Mark Coker's 2013 Book Publishing Industry Predictions - Indie Ebook Authors Take Charge

It’s that time of year when book people make their predictions for the year ahead.  I bring you, my dear reader, my epic predictions for 2013.

I say "epic" tongue in cheek, because I went a bit overboard this year. When I sat down to write this, I was thinking of maybe eight or ten predictions with short narratives.  I'm bringing you 21 predictions with expansive narratives.  Skim the headlines then read what grabs you.

All of us in this business, from writers to readers and everyone in between, have a vision for where things are going. 

Vision is an odd thing.  To see something which doesn’t exist either makes one a prophetic seer or a delusional nut.  At the wonderful Pikes Peak conference in Colorado Springs earlier this year, I had the pleasure to meet Donald Maass, an author and top tier literary agent for whom I have much respect.  I attended a surprising session in which he trashed self-publishing.  The mood in the room changed from optimism to dejection when he spoke words to the effect of, “If you don’t care to reach readers, then by all means self-publish.”  I was floored by his comment, because it’s not what I expected from someone of his smarts.  I’ve met with dozens of literary agents over the last 18 months, and 95% of them see things differently than Donald Maass.

When I saw him later that night at a dinner, I told him I thought he was underestimating the transformative impact self-published authors will have on book publishing.  He looked me in the eye, smiled, and said, “and I think you’re delusional.”  Touché!  I think it was one of my favorite moments of the year.  One of us will come to our senses eventually.

We are all on a journey.  None of us know with absolute certainty what happens next.  All we can do is position ourselves for the future we prophetically or delusionally imagine.  History will judge us all.  Those who position correctly will be rewarded.  Those who aren't prepared will face the harsh realities of the future marketplace.

Every one of us holds the power to change the course of history by taking actions today that enable the future we desire.  Our actions mirror our aspirations, which means the future of publishing will be determined by our collective and sometimes competing aspirations.  Readers are our gatekeepers.

I challenge you, my dear writer, publisher or reader, to take charge of your future.  Imagine a brighter and better future ahead, where the culture of books reigns supreme, where more people are discovering, reading, purchasing, publishing, selling, and profiting-from books.  Imagine a future where more readers than ever before will enjoy a greater diversity of books than ever before.  Imagine a future where the power center of the publishing business shifts from traditional publishers to ordinary writers where it belongs.  This is the future I imagine, and it’s the future we’re working to realize at Smashwords on behalf of our 50,000 authors and publishers around the globe. 

The utopian and often self-serving aspirations of industry participants don’t always intersect.  Sometimes, objectives are at odds with one another, and at other times objectives are aligned.  Our experiences, biases and fears color our perceptions, and sometimes distort them.

Much is at stake.  The world's 50 largest book publishers alone achieved $68 billion in sales in 2011, according to Publishers Weekly. When so much money and power is up for grabs, industry players have a lot to fight over, and much to protect.  Books are worth fighting for, so fight for the future you want.  Otherwise, someone else may determine your future for you.

When I started Smashwords almost five years ago, I felt I had a clear vision for how ebooks could transform book publishing for the benefit of authors, publishers and readers.  I positioned Smashwords and its services to serve self-published authors and small publishers.  Although I believed we could build a large business helping authors publish and sell ebooks, I had no idea our revenues would grow so slowly in our first year, 2008, when our revenues totaled under $1,000.  In early 2009, I had no idea that by the end of the year, we'd fundamentally change our business from that of simply a publishing platform to that of ebook distribution. Although I believed in ebooks, I had no idea the market would develop this fast.  When I first started working on the Smashwords business plan, ebooks accounted for less than one quarter of 1% of overall US trade book sales.  Although I believed self-published authors deserved to become future bestsellers, I had no idea that so many would hit the bestseller lists so quickly. I definitely had no idea that less than five years after starting Smashwords, we'd be supporting the e-publishing and distribution efforts of so many authors, small publishers and literary agents.  None of us can truly predict the future, but we can still prepare for it by remaining flexible.  We must be willing to roll with the punches when fate tries to smack us upside the head, and adjust our course and our beliefs when we make mistakes.

My crystal ball gets murkier from here on out, and for reasons you might not expect.  The doubters like Donald Maass are becoming the exception, not the rule, and that worries me.  When everyone starts swimming in the same direction and believing the same group think, that’s when I start wondering about what comes next.  It's the job of any entrepreneur - and we are all entrepreneurs of our own destiny - to prepare for the future while surviving today. 


My 21 Book Industry Predictions for 2013:


1.  In the US, ebooks sales will reach 45% of US trade book market

Ebook sales growth in the US is slowing, but we’ll still continue to see ebooks take eyeballs from print books.  Brick and mortar retailers will reduce shelf space for print as more readers turn to screens as their new paper of choice.  Ebooks as a percentage of overall trade book sales in the US should hit 45%, up from what I’m estimating will probably be 30% in 2012.  I might be underestimating both numbers.  It’s tough to find reliable market share data.

2.  Follow the eyeballs:  2013 will be the first year unit volume of ebooks exceeds print

The dollar sales growth of ebooks understates the profound shift to ebooks and screen reading.  2013 will be the first year more books are read on screens than on paper.  To really understand the seismic shift toward screens, follow the eyeballs.  Ebooks cost less than print books.  The price of ebooks is declining, which means that the dollar sales growth cited above understates the increase in unit sales volume, and unit download volume.  Furthermore, the data doesn’t measure free downloads.

