Passing the tipping point for eBooks and audiobooks

October 28th, 2010

By now, most people will have seen someone reading a book using an Amazon Kindle eBook reading device, Sony Reader, Kobo (from Chapters-Indigo), Apple iPad or a smart phone. Early adopters include traveling retirees, who love being able to take along dozens of new books to read in a compact, 9-ounce, $200 device.

In June, I reported analysts’ claims that, “During 2010, over 8% of all book sales will be in electronic formats, compared to 4% during 2009, 2% in 2008 and about 1% in 2007.” That trend would have been exponential, DOUBLING each year.

Well, like a weatherman’s long-term outlook, those predictions should be revised with more recent data. It turns out that eBook sales have more than TRIPLED so far this year, and will likely be at around 14% of all book sales. Wow! Clearly what some people labeled as a “fad” isn’t going away until it eats everyone’s lunch.

A recent UK survey found that 19% of all British adults have downloaded at least one eBook from the Internet in the past 12 months. About 7% made a purchase, while the other 11% found free books. Either way, that is a lot of reading that wasn’t purchased in local bookstores. Likely residents of Canada and the USA are acquiring eBooks at a similar pace.

When Ken Follett’s 1,008-page “Fall of Giants” was released in September, it sold 20,000 copies in Amazon Kindle eBook format in the first 7 days – more than in hardcover, even though the eBook was priced higher (US$19.99) than the hardcover edition (discounted to US$19.39). Ken likely makes 50% of the retail price on eBooks, so he pocketed $200,000 just for the sale of Kindle copies in a week. Not a shabby start, eh?

How will eBook sales growth impact bookstores, authors and publishers? In many ways. But first let’s look at another segment of the book publishing marketplace where the change to online sales is even more dramatic: audio books.

Most of us have listened to a book being read to us by a recorded actor. Back in the 1950s in Winnipeg, my childhood included listening to Jimmy Stewart reading “Winnie the Pooh” stories in a rather bizarre attempt at a British accent. Those were 45 rpm discs. Vinyl recordings gave way to cassette tapes. Then CDs took over the market. And then DVDs. Now the era of having a physical audio book is nearing its end. So far in 2010, we’re at a pace for 43% of all audio book sales to be via download, compared to 57% for all physical media. At some point soon – a tipping point – it will no longer be economical for publishers to manufacture the CD or DVD versions.

Unfortunately, downloads of eBooks and audio books are bad news for local bookstores, since those are sales NOT happening through the store. How long stores will survive will depend on what else in offered (gifts, food, coffee, live entertainment…) to replace declining book sales. (Ironically, used book stores may weather this transitional storm in better shape, as new-book stores become less common.)

The growth in eBooks has been good news for those independent authors who have a talent to online self-promotion. Using social media (Facebook, twitter, blogs, Lexy, etc.) it is possible for a “little guy” to break into the Kindle bestseller ranks – sometimes even without a version of the book available in printed format. In the new eBook marketplace, the big publishing houses no longer have the huge advantages of dominating the supply chain (as they did with placing printed books on bookstore shelves).

A few of our authors who offer their writing in both eBook and printed editions have begun selling more eBooks than printed books, something that wasn’t happening six months ago. The good news is that their sales numbers for printed books are not decreasing, so total royalties are going up.

Not wanting to miss out on sales, publishers (our Agio Publishing House included) are scrambling to ensure all their titles are available in a wide range of electronic formats and through all major online distributors. At this point, some reading devices use proprietary formats (such as Kindle’s .azw and Sony’s BBeB), and most can display .epub. As the reading devices become more sophisticated, they will be able to display the trusty Acrobat .pdf format and the new HTML 5.

No one is sure how much included video and hyperlinking will become the norm, as books appear to be evolving from basic words-on-a-page-with-a-few-illustrations to full on multimedia entertainment. The borders between a “book” and a “movie” and “educational/entertaining products” are blurring.

Fortunately most authors appreciate that there will be many choices in the months to come, as the book industry moves through tipping points and re-aligns itself to new market forces. Indeed, as one of our authors, retired RCMP Superintendent Scotty Gardiner, wrote in his memoir, “There is no such thing as LUCK. Instead focus on PREPARATION, so you recognize OPPORTUNITIES.”

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Intervening to stop addictive behavior in book publishing and retailing

April 6th, 2010

Okay, what I’m going to be writing here is going to upset a few people. Yet it needs to be discussed.

