Warning Signs For Large Publishers In August AAP Figures

The Association of American Publishers (AAP) has released its figures for the month of August.

Print continues to fall in all categories, while e-books keep up their breakneck growth.

However, it’s increasingly clear that digital revenue is not growing fast enough to replace the complete collapse of print.

As always, the AAP figures come with a health warning. Only a very limited number of houses report, and you should hesitate before drawing hard-and-fast conclusions, especially with regard to the raw revenue totals.

As I suspected last month, July’s hardcover bounce was a one-off and all print categories are down in August. Trade paperback is down 5.7% on August 2010. Hardcover is down 11.2%. Both Children’s/YA categories are down over 20%. And once again, mass market paperback has plunged dramatically, down a huge 36.4%.

Remember, this is in terms of revenue, not units sold. Here’s the chart (figures in millions of dollars, remember the above caveats):

FORMAT AUG 2010 AUG 2011 CHANGE
Adult Hardcover 83.9 74.5 -11.2%
Adult Trade Paperback 125.3 118.2 -5.7%
Adult Mass Market PB 54.9 34.9 -36.4%
Children’s/YA Hardcover 77.8 58.7 -24.6%
Children’s/YA Paperback 58.5 46.1 -21.2%
Ebooks 41.0 88.8 +116.5%

The above numbers are from the AAP, via eBookNewser.

August was a wipeout for print, but let’s look at the totals for the year to date and see if that huge increase in e-book revenue is replacing the massive losses in paper.

These totals are for the first eight months of 2011 (revenue figures are in millions of dollars).

FORMAT 2010 2011 CHANGE
Adult Hardcover 784.3 641.7 -18.2%
Adult Trade Paperback 947.2 772.5 -18.4%
Adult Mass Market PB 440.8 310.4 -29.6%
Children’s/YA Hardcover 394.9 338.5 -14.3%
Children’s/YA Paperback 352.5 299.9 -14.9%
Ebooks 265.7 649.2 +144.4%

The above numbers are from the AAP, via MediaBistro.

It’s clear that there is only one growth area here. By my calculations, this puts e-books at 21.5% of the market for 2011 so far, behind adult trade paperback at 25.6%, and just ahead of hardcover at 21.3%.

But this simple arithmetic hides bigger problems for large publishers. First of all, these numbers take no account of returns. Second, they only measure a limited amount of publishers (usually the larger ones), and leave out all the small and micro presses, many of whose digital sales would be way far more than 21.5%. Third, it takes no account of self-publishers whose sales are almost exclusively digital.

In short, the market is far ahead of that 21.5% number. And this is bad news for large publishers, just ahead of what is sure to be a bumper holiday season for e-reader sales.

Why is this bad news? After all, aren’t a lot of those bestselling e-books written by the big writers from the large publishing houses, and selling at very high prices? Don’t they take the lion’s share of that cover price (usually 52.5%)?

That’s all true, but, looking at these numbers, it’s clear the extra revenue being generated by the massive growth in e-books is not enough to offset the huge losses from the drop in print (I peg it at a 5% drop in overall revenue based on the above figures, likely much worse when returns are factored in).

What’s happening here? Are digital readers reading less (or paying less)? Are we losing some readers between the transition from bookstore to online to digital?

In this week’s column for IndieReader, I show that a cursory glance the Kindle genre bestseller lists will show that the large publishers are losing readers in their droves to self-published work (which is not measured by the AAP).

Genre bestseller lists that used to be dominated by the large publishers are being taken over by self-publishers. These are the top-selling books in their category, and all that revenue is no longer going to the publishing conglomerates.

The danger for large publishers, as I argue in detail in that article (which you really should read), is that their customers are switching from print (where they controlled distribution and essentially restricted competition) to digital (which is an open playing field where they face severe competition).

In short, large publishers are losing a big portion of each group of readers that switches to digital. And more are switching every day.

