September 2015 Author Earnings Report
AAP Reports Own Shrinking Market Share, Media Mistakes It for Flat US Ebook Market
In the 18 months between February 2014 and September 2015, the Association of American Publishers (AAP), whose 1200 members include the “Big Five”: Penguin Random House, HarperCollins, Simon & Schuster, Macmillan, and Hachette — have seen their collective share of the US ebook market collapse:
from 45% of all Kindle books sold down to 32%
from 64% of Kindle publisher gross $ revenue down to 50%
from 48% of all Kindle author net $ earnings down to 32%
The AAP releases monthly StatShot reports on the total dollar sales of their 1200 participating publishers, of which the “Big Five” collectively account for roughly 80%.
So far in 2015, the AAP’s reports have charted a progressive decline in both ebook sales and overall revenue for the AAP’s member publishers.
During that same period in 2015, Amazon’s overall ebook sales have continued to grow in both unit and dollar terms, fueled by a strong shift in consumer ebook purchasing behavior away from traditionally-published ebooks and toward indie-published- and Amazon-imprint-published ebooks.
These “non-traditionally-published” books now make up nearly 60% of all Kindle ebooks purchased in the US, and take in 40% of all consumer dollars spent on those ebooks.
The AAP is still reporting on May 2015 right now; they haven’t seen the latest 5% drop in their collective market share, measured by Author Earnings in early September 2015 (after Penguin Random House’s return to agency pricing).
Is the broader US ebook market shrinking or growing? Let’s find out.
For details, charts, and data, dive in to…
The September 2015 Author Earnings Report
In 2014, one of the pervasive memes in publishing was that, after several years of tumultuous change, the industry was finally stabilizing. Many industry observers opined that the disruption caused by the rise of ebooks and the ease of digital self-publishing had run its course. The largest traditional publishers generally cheered the recent leveling off of their ebook sales — in one case, characterizing a sharp decline in their own ebook revenue as “great news.” Over the past 18 months, they’ve responded to shrinking ebook sales with progressive and continual ebook price hikes. But now, in 2015, the largest traditional publishers are seeing both their ebook revenue and their overall dollar revenues — including print revenue — declining.
The widely-heralded “plateauing” of the US ebook market has gotten plenty of press over the last 18 months, fueled primarily by these reports of declining ebook sales from the AAP, from Nielsen, and in the released quarterly financials of the Big Five.
Traditional publishers and publishing industry pundits are claiming that the broader US ebook market has now flattened, or is even shrinking.
But at the same time, the largest ebook store in world is telling the Wall Street Journal that the exact opposite is happening:
“Amazon says e-book sales in its Kindle store—which encompasses a host of titles that aren’t published by the five major houses—are up in 2015 in both units and revenue.”
So which is it?
A lot of the confusion stems from this: in nearly all media coverage of the AAP’s declining ebook revenue, their sales — the sales of just 1,200 traditional publishers — are being conflated with the overall sales of the entire US ebook market. The substitution is so automatic, that most of the journalists breathlessly repeating stories about a “shrinking US ebook market” are completely oblivious to the difference.
The confusion is worsened by Nielsen’s misleading claims about their new PubTrack data products, which sell statistics about the US ebook market. PubTrack collects ebook unit-sales data from “a panel of over thirty US publishers,” according to Nielsen, who then sells that data back to the publishing industry at large. The fact that those Nielsen ebook sales numbers come from only 30 publishers, however, doesn’t stop Nielsen from claiming that their PubTrack numbers represent “85% of the nation’s eBook sales” and drawing broad and unsubstantiated conclusions from them.
Most publishing journalists and industry observers simply parrot these groundless conclusions without any fact-checking. After all, those numbers are coming from industry “data experts…”
But is the broader US ebook market truly flattening or declining? Or does the decline in the AAP’s and Nielsen’s 2015 numbers simply indicate that vast numbers of readers are now abandoning traditionally-published books and buying non-traditionally-published ones instead?
Let’s find out.
Here at AE, over the last seven quarters we have steadily built up a comprehensive database of quarterly cross-sectional snapshots of the Kindle store, each of which captures between 45% and 60% of Amazon’s daily ebook sales. And while Amazon’s Kindle store alone doesn’t comprise the entire US ebook market, it does account for 67% of all traditionally-published ebook sales by most accounts.