Here’s a newsflash, and you’re reading it here first: Smashwords authors are generating about 3 million downloads at the Apple iBookstore each month, for books priced at FREE.  Annualized, that’s over 36 million downloads. I expect we’ll do more in 2013.  My 36 million number doesn’t include the millions of readers our authors are reaching each month across Barnes & Noble, Sony, Kobo, the Diesel eBookstore, Page Foundry, Blio, the Smashwords.com store, and at public libraries. Our authors are building platforms and fan bases at a faster rate than many traditionally published authors.

When customers have the option to purchase two books of equal quality, and one is priced at $2.99 and the other at $10+, our data indicates the books generate essentially the same amount of dollar sales, but the $2.99 price yields six times as many unit sales.  If you’re an author, and you have a the option to earn the same earnings at $2.99 as $10+, but at $2.99 you’ll build your platform six times faster, what price is the right price?  It's a no-brainer.

Indie authors are leveraging the agency model, earning royalties of 60-70% list.  This allows them to price lower, earn more per-unit at lower prices than traditionally published authors selling at higher prices, and all while the lower prices help them sell more units and build author brands faster than authors stuck with traditional publishing deals.  Tell me again why authors of the future will want to hobble their careers working with a big publisher that over-prices their work, starves them of readers, and pays per-unit royalty rates of 25% net when indies are earning triple to quadruple that when they self-publish?

3.  The current glut of books will become even more pronounced

Even before the indie ebook revolution, there was a glut of books.  There are simply too many great books worth reading, and not enough eyeballs or hours in a lifetime to read them all.  2013 will remind us we haven’t seen anything yet.  Thanks to the increased awareness and street cred of indie ebook publishing, and free online tools like Smashwords that make ebook publishing fast, free and easy, the next generation of writers is realizing they need not bow subservient before the altars of publishing gatekeepers ever again.

Smashwords authors are publishing direct to their readers and achieving global distribution.  This is leading to a surge of new titles that never stop coming, and never go out of print.  In 2013, self-published ebooks will swamp the titles put out by traditional publishers.  This is good for the future of authors, readers and publishing.  We’re in the early stages of a full scale publishing renaissance.  Readers now have access to an amazing diversity of high quality books.

Some industry participants – some authors included – fear this glut, because they think it’ll either increase competition or decrease discoverability.  Yes and no.  More high-quality titles than ever will be released, because the barriers to publication have been eliminated.  Readers will discover the best books and propel them forward through word of mouth.  More poor-quality books than ever will also be released, and these books will be summarily ignored by readers, reviewed poorly, and will fail to spark word of mouth.  Yes, competition will increase, but so will author opportunity, because more readers than ever will be reading ebooks.

4.  It’ll get tougher to sell books

The easy days are behind us.  In the next few years, I expect millions of out of print books will come back to life as ebooks.  Millions of writers will self-publish new titles.  The virtual shelves of online ebook retailers will expand to accommodate a limitless supply of ebooks.

In the early days of self-published ebooks when there were fewer books to choose from, the act of making your book available in the ebook format helped you reach a lot of readers.  In 2013, authors will face more competition for reader eyeshare.  Most of that competition will come from fellow indie authors.

Indies, as a collective organism, are become more knowledgeable, professional and sophisticated in their publishing.  They're pioneering the best practices of tomorrow.  All authors will need to up their game. That means more professional editing, more professional cover design, broader distribution, smart pricing, and more books.  Unlike their static print counterparts of yesteryear, ebooks are living, dynamic and immortal creatures.  You can upgrade your ebook to make it more available, accessible and enjoyable to readers at any time.

5.  Publishers, in search of Black Swans, will lose authors to self-publishing platforms

Publishers are in the business of selling books, not publishing books.

The dirty business of publishing is simply the means to the bookselling ends.  The publishing industry has always been built around a model of scarcity and exclusivity.  Publishers want to acquire and publish only those titles they think have the greatest commercial potential.  They reject all the rest as riff raff, and then they carefully meter out their chosen books in seasonal catalogs.

Publishers have built barriers – let’s call them dams and dykes and parapets – to protect against the hordes of aspiring writers seeking publication.  Publishers require writers to work through agents, who are charged with identifying titles publishers will want to publish.  Many top-tier agents reject 5,000 authors for every author they sign on.  Publishers still reject many of the agented books as well.

Big publishers see the great unwashed masses of aspiring authors as a problem, and these walls insulate them from the problem.  Publishers are simply unable to take a risk on every author.  They realize most of these books don’t have strong commercial potential, and on that count they’re correct.

Publishers devote tremendous energy and expense trying to build barriers to hold back the flood, but in the process of rejecting the riff raff they’re also rejecting the unrecognizable future breakouts.  These breakouts are the Black Swans of publishing, to borrow a term popularized by Nassim Nicholas Taleb, author of The Black Swan: The Impact of The Highly Improbable.  As described by Taleb, a Black Swan event is unexpected, unseen, unanticipated, improbable, and unpredictable.  When it hits, it turns everything upside down and changes the world forever.

Since most books fail, we can think of a true breakout book as a Black Swan event.  The newly hatched Black Swans are invisible to the publisher because they're hiding in a sea of baby black geese.  By sheer luck, numbers and some skill, Publishers pick out a few of the swans, but miss the others.  Only the full marketplace of readers can reliably identify the black swans. In the dark ages of publishing, prior to five years ago, the baby swans were culled by publishers, denied any chance to reach readers.  How many great classics have been lost to humanity simply because publishers missed the black swans?

This philosophy and attitude among large publishers that “most authors are a problem” and are unworthy of publishing is deep-seated.  Yes, most authors don’t sell well.  Most authors published by big publishers don’t sell well either, and therefore are unprofitable to publishers.

