Amazon Sells More Ebooks Than Paperbacks

Amazon released the news that, in the fourth quarter, ebook sales outstripped paperback sales. There are a couple of significant points in the story that need exploring, because they indicate how the business will shake out. I’ll do the analysis without much math, and I fully admit that I have a gross bias here. While I acknowledge that the collapse of traditional publishing will be painful for everyone, I agree with a lot of other writers that the digital age will be a Golden Age for writers who really want to work for their audiences. I’ve predicted the crash as coming in June of 2012, and everything I’m looking at now with this news from Amazon is making me think the end might be coming faster.

There are numbers in the article, and they’re significant. 1.15 ebooks are sold for every 1 paperback. Doesn’t sound like that significant a ratio, but remember that four years ago that was zero ebooks for every paperback sold. The important thing about that ratio is that we can use the current number as a baseline. My personal feeling is that while we’ve already hit a tipping point, when that ratio hits 2 to 1; traditional publishing crashes and burns. (More on that below.)

Here’s an even nastier factoid to pull out of that story:

Since the beginning of the year, Amazon said, the company has sold 115 Kindle books for every 100 paperbacks sold – even books where there are no Kindle editions.

[Emphasis added.]

The obvious read on that concerns ebook editions being sold before paperbacks are made available. Makes sense that we’d seen strong sales there where the cost of an ebook is below that of the hardback. I’m fairly certain that’s how traditional publishing will read that comment. Their reading will allow them to sleep at night.

I read it differently. There are a lot of books which are digital-originals. I have two out there right now: In Hero Years… I’m Dead and a short story collection called Tricknomancy. While sales on digital-original books might seem insignificant to publishers—whose need for volume sales to sustain their business model skews their sales requirements into higher numbers—they are important. Every digital-original book sold for $5.99 or $2.99 or even .99 pulls revenue from the marketplace. Every book I sell directly denies revenue to New York. And because I make roughly seven times as much for a digital-original as I do a paperback, and my overhead is much lower, going direct looks very good.

Moreover, digital-original authors can set a lower price point, which drives perception of what a story’s worth. A year and a half ago Kindle users revolted when Amazon offered a book that cost more that $10. Amazon incentivizes authors to price their work between $2.99 and $9.99, so the perception for readers is that this price range is fair—that anything higher is just a rip-off. Authors may differ on what the “sweet spot” price is, but we all know that going above $10 is death. So, traditional publishers are going to have to revise their pricing structures or drive dedicated readers to look for more reasonably-priced entertainment.

Jeff Bezos had one more comment that deserves some study:

Last July we announced that Kindle books had passed hardcovers and predicted that Kindle would surpass paperbacks in the second quarter of this year, so this milestone has come even sooner than we expected – and it’s on top of continued growth in paperback sales.

[Emphasis added.]

That little tidbit is critical. Why are Amazon’s paperback sales growing? My money would be on the fact that outlets for buying paperbacks are closing. Borders is on the ropes. Barnes and Noble is closing stores. Costco and other warehouse stores are stiff competition for discounting the bestsellers. If you want to find a non-bestseller book that wasn’t just published in the last five minutes, chances are that Amazon is your best bet. With their “also purchased” suggestions in place, they make multiple sales to get that free shipping much easier than going out to a store and browsing. Bookstore browsing, which is still a great pleasure for many people, may be a thing of the past in a world of play-dates and always being tethered by electronics.

Shrinking outlets for paperback sales and increased competition from digital sales is guaranteed to do one thing to physical books: shorten print runs. Shorter print runs mean higher prices. Higher prices mean that folks who have ebook readers (and every smart phone is a reader these days) will be encouraged to buy the digital version of books. And once they get comfortable with reading off a screen, the ease of shopping, hauling, and delivery makes ebooks irresistible. While paper books will never go away, people will end up paying a premium to fill their shelves.

There is one more very important bit here that is never looked at and never discussed. I think it has gone under the radar of traditional publishers. Unfortunately for them, I think it’s an aspect of the battle that they’ve already lost, and there’s no recovering from that defeat.

