February 2016 Author Earnings Report: Amazon’s Ebook, Print, and Audio Sales
Two years ago, the first Author Earnings report revealed the growing market share of self-published ebooks. With data on hundreds of thousands of titles, it was suddenly possible to measure the relative sales and earnings power of ebooks according to publishing path. By sharing this data, we hoped to help authors understand the changing market in order to make sound decisions with their manuscripts. In the two years since, our quarterly snapshots have revealed emerging trends in the digital publishing world. Before we get into this month’s report, let’s look at those trends, with our new February 2016 data points included.
Ebook Market Share: 23 month trend
In two short years, the market share of paid unit sales between indie and Big 5 ebooks has more than inverted. The Big 5 now account for less than a quarter of ebook purchases on Amazon, while indies are closing in on 45%.
In the purple line above, we can see the decline in share of ebook dollars earned by Big 5 publishers. Despite the greater profitability of ebooks over print books, some of these publishers have touted their shrinking ebook sales as a positive development. Meanwhile, we know from our own data (more on this later) and from Amazon’s press releases, that overall US ebook sales have actually gone up in dollar terms. The blue indie line shows where most of that increase is being funneled. Today, a quarter of all consumer dollars spent on ebooks in the US is spent purchasing indie-published ebooks.
The most important graph for authors shows the rapidly diverging rate of ebook author income by publishing path. The Big 5 publishers are now providing less than a quarter of the dollars earned by creatives for their ebook sales. Indies are taking close to half. As detailed in previous reports, higher prices and other missteps are a likely contributor to this accelerating trend, but the reality may be that major publishers simply are finding it difficult to compete with indie authors on diversity, price, quality, and frequency of publication, as this divergence has been increasing for the last two years — well before the Big Five’s return to no-discount agency pricing. But as we can see, the transfer of market share in author earnings from Big Five to indies did steepen significantly after the Big Five’s 2015 reinstatement of agency ebook pricing.
Now for a deeper dive into this month’s report, starting with details about our new and improved sales-to-rank curves and methodology.
February 2016 Author Earnings Report
Our previous Author Earnings reports employed conversion formulas based on crowdsourced sales data. Dozens of authors, all of whom have access to their real-time sales numbers and overall best seller rankings, recorded their numbers in spreadsheets and shared the collective results. Over time, these rank-to-sales curves have been pressure checked and refined by other indies. On the whole, they were pretty accurate. And since the same curves were used for all ebooks, regardless of publishing path, we have been extremely confident with our pie chart percentages. But we thought it was time to roll out a new and far more rigorous approach for 2016, which will also let us double-check our old methodology.
A brand-new rank-to-sales conversion curve…
For this report, Author Earnings threw out all of our previous assumptions. We built a brand new rank-to-sales conversion curve from the ground up. This time we based it on raw, Amazon-reported sales data on the precise daily sales figures for hundreds of individual books from many different authors, spanning a period of many months. Our raw sales data included titles ranked in Amazon’s Overall Top 5 — titles whose KDP reports verified that they were each selling many thousands of copies a day — and it also included books ranked in the hundreds of thousands — whose KDP reports revealed were selling less than a single copy a day. We combined that mass of hard sales data with a complete daily record of Amazon Kindle sales rankings for each of those books, pulled directly from individual AuthorCentral graphs. We ended up with nearly a million distinct data points in total.
Why did we need so many data points? Because Amazon’s Overall Best Seller Rankings aren’t a simple calculation based on each book’s single-day sales — they also factor in time-decaying sales from previous days as well. To reverse-engineer Amazon’s ranking algorithms, the more raw sales and ranking data we used, the more accurate our results would get. So we fired up some powerful computers, fed them all that raw data, and let them crunch the numbers.
For our fellow geeks: We applied both old-school statistical curve-fitting approaches and more modern machine learning techniques, iterating our underlying numerical model until we zeroed in on the solution that yielded the best predictive accuracy. Taking advantage of a neat mathematical series-convergence trick (one whose applicability was no accident, because Amazon’s algorithms undoubtedly rely on it, too), we ended up with a brand new, simpler, more elegant, and far more accurate rank-to-sales conversion formula for Kindle ebooks.