The secret to capturing the Black Swans is to embrace all authors.  It’s what we do at Smashwords.  I created the Smashwords publishing platform so I could take a risk on every writer, the swans and geese alike.  We believe every writer is special, every writer has a right to publish, every book is valuable to the world regardless of commercial potential, and only readers can determine what’s worth reading.  We don't sell services.  We earn a small commission only if we help sell books.

Until publishers learn to honor, respect and embrace every writer, unequivocally and independent of perceived commercial merit, they’ll continue to lose the Black Swans to Smashwords, and they'll continue to disenfranchise writers.  Publishers can’t embrace authors with platitudes.  To succeed at self-publishing, the publisher must learn to embrace authors in a way that the publisher’s interests and author’s interests are properly aligned.  Proper alignment is only possible if publishers help authors sell books, and if the money flows from publisher to author.  If money flows from author to publisher, that publisher is a parasite. 

6.  Overall ebook prices will decline, though author brands will retain pricing power

It’s simple economics.  Excess supply of books, unlimited supply of alternative non-book media forms, and limited supply of reader eyeballs means that the producers of books – authors and publishers – will continue to compete on price.  When quality is equal, price is one of the dominant levers (convenience and selection are the other two) that drives consumer behavior.

Will book prices fall to zero as authors and publishers compete for readers?   No.  But authors and publishers must compete against free.  Luckily, what writers write is completely unique.  This unique creation has value, and if it’s desirable to readers, and the perceived desirability outweighs the price, readers will pay.  Readers will favor trusted author brands.  That means your opportunity as a writer is to build your brand.

7.  Passive discoverability trumps other book marketing methods

Most books don’t sell well, even when backed by expensive marketing.  It’s really tough for authors to earn a return on their marketing investment.  Many marketing service providers will happily take thousands of dollars in fees, yet deliver few sales.

Authors need a better solution, and part of that solution is to recognize that marketing isn’t quite as important as most people think it is. Marketing is a catalyst, not a fuel.  The book, and the customer's reaction to that book, is the fuel. In the year ahead, authors and publishers will place increased attention on passive discoverability.

Passive discoverability is all about making books findable by readers. The secret is to apply viral catalysts, a term I introduced and describe in detail in The Secrets to Ebook Publishing Success.  A viral catalyst is something that makes a book more available, discoverable, accessible, and enjoyable to readers.

Think of your books as an object, and attached to the object are dozens of dials and levers (the viral catalysts) you can twist, turn and tweak to make your book more available, discoverable and enjoyable.  When you get the combination just right, reader word of mouth kicks in and propels your book sales forward.

Think of these viral catalysts as beacons that are working 24 hours a day, 365 days a year, to broadcast your book’s virtues to readers looking for a book just like what you published. The beacons will shine on ebook retailer shelves, and readers will discover them through retailer-operated merchandising systems, search engines, reader reviews, and social media hyperlinks.  By leveraging viral catalysts for passive discoverability, your book becomes findable forever. 

8.  Tablets will become the new paper as E-Ink becomes niche product

In the brief history of ebooks, 2012 was the first year that dedicated e-reading devices saw a unit volume decline, even though overall ebook consumption continued to grow.  The cause?  Readers are showing a preference for multi-function tablets like the iPad, according to a report released this month issued by iSuppli.

In 2013, this trend is likely to continue as readers are drawn to tablets, and these tablets become faster, better and cheaper.  It's unclear how this will impact ebook sales.

On the one hand, as books become woven into the hyperlinked fabric of the Internet, books will become more available and discoverable to more people, even to people who aren't looking for them.  On the other hand, these tablets are media consumption devices, which means books will once again have to compete against an ADHD-inspired array of alternative media consumption options.

With dedicated e-reading devices, such distractions are less prevalent.   E-Ink devices won't go away because they still provide compelling advantages for many consumers.

9.  Global will be the biggest story of 2013 for indie authors

The market for English-language ebooks outside the US will eclipse the US market in 2013.

As I predicted above, in the US, ebooks as a percentage of the overall trade book market will probably reach about 45% in 2013, up from approximately 30% in 2012, 19% in 2011, 8% in 2010, 3% in 2009, and 1% in 2008 (these are AAP numbers, with 2012 and 2013 my personal estimates).

This means that while the US market is still growing, the growth is slowing.  Ebooks broke out first in the US market.  Now they’re breaking out internationally as other countries enter the exponential phase of growth for their ebook markets.

Indie authors have a similar ground floor window of opportunity to become big fish in the small pond of these fast-growing markets, like the early indie ebook authors had in the US market in 2008 and 2009.  And like the market of 2008 and 2009, larger publishers were slow to enter the party.  Today on the global front, they’re struggling to overcome decades of legacy territory rights practices that have hamstrung their ability to distribute ebooks to all countries.  They’ll get there soon.

As an indie author, you can get there now.

The rise of global also means that authors should modify their marketing to become more world-aware.  Each store in each country has its own reviews and its own web page addresses.  A great review at Apple or Amazon in the US is invisible to customers shopping in their UK stores (Amazon provides a link in their UK store to view additional reviews in the US store, though US customers aren't given a link to view reviews from other Amazon stores).  Each store in each country represents its own micro-market, and your opportunity is to build fans everywhere. On your blog and website, start providing direct hyperlinks to the different stores operated by each retailer in each of your primary countries. Outside the US, English-language authors will do best in Australia,  the UK, Canada, and New Zealand, but you'll still sell into other countries.  Your social media marketing on Facebook, Twitter or on your blog will cross most international boundaries.