The digital revolution is all about access to and control of audience. I chart my ebook sales on Amazon, B&N, the iBookstore and my own webstore. It is readily apparent that the big digital bookstores are self-sustaining marketplaces where sales happen independently of anything I do to publicize them. What do I mean by that? If I announce a new project here on my website, I’ll get immediate sales from folks who read my website; but I don’t see a corresponding spike in sales elsewhere. This isn’t necessarily a bad thing. It just means that a single, web-based marketing strategy isn’t going to be sufficient.

What’s encouraging, and what pounds that last nail into traditional publishing’s coffin, is that digital publishing is the proverbial tide that raises all boats. I’ve been selling books via the Kindle for two years. In December of 2009 my average unit sales doubled over the year-to-date average. They doubled again in July of 2010. December, 2010 they were up 45% from the November and October monthly averages; and the numbers appear to be rising for January. Barnes & Noble’s sales have been increasing steadily, though I don’t have enough data to plot any useful trends there. Suffice it to say, income from sales in both outlets, which is capitalizing assets that were just gathering dust in boxes, is better than zero income.

This makes self-publishing a viable option for authors. Collecting up old short stories into anthologies is the work of a weekend, and if you sell 10 copies a month at $4.99, you’re ahead $420 by the end of the year. Do two or three of those, and there’s your holiday money. And that novel that no one in New York wanted; or that trilogy that died because your editor left one house and the new editor didn’t like it? Hey, new life in those old words. All those folks who found the first two books of your trilogy, but never snagged the third; now they can see how it all ended.

Kris Rusch, in an ongoing series of articles about writing and publishing, provides a simple breakdown of how digital publishing is incredibly beneficial to the midlist writer. (She also provides an excellent explanation of why authors should do this stuff themselves). The math becomes really simple: 30 ebooks at $4.99 is $105 (after the retailers take their cut). If an author has a backlist of ten novels and short story collections (and we’ll define a collection as roughly 70,000 to 90,000 words) and can sell just 10 copies of each per month, that’s $350.00. Nice supplemental income—the equivalent of a part-time job.

But if, as Kris points out, the sales jump to 100 copies a month for each, suddenly that’s serious money. $42,000 a year is more than the average writer makes, considerably more. At the rate of 100 copies per month, a new $4.99 book will be worth $4,200 in a year. That’s a 10% pay raise in a year, and all just for writing a single novel. Depending how quickly a writer can work, income can scale up quickly, and certainly more quickly than allowed while working in the traditional publishing model.

This is where traditional publishing hits the wall. Midlist writers have been tied to traditional publishing because they advance us money so we can afford to write books. If you will, we mortgage the future to pay for today. In the digital world, where the continuing sales of older books continue to pay us, we no longer need advances. We can do what we want to do and have it out a lot more quickly than traditional publishing ever did.

This puts traditional publishing in the unenviable position of having to develop new talent which they will have to promote the heck out of (finding that miracle strategy which has eluded them for over 150 years) or of watching new talent do the math and realize that digital sales gives you a better chance of going freelance full-time than traditional publishing ever has. With advances for first novels hovering around $2500.00, digital sales becomes a viable alternative; flipping the market so traditional publishers are going to be buying paper-only rights so they have something to sell.

I know there are those who will maintain that traditional publishing still has a great deal to offer beginning authors; and that it’s fine for an established author like Kris or me to point out all this rising-tide stuff. The fact is that the digital marketplace is shifting the business. Book covers have to look great as thumbnails, which may or may not translate well to bookstore shelf beauty. Publishers already employ freelancers for creating art and editing; an author can purchase professional services just as easily as any big publisher. As publishing shrinks and more of those professionals find less and less work available, they’ll be happy to service a different customer base.

As I noted at the top of this essay, the Kindle numbers are worth watching. That 2 to 1 ratio will herald the end of traditional publishing. I’ll watch that as I create more inventory and gather more audience. The tide’s coming in, and I’m looking at riding it as far as it will go.