Tuesday, March 11, 2014

Indie Ebook Author Community to Earn More than Traditional Ebook Authors

In my post last week I predicted indie ebook authors would capture 50% of the US ebook market by 2020.

Today, I'm looking at the implications of this from another angle - author earnings.  Hugh Howey has recently lavished some welcome attention on this question at his AuthorEarnings.com web site (I examined the resulting uproar at Hugh Howey and the Indie Author Revolt).

One of the commonly cited advantages of indie ebook publishing is that indies earn much higher "royalty" rates than traditionally published authors.  Smashwords authors typically earn 60-80% of the list price, versus traditionally published authors who earn 12.5% to 17.5% of the list price.  The rate paid by the publisher depends on whether their publisher is selling books under the wholesale or agency models.

Let's put some numbers on the bones of these percentages.  A Smashwords-distributed author earns $2.40 on a $3.99 ebook sold through one of our retailer partners, whereas a traditionally published author would earn about 50-70 cents.  In order for the traditionally published ebook author to earn the same $2.40, their ebook would have to be priced between $13.71 and $19.20.  This explains why talented authors are feeling such strong economic incentive to go indie.  Indies can price their product lower, but still earn more per unit sold than they can earn from traditional publishers who overprice their books yet continue to offer a small royalty percentage.

The chart at the top of this page is generated off of the same estimates that created the chart at left which I first shared in last week's post.

The chart at top was created by multiplying the percentage of the market going to indie ebook authors (at left) by 60%, and the percentage going to traditional authors by 15%.

These percentages are approximations based on the spreads I mentioned above. 

You can download my spreadsheet to develop and share your own estimates.  Nothing would make me happier than for someone with better numbers to prove that my 2013 indie ebook market share estimate of 15% is too high (it would mean Smashwords authors have more upside in the future!).

I am confident, however, that the 10 winds of change I identified in the last post will lead indies to capture increased market share in the years ahead.

What's initially striking to me from the new chart at the top of the page is that 2014 could be the first year that the total dollars earned by indies at retail will equal dollars earned by traditional authors.  For 2020, the indie ebook community could earn almost four times more than the traditionally published ebook community will earn if indie ebook authors achieve the 50% market share I predict.

The next most striking thing is the slope of the curves. Note how steep the slope is for indie authors.  The linear market share growth I modeled for indies in last week's chart leads to a bigger differential in this week's chart in terms of the dollars going into indie authors' pockets vs. traditional authors' pockets. In plain English, for every retail dollar that shifts to an indie ebook, the author earns 60 cents.  For every dollar that goes to a traditionally published ebook, the author only earns 15 cents.

My charts and assumptions are not without their limitations. My numbers don't attempt to incorporate unearned advances, for example.  It's common for publishers to pay authors advances that are never earned out by book sales.  In such situations, the stated royalty percent underestimates what the author earned (it also represents a failure of the publisher to accurately estimate the commercial potential of a book).

An additional limitation of today's chart is that I'm assuming the current royalty rates stay the same. This is a dangerous assumption.  If Amazon lowers ebook rates like it lowered Audible audiobook rates the other week, Amazon would break my model and break the banks of many authors. Or, traditional publishers could heed the call of writers to increase their ebook royalty rates. Or, everyone could raise royalties.

My projections paint a picture of an indie author community poised to capture an ever-larger share of ebook profits if print continues to decline in importance.

But this does not mean that indie authorship is the road to riches. The rise of self-published ebooks will lead to a glut of high-quality books that never go out of print. These books, combined with the ebook releases of traditional publishers, will accumulate on ebook retailer shelves and lead to more high-quality ebooks competing for a limited number of reader eyeballs.  It means readers will become more discerning.  It means all authors - indie or otherwise - will face more intense competition than ever before.

Good books aren't good enough anymore.  Readers want wow books. Indies will deliver.

Wednesday, March 5, 2014

10 Reasons Indie Authors Will Capture 50% of the Ebook Market by 2020

There's a debate raging about the size of the self publishing market.
I think indie ebooks will account for 50% of ebook sales by 2020.

What do you think?

On one side of the debate, you have folks such as myself who believe all signs point toward indie ebook authors capturing an ever-greater percentage of the ebook market.

On the other side you have folks who think self publishing represents an insignificant portion of the book  market.  The naysayers think we indie optimists are delusional.

Could both sides be right?  Yes, if you look at the numbers as they stand today, and no if you look at the trends.

When you look at the trends, a new picture emerges.  Yes, I understand it can be dangerous to extrapolate trends.  Any number of events can strike to disrupt or reverse a trend.  But if you have confidence in the drivers of a trend, and you think the wind in the sails of these drivers will blow stronger not weaker, then the future becomes plain as day.

Today I'm contributing to the discussion by offering up a downloadable spreadsheet you can use to become your very own ebook pundit.  Click here to download my spreadsheet at Dropbox.

After you download the spreadsheet, open it and simply enter your estimates into the yellow cells.

You'll place your estimates in two rows:  1.  In row 11, you'll estimate the percentage of trade book sales represented by print books (as you probably know, the term "trade book" refers to consumer books typically purchased through bookstores).  2.  In row 13, you'll estimate the percentage of ebook market sales earned by indie ebook authors.

Enter your numbers for each year from 2008 to 2020.

From these two rows of estimates, the spreadsheet will calculate:

  1. The percentage of trade book market sales represented by ebooks
  2. The percentage of the overall trade book market represented by indie authors
  3. The percentage of the overall trade book market represented by traditional publishers
And then it will draw you a pretty chart.   I encourage you to take a screen shot of your chart, post it to your blog or favorite social media site, and then explain in your post the reasoning behind your estimates and beliefs.  Do me a favor and include a link back to this blog post so others can play the pundrity game too, and please also post a link in the comments below so that others can visit your blog and benefit from your opinions and insights.

