2015/09/14

Legacy Publishing's Pyrrhic Victory: Indie and Amazon Gain eBook Dominance

AAp eBook Sales
Source: authorearnings.com
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Legacy publishers scored an apparent victory back in November when, as a result of heated negotiations with Hachette Group, Amazon reinstated agency pricing for the Big Five. The first batch of sales reports since the agency model's return show that the Big Five took a big gamble and lost.

For those who are unfamiliar with the term, agency pricing is an alternative to the more common wholesale model. The main difference is that with wholesale the retailer sets the price and with agency the price is set by the publisher.

Agency vs. Wholesale
Source: Publishing Trendsetter
Here's a fact that seems odd at first glance: under the wholesale model, publishers and authors made more money. One of Amazon's main arguments against agency pricing was that they, as the #1 eBook retailer, knew the pricing sweet spot that yielded maximum profits. They even warned that the prices sought by the Big Five under the agency model were far too high.

The situation doesn't appear to make sense. Why would publishers fight for a pricing scheme that earns them and their authors less money?

But if you consider the fact that legacy publishers' only real competitive advantage is their dominance over paper distribution, the picture becomes crystal clear.

For decades, the only way a book could succeed was if a publishing house let it into the paper distribution system that they controlled. Their power to make or break books and authors was absolute.

Then Amazon came along and invented a whole new kind of publishing that the old guard didn't control. Instead of beating Amazon at its own game through innovation, the Big Five jacked up eBook prices in a misguided attempt to protect their paper sales.

That approach almost made sense when the Big Five had 60% of the eBook market. They figured that they could drive readers away from Kindle and back to Barnes and Noble by charging the same for a string of ones and zeroes as for a slab of ink-stained lumber. Once again, they thought they could leave readers without a choice.

But there was one thing that legacy publishing didn't count on.

2015 Daily Gross $ Sales
Source: authorearnings.com
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Outfits like Publishers Weekly have been reporting on declining sales of print books and eBooks. It's been pointed out that these reports rely on figures from Nielsen BookScan, which only tracks sales from a handful of legacy retailers. Many self-publishing advocates have voiced suspicions that the Big Five's abuse of power is driving readers and authors to go indie, but there was no hard proof.

That is, until now. During the same period that the Big Five's share of the eBook market has basically flipped from 60% to 40%, Amazon reports that eBook sales have risen overall.

Compare the chart above to the one below. The ratio of legacy to indie dollar sales on eBooks is almost exactly the reverse of the ratio of legacy author earnings to indie author earnings. The best interpretation of these data? Indie authors are massively outselling overpriced legacy eBooks.

2015 Aug Author Earnings
Source: authorearnings.com
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An eventuality unforeseen by the Big Five has thrown a wrench in their plans. Readers and authors are leaving legacy publishers for indie, reader-centric traditional publishers like Baen, and small publishers like Castalia House.

Considering the unprofessional and downright tyrannical behavior of some legacy publishing houses, the Big Five's downfall can't come soon enough.

2 comments:

  1. Reminds me of similar struggles in the video game industry. Archaic deals with brick and mortar stores force equal prices for box copies, and digital copies, driving up the price. Of course there is an equal vicious fight among indie titles, and older games, with some claiming low prices for digital downloads creating a bubble. And it's not an entirely apples to oranges comparison due to the nature of the medium, but if it wasn't for Steam recognizing an important market, PC games probably wouldn't have survived. I find what is going on with Amazon to be a similar struggle.

    And I do think price has a large part to play. I actually do prefer physical copies of books, and only recently got my kindle to more easily read Hugo nominations. (Still worth it despite the fiasco). I really enjoy my kindle so far, but honestly if I'm going to pay $10-$20 for a book, it's going to be physical. The lower price point on the kindle makes me more adventurous, and more likely to try new authors I haven't heard of.

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  2. Your observation of similarities between the game and book markets is accurate. Look at AAA publishers who charge full price for games that they know will lose functionality over time--say, shooters whose multiplayer servers are inevitably shut down.

    This phenomenon isn't limited to books and games. It's truly baffling how the cycle keeps repeating in industries that should know better.

    The publishing establishment should have taken a lesson from the movie studios and record labels. UMG or Time Warner should've invented the iPod. Simon and Schuster or Random House should've invented the Kindle. Instead a tech company and an online retailer beat them to the punch and made them obsolete.

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