And the worst bit for large publishers? I don’t think they even realize this. They’re blaming falling revenue on phantom causes like piracy. Their solution? Sue their readers.

Good luck with that.

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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46 Responses to Warning Signs For Large Publishers In August AAP Figures

  1. Jaye says:

    Excellent analysis, David. Two things I’d like to point out. One, the huge drop in mass market PB also coincides with the trend by publishers to shift to the larger sized books with the corresponding higher price. I bet if the figures showed UNITs sold, the downward trend would be even greater.

    The other thing is, give digital time to pick up the slack. A person goes to the bookstore, doesn’t see what he likes or refuses to pay the high prices, and so walks out. No sale. That doesn’t mean he runs right out and buys an ereader. Digital readers will keep increasing in numbers. I bet after Christmas this year we’re going to see a massive jump in digital sales.

    Like

    • Hi Jaye,

      I don’t know if you read the IndieReader piece I linked to, but my argument there is that digital is taking up the slack, but the sales are being made by companies and individuals not measured by the AAP – mostly self-publishers. Amazon controls well over 50% of the US e-book market (probably a good bit over 60% actually). For the last three months, indies have been responsible for roughly a third of the top-selling e-books on Amazon (the Top 500 or so).

      That’s a huge amount of lost revenue for publishers, especially when you consider that all these writers either (a) left traditional publishing or (b) couldn’t crack it in the first place. If you look at the genres where readers first switched to e-books – thrillers, horror, romance, and science-fiction – this becomes even more stark. More than half of the top-selling books are by indies. Small publishers are grabbing some of the spots too, leaving little for the larger publishers.

      Dave

      Like

      • Jaye says:

        Yep. What you said.

        Print publishers are not merely killing the mass market PB mid-list, they are nuking it out of existence. Which is a shame ’cause I’m a huge reader of mass market PBs. Thank goodness indies are taking up the slack.

        What I was trying to say, and didn’t say well, sorry, was that the percentage of people who currently have ereaders is fairly low. I think I saw a figure of 21% (but don’t quote me). That is going to change rapidly and soon. What trad publishers seem to fail to notice is that people buy ereaders to USE them. Every single person I know who’s bought an ereader in the past year, myself included, is not only reading more, but buying more. As the number of ereaders increases, the print sales figures are going to go down. AND, again I’m not the only one who’s complained that not only are trad pub ebooks too expensive, but they’re often poorly produced.

        Something else trad pubs need to pay attention to, as well. If they decide to go straight digital, but continue paying such lousy royalty rates, the talent defections are going to snowball. Indie pubbers keep getting better and better. Unless the trad pubs come up with something really special, they’ll have a tough time staying competitive in a strictly digital marketplace.

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      • Good analysis, David, but you’re not accounting for the fact that those indie sales might be in ADDITION to the major publisher digital sales. That assumes the digital pie is exactly the same size as it would have been if the major publishers were the only source of pie. It could be the pie has grown substantially larger because purchasing is cheap, convenient, and varied content–the indie books.

        I do agree major publishing is on the skids (my own updated “predictions” are at http://hauntedcomputer.blogspot.com) but I don’t think we can make linear analysis yet because there may be a third goup (those who buy lots of digital books who rarely went to a bookstore at all, or those who bought at bookstores before but now buy just as many major-pub books as well as indies on top of it. I agree you’re close to the mark, but I don’t think we have a read on the “new audience” yet. Amazon probably does, as much as anyone.

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      • Scott, that’s an excellent counter-point. I admit there are a number of assumptions in my argument that could be questioned. That’s probably the weakest.

        P.S. Loved the predictions re-cap. I want to see what ClancyPants is all about.

        Like

  2. Sadly, the big firms have been willfuly non competitive for so long on eBooks that they don’t even realize it anymore. Their punitive pricing on eBooks has failed to protect print sales and now it may be too late for them to see the light. By failing to take the lead in the electronic market they have abdicated their position at the forefront. Too many readers have discovered the wide range of reasonably priced alternatives.

