Soaring E-Book Sales Amaze Book Traders and Publishers

the iPad

There seems to be no quelling US consumers’ appetite for e-books. Estimates released by the International Digital Publishing Forum (IDPF) and the Association of American Publishers (AAP) show that  for January 2010 e-book sales amounted to $31,900,000, a near 370% jump over sales for the same month in 2009.

The IDPF data reflects only US revenues and represent wholesale e-book transactions. It is believed retail numbers may be as much as double the above figures due to industry wholesale discounts. Moreover, the figures were compiled from data submitted by only about 15 trade publishers.

The AAP also reported that e-book sales had soared 176.6% in 2009, to $169.5 million.  As a result, e-books’ share of the US trade book market climbed from 1.2% in 2008 to 3.3% in 2009. In contrast, sales of trade and mass-market paperback and children’s hardcover books were down slightly, but up in children’s paperback and adult hardcovers.

The release of the IDPF and AAP figures coincides with reports that Amazon is embroiled in yet another tug-of-war over e-book sales, this time with five of the six largest US publishers — Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin. As it did in a similar spat with Macmillan in January over Amazon’s e-book pricing practices and Macmillan’s request for a new sales model, the online giant reportedly threatened to suspend direct sales of Kindle editions and printed books published by the five publishers unless they agreed to a list of concessions regarding the sale of their books. 

The five publishers have been pressing for renegotiation of their deals with Amazon in which they sold e-books to the online giant at wholesale prices and allowed Amazon to set the retail prices in its Kindle store. Amazon, for some time now, has been setting $9.99 as the default price for new titles and bestsellers. Under pressure from Macmillan, Amazon finally relented and agreed in principle to allow Macmillan to set its own prices but not without chiding the publisher for setting what it deemed “needlessly high” prices ranging from $12.99 to $14.99 for e-books. It insisted that the prices should reflect the reduced cost of distributing digital works. Macmillan also continued to push for changes in the mode of sales transactions between the two. In that regard, it had an ace up its sleeve.

The Kindle Store

It has now been confirmed that Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin have all reached a deal with Apple to sell their books through the iBookstore and via the iPad. Apple is allowing them to set their own prices for their e-books. The prices for most adult general fiction and non-fiction titles will range from $12.99 to $14.99.  They’ve also agreed to do business with Apple under an ‘agency model.’ Under an agency model, Apple will be an agent of the publishers and they’ll receive a commission of 30% on sales. On a sale of a $14.99 e-book, Apple would earn $4.50 and the publisher would receive $10.49.

In their deals with Amazon, what really stuck in the publishers’ craw was not just the online giant’s policy of pricing most e-books sold in the Kindle store at $9.99, but it’s insistence on doing so even though it made losses in the process. Many industry insiders believe that Amazon’s aim was to sell $9.99 e-books as loss leaders to push sales of the Kindle and thereby corner the e-book market. Amazon currently controls about 90% of the e-book market, at least until April when the Ipad is due for release. The entry of Google Editions will further split the market.

Facing stiff resistance from the ‘Big 5,’ Amazon has agreed in principle to accede to their request for the adoption of an agency model and will allow them to set their own prices, including for e-books in the Kindle store. But there’s a catch. Amazon wants to pin the publishers down to 3-year contracts and is reportedly demanding from them a guarantee that no other competitor will get lower prices or better terms. For the publishers, that’s potentially a poison pill since it could tie their hands at a time when the digital book industry is undergoing rapid changes, almost on a daily basis.    

Notwithstanding its concessions, word in publishing industry circles is that Amazon is far from thrilled with the agency model.  Vice president for global business development at Oxford University Press, Evan Schnittman told the New York Times, Amazon’s strategy “is to work very hard to limit participation in the agency model to only the big four or five firms that are already announced.” He added, “This would leave 50 to 60% of the content out there subject to the standard distribution terms, enabling Amazon to promote and price as it does today, and forcing Apple to have to compete with Amazon’s strength.”

Meanwhile, Apple has posted an online job advert for an “independent publisher account manager” for the iBook Store. The individual will be responsible for “building and growing relationships with small and medium-size book publishers, self-published authors and other content providers,” as well as “proactively increasing the number of titles” for the iBook Store.