10.  Amazon, Apple, Barnes & Noble and Kobo will redouble global expansion efforts

It’s a land grab.  In 2012, all the major ebook retailers expanded their global operations.  Amazon is now in about 10 countries.  The Apple iBookstore is operating stores in 50 countries.  Barnes & Noble entered the U.K. in 2012, and will probably make 2013 the year it goes completely global.  Kobo has always had an international focus, and following its acquisition by globally-minded ecommerce juggernaut Rakuten in Japan, I expect more global expansion from them in 2013.

11.  Apple iBookstore will be the breakout story of 2013 ebook retailing

With little fanfare, the Apple iBookstore dramatically expanded its international reach in 2012, starting the year with iBookstores in 19 countries and ending the year with 50 countries - far outpacing the global expansion of other retailers.  Internationally, iBookstore sales surged on the strength of explosive growth in iPads and iPhones, and with readers showing preference for multi-function devices over single-purpose e-readers.

For the month of November 2012, sales of Smashwords-distributed titles at the Apple iBookstore more than tripled compared to the same month a year ago, a growth rate that exceeded the growth at other retailers in the Smashwords distribution network.

Despite the fantastic growth at Apple, many authors still treat Apple as an afterthought compared to the bigger book retailing brand of Amazon, and to some extent Barnes & Noble.  It's not uncommon for many authors, in their email signatures, blogs, websites, and other social media networks to link only to their books at Amazon.  This is a mistake because when analysts start estimating ebook market share for 2012 in 2013, I think Apple's growth will turn heads.

The growth of the Apple iBookstore is inextricably linked to the growth of Apple devices, such as the iPad, iPad Mini, iPhone, and iPod Touch.  If sales of these devices continue to surge, the iBookstore will enjoy above-market growth rates.  Apple's primary competitors, Amazon and Barnes & Noble, both offer competing tablets, which, although lower priced, are starting from a disadvantage in that they don't have the hardware and software design experience of Apple, or the same fanatic brand loyalty.

It's interesting to think that the winner of the ebook retailing wars may be the company that designs the best e-reading devices. Screens are the new paper.

As 2013 progresses, keep an eye on market share data for the different tablet platforms.  If the recent iSuppli data is correct, and if tablets continue to take market share from dedicated E-Ink devices, then the market share numbers will serve as a leading indicator of which retailer is gaining advantage in the ebook marketplace.  Two days ago, an industry analyst at Pacific Crest Securities came out with a report that said his channel sources have provided him data that led him to conclude that the Kindle Fire tablet is selling more poorly than he expected as buyers choose Apple devices instead.  If true, it could be a turning point.

Ever since launching the iBookstore in early 2010, Apple has been aggressively adding content and capabilities to their store, and has expanded its global footprint faster than any retailer.  Despite their progress, they maintain a low key public profile when it comes to touting their growth and accomplishments.  I'm not sure why they've taken this low-key approach.  Apple keeps their future plans close to the vest.

Apple has always been supportive of indie authors.  They pioneered the agency pricing model, which dramatically increased author earnings over the industry's conventional wholesale model.  Agency pricing puts pricing decisions in the hands of authors and publishers, where it belongs.  It's counterintuitive to some, but the agency model actually leads to price reductions.  It gives authors greater flexibility to compete on price, and earn more at lower prices compared to what they'd earn under the old wholesale model.

Apple's global merchandising team is impressive.  They're customer centric.  They're giving our authors a seat at the merchandising table.  They've been more proactive than any other retailer at promoting Smashwords titles, both individually and within larger creative promotions, such as the Breakout Author promotion that happened in Australia and New Zealand featuring thousands of Smashwords authors.

Apple's pro-indie merchandising efforts have paid big dividends for Apple. These books are getting great reviews from Apple customers.  Our books are selling.  Smashwords titles routinely grace the top 10 bestseller lists at Apple iBookstores around the world.  Apple's earning millions of well-deserved dollars selling our books, and that makes me happy.

2013 will be the year people start paying fresh attention to Apple.  Thanks to Apple's success, indie authors will gain increased credibility and respect in the publishing industry.

 
12.  Amazon’s global ebook market share will decline

Amazon deserves immense credit for catalyzing the ebook revolution.  Although Sony beat Amazon to market with a solid e-reader, Amazon helped put ebooks on the map in a way that no other retailer could.  In the process, they’ve helped create livelihoods for many writers who previously faced few options.

That said, Amazon’s star could dim in 2013, even as its ebook business grows.  Amazon’s ebook sales volume will grow significantly in 2013, but their global market share will decline amid increased competition from well-funded competitors such as Apple, Barnes & Noble, Kobo, and others.  We’ve seen it already in the US market.  A few years ago, Amazon held about 90% market share in the US.  Today, thanks to the rise of its competitors, Amazon’s market share has dropped to somewhere around 60% (Amazon doesn’t disclose its numbers, so the industry is left to guess the true number).

Amazon also faces a backlash from authors, publishers and partners who have grown weary of Amazon’s heavy-handed business practices.  Amazon’s a fierce competitor and a brilliant strategic player.  They play the game of chess like few others.  Every move today is calculated based on its impact five years from today. By making moves today to exploit opportunities that don't even exist yet, they have shown an uncanny ability to outflank and outmaneuver their competitors.

Amazon's potential undoing, however, is greed and bullying.  They don’t just play to win, they play to grind their competitors into bloody submissive pulps.  They also have a more expansive, more inclusive definition of their competition than any other ebook industry player.  Amazon’s working to vertically disintermediate everyone that stands between the content producer (the author) and the content buyer (the customer).  In a cover story in Fortune Magazine this month, writer Adam Lashinsky notes that a favorite Jeff Bezos aphorism is "Your margin is my opportunity."  That attitude may come to haunt Amazon in 2013.