So we were in an ideal position to measure what percentage of the broader US ebook market the AAP’s 1200 reporting publishers truly account for. And far more importantly, we could measure how well the AAP’s widely publicized decline in ebook sales reflects the direction of the broader US ebook market over the last seven quarters.
But first we had to do some homework.
One by one, we went through through the thousands of publishers and publishing imprints appearing in each of our seven quarterly AE datasets. We looked up each book’s publisher against the list of 1200 AAP-reporting participants. To make sure we got it right, we received off-the-record help from some of the savviest experts reporting on the traditional side of the industry. By the time we were finished, every book in each AE dataset, and all of its sales, had been tagged as either AAP-reported . . . or not.
So now, finally, Author Earnings could do a true apples-to-apples comparison with the AAP’s numbers.
We charted the AAP’s true share of the US Kindle ebook market over the last 18 months, in each of our seven AE data sets.
Here’s what we found.
18-Month Market Share Trend : ebook Unit Sales
Note that the colors(*) used here mean slightly-different things than in previous reports, and in the “standard” AE pie charts and graphs presented at the end of this one. This chart diagrams how the relative market share of all US Kindle ebooks sold has trended — approximately quarter by quarter — over the past 18 months.
When we look at the first four bars, which correspond to 2014, the first thing that jumps out at us is this:
- In 2014, Kindle ebook sales by the AAP’s 1200 reporting publishers (shown in purple) made up less than 45% of all Kindle books purchased in the US.
- Nielsen Pubtrack’s ebook market statistics, based on self-reported unit sales data from only 30 of those 1200 publishers, account for an even smaller share — less than half of the “85% of the nation’s Ebook sales” that Nielsen boldly claims.
The second thing that jumps out at us from the chart is this:
- Traditionally published ebooks as a whole only made up 55% of all Kindle ebooks purchased in the US in 2014.
So where did the other 45% of the ebooks purchased by consumers in 2014 come from? The data also answers that very clearly.
They were published by Amazon imprints and self-published by indie authors.
Again, while the remaining 33% of traditionally-published ebook sales occurred outside of Amazon’s Kindle store, our previous Author Earnings analyses of sales at these other ebook stores — such as this AE look at the Barnes & Noble Nook store — have painted a very similar picture of the ebook market breakdown there, too. While Amazon imprint books are conspicuously absent in those other stores, indie ebooks held a roughly similar market share — or even a greater one — than in Amazon’s store.
Now let’s take another look at that seven-quarter market share chart again, and this time let’s focus on the longer-term trends.
18-Month Market Share Trend : ebook Unit Sales
Let’s see how each publishing segment has fared over the last 18 months in the largest ebook store in the world. We’ll work our way upward, market sector by market sector, from the bottom of the chart to the top.
The AAP’s 1200 participating publishers:
At the bottom, we have (in purple) the AAP’s 1200 participating publishers, whose sales — 80% of which are from the Big 5 — get reported in the AAP’s monthly StatShot reports. As we move from left to right, comparing the heights of the purple bars from February 2014 to September 2015, we can see the AAP’s share of all ebooks sold progressively dropping.
The AAP’s share of Kindle ebooks purchased by consumers has fallen from 45% of all Kindle ebooks sold in February 2014 to less than 32% of all Kindle ebooks selling in September 2015.
Smaller, non-AAP-reporting traditional publishers:
Right above the AAP’s share, we see (in red) how non-AAP-reporting traditional publishers have fared. These are generally smaller publishers and micropresses who are not part of the AAP’s 1200 reporting participants.
Up through May 2015, the market share of non-AAP-reporting traditional publishers has been declining right alongside the AAP’s.
But in September, we see those smaller, non-AAP-reporting traditional publishers picking up some of the AAP’s lost market share. A single data point does not a trend make . . . but perhaps, as the AAP publishers have begun to price themselves out of the ebook market, they’ve also given their smaller traditional-publisher brethren some breathing room. We shall see in the coming months.