For the non-geeks: Our data-science awesomesauce now tastes even better.
Here’s what the new rank-to-sales curve looks like:
In retrospect, it’s striking how well AE’s old, crowdsourced rank-to-sales curve (in black) matches our new data-derived one. Graphically, the old AE curve ping-pongs back and forth between the new computed upper bound (shown in red), defined by the higher number of daily sales required to first “hit” a rank when spiking up from a much lower sales baseline, and the new computed lower bound (shown in blue), defined by the more modest number of daily sales required to steadily “hold” the same rank through consistent day-to-day sales.
This new methodology revealed a few other interesting things about the current state of the publishing industry, too. As “Data Guy,” I’ll be presenting some of those findings in more detail onstage at the Digital Book World 2016 Conference, on March 9, 2016, in NYC. But for the purposes of this report, our key takeaways:
1) For relative market-share percentages (the pie charts for which we’ve become known), the old methodology proved to be absolutely reliable. The new rank-to-sales curve, generated from hundreds of thousands of points of raw Amazon-reported sales data, made almost zero difference. The way ebook sales and earnings divide up between self-published authors, small/medium publishers, Amazon publishing imprints, and Big Five publishers remained essentially unchanged: relative share shifted by less than 1% in every case.
2) For calculating absolute sales numbers, the old, crowdsourced AE rank-to-sales curve ran a little high — it overestimated overall Amazon Kindle sales by roughly 18%. The new methodology corrects that, letting us finally make authoritative, data-backed statements about how many total ebooks are being sold each day by each category of publisher, and overall by Amazon itself. And in the coming quarters, in addition to measuring how the pie gets divided up, our new methodology will also let us track whether the total size of the pie is shrinking or growing, and by how much.
So how accurate is our brand new rank-to-sales prediction model?
Let’s put it this way: The ranking-based sales predictions it yields for randomly selected 300-book groupings taken from a separate, held-back “validation dataset” always end up matching the actual Amazon-reported total daily sales for the group to within 6%… and most of the time to within 2%.
But the larger a set of books we are trying to measure total sales for, the smaller that variance becomes… making our model predict even more accurately at larger scales. For a 200,000-book dataset such as the one our AuthorEarnings reports are based upon, it’ll be more than accurate enough for our needs.
Armed with our brand new, data-derived rank-to-sales conversion methodology, we were finally ready to tackle our deepest, most comprehensive look yet at Amazon’s daily book sales. We fired up AE’s web-crawling spider bot across 250 high-powered 8-core servers and walked it down each of Amazon’s thousands of best seller lists and category sub-lists. In a little over an hour, we pulled almost a terabyte of real-time data from the product pages of over 500,000 of Amazon’s best-selling titles. Here’s what we found:
Amazon’s Kindle Ebook Sales
Our first graph reveals the total share of ebook bestseller “slots” held by titles from each publisher type. Remember, this is a real counting of titles on thousands of Amazon bestseller lists, all automated by our software spider. No math here, just a visualization of how many titles are ranked and how they were published:
The aggregate share of indie self-published titles on Amazon’s best seller lists, at 27%, hasn’t changed since September 2015. It is still more than double the representation of Big 5 titles. But what has changed, very significantly, is the degree to which Amazon’s overall Top 20 Best Sellers, and even the overall Top 10, have come to be dominated by self-published titles from indie authors — nearly half of which were not priced at $0.99 but rather “full-priced” sales at prices between $2.99 and $5.99.
On January 10, the date our spider ran:
- 4 of Amazon’s overall Top 10 Best Selling ebooks were self-published indie titles
- 10 of Amazon’s overall Top 20 Best Selling ebooks were self-published indie titles
- 56 of Amazon’s overall Top 100 Best Selling ebooks — more than half — were self-published indie titles
- 20 of Amazon’s overall Top 100 Best Selling ebooks were indie titles priced between $2.99 and $5.99
We’re not the only ones to observe this trend, which seems to have now become the new normal.