    Like

    • They have been desperately trying to protect print sales. Even though they earn huge royalties on e-books, they know that they have little control over digital distribution (whereas they had a virtual lock on print). As such, they are facing real competition for the first time. And losing.

      I’m sure they will come to their senses eventually, but all the steps they need to take will directly harm their bottom line. If they want to stem the flow of writers to self-publishing, they will need to increase royalty rates. If they want to stem the flow of readers to indie books, they will have to cut prices. All of this affects their bottom line at a time when bookstores are closing and more and more readers switch to buying online and reading e-books where the selection won’t just be hand-picked books from the Big 6, but lots and lots of great books from publishers large and small, as well as self-publishers.

      Just think about airports. How many times have you bought a crap book just because you needed something for a flight? Those airport stores have the worst selection – always the same names, all from large publishers. Once you switch to e-books, you will never be forced to buy one of those titles again. Naturally, this will lead to a loss in revenue for the publishers who had locked down those spots in airport stores.

      Same goes for people living in a town where the only bookstore just closed. Same goes for people sick of the newly restricted selection at Barnes & Noble who decide to start buying from Amazon. Same goes for the millions of people that will get an e-reader for the first time over the next two months.

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      • Until I began to write full time, I found myself in at least three different airports each week. I quickly learned that the stores at the terminal had horrible selection and prices, though I did discover a good author in a moment of desperation at the Dubai airport.
        I recall hearing of one publishing exec describing eBooks as competing against paperbacks and explaining how success could be achieved by shifting their business towards better (and more expensive) hardcovers. Frankly, she sounds like just another member of the legion of frauds who infest our economy. As long as you talk a good story, shareholders will put you at the helm and hope you notice the iceberg. Unfortunately, the berg continues to creep closer while the execs sit at the captain’s table with exciting new authors like Snooki.
        I’m not so sure that all of them will come to their senses, or that some of them even deserve to.

        Like

    • Jaye says:

      The last time I was in B&N (brick and mortar) I found new releases by two favorite authors. Both were priced at $29.95. I walked away. I’ll wait until I can find them at the library. Excellent strategy, raising prices, excellent.

      Like

      • Couldn’t agree more if I tried, Jaye. I’ve been a big fan of Martin’s Game of Thrones series but I haven’t read the latest installment because I have yet to see it at a decent price.

        Meanwhile, as I read great books like ‘Hal’ and (soon I hope) ‘A Storm HIts Valparaiso’ the years will drift by and I will forget much of the story and lose interest altogether. I have little enough time to read as it is, with two small children and a new title due in a couple of months.

        I absolutely refuse to shell out thirty dollars for a hardcover. They’re a pain to read as well as a clear indication of how the publishers see us.

        As sheep to be fleeced as regularly as possible.

        Like

      • If you think that’s bad, come to Europe. We are seeing £30 new hardback releases in the UK this Christmas (around $50), and prices in mainland Europe aren’t significantly better.

        Like

      • David, we have seen some hardcovers at the prices you mention here in Canada. The worst thing about them is the differential. 42$ Canadian and 35$ US on the same jacket cover. Our dollar has been at par or above the greenback for a long time but the big houses continue to segment the market. It’s one of the reasons I prefer indies and why I joined their ranks this year. Indies seem to have better sense and they aren’t afraid to share good ideas.

        Thanks, by the way, for collecting and sharing so much knowledge on this site!

        Like

  3. Sometimes I wonder if the major publishers just operate with blinders on. It is not like this e-book revolution came up out of nowhere in the past 12 months. There has been movement away from reliance on the big name publishers for a long time because they have forgotten that the book is the most important item in their business, and the author should come in a close second. Once they started letting the business be driven primarily by the marketing departments, we lost the magic that used to be publishing. As new opportunities presented themselves to authors, it is no huge surprise that so many started going with new small presses or going indie.