Some people need to be subjected to an intervention for their addiction. Their addiction is tenacious, nasty and harms not only themselves and their businesses, but also the entire planet. Let’s be clear and blunt about this: Book publishers are addicted to providing books to retailers on a “returnable” basis (essentially on consignment). And retailers are addicted to those sales terms. They are in denial about this. “We’re trying to cut down.” “It is really not as bad as people say.” “It is not my fault. Everyone else does it.” “One more can’t hurt, eh?”

Two years ago, the Green Press Initiative released a treatise urging a 20% reduction in greenhouse gas emissions caused by the book industry (including paper-making and printing). You can download the document here: http://www.greenpressinitiative.org/treatise/treatiseIndex.htm

Within the Treatise itself is one section:
Recycling and Reducing Consumption
• Implementing strategies which will foster improved efficiency and continued reductions in paper consumption – including reduced basis weights, the minimization of returns and improved recycling
.

I believe that it is counter-productive to advocate “the minimization of returns” as this only perpetuates the dangerous myth that selling on a returnable basis is necessary within the industry. Selling on a returnable basis leads to over-ordering and over-printing. That is a fact. The scale of the problem is also a fact: over one billion extra books are printed unnecessarily every year. Publishers and retailers have proven over the past eight decades that they are not able to be responsible in their behavior around selling on a returnable basis. It is a sick, sick addiction, and they are in denial. Providing books on “returnable” terms is the crack cocaine of the book industry.

I believe that advocating a “minimization of returns” is like saying, “let’s minimize violence against women/children/the environment/etc.” Maybe only raping on Saturday nights? Would you say to an alcoholic that they should “minimize drunk driving”? Would you tell a junkie to minimize getting high and robbing corner stores? The goal must be to STOP harmful, wasteful, unnecessary, addictive practices, not to condone them.

If the practice of returns is eliminated altogether (switching to the firm sales terms used by almost every other industry), the goal of a 50% reduction in greenhouse gases by 2050 could be reached in months, not decades.

As we have seen with the recent, almost-overnight switch across the industry to selling eBooks on an “agency model,” the book industry could change its sales terms for printed books quickly. But only IF there is a will to change. That will happen only IF people end their denial about their addiction.

Too bad that treatise was written by addicts. I believe their intent was noble and grand; too bad they couldn’t see beyond their own condition toward a healthier future.

What form will the intervention take? Perhaps it will be consumers threatening a boycott.

thanks, cheers, Bruce

Publishing your book with Bruce Batchelor at Agio Publishing House

March 5th, 2010

Hope you enjoy this video we just made to describe my passion:

First thoughts about Apple’s iPad – what this means to publishers and authors

January 28th, 2010

Author Val Pattee emailed me from Mexico, asking what I thought about the newly announced iPad. That got me thinking… I guess I am a bit disappointed that there wasn’t more innovation – the iPad seems mostly like a bigger iPhone or iPod Touch. I was hoping for more “magic” – something to amaze me. Perhaps some game-changing features will become apparent over the coming year.

One benefit to the book industry is that the iPad with its iBook store will break Amazon’s near-monopoly position on eBook sales. Amazon has already backed down from its previous position of insisting on keeping 65% of the retail price as its cut — earlier this week Amazon announced it would only keep 30%, which is what Apple is doing. So, rather suddenly, publishers are getting twice the margin! Publishers will now get 70% instead of 35%. That has to be good for authors too.

Also, Apple has agreed to a maximum price of $14.99 for new bestsellers. (Amazon was insisting on $9.99 maximum.) If a publisher is getting 70% of $14.99, that is $10.50. That is likely much more than the publisher would clear on a new hardcover edition retailing at $30. If the publisher is getting the same or larger profit by selling online – and none of the risk of returns and no up-front investment for offset printing – the economic outlook for the big publishers is suddenly looking much rosier.

The big publishers will now be happier to throw their full support behind eBook. That, in turn, will de-emphasize printed book sales. This could accelerate the collapse of the bookstore channel as we know it. Logically there will be more reason to end the practice of selling on consignment (returns).

The other advantage of the iPad is that it can display PDF format. At Steve Job’s launch of the iPad, there was no mention of selling PDF formatted books at the iBook store, only of selling ePUB format (which is essentially HTML), but an App will surely appear quickly to allow the purchase of books in PDF format. The advantage of PDF is that the book’s designer gets to create and lock in a particular look. By contrast, with ePUB, the book appears different to each user, depending on what default type font and size that user has in the iPad’s settings. The ePUB format might be fine for reading novels, but it is poor if you are wanting to read a how-to book with diagrams or admire photo arrangements and other illustrations.