My estimates, and my pretty chart, are at the top of this post.

I'm estimating ebooks for 2013 represented 30% of the overall US trade book market, and print books accounted for 70%.  Indie authors don't have access to print distribution for brick and mortars, so I've omitted any indie credit for print in my estimates.

I'm estimating indie authors represented 15% of the ebook market.  Using these numbers, that means sales of self-published authors on the strength of ebooks alone accounted for 4.5% of the US trade book market for 2013.  If my estimate is correct, it explains why publishers have maintained their intransigence when it comes to reforming their royalty rates and other business practices for which indies are now losing patience.

It's easy for a naysayer to poo-poo this 4.5% as evidence that despite all the noise about the indie revolution, traditional publishing is still the main game in town.  Do these naysayers see the writing on the wall of where this is all leading?

There are some early signs publishers are beginning to feel the heat from self published authors, and it comes from Harlequin, the grand dame of romance publishing.  In Harlequin's management discussion portion of its 2013 earnings announcement (released March 4, 2014), the company for first time cited self publishing as a potential competitive risk:  "The proliferation of less expensive, and free, self-published works could negatively impact Harlequin’s revenues in the future." (hat tip Publishers Lunch).   View the report here (opens a PDF).

I'm sure there will be those who criticize my 2013-2020 estimates for being wildly optimistic, or crazily conservative.  Only time will tell.  My primary concerns are the general trends, the drivers of these trends, and what these trends mean for the writers we serve.

As I look to the future, I think the numbers start looking really exciting if you're in the indie author's shoes, and scary if you're a Big 5 publisher.  In my spreadsheet, I see indie authors accounting for 50% of ebook sales by the year 2020.  I think my estimates are fairly conservative.  Some people today think indie ebooks already account for 25% or more of ebook sales.  I'm modeling a steady but gradual shift from print to ebooks, and a steady but gradual increase in the indie ebook market share.

If my projections come to pass, indie authors will control over one third (35%) of the overall trade book market in seven years.  Go ahead, call me crazy or delusional.  I don't mind.

Below, I'll explain why my numbers are more achievable than the naysayers think.

10 Reasons Indie Authors Will Capture Half of the Ebook Market by 2020

  1. Print will continue to decline as a book-reading format as more readers transition to screens. The transition to screens will be driven by the low prices, selection, exceptional discoverability and instant reading pleasure delivered by ebooks.
  2. Brick and mortar bookstores will continue their march into the sunset with more store closures.  I'm not happy about this, but I don't see the trend reversing unless bookstores start serving wine and pot brownies in their cafes.
  3. The perceived value of publishers will decline in the eyes of writers as the importance of print distribution declines.  Print distribution is an important glue that holds many writers to their traditional publishers.  When publisher stickiness decreases, writers will be tempted to explore the indie author camp.
  4. Indie authors have learned to publish like professionals, which means self publishing will lead to more better books, and more diversity of better books.   The professionalism and sophistication of indie authors has increased dramatically in the six years since we launched Smashwords, and this professionalism will increase in the future as indies pioneer tomorrow's best practices.  These authors are publishing books that are quality-competitive with traditionally published books, but priced dramatically lower.  As a result, these authors have the ability to under-price, outsell and out-compete the ebooks from traditional publishers.  It means indie authors will have platform-building advantages over traditionally published authors.
  5. The number of self-published ebooks will explode, and these ebooks will continue to enjoy democratized access to professional publishing and distribution tools such as Smashwords, and democratized access to global online retail distribution (every major ebook store wants to carry self-published ebooks).  Every author - even indie authors - will face increased competition from the glut of high quality works that never go out of print.
  6. The most successful indie authors are mentoring the next generation of authors.  Indie authors act like a vast publishing collective of writers helping writers. 
  7. The stigma once associated with self publishing is melting away at the same time the stigma of traditional publishing is on the rise.  Indie authors are in the cool kids club now.  They know they can publish with pride and professionalism, and they're developing teflon skin that deflects the once ego-bruising criticism levied by self publishing naysayers.  If you haven't been to a writers conference lately, go to one.  A few years ago, writers would leave conferences depressed in the knowledge that their dream agent only accepts one in 10,000 queries.  Today, writers attend conferences and learn to self publish like a pro.  They leave the conference upbeat in the knowledge that one way or another, they'll publish their book their way.
  8. Writers are discovering the joy of self publishing. If publishers are from Mars, authors are from Venus.  They speak different languages and hold different values. The rewards of self publishing transcend the conventional and myopic commercial metric value systems of publishers.  Indie authors are enjoying total creative control, faster time to market, ownership over their publishing future, and the flexibility to innovate and evolve their immortal ebooks which will never go out of print.  Indie authors enjoy the freedom to serve their fans as they want to serve them.  Icing on the indie author's cake: Indie ebook authors earn royalty rates 4-5 times higher than they'd earn from traditional publishers.
  9. Readers don't care about the publisher name on the ebook's virtual spine.  The brand they care about is the author brand. Indie authors are learning to build their own brands. 
  10. The growing rift between writers and publishers will cause the next generation of writers to avoid shopping their books to publishers, and will undermine the goodwill of writers who until now have been loyal to their traditional publishers.  Writers are angry.  After centuries of living on the bottom rung of the publishing ladder, they're feeling their oats and relishing their new-found power and respect.  I wrote about this last week for Publishers Weekly in my opinion piece, Hugh Howey and the Indie Author Revolt (may require registration).

Have fun with your punditry!  I look forward to hearing all views, especially if you don't agree with me.

READ NEXT:  Read my follow-on to this post,  Indie Ebook Author Community to Earn More than Traditional Ebook Authors