Amazon’s own publishing imprints:
Above the purple AAP and red non-AAP traditional publishers, we have Amazon’s own publishing imprints (shown here in pale green). There are no more than a few thousand books published by these imprints — Montlake, Thomas & Mercer, 47North, Skyscape, and the like — but unsurprisingly they punch well above their weight, being uniquely positioned to sell well in Amazon’s own Kindle store.
Over the past 18 months, Amazon imprints have nearly doubled their market share, from 7% of all Amazon ebook purchases in February 2014 to 13% of all Amazon ebook purchases now.
Indie self-published books:
And then at the top of the graph, in various shades of blue, we have indie self-published books. For simplicity, in this series of charts, we’ve included uncategorized single-author-publishers (who are basically all unconfirmed, low-selling indies) in the indie category.
In 2015, we began tracking in our reports which indie books had ISBNs. And which didn’t — and therefore were part of the no-ISBN publishing “shadow industry,” a burgeoning market sector that remains completely invisible to Nielsen, Bowker, the AAP, or any of the other traditional providers of publishing-industry statistics.
The 2015 market share of “shadow industry” indie ebooks is shown in midnight blue at the top of the latter 3 bars of the chart, while ISBN-bearing indie ebooks are shown in a lighter shade of blue right beneath. Together, they reveal a jaw-dropping fact.
Indie ebooks without ISBNs have grown from 30% of all Kindle ebooks purchased in January 2015 to now account for 37% of all Kindle ebooks being purchased in September.
When indie ebooks that do have ISBNs are included, then indie self-published books, which made up 36% of all Kindle ebooks purchased in February 2014, now make up 42% of all Kindle ebooks being purchased on Amazon right now.
Unfortunately, we didn’t also go back and retroactively check each book in the 4 earlier 2014 datasets to see which of them had ISBNs. Had we done so, it would have beautifully charted the rapid rise of the untracked ebook “shadow industry,” right alongside the rapid decline in market share held by traditionally-published ebooks.
But right now, as of September 2015:
- “Nontraditionally-published” ebooks from indie self-publishers and Amazon publishing imprints make up 58% of all Kindle ebooks purchased in the US.
- Traditionally-published ebooks make up 42% of Kindle ebooks purchased in the US.
- When the AAP reports “declining ebook sales”, they are describing the shrinking portion of the US ebook market held by their 1200 participating traditional publishers, whose share of the broader US ebook market has fallen in the last 18 months from 46% of all Kindle ebook purchases to less than 32%.
This dramatic market share shift has not gone entirely unnoticed in traditional-publishing circles. In July, influential industry veteran Mike Shatzkin observed that:
“Ebook sales for big publishers may be declining but they’re being replaced by indie sales at lower prices (their USP) at Amazon.”
Still… publishers bank dollars not unit sales.
And the monthly AAP StatShots report only the gross dollar revenue of their 1200 participating publishers, not their unit sales.
So to see how the AAP’s dollar sales have trended relative to those of the broader US ebook market, let’s look at publisher gross dollar revenue next…
18-Month Market Share Trend : Publisher Gross $ Revenue from Kindle Ebooks
We can see from the above that the market-share shift in unit sales, away from traditional publishers and toward indie ebooks and Amazon imprints, has been mirrored by a similar shift in publisher gross $ revenue. Today, indie self-publishers are taking home 24% of the gross $ publisher revenue coming out of the Amazon ebook store. Amazon-imprints and their authors are taking home another 13%. The AAP’s 1200 publishers account for no more than 50% of publisher ebook dollar revenue.
Traditional publishing’s May 2015 to September 2015 fall in ebook dollar market share is the steepest quarter-over-quarter drop we’ve seen so far, since AE first began tracking ebook sales in the Amazon kindle store in early 2014. (This latest drop has also as of yet not been reported by the AAP, who have just recently released their May 2015 report.)
The most recent fall in traditional-publishing’s share of the US ebook market may very well be due to Penguin Random House’s return to agency pricing in early September. Penguin Random House, the largest of the Big Five publishers, accounts for roughly a third of the AAP’s total reported revenue. And almost overnight, the average sales price of a PRH Kindle ebook jumped from $9.06 to $10.79, with easily predictable results: both PRH’s unit sales and their overall ebook revenue are down, just like the rest of the Big Five.