If Amazon could invent a system to replace the author from the equation, they’d do that too.  Actually, it's already happening, though not directly by Amazon's hand.  One innovative publisher, ICON Group International, has patented a system that automatically generates non-fiction books.  Over 100,000 of these titles are now for sale at Amazon, according to this story at Singularity Hub.  As the field of artificial intelligence increases, how long until novelists are disintermediated by machines?  It's a preposterous idea worthy of science fiction.

But maybe it's not so preposterous after all.  Amazon has already shown a willingness to replace one author with another.  Witness their KDP Select program, announced one year ago, which encourages authors to remove their books from Amazon’s competitors.  The opt-in program aims to remove indie ebooks from the shelves of its retailer competitors, while at the same time making participating authors more dependent upon Amazon.  By providing favorable sales advantage to those who opt in to their exclusivity program as compared to KDP authors who don’t opt in, they’re punishing their own non-participating KDP authors by providing KDP Select books preferential discoverability over non-participating books.

As Amazon enters new markets, as they did this year with India and Brazil, they’re making KDP-Select participation a mandatory requirement if authors want to earn the full 70% royalty rate which is otherwise standard in other Amazon territories, and standard at other retailers (and without the corresponding exclusivity strings attached).  If you don’t opt in, you earn only 35% in these emerging countries.

Exclusivity works to Amazon’s advantage, but for the author it’s a crapshoot.  From the author’s perspective, exclusivity carries with it a set of knowns and unknowns, placing authors in the difficult of position of playing Russian Roulette with their careers.  The author can’t accurately predict or measure what they’re giving up by going exclusive (though based on what I’m seeing, KDP Select authors are harming their platform building in other channels), but if they don’t go exclusive they don’t know what KDP Select benefits they passed up. 

For some authors, Amazon’s attempts at exclusivity speak to their worst fears about the company.  Despite the criticism and bad will generated by these policies, Amazon soldiers on, doubling down on its exclusivity strategy.  Either we’re witnessing Amazon making a strategic blunder, or Amazon sees a future none of the rest of us see.  A future where Amazon's the dominant controlling player and any author who wants to reach readers will be forced to do so under the thumb of Amazon’s rules, which are already the strictest and most vigorously enforced in the industry.  Time will tell.

I think Jeff Bezos is brilliant, and Amazon is a great company, though I think they’d be better served if they dropped a bit of their crush, kill, destroy, turn-to-bloody-pulp attitude.  It’s a high risk strategy that will either work well for Amazon, or it"ll blow up.  At a minimum, Amazon’s “everyone is my competitor” attitude encourages its potential partners, like Smashwords, to pursue fruitful relationships with other kinder, gentler partners.

Amazon's actions, such as their controversial Price Check app, have revealed their intentions to do to all brick and mortar retailers what Wal Mart did to Main Street America.  Competitors such as B&N (next item below), now have an opportunity to strike mutually complementary partnerships with companies that won't partner with Amazon.

13.  Barnes & Noble will rise again like a Phoenix

Barnes & Noble is the Rodney Dangerfield of ebook retailing.

Industry watchers have been predicting the demise of B&N for a few years.  Premature causes of death were said to be the rise of Amazon, or the DoJ or EEC’s anti-agency rulings, or B&N’s slow global expansion, or their poor cash position.

In 2012, B&N received a $300 million cash infusion from Microsoft, and entered the U.K. with an innovative brick and mortar strategy backed by 2,500 retail outlets.  This strategy can’t be easily replicated by Amazon because retailers are rightly wary of inviting the Amazon fox into their brick and mortar hen houses.

B&N, by comparison, has a broader palette of synergistic and welcoming partners to choose from, because unlike Amazon, B&N isn’t hell bent on vertically disintermediating the retailing of all physical and digital goods in the universe.  B&N hired a new global chief, and now stands ready, I predict, to execute an aggressive global expansion in Europe and elsewhere, in symbiotic partnership with allied retailers, that will solidify B&N as one of the top global brands for e-reading.

14.  In the self-publishing gold rush, more money will be made in author services than in book sales

With the shift to self-publishing, writers must carry the publishing burdens once borne by traditional publishers, such as the cost of editing, proofing, book production, packaging, and distribution, as well as backoffice tasks such as accounts receivable, accounts payable and year-end tax reporting.  Third parties are building businesses to serve the needs of indie authors.  Most indie ebooks sell poorly at first, so it’s not uncommon that writers will invest an amount of money in their books that far exceeds their near term return.

This is a problem.  Writers want to publish books that reach readers, but to reach readers they must produce books that are as good or better than what the big NY publishers are putting out.  This means writers must invest time and talent in their books, and if outside talent is required, it usually costs money.  With this burgeoning demand for professional publishing services, thousands of service providers will open up virtual author services shops in 2013.  The challenge for writers is to procure the highest quality services at the lowest cost.  Plenty of scamsters and over-priced service providers will be standing by to help.

The smart Kristine Kathryn Rusch, blogging on December 12 in a posted titled, Writing Like it's 2009, likened what happening today to a gold rush:

Here’s the thing: From 2008-2010, e-publishing on the early e-readers was a gold rush. And if you look at the history of any gold rush, you’ll see a familiar pattern.

A few people hit it big in an unexpected way. They make a small fortune.  They broadcast the news of that fortune, and then hundreds, if not thousands, of people follow. They hook their horses to their wagons, drop everything, and head to the land of riches, expecting to become millionaires with very little work.