These are clear signs that come April, when the iPad goes to market there will be tense competition between Apple and Amazon as the two behemoths jostle each other for market share.  For starters, Apple has begun uploading over 30,000 free e-books to the iBook Store courtesy of Project Gutenberg. Project Gutenberg is an online library which offers users free e-books for download. Originally in print format, the books were digitized with the help of thousands of volunteers. 

Where do Kindle owners and other e-reader enthusiasts stand with all the horse-trading and tussling taking place in the book market? For one thing, Amazon is adamant that the price points of $12.99 and $14.99 sought by the ‘Big 5’ are too high for e-books. Although it stands to make more money from commissions based on the agency model, it feels that $9.99 is a fair price for an e-book. Kindle owners like the $9.99 price too. Many of them have reportedly said it gives them an incentive to buy more books. Some of them were so pissed off when Amazon caved in Macmillan’s demand for increased prices, they began boycotting Macmillan titles. Others voiced their displeasure with both Macmillan and Amazon in customer discussions of the issue on an Amazon message board. 

As readers become increasingly hooked on e-books and e-readers sales continue to accelerate, this will inevitably give Amazon and Apple greater power and leverage. In the long run, other e-book retailers and e-publishers are also likely to grow in stature and influence.    

In a post on the Oxford University Press blog blog.oup.com, VP global business development and rights, Evan Schnittman made an insightful observation. “Success in technology, like everything else, leads to more success. It’s not uncommon to see five-fold growth the year following a successful technology product launch. Think iPod, think Wii, think Blackberry. Whole micro-economies emerge around products that range from accelerated content creation, and all sorts of aftermarket products and services. Versions 2.0 and beyond create better and better devices. The better the devices, the more accessories, the more content there is, and soon a whole world of business opportunity is rolling downhill picking up speed.”

In the US and Britain, the steady expansion of the e-book market and consumers’ increasing tendency to purchase print books online could ultimately have adverse implications for brick-and-mortar bookstores, including the corporate chain stores whose emergence ironically caused the demise of numerous indie bookstores.

E-books are also making inroads in other markets. The electronics and technology website physorg.com reports that Japan’s top book publishers have formed “an alliance to harness the growing e-book market as Amazon’s Kindle and e-book readers by Sony and other companies are set to battle for market share.”

After complaining that unilateral e-book pricing by Amazon, Barnes & Noble and Sony could slash publisher profits, chief of France’s Hachette Livre, Arnaud Nourry is now urging fellow-French publishers to band together to create a single digital book distribution platform that would handle French books.

At a symposium in Melbourne and Sydney organized by the Australia Council for the Arts to bring the book industry up to date with electronic publishing, Stephen Page, the publisher and CEO of Faber & Faber UK, warned 200 publishing industry executives that they should “digitize quickly” and not waste time in embracing the new technology.

“Don’t expect a large reading population or business yet. But you can’t do it by dribs and drabs. You have to make a move now to clear rights and establish a digital library,” said Page. According to ABC News, Faber & Faber accelerated its e-publishing program last autumn.

Meantime, the bells are being tolled for print books and good old Gutenberg-style publishing. According to Andrew Zack, president of the Zack Company Inc., “It will take a couple of generations for kids to be fully separated from paper books and adults ready to read everything on a tablet of some kind, but I wouldn’t recommend anyone more than a decade from retirement invest in starting a bookstore. We are experiencing the beginning of the end of paper books right now. The brick-and-mortar store and the paper book will disappear faster than you might imagine.”

It’s a prognosis that overlooks the non-US and non-EU countries, including places like Africa, the Caribbean and large parts of India, China and the Asian subcontinent, where, in many areas, people have virtually no access to the internet (or even electricity) and the trade in books depends largely on traditional forms of print publishing, and most books are bought in bookshops and on street corners. It’s going to remain that way for a very long time.  

One can only hope the situation does not presage the coming of a more astronomical digital divide between the West and the developing world. It would amount to a colossal failure of globalization and possibly set the stage for further social alienation and conflicts.

UPDATE: Smashwords e-books to be made available in the iBookstore

Smashwords, a site where writers can publish their own e-books, has signed a distribution deal with Apple to put its books into the iPad iBookstore. Read more

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