If there’s one article you read about publishing this year, this should be it

ORIGINALLY PUBLISHED IN SUSPENSE MAGAZINE
(November/December 2018 issue)

By Alan Jacobson and Peter Hildick-Smith

USA Today bestselling author Alan Jacobson has been writing novels professionally for 25 years, and during that quarter century he’s seen a tectonic shift—or rather, multiple shifts—in how books are read, printed, distributed, purchased…how and where authors get their compensation, and how publishers market and produce those books.

Rewind for a moment to 2005. Technology became part of the publishing business when print on demand was introduced with great promise and fanfare. It was supposed to reduce the need for large up-front print runs, decreasing the number of unsold copies shred in ginormous recycling plants. But the reality did not meet the promise and a number of solid midlist authors (whose sales figures would be coveted these days) saw their careers unceremoniously terminated by that print on demand fiasco.
Technology’s grip on publishing increased over the next few years. Combined with a devastating recession, an industry that moved too slowly, and unrelenting competition for people’s spare time, the rise of video streaming, social media, smartphones, and an ever-expanding gaming world, reading became less central to the general public’s lives.

Peter Hildick-Smith, president and founder of book audience research firm Codex-Group, has a vastly different publishing industry experience from Alan’s. With a Wharton MBA in Marketing, his curriculum vitae includes non-publishing related positions in marketing and brand building at Quaker Oats, General Electric, and Johnson & Johnson. He was also a vice president of marketing and of merchandising at Bertelsmann’s Bantam, Doubleday, Dell Publishing—so he knows the industry from both a Big Five publisher perspective as well as from a consumer brand management and quantitative book data view.

In this article, Alan and Peter will look at the most recent publishing trends drawing on not only their experience but on proprietary Codex-Group internal research data; data from the Association of American Publishers’ (AAP) 2017 StatShot annual trend summary; and other publishing industry studies (as referenced below).

For the purpose of this article, they are going to look at today’s book market in the context of key trends affecting author pay, sales, and retail channels. They will then evaluate what this data means for authors going forward.

WHAT THE DATA SHOWS

The data examined suggested there are several developing trends in the US book market:
• A lot more people are writing books than ever, with the vast majority choosing to self-publish;
• This spike in the volume of self-published works—which often eschew traditional publishing industry overhead and practices (professional story editing, copyediting, proofreading)—has created a new tier of sub-$5 books;
• A key effect of charging less is that authors have to work harder to sell more copies to try to maintain their incomes;
• The vast majority of these $5-and-under “sub-prime” books is sold in the Kindle store, which added over 1,000,000 new titles—in 2017 alone;
• Although the number of sub-prime books has exploded, the number of readers has remained constant during the past six years, and the size of the overall book publishers’ revenue “pie” has remained largely unchanged;
• Adding hundreds of thousands of new authors to the market—with an unchanging reader base—has reduced the average author’s income;
• While millions more books are now available to US book buyers in more ways than ever before in history (print on demand, audiobooks, eBooks, digital book serials, subscription services), the National Endowment for the Arts Survey of Public Participation in the Arts shows that the number of US adults reading fiction has declined 7% since 2012, while the overall number of book readers has remained statistically unchanged;
• In line with those fiction reader trends, the Association of American Publishers (AAP) 2017 StatShot Annual trend summary showed that their member trade fiction publishers’ revenue declined 16% from 2013 to 2017, with their eBook sales down even more, at 36%.

MARKET SHARE SHIFTS

While the publishing industry relies on data from BookScan (a retail sales tracking service) and the AAP to measure and understand industry health and performance, they have a major blind spot: Amazon’s self-published and proprietary book sales are not included in the above figures because the company does not share this information. Thus, there may be a lot more going on than the industry is aware of.

Based on their ongoing quantitative retail market share tracking program, Codex-Group estimates that Kindle’s unit share of the eBook market, with a heavy skew to fiction, has now reached 77% in November 2018, up 40% during that 2013 to 2017 time frame. This suggests that traditional publishers’ fiction and eBook sales have simply shifted to Amazon—indicating an overall growth market, not a declining one, at least on a unit basis.

