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.
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.