claims
This survey found that the ebook market is being “driven” by 10% of all ebook customers – prolific readers who purchase, an average, 60 ebooks a year.

To get a rough estimate of the ebook market, I'll combine both surveys. There are about 250 million adults in America, so 28% of adults comes out to 70 million people who read an ebook in the past year. And if 10% of readers are driving the market, we have a core readership of 7 million prolific readers who will purchase 420 million ebooks a year. Amazon is selling 1,064,000 books a day or 388 million books a year and does about 73% of the ebook business, which means that about 532 million ebooks in total are sold in a year in the US. Less than half of them, however, are indie published. Clearly there are hundreds of millions of dollars in play, but the question is if any indie publishing company can reliably capture enough of that money, year after year, to support a profession or a commercial enterprise.

I wish to emphasize “reliable” since I think that is the basis of any ongoing career or business. In the print world, contracts provide a reliable source of income to writers. They are paid advances not dependent on actual sales and so they have a reliable, if not necessarily lucrative, income for as long as they remain under contract. Indie publishers, on the other hand, make their money one sale at a time, one day at a time, with no guarantees as to how long those sales will last. Moreover, writers in traditional publishing have perhaps a hundred significant competitors – and are probably not even viewed as competitors since authors are paid by the publishing house who worry about competition. In contrast, indie authors must contend with thousands of competitors – more added each month. In short, the economic environment of the indie author/publisher is vastly different than that of the cloistered traditional published author, and it is far more brutal.

Still, books are not bushels of grain or pork bellies. Each book is unique, each author has a style of their own. Both books and authors can vary greatly in the quality and style of writing and in the stories they tell. Because of this, some argue that the number of competitors doesn't matter because authors have loyal fans who will buy their books. There is some truth to this, but in the end, the differences between books and authors fade in the face of tens of thousands of competing books.

As for quality – potboilers and pulp stories have always found a ready market, despite their lack of literary quality. Readers in most genres value stories over writing, so that good enough writing is good enough. With the quality bar set fairly low, and with so many ebooks to choose from, quality is unlikely to limit competition in most genres.

Distinctive differences between two books can be significant, but when considering thousands, the differences pale in comparison to the similarities. This is especially true in popular fiction genres where writers are often instructed to study the most popular works in their field and imitate them, right down to cover design. This works because people like variations on familiar themes and styles. With the vast selection of indie ebooks, readers have many acceptable choices from many familiar authors.

Prolific readers read books faster than prolific writers write them – according to the Kobo survey, they'll have read 59 other books between the books of one novel a year writers. Given their need for books to read, prolific readers read many authors and likely have a long and ever growing list of favorites, and since authors are not sports teams, readers can have many favorite authors. From the comments on the Author Earnings October 2016 report, it appears that a lot of writers have recently experienced sharp drops in their sales. Some blame missing page counts in the Kindle Unlimited program, some changes in Bookbub or Amazon policies, but I suspect a lot has to do with an increasingly crowded and competitive market. We have some data to suggest this. The Author Earnings' May 2016 report
broke down the earnings of the highest grossing authors into three categories – those earning at a rate of over $10K per year, those over $25K and those over $50K. In each of these categories, half of the authors had only published their first book within the last three years. Since we know that the market has not doubled in size over the last three years, these new authors had to have reached the dizzying heights of publishing success by taking sales away from other authors. Fan loyalty is no shield against competition.

I have one last illustration of the business prospects of the indie ebook market. Below is a chart from the Author Earnings' presentation to the Romance Writers of America.



This chart shows that a romance author can expect to make $2 a day, or $730 a year with one ebook on the market – though for how long that revenue lasts is not stated. Once an author has written 20 to 30 books – perhaps 10, or 20 years down the road, an author might be earning about $30,000 a year. And these figures are based on past sales levels, when most books were sold for more than $.99. An indie author/publisher selling books at $.99 each, would have to sell 28,571 copies to earn $10K, 71,428 copies for $25K and 142,857 copies to earn $50K in royalties – though most ebooks sell in the 100's of copies. And for an indie publisher to make a commercial business out of it, they would need to sell that many ebooks – year after year for a decade or more for a “career” as a “professional” indie author/publisher.

The gold rush days of indie publishing are over. Millionaires may have been made in the gold rush era, and there are many indie authors who made good money in the first years of the Kindle ebook market, but those days are over. Like any gold rush, the late comers find slim pickings. I live in rural Wisconsin, surrounded by the ruins of ma & pa businesses – dairy barns slowly falling to ruin, empty storefronts on main streets – yet the fields are planted and harvested by giant machines, and vast sheds house a thousand or more dairy cows that are milked around the clock. WalMart is never far away. Big wins. The one author, ma & pa indie publisher, simply has no viable commercial future.

Still, that doesn't mean this isn't a golden era for writers whose primary concern is to write and reach an audience with their writings. It is. Day jobs were created so that writers – and artist of all sorts – could earn enough money to be able to bring their stories, art, and ideas into the world and not starve while doing so. Do it.





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