But why did the traditional publishing industry’s biggest publishers remain unaware for so long about how quickly their ebook market share was eroding? And why did those publishers believe that enforcing higher ebook prices wouldn’t negatively impact their revenue?
The most cogent and thoughtful explanation we’ve seen yet comes from publishing industry veterans Mike Shatzkin and Michael Cader, who are able to put this seeming paradox very neatly into an understandable context for us. In a recent August idealog.com post, Mike said:
“What we’re seeing and hearing is that publishers might have boxed themselves in with their return to agency pricing. We’re hearing widespread but totally unofficial reports that big publisher ebook sales are dropping noticeably when their new higher agency prices are activated. When publishers first “raised prices” by instituting agency pricing for ebooks in 2010, they saw no reduction in ebook sales, which continued to grow. Michael Cader’s analysis … was that publishers may have misread the real impact of price increases because they raised them in a growing market. The number of ebook readers was increasing every day, so those who were put off by the high prices were outnumbered by the new entrants …”
In other words, in 2010 the overall ebook market was growing so fast that it masked the shrinking ebook market share held by traditional publishers. For every consumer abandoning high-priced traditionally-published ebooks for reasonably-priced indie ebooks, two or three more new ones would take their place.
In 2015, the US ebook market is still growing… but not quite as fast as it was in 2010.
And that now-slower growth is still cushioning the collapse in Big Five/AAP traditionally-published ebook revenues. While finally noticeable, these drops in publisher revenue are still quite a bit gentler than the steeper drops we are seeing in the relative market share of these publishers, who are losing ground to competing non-traditional publishers at a rate that is far faster than the overall ebook market is growing.
Another key factor undoubtedly contributing to the shift in publishing market share away from traditional publishers, and toward indie authors, is the rise of Kindle Unlimited. While KU launched in mid-2014, the 2015 acceleration of traditional publishing’s decline in market share seems to correlate more closely with the Big Five’s return to (higher) agency ebook pricing. But still, we would be remiss to ignore the growing impact of KU as a contributing factor as well.
Today, 34% of indie author earnings from the Amazon store — over a third of indie Kindle revenue — takes the form of KU payments for pages read: in July, KU accounted for 2 billion pages (KENP) and $11.5 million dollars in direct author compensation.
And here at authorearnings.com, author compensation is our raison d’être.
So let’s now take a look at that all-important graph of author earnings.
18-Month Market Share Trend : Author $ Earnings from Kindle Ebooks
When we first started analyzing Kindle sales in February 2014, traditionally-published authors were taking home nearly 60% of the ebook royalties earned in the largest bookstore in the world.
Today, traditionally-published authors are barely earning 40% of all Kindle ebook royalties paid, while self-published indie authors and those published by Amazon’s imprints are taking home almost 60%.
From an author-earnings perspective, in 18 short months, the US ebook market has flipped upside down.
But change in publishing isn’t limited to the ebook market.
Last month, a self-published indie PRINT children’s book — a trade paperback — was one of the Top five print bestsellers in the US for over two weeks, selling over 29,000 print copies in its first week and hitting #6 on USA Today’s combined Best Seller List. (An oddly-timed rule change that same week by the New York Times Best Seller List kept it from appearing on the NYT List.)
But the exciting news for indie print books doesn’t end there. Walmart will very shortly be carrying a self-published book on its store shelves: Jamie McGuire’s Beautiful Redemption.
Both pieces of news disprove the outdated notion that a traditional publishing contract is necessary if an author wants to achieve chart-topping PRINT sales, or to see their print book sold on Walmart shelves.
Old print distribution barriers are starting to crumble, just as they already have for digital.
We can’t help but wonder what the next 18 months will bring.
The only thing that we’re certain of is that the publishing industry is far from stabilizing. From here forward, the rapid pace of change will only accelerate.
In the coming months, what do you think we’ll see?
The “standard” suite of Author Earnings pie charts and graphs for September 2015
We won’t expend a lot of words covering them, but here they are.
(*) I’d like to offer up an apology, though, for the accessibility-unfriendly colors, and make the following request: if anyone has a good palette of accessible colors to recommend instead, please email them to me, at: authorearnings [at] gmail [dot] com
Thanks! —Data Guy