You Can Go Your Own Way: European Publishers Double Down On America’s Mistakes

I had promised that this blog will have more of an international focus, and that hasn’t been the case to date.  My excuse is that most of the companies and events driving change have been American, and the US is far ahead of the world in terms of e-reader and e-book adoption rates. And it’s where the rest of the world is headed at greater or lesser speeds.

At this point we have covered a lot of the basics, so it’s time to take a little trip around Europe to see what’s going on in some of the larger book markets. If you find any inaccuracies (there is a lot of conflicting information out there, and some market have very poor data), please share it in the comments below and I will update this post.

The European Market

I will only talk about the four largest book markets in Europe (plus Ireland), but some things are common to the whole region.

1. VAT (sales tax which varies from country to country) is a major issue. For the EU, there are two rates. The low rate includes daily necessities like milk and newspapers, and other goods for social reasons like print books and children’s shoes. The higher rate includes more luxury items like televisions, electronics, and services like legal fees. While the EU allows member states to apply a low or no tax rate on the sale of printed books, e-books are erroneously classified as a “service” and are thus charged at the higher rate. Even though the EU issued a ruling in 2009 allowing member states to reduce the tax rate on e-books, few member states have followed suit.

2. The e-reader market is very competitive, but at an early stage. Apple are leading Amazon in some sectors, and Sony made early moves in others, but overall adoption rates are too low to give any guide to the future.

3. E-books sales, while increasing, have not seen anything like the explosion in the US. There are a number of reasons for this including: (a) relative price of e-readers; (b) high taxes on e-readers; (c) high taxes on e-books; (d) Amazon has a smaller share of the overall book market because of higher freight costs, taxes, poorer overall broadband/wifi infrastructure; (e) cultural differences/publisher resistance/political interference. Despite this, the market is growing fast.

4. The Kindle is only officially available in the UK. Customers elsewhere can order it from the US, but it comes shipped with a US plug and there are significant delivery costs.

5. Small publishing companies and self-publishers are often barred from distribution channels.

6. European self-publishers have some barriers to entry that don’t exist in the US. They get paid slower by Amazon, they must get clearance from the IRS or 30% of their income is withheld, they are often taxed twice on their earnings, Amazon pays lower royalty rates on European sales (except for the UK), and B&N don’t allow them to list at all (it can be done through Smashwords, but this costs, and sales aren’t as high). This means that in non-English languages, there are far less self-published e-books available, which is a factor in e-reader adoption.

There are four local European Amazon sites: Germany, Italy, France and the UK. Customers have the ability to order from the US site, but some titles are restricted. When ordering e-books from the US site, VAT is applied to some titles but not others. Their seems to be an international surcharge (of up to 2 Euro) applied to some titles, but not others. Amazon does not release information on this pricing policy, so it is not clear if this is deliberate and Amazon is absorbing these costs or not.

United Kingdom

The UK is about a year behind the American digital market.  They have their own dedicated Kindle store, and it’s very easy for UK author to sell their e-books in the US market and vice versa. While Apple have made moves into the market here, Kindles are selling well too. Overall, Kindles are still the preferred e-reader, but Amazon is rapidly losing market share.

E-books have captured a 5% of the market so far, but some publishers (such as Quercus) are seeing far higher rates of digital uptake than others, mostly driven by bestsellers.

Printed books are currently taxed at a zero-rate and e-books are taxed at 20%. There have been moves to reduce the tax on digital work, but no legislation has been adopted to date. While this high tax rate is undoubtedly affecting sales of e-books, growth is speeding up and 2011 is expected to see a surge in e-book numbers.

The runaway success of self-published UK author Stephen Leather (who sold over 40,000 e-books in December in the US alone), at very low prices, has led to some consumer anger over e-book prices from the large houses.

Since the abolition of the Net Book Agreement – a fixed-price agreement between British publishers and retailers – supermarkets such a Tesco have become huge players in book-selling, and a lot of book-buying has moved online, which has led to the closure of several UK chains and the diversification of existing chains into other products.  Waterstone’s, the largest book chain in the UK has been in financial trouble for some time, and indie bookstores are under constant threat of closure.

The Agency Agreement is being investigated the Office of Fair Trading (a government body) who are expected to rule shortly on whether this agreement is illegal. If it does so, Amazon will be free to discount the price of e-book as much as it likes, selling at a loss if it chooses to, which will result in a huge depression in UK e-book prices, and an increase in Amazon’s market share.