And what happens? Millionaires. Hundreds of them. Only those millionaires don’t get rich panning for gold. They open the supply shops, they serve food to the miners, they supply blue jeans and work boots and equipment, hay for the horses and rooms to rest in at night.

It’s not a coincidence that S&S [Simon & Schuster] has opened up an expensive do-it-yourself shop in indie-publishing land. It makes perfect sense. Think of S&S as the chain hotel who heard that there was a fortune to be made by offering rooms to miners who are too tired to pitch their own tents.

There’s gold in them thar hills, folks. And the gold is for business people who know their way around a profit-and-loss statement.

By the way, scammers always show up in the middle of a gold rush. Scammers know they can make a fortune off the ignorant. We’re in the scammer/chain hotel phase of this gold rush.

I think Rusch nailed it.

How can writers protect themselves?  I have two recommendations:

1.  Pinch Your Pennies - As I write in Secrets to Ebook Publishing Success, pinch your pennies.  As a self published author, you're the publisher.  You're running a business.  The lifeblood of a business is profit, because profit generates cash.  If you run out of cash, you go out of business.  Since profit equals sales minus expenses, and sales are difficult to predict and often minimal, it's important to minimize expenses.  DIY as much as possible, especially when you're starting out. Invest your sweat equity (your time and talent) first.  If you can't afford editing, barter for editing, and leverage beta readers.  Once you start earning a profit, then carefully reinvest.  Never borrow money to finance your ebook publishing adventure. Never spend money you need to pay the mortgage or to put bread on your table. 

2.  Work directly with the individual providing your service - When you hire professionals (cover artist, editor, proofreader, marketing pro), hire the professional directly, so your money goes straight to them, and not to some author services firm who will farm the job out to someone then mark up the fee several-fold.  At Smashwords, for example, we have a free autoresponder email service called "Mark's List," where I maintain a list of low-cost ebook formatters and cover designers (send an email to list@smashwords.com), with prices starting around $50.00 (that's all!).  You're hiring the freelancer directly.  We don't get a referral fee, listing fee, commission or kickback, which means you're getting the service at-cost, as low as possible, and your money goes directly to the service provider you choose.  Most of the service providers are fellow Smashwords authors.

Writers beware.  This brings me to my next prediction.

15.  Pearson/Penguin/Random House/Simon & Schuster will either cut bait on Author Solutions or ride this anchor to the bottom of the sea

In 2012, Pearson, the parent of Penguin, acquired Author Solutions (ASI), an author services company backed by Bertram Capital, a private equity firm in Silicon Valley.  Author Solutions maintains a less-than-stellar reputation, right alongside fellow vanity publishing posterboy, PublishAmerica.  Blogger Emily Suess  has been running a series of damning posts for months at http://blog.emilysuess.com/tag/author-solutions/ where she exposes ASI’s business practices.

Author Solutions is a provider of over-priced author services, and that’s about the kindest description I can share.  They earn 2/3 or more of their income selling over-priced services to authors, and these services are of nebulous value and invariably print-centric.  According to Publishers Weekly, ASI's ebook sales accounted for only $1.3 million, or 1.3% of their $100 million in revenue for 2011, and that was with a staff of about 1,600 employees, 1,200 of whom are in the Philippines, where the bulk of their work is performed.  By contrast, Smashwords will do around $15 million in ebook sales in 2012 with 1/100th the staff.

Author Solutions is not in the business of selling author books to readers.  Instead, they’re in the business of exploiting the dreams of newbie authors who don’t know better.  Pearson/Penguin’s acquisition of ASI left me befuddled.  Although Pearson/Penguin was smart to recognize that self-publishing represents a tremendous growth area, their acquisition of ASI – a company that helped put the “V” in Vanity – demonstrated an utter disregard for the best interests of writers.  It demonstrated a deep-seated cynicism that valued the money in authors’ pockets ahead of good business ethics.  Newbie writers who don’t know better are easily exploited by the heavy-handed sales tactics of ASI, as so aptly documented by Emily Suess.  Yes, Pearson/Penguin can make money with ASI.  But it’s blood money.   With the acquisition of ASI, Pearson/Penguin made the decision to become a blood sucking parasite.  The indie author community raised a stink when the news came out.  Did publishers listen?

The acquisition placed Pearson/Penguin in an inextricable pickle.  As I blogged in July in my post titled, How a Traditional Publisher Could Harm a Writer's Career, if they want their $116 million acquisition to pay off, they’ll have to continue the same author-fleecing services and business practices, and by doing so they’ll tarnish the once sterling Penguin brand.  In the proudest tradition of the great publishers, money should flow from book buyers to publisher to author, not from author to publisher.  If Pearson/Penguin decided to clean up the act of ASI, they’d find themselves facing a print-centric business model that doesn't help authors, and the specter of huge operating losses due to what is likely ASI’s $100 million operating expense overhead.  It’s a lose/lose situation, no matter how Pearson/Penguin proceeds.

But wait, there’s more.  On October 29, 2012, Pearson announced a deal that will help it divest itself of Penguin, and along with Penguin, the newly acquired ASI albatross, by merging it into a new joint venture with Bertlesmann’s Random House division.  Soon, to borrow a phrase from Douglas Adams, ASI will become “Somebody Else’s Problem” when Random House gains majority ownership over Penguin/ASI.  You'd think Random House would have been paying attention to the bad smell surrounding ASI.