Strangely missing from the announcement is whether the iPad will work with FLASH formatted files. FLASH is how many websites show videos. For example, YouTube shows videos in FLASH. FLASH is currently used at some websites (Amazon Search Inside, Google Book Search and many others) to display PDF formatted books in a manner that doesn’t allow the viewer to copy the document. Thus FLASH helps minimize unauthorized copying and piracy of books. Likely this question will be clarified over the next few days.

People have asked about how to “get my book into the iBook store.” I’m counting on Smashwords.com to do that for us. We send out book files to Smashwords and they re-process the file into various formats, including ePUB, and distribute to a long list of eBook retailers. Smashwords will likely be at the front of the line for setting up accounts in the iBook store. The drawback is that we must take apart our beautifully formatted book files (in PDF) to create a somewhat clunky Word doc file version, which Smashwords then converts to many formats. The end results are not at all elegant, but satisfactory for novels and other text-intensive books. It will be nice to see our books selling at the iBook store soon, and we’ll be receiving that now-much-higher publisher’s margin.

thanks, cheers,
Bruce

Facebook group embarrasses Borders (US) into starting “industry-wide dialog” about ending returns

January 25th, 2010

Hey, did you know that a Facebook group www.donatenotdumpster.org started by some upset Waldenbooks employees may have started the ball rolling to end publishers providing books to bookstores on a returnable basis? This could be HUGE: a paradigm shift in publishing.

The group was started to protest the dumpstering of unsold books as Borders Group begins shutting down its Waldenbooks stores. “Why not donate them to libraries and charities?” they ask.

Over 2,000 people were signing on per day as the word spread virally. Many posted messages that they will boycott Borders if it doesn’t donate the books.

Last week, when Borders execs responded by saying it wasn’t their fault because everyone does it (destroying books, especially mass market books), that didn’t appease the group members who started questioning why there is such a wasteful system in the book industry. The organizers did some research and found my website called www.BookIndustryBailout.ca where I present an analysis that billions of dollars are wasted every year because of returns – so they began emphasizing ending returns across the industry as a goal. Meanwhile, more consumers are joining the Facebook group and signing online petitions.

On Saturday, the Washington Post highlighted the Facebook group in an article titled “Consumer complaints have companies rethinking how to dispose of unsold inventory,” by Ylan Q. Mui.

Borders execs seem to be squirming under this heat. One of them sent out a mass email (damage control on a Sunday at 11:05 am!) to people who had emailed Borders’ head office with protest notes. Her email says:

Thank you for contacting Borders. We take seriously the many suggestions we
have received regarding product donations.

  1. We have a new relationship with Gifts In Kind International and all unsold items that we cannot return to publishers will be donated to local charities (you can read the news release here:
    http://www.borders.com/online/store/BGIView_irnewsreleases — click on the “Other Borders News” right below the Keyword Search box).
  2. We will have all of our stores recycle product instead of disposing of it.
  3. We have started a dialog within the publishing industry to address industry wide practices – which all book retailers practice, not just Borders – that could possibly be changed with positive impacts on communities and the environment.

Sincerely, Mary Davis, Borders Group

It is part #3 that could be huge. I’m optimistic. How about spreading this news? If more consumers and people within the industry added their weight to the pressure, that might be incredibly helpful. At minimum, indie publishers might want to be included in the “dialog within the industry.”

Thanks for spreading the word,
cheers, Bruce

Duthie Books in Vancouver latest victim of bad business model

January 21st, 2010

Canadian newspapers are reporting the scheduled closing of Duthie Books in Vancouver. As many comments at the Vancouver Sun newspaper website have pointed out, there was a significant lack of business sense at Duthie Books. Yet we needn’t single this store out: the entire book publishing sector is operating on a broken business model. McNally Robinson just closed two of its four stores.

Unlike other retailers who buy at about 50% off retail price, bookstore owners buy at only 40% off. How can they expect to be profitable? Why don’t the store owners read some of those business how-to books they stock?

The rationale for this poor margin is because the books are acquired from publishers on a “returnable” basis (i.e. on consignment). So bookstore managers merrily overstock and pay for shipping both ways on stock they don’t immediately sell. Instead of getting their stock at a better margin, and marking it down if it doesn’t sell at full price, they are stuck to this bizarre returnable practice like deer caught in the headlights.

This antiquated process is bankrupting not only booksellers, but distributors and publishers, too. Meanwhile the Canadian and provincial governments are handing over tens of millions of dollars annually to subsidize losses by incompetent executives.