Ireland

The Irish market tends to track the UK market.  Most successful Irish authors are published by UK (or US) publishing houses, have UK agents, and sell around 80% of their book there.  While Irish bookstores do stock a significant range of Irish-published and Irish-interest books, the vast majority of sales are of foreign titles. VAT on e-books is 21% and scheduled to rise to 23% by 2014. While there is currently zero-rate on printed books, there are plans to abolish this and raise it to 23%.

France

France is slightly behind the UK in e-book numbers, and Apple is on track to capture significant market share of the e-reader market. French VAT on printed books is 5.5% and the rate for e-books is 19.6%, although there is a proposal to reduce this to the lower rate in 2012.

The French parliament recently passed a law preventing retailers from discounting e-book prices by more than 5% of list price (which is set by the publishers). In a linked move, French publishers have banded together to create their own e-book retailing site. Whether this will be able to capture significant market share is doubtful.

On March 1 of this year, the European Commission (which doesn’t allow price-fixing or collusion) raided the offices of several French publishers to investigate for illegal e-book price fixing. However, it has long been law in France (as well as Italy, Germany, and Spain) to fix the prices of printed books. The EU have since announced that the investigation has expanded to several countries. One to watch.

Germany

The respective tax rates here are 7% on printed books and 19% on e-books. The German e-book market only accounted for 5.4% of sales in 2010, but the world’s third largest book market is expected to have a breakthrough in 2011, with 40,000 titles now available.

Smaller publishers have greater access to the market here, and have seen strong growth in digital.

Italy & Spain

Until summer 2010, there wasn’t even an e-book market in Italy and Spain to track. Spain charges 4% tax on printed books and 18% tax on e-books. The European Commission recently knocked back a proposed law to bring in a standardised tax rate of 5.5% for all books. The Spanish market has huge potential, as it encompasses Spain, and all of Mexico, Central America and most of South America. Spain’s Big Three publishers have announced a common platform to sell e-books.

Italy’s rates are 4% and 20%. The Italian market is very small, with only about 7,000 titles available. Italian publishers have come together to provide a common retailing site where customer can purchase e-books. While growth over Christmas was 400%, this was from an extremely low base.

In both markets, smartphones are very popular, and come become the e-readers of choice for many consumers.

The Future

Amazon may have missed a trick in Europe by only officially launching the Kindle in the UK. Germany is the third largest book market in the world, and the potential in the Spanish-language market is massive.

This has allowed Apple to make inroads with the iPad and the iPhone, and smartphones in general are poised to be big players in certain markets.

Kobo have made a big-play internationally.  They already have locally-merchandised English-language stories in Canada, the UK, Hong Kong, New Zealand and Australia. International versions of their wireless e-reader will soon be available across Europe. In May they will launch local stores in Spain and Germany, to be followed by The Netherlands, France and Italy.

While the VAT rates have slowed growth across Europe, growth is still occurring, and speeding up, in all markets, and pressure is beginning to emerge to reduce the high tax rate on e-books.

European publishers have had extra time to prepare for all these changes, but they haven’t used it wisely. There is a huge fear of piracy amongst European publishers, but instead of combating this with cheap e-books that are easy to purchase, they have restricted access to the market by shutting out small publishers, have been slow to bring out digital versions, and have fixed high prices.

In short, they have doubled down on all the mistakes that US publishing made, even without Amazon breathing down their necks.

About David Gaughran

David Gaughran is Irish, living in Prague, and the author of Mercenary, A Storm Hits Valparaiso, Let's Get Digital, Let's Get Visible, and this here blog.
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23 Responses to You Can Go Your Own Way: European Publishers Double Down On America’s Mistakes

  1. Hey David. Thanks so much for this post. I’ve found this information extremely interesting as I am an American living in the UK and about to self-publish my first novel as an e-book. I’ve been following Joe Konrath’s blog avidly, but of course the realities are slightly different for those of us who aren’t US residents (Though fingers crossed, being an American citizen will help me avoid the double tax so many UK authors seem to run into.). It’s good to have a European perspective so I can go into this thing well informed with eyes wide open.

  2. Hi Shea, you will have less problem a US citizen, and if you have a Social Security Number, you avoid the 30% withholding. I can’t advise you on your UK tax situation however, but an uninformed guess, I would say you will get deducted at source (in the US) and probably have to pay nothing in the UK (or only a small amount). You should check this with a qualified tax specialist.

    Another thing – if you have a US bank account, you will be able to open a PubIt account with Barnes & Noble, otherwise, you have to go through Smashwords which will cost you 10% of your royalties and some visibility on the B&N site. I will cover all that in later posts.