And yet there’s more. Another Big 6 publisher was asleep at the wheel.  Despite all the author community outrage over the ASI acquisition, less than a month later, on November 27th, Simon & Schuster decided to launch its own self-publishing “imprint” called Archway Publishing - sporting a logo that proudly advertises it's powered by none other than Author Solutions.  They're going to sell publishing packages priced up to $25,000.   $25,000?  How could Pearson/Penguin/Random House/Simon & Schuster make such a massive series of blunders?  Do they really have so little respect for writers?  The pattern is very disappointing for those of us who want to see the big publishers survive and thrive.

16.  The Big 6 will become the Big 4 as bean counters take over the farm

Warning:  I get a bit wonky with financial acronyms at the end of this one (that's what I get for going to business school).

Pearson, the UK media conglomerate parent of Penguin, and Bertelsmann, the German media conglomerate parent of Random House, agreed to merge Penguin and Random House into a joint venture in 2013, pending regulatory approval.  I think the union will produce an ugly baby.  The convoluted financial details contain a circus of financial machination hula-hoop acrobatics and if-then-what variables that only their proud investment banker parents could love.

The merger’s benefit to authors, or to the employees of the publishers, is less clear.  Ostensibly, the merger would give the larger combined firm more negotiating leverage against the channel, and specifically Amazon.  I don’t buy that, unless they’re willing to pull their books from Amazon.  Amazon will either laugh in their face and say no to their demands, or will say yes while it continues developing direct relationships with authors, thereby neutering publishers by denying them the sustenance of future authors.

Within a couple of years, it'll be game over for publishers who think they can push the channel around, because there will be hundreds of thousands of other high-quality indie-published books to take their place. I had a conversation earlier this week with a smart publishing industry veteran who told me, "Publishers created Amazon, so I don't know why they're acting so surprised now."

What the merger really says is that the shareholders, parent companies and executives of Big 6 publishers are starting to view their catalogs as no- or low-growth assets to be milked, when in fact they should instead be focused on growing the farm for future harvests. I expect them to eventually saddle the operation with more debt (their merger press release contains an option for that very outcome), and then merge and eliminate redundant operations (lay off employees in HR, finance, editing, marketing, sales, distribution, merge or eliminate imprints) to reduce costs so they can make the debt servicing expenses.

Each of the publishers is sitting on a goldmine of back catalog, ready to be milked. Perhaps the investment bankers will push a path forward for some publishers to stop or reduce their publishing exposure altogether, and instead become asset manager custodians of their backlists.  They can abandon big print runs, move to POD, digitize their lists, focus on distribution and marketing, cut back on new title acquisitions, impose stricter reversion clauses upon authors so digital books never go out of print, and harvest the profits that will come from the reduced operating expenses of not having to be a publisher.  Although this would create an insanely profitable business for their shareholders and debt holders, it would also mark a capitulation of sorts.

None of these moves help authors at a time when authors want more support from their publishers, not less.  It also limits employment opportunities for the brain trust of passionate book lovers who work at the big publishers, and who now risk having their livelihoods eliminated in the name of “strategic realignments” and other unpleasant euphemisms for lost jobs.

Expect the remaining Big 4 to get frisky with the mating and M&A dance. I also wouldn’t be surprised to see one or more of the remaining Big 4 acquired by private equity firms.  Private equity firms typically acquire operating companies with mostly borrowed cash, and then saddle the company with debt.  With little of their own money invested, the private equity firms generate high  ROE – return on equity, even when the company's profits drop under the weight of debt servicing obligations.

They’ll cut costs to raise EBITDA, another favorite and dehumanizing finance metric that stands for Earnings Before Interest, Taxes and Depreciation.  Finance folk love EBITDA as a tool to determine how much debt they can load on a company before they choke it to death with debt payments.  More debt means higher ROE, but if they pile on too much debt, the company dies.  Think of EBITDA calculations as a form of auto-erotic asphyxiation administered by bean counters.  It's a risky business.  These financial metrics, when abused, are dehumanizing and will sap the soul of publishers.  Watch out, bean counters are in control now.


17.  Stigma of Big 6 (or Big 4 or Big 3) publishers will increase as prior stigma of self-publishing evaporates

The stigma of self-publishing is disappearing.  Each week, indie authors are hitting the ebook bestseller lists at all the major ebook retailers, as well as lists maintained by the New York Times, USA Today, Wall Street Journal, GalleyCat, and Digital Book World.  A year ago, this was rare.  A year from now, it’ll be commonplace.  The future bestsellers of tomorrow are the indie authors of today.  Indie authors are poised to take more market share in 2013 as the next generation of writers turns its back on traditional publishing.

Five years ago, back in the dark ages of publishing, self-publishing was seen as the option of last resort.  It was seen as the last refuge for failed authors.  Publishers controlled the printing press, the access to distribution, and the knowledge to professionally publish, which made authors entirely dependent upon publishing gatekeepers.  Today, these three elements of professional publishing are fully democratized.

Indie authors now have the tools to publish faster, smarter and more effectively than traditional publishers.  Many indies are publishing books of equal or greater quality than what’s put out by large publishers. Indies are pricing more aggressively, and as a result they’re building bigger platforms faster than many traditionally published authors who are now disadvantaged.  As ebooks continue to take market share, and as physical brick and mortar shelf space disappears, the allure of traditional publishers will fade further.

At the same time the stigma of self-publishing evaporates, the stigma of traditional publishing is increasing.  Authors are questioning what big publishers can do for them that they can't already do on their own.  Authors are realizing, as mentioned earlier, that the traditional publisher business practices (high prices, slow release schedules, limited marketing support, etc) can actually harm a writer's career.