Through its highly sophisticated, inter-locking platforms strategy—proprietary reading devices (Kindle), eBook subscriptions (Kindle Unlimited), customer loyalty (Prime Reading), discovery (Amazon First Reads, Amazon Charts, Goodreads), proprietary content (Kindle Direct Publishing, Amazon Publishing), and very low price points (sub-$5 eBooks, sub-$10 hardcovers), Amazon has secured book buyers’ ongoing allegiance with an unrivaled value recipe that locks in book buyer loyalty.
As a result, on a unit basis, Amazon now appears to own 49% of total adult book sales, 72% of online book sales and, as mentioned earlier, an estimated 77% of the eBook market.

A key to Amazon’s success, beyond effective execution, is their intense focus on the long-term. One of their most powerful strategies is their ongoing effort to reset book buyers’ accepted price for what a book should sell for—to much lower levels. This ultimately defines what a book is worth. The consumer-preferred, generally accepted price point for a book in any given format is known in pricing strategy as the “reference price.”

WHAT IS A BOOK WORTH?

Traditional publishers and retailers work to keep books at retail price points that will sustain their business and adequately compensate their authors. They have fought to avoid the path magazines and newspapers took when they moved to a digital format and offered their content for free online. A price of “free” reset consumers’ reference price for what magazine and newspaper content is accepted to be worth to effectively $0, with disastrous results for those publishing industries.

To avoid that path, book publishers seem to be suggesting that the business-viable value for what a book should be worth, for both eBooks and trade paperbacks, is roughly $10 more than what Amazon is targeting.

In the face of those conflicting book valuation strategies, many book consumers—when offered sub-prime pricing, particularly in genre fiction categories like romance—have now reset their standard for what a book is worth to Amazon’s preferred levels. As a result, even for authors with once loyal readers, those readers now have a difficult time contemplating paying a publisher’s regular price. For many of those authors, book buyer loyalty has been replaced by “sub-prime” pricing loyalty.

This reference price shift in genre fiction categories has been a major contributor to Amazon’s accelerated eBook unit share growth. With that, the book market is increasingly divided into sub-prime vs. standard price segments and buyers. Self-published authors are delivering the book content and low pricing that fuel the sub-prime market, while traditionally published authors and their publishers are attempting to sustain the standard market.

Making matters more challenging, Amazon’s goal appears to be less about making a profit on books and more about using books as a vehicle to attract and retain the top 20% of American consumers who buy and read books. Why? In 2017, the US Census Bureau estimated that over half (51.5%) of all household income was concentrated in that top 20%. Based on this reported household income and this group’s very high education levels, as reported in Codex-Group research, book buyers make up a significant part of the most valuable consumers in America.

WHERE DOES THIS LEAVE AUTHORS?

Being a successful author in the digital age—which for the purposes of this article we’ll define as since 2008—requires different priorities and skill sets than ever before. If an author’s primary goal is ongoing sales growth, he/she now has not one but two priorities: 1) to create worlds, characters, and stories that consistently attract paying readers—and thus create loyal fans—and 2) to effectively communicate those worlds to current and prospective readers by investing significant time (at minimum a full working day per week) and effort in marketing, publicity, loyalty programs, and direct-to-reader communications to retain those book buyer fans.

Those who actively do both have fared significantly better than those who simply write and publish. This is the new reality for both self-published and traditionally published authors; there are no magic bullets.
In essence, the new era of publishing demands that the profession of “author” undergo a total redefinition to this dual discipline.

AUTHORS’ NOTE

The Authors Guild recently completed a groundbreaking, multi-year examination of author incomes, the most comprehensive evaluation of the topic ever conducted in the United States. The results show a drastic 42 percent decline in authors’ earnings over the last decade—but the story is about much more than that. We urge all of you to read it here on the Authors Guild website.

Alan Jacobson is the award-winning, USA Today bestselling author of a dozen thrillers in the FBI profiler Karen Vail series and the OPSIG Team Black covert ops series. Jacobson’s books have been published internationally and several have been optioned by Hollywood. His latest, Dark Side of the Moon, was named one of the best novels of the year by The Strand Magazine. Connect with Jacobson at AlanJacobson.com, on Facebook, Twitter, and Instagram.

Peter Hildick-Smith is president and founder of book audience research firm Codex-Group, based in New York.

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