    Dave

  3. Hi Dave,
    Thanks for the additional info. Yes, I have an SS number and a US bank account, so I’m really relieved to know it won’t be so difficult for me. I will definitely do as you say, though, and check with a tax specialist. I do pay UK taxes, so it may not be 100% straightfoward, but it sounds like it should work out ok.
    Thanks again,
    Shea

  4. The IRS issue is a problem (I’m a tax accountant in the US as well as a small publisher). American companies are required to withhold when a person does not have an “identifying number” and that’s an SSN (Social Security Number). A foreign person may request an ITIN (which is an Individual TaxPayer Identification Number) by using IRS form W-7. It’s a pain in the ass, for sure, but you only have to request the ITIN once, and then you’re done. The US has tax treaties will all EU nations, so there’s usually zero withholding, and you don’t even have to file a US tax return until your US income reaches about $4,000 or so (that’s the exemption amount).

    I was getting so many emails about this that I put a sample on my website that people could download and use as a template.

    http://www.stepbystepselfpublishing.net/how-to-get-an-itin.html

    If you want access to the US market, then you have to jump though some hoops. But it’s really not as bad as people think. Once you get the ITIN, it’s easy.

    • Hi Christine,

      Thank for sharing that, your site looks full of useful information. I will be doing a future post about all the extra stuff international self-publishers have to deal with, and tax is definitely on the list. I will point people towards your excellent step-by-step guide, and I will check out the rest of your site tonight when I have some time.

      Dave

      P.S. Just so everyone knows, you do NOT need to sort this out before you publish on Amazon (and, in fact, I believe you can’t as the IRS require the code that Amazon gives you when you publish). However, they will withhold 30% of your royalties until you do. You will get this back, but only if you resolve your tax situation (as laid out above) before the end of that tax year.

  5. You will get this back, but only if you resolve your tax situation (as laid out above) before the end of that tax year.

    Actually David, this is incorrect. A taxpayer has up to three years to amend or file a US tax return and claim a refund of any withheld amounts.

    So, for example, let’s say Jane Doe lives in England and decides to self-publish on Pubit! and on the Amazon Kindle platform. She has 30% withheld from her US royalties. She has up to three years to file a return and also request an ITIN. Once she gets an ITIN, she can file non-resident tax returns (they’re pretty easy to do if you use software and there’s only royalties involved). She will get a refund of all the withheld amounts based on the tax treaty rate. (I think the tax treaty is 5-10% tax rate). Also, if she earns less than $3650 US, then none of it will be taxable and she will get a refund for the entire amount.

    Hope that helps clarify this.

    • Hi Christine,

      I won’t contradict you as you are the expert. But I was referring to Amazon – sorry I should have been clearer – they remit the withheld tax to the IRS at the end of the tax year, so that’s your deadline for getting it back from Amazon (which is easier and quicker and less hassle than dealing with the IRS).

      Also, the tax treaties vary from country to country. Luckily for me, the rate is 0% between Ireland and the US. If I am wrong about any of this, let me know and I will correct it.

      Thanks again,

      Dave

  6. Werner says:

    Hi David,

    Great post and great blog. I found you via Joe Konrath’s blog.

    I was especially intrigued by the Spanish ebook market. I’m in the U.S. Can you point me to where I can find out what the barriers to entry are in that market? Do they have an Amazon presence?

    BTW: You mentioned that many people don’t own an ereader due to their relative price. They can download the Kindle ereader app to their PC, Mac, iPhone, Android or Blackberry – for free.

    http://www.indie-ebooks.com/2011/04/can%E2%80%99t-afford-a-kindle-or-nook/

    Well, I’m off to read your posts on Indie Publishing for International Writers

    • Hey Werner, thanks for following me over.

      If you look at the latest post today it should answer some of your questions. If you have any more, just let me know in the comments and I’ll do my best to answer you or point you towards someone who can. Are you referring to selling your e-books in Spain? Or in the Spanish language in the US? Or in the Spanish language worldwide? Or in English but to all the Spanish speaking countries? Let me know.

      Dave

      P.S. I know about the Kindle-for-PC app, I use it myself while I decide which e-reader to get. And while smartphones are popular in Europe, you have to remember that in somewhere like Italy or the Czech Republic, the cost of living is much lower than the US, but the e-readers/tablets are price much higher than the US by the companies THEN the government whacks on 20% cost THEN they add 20% to each e-book you buy (plus Amazon throw on a few extra naughty fees). It all adds up, and has been part of the reason why Europe has lagged behind. Until those tablet/e-reader prices come down, smartphones are the only realistic option for a lot of people, and some people aren’t keen on doing the extended reading on the small screen.