It isn’t Kindle that is the biggest threat to bookstores, it is the reluctance to demand a reasonable business arrangement from publishers. The toll this inefficiency is costing the Canadian book industry? Over $300 Million each year. Check out the analysis at www.BookIndustryBailout.ca

thanks!

McNally Robinson in receivership is more proof of broken business model

December 30th, 2009

Bookseller McNally Robinson is in the news today for entering bankruptcy protection, with plans to close two of its stores (Toronto and Winnipeg-Polo Park) while maintaining its Winnipeg-Grant Park and Saskatoon stores. Book publishers will likely lose millions in the receivership settlement. Newspaper columnists are citing ebook and internet sales as major factors in MR’s problems.

Overlooked by most analysts is the systemic problem haunting the bookselling sector: retailers pay too much for the product. Retailers in other sectors generally buy at 50% of retail. Yet most booksellers buy at 60% of retail. Hard to be profitable when you leave that much margin on the table. It is a broken business model that was bound to catch up when times got tougher. (Some of the big box stores, Indigo-Chapters and Amazon do pay less than the independent retailers — that explains in part why they can sell at discounts.)

Why do booksellers pay so much? The rationale within the publishing world is because the books are bought by the retailer on a “returnable basis” (i.e. unsold copies can be shipped back to a distributor for an exchange credit or refund). In essence, books are sold to retailers on consignment, even though most titles have a clear ‘shelf-life’ when they can be sold at full-price.

Overall, this practice of selling on consignment and at poor margins is costing the Canadian book industry (publishers and retailers) over $300 MILLION every year in inefficiency. [This is also an environmental nightmare with about half of all the books printed ending up unsold.] By comparison, eBook sales likely haven’t amounted to $3 million this year in Canada. Inefficiency within the industry is 100 times more important than ebooks.

It is so sad that McNally Robinson is closing stores instead of demanding a better and more sane arrangement with publishers. And very sad that Canadian publishers will be stuck with unpaid invoices, when they could have improved their own profitability by ending consignment sales. And sad too for the Canadian taxpayers who will likely be coughing up millions to prop up Canadian publishers (again) when those publishers and retailers really need a slap up the side of the head to fix their basic business practices.

- Bruce Batchelor, publisher
Agio Publishing House, Victoria, BC, Canada

Hooray! More signs of a royalty-collecting agency for writings on the Internet

December 7th, 2009

Musicians, composers and music producers (“content providers” or “rights holders”) have long enjoyed a huge benefit over creative folks who are writers and illustrators. This advantage is the existence of strong rights agencies who levy performance and usage fees – even a restaurant owner who plays the radio must pay an annual fee – and then divvy up the money to musicians. Some of the money can be attributed to a specific song, while other money is apportioned out to all musicians.

According to a NY Times article today, “GEMA, the main collecting society for German music copyright owners, raises more than €850 million, or $1.3 billion, a year.” The cool thing is the scale of this: perhaps $100 BILLION are being collected worldwide by the national rights agencies.

So far, the rights agencies for written content have been comparatively anemic – my ballpark figure would be 10% as effective in terms of dollars raised and disbursed. In the USA, my writings are included in Copyright.com (the US Copyright Clearance Centre). In Canada, our authors register with AccessCopyright.ca. Through reciprocal agreements, AccessCopyright receives money from (and collects money on behalf of) copyright licensing bodies in the UK, Australia and dozens of other countries.

This all sounds good, but what’s needed is more robust enforcement, especially across the Internet. There are reasons to be optimistic about this happening:

  • Germany (according to the same NY Times article (Publisher Lays Out Plan to Save Newspapers) will be enacting new legislation to set up a rights monitoring and collection agency for newspaper content used on the web; this sets a good example for other (non-newspaper) written content,
  • as part of the Google Books settlement, a rights agency will be established for book content, and for the first time, nearly all authors will be represented by an agency, and
  • micropayments (fractions of a cent in some cases) are feasible because computer processing has become so inexpensive – we could envision, for example, someone happily paying a dollar to browse through 300 book pages while doing research, or Google paying a portion of its ad revenues generated from searches of book pages. Micropayments would enable easy legal usage by consumers, and make the alternatives (piracy, not using the material, etc.) less attractive.

Meanwhile we can be happy and thankful about receiving our annual cheques from AccessCopyright, and dream of more and larger payments.

Environmental madness from Sarah Palin – but David Suzuki, too?