    Like

    • Publishers operate with the same short-sighted focus as most of corporate America–to deliver a glowing report to shareholders at the next quarter. Looking “bad” right now to save your company in 10 years won’t win you any friends or stock options or big CEO packages, and will likely get you fired.

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  4. J. Tanner says:

    One caveat left unsaid: AAP has noted that some of the publishers in the report don’t report their e-book sales and some only partially report. So as more of the sales shift to ebook, the total revenue look worse than it truly is by a higher and higher margin until the accountants get their act together.

    I don’t understand your point about returns. As sales transition from paper to digital returns become a thing of the past and so their returns are going to be dropping drastically, replaced by high-profit ebook sales. This should be one of the few bright spots for them.

    So assuming those two things, we may see at the end of the year that they are rather flat in sales and profit for the year, much like the surprising results of 2010 where they were up slightly when all was said and done. This titanic is sinking slowly and there may be time to correct course still.

    That said, the larger point about what the transition to digital means is spot on, and a significant challenge for them.

    Like

    • And an additional one: sometimes the number of publishers reporting in each category changes. Depending on who that publisher is, that could skew the numbers hugely.

      The AAP figures are far from perfect. But they are useful for looking at trends. Strictly speaking, that entire article should be appended with a giant caveat “at least for the publishers measured by these surveys.”

      Having said that, all these trends are confirmed by more comprehensive sources. Nielsen figures show similarly huge drops in print. Amazon (who control a huge share of the overall trade market) are selling more e-books (in units) than print books in all categories combined.

      The point about returns is this: the AAP numbers represent the value of books shipped to stores, not what is actually sold. Many of those books, as we know, will be returned. Only some of those returned will be re-sold at full price. The figures take no account of that. In short, print numbers are worse than these figures show.

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      • Hmm…
        If they base the numbers on the AAP ‘Bookstats’ program then it should include returns. You are right in saying that it doesnt reflect actual sales to readers but their methodology is designed to cover the full cycle of deliveries to and returns from the sales outlets.

        Given the fact that books rarely get more than a few weeks on the shelf (one author had his books taken away and packed up during a book signing), it’s a relatively easy number to capture for each quarter, with a little carry-over at the cut-offs.

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      • Hi Andrew,

        I could be wrong, but my understanding is that the monthly numbers don’t take account of returns, but the more comprehensive Bookstats survey (which was released in August and covers 2008 to 2010) does. Either way, I don’t think it alters the point dramatically.

        Dave

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      • J. Tanner says:

        By that logic print numbers have always been worse than the numbers show. But that’s irrelevent because the value in the numbers is comparison to the past (as you noted) numbers gathered with all the similar caveats. Returns on ebooks are almost non-existant. Returns on paper are considerable. A transition of X revenue from paper to ebooks means fewer returns per $ of sales where X is constant.

        If the large publishers can manage to hold their revenue numbers through the transition, then the higher profits and lower returns of ebooks will ultimately leave them in decent shape. (Of course, that’s where all the very valid concerns about whether it’s possible for them to maintain their revenues come in.)

        In short, you’re trying to cast the return situation of this transition in a negative light for trade publishing and it’s really not. It’s a massive problem with their old system which will diminish over time as paper marginalizes.

        Like

      • Actually, I don’t think returns are a major issue (for the purposes of this argument) for just the reasons you described. In fact, there are plenty of cost savings for publishers moving away from paper – it costs a lot of money to print, store, and haul around.

        Like

  5. Adam Pepper says:

    Raise their royalty rates. Lower their prices. You left out lay off scores of employees, outsource art and editorial and move out of Manhattan to cheaper locales.