      • Werner says:

        Hi Dave,

        I had no idea such heavy taxes were levied on items like these – especially e-books, a mere data file. Seems I have much to learn from you about the Euro-market.

        To answer your question: “Are you referring to selling your e-books in Spain? Or in the Spanish language in the US? Or in the Spanish language worldwide? Or in English but to all the Spanish speaking countries?”

        I’d have to say I’d be interested in selling Spanish language e-books primarily in Spain. However, tapping into the worldwide Spanish market would also be desireable.

        Werner

      • Hey Werner,

        Let’s take Spanish language books in Spain to start off (I need to do a little more research on the wider Spanish language market, whether there is any e-book market there to speak of yet – I have doubts – and if so, where they purchase their e-books from).

        As you may know, there is no dedicated Amazon site for Spain. Spanish users tend to use one of the other European sites to order printed books, but like many Europeans, I would imagine they would download e-books from the US site too. However, as I mentioned in my piece above, the Kindle isn’t even officially on-sale in Spain, and while there have been some iPads sales, smartphones are by far the most popular.

        Initially, I think you should focus on getting your stuff up on Amazon, selecting all the international distribution channels, it costs nothing to do so anyway, and that way you are covered all across Amazon, wherever a Spanish user searches for your book. Second, you should publish through Smashwords to get into the Apple iBookstore, and Kobo. Kobo is making a big push for the Spanish market. One to watch.

        Dave

  7. Hektor Karl says:

    Interesting to read about the international scene, Dave, though disappointing to hear the same mistakes are being made…

    Are there any smaller presses you think are handling the change better?

    • Good question.

      European small-presses are not really my area, but one popped into my head straight away: Angry Robot Books from the UK. Not only do they produce beautiful print books, they also sell DRM-free e-books at very cheap prices for a trade publisher, with no territory restrictions. The covers are lovely, and they seem like all-round nice people.

      They also have their own webstore, which is clean, easy to navigate, cheap, and looks good. Big publishers could learn a lot from them, if they wanted to.

      Their genres are “SF/F & WTF”. Ha!

      Website: http://angryrobotbooks.com/

  8. Once again, a very helpful post. I am planning to self-publish some novellas and back-catalogue stories (is it “back-catalogue” if you’ve not yet been published? Hah!). But as a non-US resident, I had NO IDEA about how the taxes should be handled. So I really appreciate the information and link from Christine. I know my country has a non-double-taxation agreement with the US, so hopefully it won’t be too painful🙂

    • The beauty of this is that it’s all front catalogue. I heard a hilarious one today – it’s not unpublished, it’s pre-published. Imagine using that in a query to an agent. Anyway, the tax thing sounds worse than it is, it’s quite manageable. Just like formatting your story. Unless you are living in a country without a double-tax agreement, then you are in trouble.

      By the way, if there is any subject you would like covered in upcoming posts, let me know. I might do one about the future of agents soon.

      Dave

  9. J. T. Shea says:

    Interesting points, David. A few thoughts occur to me:-

    I take it the French law prevents discounting BY more than 5% of list price rather than BELOW 5% of list price?

    I don’t agree that price-cutting is the solution to theft. The only price thieves will pay is zero.

    I too was surprised publishers charged more for e-books than for mass market and even trade paperbacks. But it seems to be working. Most bestselling e-books are quite expensive, and their prices are going up, if anything. Many, if not most, readers seem as ‘conservative’ in their choice of e-books as in their choice of paper books. Not what I expected! Then again, I didn’t expect the fall of the Berlin Wall, so I don’t hold myself out as a prophet.

    I may have double-posted this comment on the wrong post. If so, sorry!

    • Hi John, don’t worry. I run a loose ship – I think I answered your main points in reply to your other comment.

      One other thing I will say about the whole piracy issue is this (and I didn’t coin this phrase): a writer’s greatest threat is not piracy, it’s obscurity. Joe Konrath, Neil Gaiman, and many others have put forward very interesting arguments that piracy actually boosts their sales. I plan to do a post on that point in the next few days.

  10. Pingback: Making Money From Writing, Part 3: Sales Channels | David Gaughran

  11. Simon says:

    Not much to add but wanted to say that this was a very interesting article. Thanks David.

  12. Pingback: An International Challenge to Amazon? From Spain? | David Gaughran

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