December 4th, 2009

Sarah Palin and David Suzuki. Both bestselling authors. One can expect shoddy environmental practices from a US politician/celebrity who can’t figure out how dinosaurs existed before Adam & Eve, but did anyone think superstar Canadian environmentalist David Suzuki would also be contributing to wanton waste of natural resources and the release of megatonnes of greenhouse gases?

The common link – and alleged indiscretion – is both celebrities’ books are being published by companies who sell books to retailers on a consignment basis. Within the book trade the practice is called “selling on a returnable basis.” Unlike electronics, groceries, clothing and most other consumer goods, unsold books can be returned to the manufacturer for refund or a credit. Despite sounding environmentally friendly as if it were one of the good Rs, ‘returnable’ selling has been linked to massive overprinting of books and the associated extra warehousing, transport and other costs. Across the industry over 40% of all copies printed are never sold, and subsequently discarded. In some mass market genres, the waste is in the range of 80% to 85%.

Dr. Suzuki’s books are published through Greystone Books of Vancouver, an imprint of Douglas & McIntyre. On the surface all seems gloriously green: Greystone makes this environmental statement on its website: “Reflecting its commitment to protecting the environment, Greystone uses ancient-forest-free, chlorine-free, 100% post-consumer paper in the majority of its books.”

Ex-governor Palin’s publisher is the giant HarperCollins, which recently increased the number of copies in print of her book “Going Rogue” to 2.5 million on the strength of early sales of 300,00 copies. Although sales have now purportedly broken the 1 million mark, Palin’s book could have 1.5 million copies headed for the pulping bin.

The website www.BookIndustryBailout.ca pegs industry waste at over $300 million annually for Canadian publishers, and over $3 billion annually in the USA. Analyst Bruce Batchelor believes the book industry is, “shooting itself in the foot, losing about 20% of gross revenues to this wasteful and totally unnecessary inefficiency. No wonder publishers and booksellers are going broke left, right and center.”

Jeffrey Trachtenberg of THE WALL STREET JOURNAL wrote, “Returns are the dark side of the book world, marking not only failed expectations, but the crippling inefficiencies of an antiquated business. It’s a problem that’s only getting worse.”

Consignment selling of books in Canada is blamed for over 50,000 metric tonnes of carbon dioxide, although the real figure might be “as high as 200,000 tonnes,” according to Batchelor, who says he is a big fan of Suzuki. “But on this issue, he’s definitely on the wrong track and losing credibility fast. Using recycled paper is good, but selling on consignment is so wrong.”

Selling eBooks: my crystal ball gazing

November 24th, 2009

This week’s news reports revealed that Amazon’s Kindle store will pay Smashwords 42.5% of the retail price for eBooks that Amazon sells. Usually Amazon only pays 35% to publishers. Smashwords is an aggregator of content — which means it operates like a distributor or wholesaler does for printed books, by selling the product to other retailers on behalf of ‘content providers’ who may be publishing houses or even individual authors.

Since Smashwords is contractually obligated to pay 85% of its revenue to the publisher, we can assume that Smashwords itself will receive 50% from Amazon. I wouldn’t be surprised if 50% or better is already being offered to larger publishers, distributors and other aggregators.

My sense is that we’ll see a steady eroding of Amazon’s margin as Barnes & Noble and hundreds of others begin competing more strongly to get into the eBook sales game. Where it will end is anyone’s guess, but I don’t see much ‘customer loyalty’ involved because the web makes it so easy for the public to obtain the optimum price from any hole-in-the-wall outfit that offers a better deal on the identical product. So if Amazon wants to charge $9.99 and give the publisher $3.50, expect to see someone else offering the publisher $4.00 and selling for $4.99! Then someone else offers publishers $4.25 and sells for $4.79, etc.

Selling eBooks is the ultimate in easy commerce: no staff, no inventory, no personal service, only databases talking to other databases, low set-up costs, no barriers to entry, only ‘cash’ sales… So there will soon be hundreds, then thousands, of competing vendors. They will shrink their own margins as they compete, heading to near the ‘break-even’ mark, which I feel is only a few pennies above the wholesale price of publishers/aggregators, plus credit card costs.

My hunch about the long-term situation? Publishers (at least the bigger ones) selling eBooks and audiobooks directly from their own sites (Harlequin is already doing this), with smaller publishers selling through cooperatively-run (or at least sympathetically-run) e-stores. Plus thousands of e-vendors, none of whom dominate the marketplace, like Amazon and Barnes & Noble have for printed books.

The wild card? Google. They could set up their own store and direct search traffic there. What may hold back Google is its worries about ‘monopolistic practices’ — it doesn’t want the Feds to crash its merry, highly-profitable party.