These top-selling indie titles encompassed a wide variety of genres. Romance and Paranormal were well represented, certainly, but Amazon’s Top 100 Best Sellers also included quite a few self-published indie Science Fiction books, indie Thrillers, indie Suspense novels, indie Urban Fiction, and even Cozy Mysteries by indies.
But best seller slots held by each type of publisher is a far less interesting metric than share of daily ebooks sold, which is where we first bring our brand new rank-to-sales curve to bear:
Whether we use our new, scientifically-derived curve or the old original crowdsourced one to compute unit sales, the trend we see is exactly the same. When it comes to the number of ebooks sold each day, the market share of indie self-published titles has grown substantially since our September 2015 report, while traditional publishing’s collective market share has shrunk. Indie books now account for more than 42% of all ebook purchases each day on Amazon.com.
Some of that indie sales growth has come in the form of paid Kindle Unlimited borrows. Monthly KU payouts have grown to over $13 million a month paid directly to indie authors (at least $8.25 million of it in the US). In 2015, these payouts totaled more than $140 million, again all going to indie authors. But KU payouts do not account for all of the growth. Not even half of it. Direct retail indie book purchases are also up substantially.
The day we pulled the data for this report revealed 20 of Amazon’s overall Top 125 Best Selling ebooks were self-published indie titles NOT ENROLLED in Kindle Unlimited.
Our data also showed, once again, that reporting on ebook sales from traditional outlets are missing the majority of the action:
- Fewer than 45% of the ebook purchases each day on Amazon.com are of traditionally-published titles.
- Only 29% of the ebook purchases each day on Amazon.com get officially “counted” in the monthly StatShot reports from the Association of American Publishers (AAP).
- 43% of the ebooks purchased each day on Amazon — nearly half of them — remain uncounted in any traditional industry statistics, such as those published by Bowker, Nielsen, et. al., because 43% of the ebooks purchased each day on Amazon do not have associated ISBNs.
So how many ebooks a day is Amazon.com actually selling?
As of mid-January 2016, Amazon’s US ebook sales were running at a rate of 1,064,000 paid downloads a day.
155,000 of these paid daily downloads — or 14% of them — took the form of Kindle Unlimited “full-KENPC” pages-read equivalents for self-published indie authors, while the remaining 909,000 were regular retail ebook purchases. The full breakdown:
Amazon’s daily ebook unit sales (January 2016):
|Indie Self-Published ebook KU full-read equivalents||155,000|
|Indie Self-Published regular retail ebook sales||293,000|
|Small/Medium Publisher ebook sales||204,000|
|Amazon-Publishing Imprint ebook sales||115,000|
|Big Five Publisher ebook sales||244,000|
|Uncategorized Single-Author Publisher ebook sales||53,000|
Next, let’s look at how Amazon’s daily ebook sales break down in consumer $ spending:
Despite the higher ebook prices most traditionally-published ebooks now bear, self-published indie titles accounted for nearly a quarter of all daily gross consumer $ spent on ebooks on Amazon. Across all publishing types, consumers spent roughly $5,755,000 a day on ebooks on Amazon.com in January —a run rate of over $2.1 billion a year, including over $1 billion in consumer spending on ebooks not included in industry sales figures from the AAP. That’s a lot of money, and a lot that isn’t being counted anywhere but here and at Amazon.
And now for the pie chart that interests us the most:
When we ignore the dollars that publishers keep, and measure only dollars that actually go to authors, we can see that ebook sales on Amazon.com are generating $1,756,000 a day in author earnings.
But less than 45% of those author-earnings dollars — from the largest bookstore in the world — is now going to traditionally-published authors. And less than a quarter is going to authors published with the Big 5. Is it any wonder that the traditional publishing media and historic author advocacy groups are reporting declining ebook sales and shrinking author incomes for their members?
We humbly submit that, for author earnings, these organizations are looking in all the wrong places.