    Like

  6. Does anyone have some comments on how big a prob “piracy” really seems to be as regards ebooks? My hunch is that it depends on the eyes who see (and the sometimes misunderstood notion that digital copying of a unit by definition means lost sale of that unit – AND – that as long as retailers like Amazon are able to offer such a nifty, well-indexed, lowcost, well-branded product, there will always be a commercially relevant (majority of?) buyers for digital books that in principle could be found on any torrent-site, if you take the time to look for it. That might change, sure, but it doesn’t look like it will anytime soon, not with the explosive growth of Amazons e-division, at any rate.

    Like

    • People say things like “There are 15,000 pirated books on this website” without any context. It’s a mixture of ignorance and fear-mongering. A lot of pirated books are so badly done they are unreadable. Pirates download tons of stuff – most of it probably remains unread. Some people download stuff just for the sake of it, and never open the file (and certainly don’t represent a lost sale).

      If someone steals a physical book out of a shop, that is a lost sale because that book is gone and you can’t “resell” it. The same, obviously, doesn’t apply to digital where you can make infinite copies of your file at zero cost. The question is whether the pirate would have purchased if the illegal download was unavailable. I don’t think there is a single reliable (unbiased) survey to support that contention in any meaningful numbers.

      The only way to combat piracy is with convenience and price. If you don’t make your e-books available (Harry Potter), if you window releases so that hardbacks get released in advance of e-books, if you do nothing with those global rights and just publish in the US and the UK, if you charge too much for your e-books, then people will pirate. You can argue the ethics of it, but if you want to be practical, the only way to combat it is with convenience and price. Make the books available, make them cheap.

      Like

      • A belated nod-nod from me, and thanks for the elab, Dave. I agree pretty much with everything, especially the part about being “practical”. It’s somewhat in line, too, with the views of Cory Doctorow whom I have a lot of respect for.

        Like

    • J. Tanner says:

      Piracy is a reality of digital media.

      It’s not one worth worrying much about from the policing side.

      1) You can’t stop it.

      2) The vast majority of pirates are not paying customers anyway. If you stop one method of piracy, they will find another, or go without what they’re trying to steal–they won’t convert to paying customers.

      3) The more draconian you make your security to combat piracy the more you drive your paying customers to look for other solutions (including, ironically, piracy)–see Blu-ray for an example of this path.

      David is right, you deal with piracy through reasonable pricing and accessability as well as attacking piracy at the commercial/institutional level rather than the underground level.

      Like

    • Here’s what Gabe Newell says about piracy: http://www.geekwire.com/2011/experiments-video-game-economics-valves-gabe-newell He speaks about computer games, but it’s still interesting.

      A short quote: “One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.”

      Like

  7. “My hunch is … ”

    Boy, that was one fraggin’ long sentence. Hope it wasn’t totally impossible to read …🙂

    Like

  8. David,

    Last night, without having the benefit of reading your new pieces on this, I wrote a post on how more of what we read will be self-published, or not from a legacy publisher, and why.

    I noticed that my own reading habits of late are changing (more self-pubbed works), and suspected I’m not alone.

    I just wanted to add that the drop in numbers among big publishers is partly a reflection of a larger shift underway. More of our reading time is spent away from work by big presses because a whole new and compelling literature by self-pubbers is emerging (consisting not just of best sellers). More well-known authors are going indie. And I also suspect that more of our reading time on Kindles and iPads is taken up with free stuff we come across online.

    The drift away from books by large presses isn’t necessarily a good thing, but it does bode well for self-publishers as a whole.

    Like

    • Hey Robert – there is that whole other side of the argument too. Self-publishers are willing to experiment with form and content in ways that traditional publishers may not encourage. Some of this experiments will be duds, of course, but others will find profitable little niches that can make the writer a lot of money, but are probably not lucrative enough for large publishers too exploit. On top of that, given the open nature of self-publishing, versus the top-down curated nature of the traditional route, it makes sense that self-publishing will be home to a more diverse range of voices – and I think readers are responding to that. Finally, self-publishers were not afraid to publish something in what were considered “dead” genres like Westerns and Horror, and have had huge hits there.