Traditional publishers are also showing themselves skilled at adding their own self-inflicted injuries.  Traditional publishing's cynical misadventure into vanity publishing will stain the reputation of all big NY publishers, even those that haven’t made the same mistakes.  That's sad, because I think the world of books would be better off if we could maintain a healthy and vibrant ecosystem of large publishers in addition to smaller ones.

18.  EPUB 3 will disappoint

EPUB 3, ratified in October 2011 as the next generation of the popular open industry EPUB file format, is likely to see slow and disappointing adoption in 2013.

The new standard offers a range of promising benefits, such as improved book navigation, improved language support, support for fixed format books, more sophisticated metadata management, and improved support for multimedia.  Unfortunately, such promised benefits come at a cost to authors, publishers, device makers, distributors, ebook stores, and consumers in the form of increased complexity, new workflows and questionable backward-compatibility between EPUB3 books and prior reading systems.

If the marketplace concludes that the benefits of EPUB 3 outweigh the costs, it’ll gain traction in the marketplace.  Otherwise, we'll either see slow adoption,  increased file format fragmentation, or proprietary file formats if major retailers decide they can support these next-generation capabilities more effectively on their own, outside the purview of the IDPF standard-setting body.  If EPUB 3 increases production complexity for authors, publishers and the digital supply chain, we could also see a decline in the number of titles released.  As a member of the IDPF, the standards-setting organization that manages EPUB, we support standards, though I do have cost/benefit concerns about the transition. 

19.  Ebook subscription offerings will face uphill slog

In 2012 there was a wave of promising startups talking about creating the “Spotify of Ebooks,” or the “Netflix of ebooks.”  I admit, at first the notion of an all-you-can-read smorgasbord of reading material held appeal to me.  I’m always interested to consider new models of book distribution that help us achieve our overall mission of connecting our authors with readers.  However, as the year progressed and new subscription hopefuls came to the fore, I found my enthusiasm waning.

Ebook prices are declining as authors and publishers compete on price.  Indies have released thousands of high-quality books priced at FREE, more than any voracious book lover could ever read in a lifetime.  Traditional publishers are dropping their ebook prices to become more competitive – even independent of the DoJ’s ill-conceived crackdown on agency publishers.  Ebooks are already free or dirt cheap, and likely to become cheaper as big publishers drop their prices, so the potential advantages of an all-you-can-read buffet are diminishing.  The challenge for some enterprising entrepreneur is to find a method of connecting books to readers that’s more effective and profitable than what the major retailers are already doing, and that’s a tall order because the retailers are doing an awesome job.

20.  Indie authors poised to capture a growing percentage of library ebook market
Libraries are the forgotten stepchildren of the publishing industry, yet they operate 230,000 public library buildings across the globe where patrons come to find, read and enjoy books.  Libraries purchase hundreds of millions of dollars worth of books each year, making books available and discoverable to all readers.  They promote a culture of reading among readers which benefits the entire publishing industry, and they're where millions of readers first discover their new favorite authors.  Libraries are engines for book discovery and consumer retail purchases.

Traditional publishers have been wary to distribute ebooks to libraries, for fear that library ebook sales will cannibalize publishers' ebook and printbook sales through traditional retail channels.  As a result, many publishers refuse to sell to libraries, or will sell to libraries under onerous terms.

Publishers' refusal to provide adequate ebook support for libraries has created a window of opportunity for self-published authors, and it's a window we're looking to pry open even further in 2013.  In 2012, we signed distribution deals with the leading library aggregators.  We launched Library Direct, which this month alone will sell and deliver nearly $200,000 worth of ebooks to libraries.  Self-published authors will find their books in greater demand in 2013 as libraries implement ebook checkout systems. 

21.  Indie ebooks will start driving more film & television projects

Books have long been a popular source of material for film and television producers.  A proven bestseller means that audiences find the story compelling, and this increases the appeal to film and television producers for a couple of reasons: 

1.  A successful book creates a built-in audience more likely to want to view the film or television derivative.   

2.  A successful book helps lower the risk to the film or television producer because the story has already proven itself an audience-pleaser in the marketplace.

A film or TV deal is great news for the author and publisher, because it sells more books.  It helps more prospective readers discover the story or want to read the story again. The dynamic between publishers and film and television producers is not perfect, however.  Most books come out 12 months or later after the publisher acquires it, so if a book is sold to film or television before publication, the film/television producers face the risk that they begin production only to learn later that the story didn’t resonate with readers.

If you believe that indies are the future of publishing, and that the world’s best and most commercially successful future stories will come from indies, then it’s inevitable indie authors will begin to fill the production pipelines of film and television producers.  Indie authors – not hamstrung by the slow book release schedules of traditional publishers – are reaching the market instantly with stories better tuned to audience desires.  Indies achieve instant market feedback in the form of sales data, reviews and retailer bestseller rank.  Expect many indie ebooks to be optioned for film and television in 2013.  Maybe one or more of the 9,000+ titles uploaded to Smashwords in the last 30 days will find its way to a theater near you.

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Thanks for reading.  I think this was my longest post ever.  Believe it or not, I had other predictions I left out regarding the ebook supply chain, retailer-operated publishing platforms, and more.  There's too much.  Back to work now.  Prior to year-end, I'll do a Smashwords 2012 year in review.


Just for kicks, here are couple of my past predictions:
2011 Predictions at GalleyCat by Mark Coker (published Dec 28, 2010)
10-Year Predictions at GalleyCat By Mark Coker (published Jan 4 2010)

Did my crystal ball miss anything?  Please add your own predictions below.