$140 million a year in Kindle Unlimited payouts is going directly to authors, and yet that enormous sum of income is somehow uncounted by traditional author surveys. And as we are now able to measure, that sum is only the tip of the iceberg. There is also a vast swath of the market not being reported on at all, along with a whole host of authors not paying dues to author advocacy groups and simply going about the business of earning an income with their art.
The publishing industry is still changing rapidly, and how things will play out long-term is anybody’s guess. But we suspect that for the largest traditional publishers, taking their digital ball off the court and going home — as they chose to do in 2015 — won’t remain a viable strategy for much longer. It certainly won’t be a viable strategy for authors to sit idly by while detrimental pricing decisions destroy their incomes.
While we are looking at daily sales on Amazon, why stop at just ebooks?
Why, indeed? After all, Amazon also sells at least a quarter of all new trade print books purchased in the US each year — and roughly two thirds of all online trade print sales. Amazon’s share of the downloadable audio market is even larger — their subsidiary Audible.com is also the primary supplier for Apple’s iTunes audiobook store.
Using the exact same technique we used for ebooks, we were able to compute a rank-to-sales curve for Amazon’s print-book sales, too, using months of raw Amazon CreateSpace-reported daily sales figures for many dozens of print-on-demand paperbacks from multiple authors. Our data set included best-selling print titles ranked in Amazon’s overall Top 50, which CreateSpace sales reports revealed to be selling over a thousand copies a day, as well as titles with sales rankings down in the several millions and selling less than a copy a month.
But we didn’t stop there. Using ACX-reported daily sales for dozens of Audible audiobooks and their corresponding Amazon ranking histories, we did the same thing for downloadable audiobooks.
When we ran our AE spider for this report, in addition to grabbing data on 200,000 of the best-selling Kindle books, we also grabbed 250,000 of Amazon’s best-selling print books, and 25,000 of their best-selling audio books:
|Format||Best Selling Titles Captured|
|Downloadable audio books (Audible)||25,737|
|Mass Market Paperbacks||13,834|
So now let’s take a look at print.
Amazon’s Print Book Sales… and the Law of Unintended Consequences
For our brand new breakdown of Amazon’s daily print sales, we’ll use the same format we use for ebook sales, so the graphs below should look familiar.
It’s interesting to note here that the Big 5 holds less than a quarter of print bestseller slots, and their unit sales, dollars, and author royalties are less than half of Amazon’s print business. This is a greater percentage than any other publishing type, but it again stresses the need for balance and perspective when the top publishers’ numbers are taken to represent the whole of the industry; they don’t even represent half of online sales in the format they are supposed to dominate.
And self-published indie authors, who are already taking home 14% of online print author earnings, have captured a significant share of the author dollars from online print sales.
But there might also be an even more interesting story found in Amazon’s print sales…
The Law of Unintended Consequences
Sometimes a change in strategy achieves the intended result… and sometimes it backfires.
The Big Five’s return to agency ebook pricing may have been just such a case.
Their ebook pricing strategy was intended, at least in part, to slow the erosion of brick-and-mortar print book sales.*(3) By preventing Amazon from discounting the Big Five’s ebooks at Amazon’s own expense, the Big Five could force the consumer prices of their ebooks artificially high — higher than what many consumers are willing to pay for digital books. The thinking among Big Five publishers was undoubtedly that this would encourage those consumers to buy fewer ebooks on Amazon, and instead buy more hardcovers and paperbacks in brick and mortar bookstores, thus preserving a legacy distribution advantage long held by the biggest traditional publishers… and one that was fading away fast as a higher and higher percentage of book purchases were being made online instead.
From November 2014 to September 2015, the Big Five publishers negotiated brand new two-year contracts with Amazon in which they fought aggressively for — and won — the right to prevent Amazon from discounting their ebooks. Prior to these contracts, Big Five ebooks were discounted steeply at Amazon’s own expense. Our data from 2014 and early 2015 revealed that Amazon was on average selling Big Five and other traditionally-published ebooks to consumers at breakeven prices and making zero or marginal gross profit from them. That’s almost no profit on traditionally published ebooks, while Amazon was earning a healthy margin on the sale of indie and Amazon-imprint ebooks. In effect, prior to the Big Five’s return to agency, Amazon was more or less selling traditionally-published ebooks at cost. They were subsidizing traditional publisher ebook profits and traditionally-published ebook author earnings by nearly 30%.