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  9. There is another aspect to all this. UK publishers have a policy of Sale or Return within six weeks of publication so a bookshop has only a short window of time to sell stock. This practise has so slewed the market that a fast-buck merchant can purchase in bulk books that would otherwise be returned to the printers for pulping. Having bought them for a song they are offered cheaply on Amazon, undercutting Amazon who in turn undercut the bookshops. I am a novelist with a backlist of novels on the Kindle Ebooks site. One of them, The Weeping Tree had a surge of popularity after an excellent review on a BBC books programme. Following the programme there were no copies to be had and used paperback copies were selling for high prices. Now I see that they are available again, at a much lower price than I could sell them for if I self-published. I am considering going Indie with my latest novel and want to make paperbacks as well as ebooks available but I cannot produce a paperback competitively. How do Indie-publishers deal with this?

    Like

    • J. Tanner says:

      You don’t even try.

      For self-publishing paper is a luxury item. You won’t get self-pubbed books in physical bookstores anyway so you won’t need to compete on price there for browsing customers. A few diehard fans will want it, and buy it direct POD from an online store and the price will be no object because they are already fans of your work. The POD options like CreateSpace will offer reasonable pricing for a luxury item.

      Like

    • The short answer is you cannot produce a paperback competitively. It’s immense trouble trying to get your books into stores for all sorts of reasons.

      That’s no reason not to do a print edition. You should, and sell it on Amazon. But it’s probably not worth trying to get into stores. With POD, you just won’t be competitive enough to offer the discounts needed, and they probably won’t stock the book anyway.

      Some indies have gone the route of offset printing. Some of them have succeeded, many others have failed. It’s a path fraught with financial risk and should be approached carefully, only by experienced self-publishers who already have a built-in audience that will buy print in numbers.

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  10. MGalloway says:

    Good points.

    Perhaps major publishers should talk more to those in the software industry where piracy has been happening for thirty years already. As far as the Wiley article goes, the comments beneath the article were a little odd. This is a fun one, though:

    “Some artists are even refusing to record new albums as a result. Prince is one of them.”

    According to Wikipedia, Prince has 25 studio albums and 10 internet albums. He has sold 100 million albums in his career. That’s a lot of records that weren’t pirated.

    Like

  11. I’m amazed (well, not really amazed, as this is pretty much how they operate) that the big publishers don’t realize how much their high prices for eBooks are affecting their sales! I know my own buying patterns have changed. I still pay high prices for eBooks from the big publishing houses that look truly amazing or have been written by my favorite authors … but, for the most part, I won’t pay more than $2.99 for Kindle books, as I’ve been able to find hundreds of incredible, well-written eBooks between 99 cents and $2.99 on Kindle – many by authors who have won Hugo Awards, ForeWord Magazine Book of the Year Awards, and lots of other awards, and whose books have received incredible reviews. Seriously, since I only have time to read a finite number of books, why would I buy more expensive eBooks? And the really sad thing: even Kindle books from the big publishing houses have typos, many with more typos than the amazing self-published Kindle books I’ve purchased.

    Like

    • The core problem is publishers listen to executives, not to to readers. Their customers are the bookstore executives and managers, not the readers. In fact, I am not even sure readers exist to them. We are, at best, “end-consumer units.”

      If they had cultivated readers, they might have very valuable databases right now, when they could exploit their backlist with direct sales or a Netflix-type subscription model (which Amazon beat them to, anyway). But they have very little information on readers, and most of it is a year or more old. They have zero chance of reacting to trends that develop and are cast aside at the speed of light, the ways this digital era is whizzing by.

      Like

  12. David, I’ve been following you for awhile now and see that you’ve picked up a very bright batton and you’re carrying the tourch of indie writers forward. You’re looking good. Loving the on-line support. Enjoy always, T

    Like

  13. Neil says:

    David,

    Thanks for the heads up. Charts posted!

    August sales

    Note: I need sleep, so I shortened the number of charts this month. 😉

    Neil

    Like

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