By reinstituting agency ebook pricing and forcing their own consumer ebook prices high while preventing Amazon from discounting those ebooks, the Big Five publishers put a halt to that. They willingly did financial harm to their own bottom lines and in the process also seriously damaged the sales and earnings of their own authors, in an attempt to wrest market share and control away from their largest and most profitable retailer.
Did they succeed in that goal?
According to both our data and Amazon’s own public statements, despite the Big Five’s return to agency ebook pricing, Amazon’s overall US ebook sales have continued to grow throughout 2015 in both unit terms and dollar terms. On the other hand, the Big Five’s share of those ebook sales has plunged precipitously in both dollars terms, and even more precipitously in unit terms.
That particular outcome was easily predicted — and probably inevitable. Perhaps the Big Five viewed it as a strategic sacrifice.
But at the same time, Amazon’s online print sales — driven by steeply discounted hardcovers and paperbacks, which in many cases were priced even lower than the ebook editions — ALSO went up. Significantly. In fact, our data points toward Amazon seeing even greater growth in their 2015 print sales than in their 2015 ebook sales.
As of mid-January 2016, Amazon.com’s print sales were running at a rate of 969,000 print books a day.
With the largest bookstore chains reporting 2015 book sales as flat or down, and book sales also down significantly for warehouse and club outlets, an uptick in local independent bookstore sales is a small brick-and-mortar bright spot. But it’s extremely likely that most if not all of print’s reported 2015 “resurgence” took the form of increased online print sales… at Amazon.com.
We suspect that the Big Five’s high ebook agency pricing, and Amazon’s steeper online discounting of print books, may well have had the opposite of the intended effect. It may have encouraged traditional hardcover and paperback buyers — including those who had zero interest in buying digital editions — to take advantage of those steeper discounts and purchase more of their books online, while buying fewer in brick-and-mortar bookstores.
Some very savvy analysts who cover the industry from the traditional side, and whose insights *(4) we value greatly, have pointed out that this particular outcome may not necessarily have been unanticipated by the agency publishers. But they still may have deemed it the lesser evil, if in the process they could also slow the consumer shift from buying print to “e”.
But either way, if true, it means that more print-book buyers are now shopping at a storefront where indie print books share a significant portion of shelf space alongside books from traditional publishers, and where indie print books are now fast-approaching a double-digit percentage of print sales.
It’ll be interesting to see in coming quarters if indie print sales continue to gain ground as more and more consumers are funneled into a marketplace that provides more equitable access to all authors.
Color Us Surprised….
In 2015, adult coloring books were a surprising trend. Many credit them with saving the traditional publishing industry’s overall 2015 sales figures… a claim borne out by Nielsen Bookscan’s print-sales numbers.
Perhaps it’s not surprising, then, that when we took our January snapshot, 11 out of Amazon’s Top 35 Best Selling print books were adult coloring books.
But what is somewhat surprising is this: 5 of those 11 — nearly half of them — were self-published coloring books by indie authors.
But perhaps it shouldn’t be… Back when we did our September 2015 report, one of the Top 5 print best sellers in the USA was a self-published children’s book.
As print book purchasing increasingly moves online, self-published indie authors are demonstrating that they can compete head-to-head with traditional publishers in print sales. And indie authors are taking home a far larger share of the proceeds one each print sale (36% of list price, on average), compared to the 8%-of-list paperback royalties and 15%-of-list hardcover royalties that they would typically earn if they went through a traditional publisher.
Amazon’s Audiobook Sales
Downloadable audiobooks are one of the industry’s fastest growing segments, for both indie-published authors and traditionally-published authors. On Amazon.com, downloadable audiobooks — distributed through Audible — make up the vast majority of audiobook purchases. Physical-media audiobook editions — MP3 CDs, Audio CDs, and the like — comprise a tiny fraction of the audiobook total, making up only 5% – 6% of Amazon.com audiobook sales.
As of January 2016, Amazon was selling roughly 119,000 audiobooks a day — about $2,100,000 worth — which were generating $204,000 a day in author earnings.
Here are the familiar pie charts showing how those numbers break down by publisher type:
A few things complicate the picture when it comes to how audiobook sales and revenues break down.
- Many of the audiobooks in the red Small/Medium Publisher Wedge, especially those published through Brilliance, Blackstone, Tantor, and similar audio-specialized publishers, are audiobook editions of Big Five-published ebooks, Amazon-imprint-published ebooks, and even indie self-published ebooks whose authors sold audio publishing rights.
- The green Amazon-published wedge represents audiobooks published through Audible Studios… but some of those also turned out to be audio editions of Big Five-published ebooks, indie self-published ebooks, etc.
- A big chunk of the light-blue Uncategorized Single-Author Publisher wedge (more than half of it) consists of J. K. Rowling’s Harry Potter audiobooks, published through the publishing company she set up (Pottermore). While many would classify them as self-published, we figured it would be less contentious to simply leave them as Uncategorized Single-Author Publisher.
Just as for print sales, it will also be interesting to watch the audiobook market evolve over the coming quarters. We think audiobooks will be a huge growth area for self-published indie authors in 2016. We can’t wait to see what these audio-sales pie charts will look like, a year from now.
In 2016, the reach of indie self-published authors isn’t limited by any means to ebooks. Every indie author should seriously consider releasing print-on-demand paperback editions and — as soon as quality narration can be afforded or arranged — audiobook editions of their books. It’s also critical to note that 2015 marked a tipping point of sorts for online retail, with some reports claiming that fully half of online sales gains took place on Amazon.com alone. Sales on Amazon.com overtook Walmart in-store sales for the first time. More and more, online is where shoppers are going. And independent authors have equal access to this storefront. In fact, with lower prices, greater creative freedoms, the ability to publish to market much faster, and the ability to appeal to a wider variety of readers, indie authors have huge advantages online. As the market moves away from physical bookstores — which must necessarily limit their selection, and so limit the free expression of ideas as a consequence — we expect to see a greater flourishing of independent authors finding their voices and taking home an ever-growing slice of consumer dollars.
*(1) To reverse engineer Amazon’s ranking algorithm, we treated it as an engineering System Identification (SI) problem, and modeled Amazon’s ranking engine as a black-box dynamic system with a linear, time-decaying impulse response to instantaneous unit-sales inputs. We even built a two-hidden-layer neural network and trained it to predict current rank from historic sales, which informed how we structured the more classic closed-form curve-fits. We computed lowest-MSE fits to many different power-law model variants and distributions, measuring which fit our data best. We iteratively fine-tuned our models until we had the most accurate predictor. In the end, we zeroed in on a nice, clean simple formulation that yielded the best log-MSE accuracy over the full range of Amazon rankings and daily sales.
*(2) When applying the same new technique to raw sales data from previous quarters, the data shows Amazon’s overall ebook sales continuing to grow consistently quarter after quarter, throughout 2014 and 2015. The data for the first 3 weeks of January 2016 reflects Amazon’s highest run rate of ebook sales yet — higher than during any previous quarter to date. Unsurprising, perhaps, considering what Amazon themselves told the Wall Street Journal a few months ago. But interesting to see it independently validated with hard data.
*(3) the “keeps retailers” piece of the Big Five’s “Higher price slows Ebks/casual purchaser/keeps retailers/stops authors leaving” ebook-pricing strategy, as described by Simon & Schuster CEO Carolyn Reidy.
*(4) Another factor industry analysts rightfully raise, and which we acknowledge, is the relative dearth of 2015 mega-bestsellers on the traditional side: this past year there was no Fifty Shades, no Divergent, etc. to boost traditionally-published sales as a sector. A fair point, but also for 99.99% of authors choosing a publishing path, an irrelevant one… unless they are being offered eight-figure advances from the Big Five.