Business Musings: 2016 Disappointments
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As I write this in early January, fourth quarter numbers for all big businesses are just starting to trickle in. The whining about 2016 has commenced, some of it justified, some of it not.
The numbers aren’t just in for the major publishers; the numbers are in for indie writers as well. And the writers who crunch numbers are having varied reactions, often depending on years of business expertise.
I have a hunch that when all of the numbers arrive toward the end of this month or so, we’ll find out that 2016 was truly a mixed bag.
Which is what we should expect from a healthy publishing environment in transition.
Let’s discuss the transition first.
As Mark Coker pointed out on the Smashwords year-end blog on December 31, the Kindle will mark its tenth anniversary in 2017. Amazon’s introduction of that device became a game-changer, and it became evident as a game-changer in late 2009-2010. Early adopters jumped into the marketplace as self-published writers, and soon learned that a successful self-publisher needs assistants on various parts of the job (covers, etc). As I noted last week, those assistant-businesses have grown, changed, and, in some cases, gone out of business.
Self-published writers who remain in the business have become independent publishers in their own right. Which is why from now on in this post, I’ll call it indie publishing.
Even though ebooks have existed for decades, the Kindle made them a viable career path. Indeed, the Kindle and Amazon itself began a major disruption of the traditional publishing industry, a disruption all of us are living through.
Changes still happen almost daily. But a lot of us have worked on the indie side long enough now to take some things for granted. We’ve also worked in it long enough to have actual numbers. We can project this year’s earnings based on last year’s behaviors—kinda sorta.
I add the “kinda sorta” because, as I said, changes still happen daily.
As this blog goes live on my website (some of you got it early on my Patreon page), the Digital Book World conference is going on in New York. Data Guy is making a presentation that I’m sure will become public a week or two after the conference. The conference has already issued a white paper with just enough of a tease to make me want to shake someone so the actual numbers fall out and onto my computer.
Data Guy will be analyzing the digital market based on genre. But some of his findings have already gone public. He found—to the delight of traditional publishers everywhere—that indie book sales took a dramatic fall in the summer and early fall of 2016. (Writers have experienced this from the beginning.)
In the white paper, he notes:
In May 2016, verified self-published indie authors were taking home nearly 50 percent of all US Kindle author earnings. Now, as of early October 2016, the indie share has fallen below 40 percent.
As Porter Anderson writes in his introduction to the white paper, this rather steep decline brings indie sales back to their 2015 share of the digital marketplace. He adds,
No more can cordial skeptics like myself say that everything is always coming up indie roses at Author Earnings. The news of a downturn isn’t what the project’s chief admirers, the indie author corps, would prefer, obviously. But it helps lend a kind of real-world credibility to the effort: what goes up does not always keep going up in life as we know it.
Anderson is right: the downturn does show skeptics that Data Guy’s numbers are real and not just the product of indie “cheerleading” to use Anderson’s term.
Data Guy’s October numbers also show something that writers have been saying all summer: for many, their sales fell off a cliff. That cliff is composed of many things—the contentious U.S. election, the changes in Kindle Unlimited, a general overall retail downturn in the fall, and more.
I examined some of this in “Third Quarter Blues,” because as I learned when I wrote that post, that election downturns happen every four years in the United States—and some downturns are more prolonged than others.
However, the research told me (and the numbers later bore it out) that the U.S. retail economy would rebound after the election. The holiday season would set in with a vengeance, and consumers would buy more than they usually did in the last few weeks of the year to make up for time lost.
That happened—kinda sorta. Marketwatch reported on January 8th that consumer confidence rose 15% in December, which may or may not have translated into good retail numbers. There was a lot of discounting, which might mean that number of sales went up, while actual money earned went down.
All the analysts agree on one thing: Online sales grew dramatically this past holiday season. According to Adobe, which has a fascinating list of numbers on its website, online sales grew 11% in the holiday period of 2016 over the holiday period in 2015.
Marketing Land breaks all the holiday numbers down, from brick-and-mortar numbers to which type of device consumers used the most to order online. (I kid you not.) Poke around, and you’ll see just how big and varied retailing is, and how much is actually known about consumer habits.
So let’s focus back on our industry. Data Guy’s numbers are from October, before the holiday sales happened and during the election effect. I can’t wait to see his conclusions, because I suspect his spider, crawling through the various databases, will catch things we can’t see with the naked eye.
What we can see, though, is—I’m sorry to say—unsurprising in this kind of maturing traditional marketplace.
Some balance is coming back into the system. Consumers are getting used to a new way of doing things. Readers are getting used to a new way of doing things.
Readers still go to bookstores, yes, and some readers will go to the brick-and-mortar store first. But most readers go online first, even if they choose not to order the book there.
There’s an interesting piece from The International Council of Shopping Centers (which I found through the Marketing Land article). On January 3, the International Council of Shopping Centers released the results of a survey conducted after the holiday season ended. The survey had a relatively small sample size (1030 adults) , but the findings seemed to be backed up by the other data that’s coming in.
The survey found that 70% of the shoppers surveyed preferred shopping at a place with an online and a physical presence. That number was even higher for Millennials—81%. Part of the reason was the ability to compare prices, but some of it was—again—convenience. Since most shoppers waited until the last minute in 2016 to shop, they ended up looking online to see if what they wanted was at a store, and then they went to the store to pick it up.
Sixty-one percent of the people who went to the store to pick up the item they purchased online bought something else at that store (75% of Millennials.) Why am I harping on Millennials? Because they are the future of the next decade or so of retailing.
(And, like it or not, writers, you’re in the retailing business when it comes to getting your books in the hands of consumers.)
This, my friends, is why Amazon is opening brick-and-mortar bookstores. Because they’re seeing similar statistics, and they understand, perhaps better than any of us, that the consumer wants a blended experience. Sometimes we all like to go to the store. I insisted on hitting a few stores during the holiday season; it’s festive, it’s fun, and it’s a personal tradition.
But most of us love being able to order things while sitting at the kitchen table in our jammies. Besides, online the choices are better. I got very irritated the other day when I discovered that I couldn’t order a cleaning product online anywhere. (I’m allergic to almost everything to do with cleaning products, and this one had worked in the past.) I had to call a store, and they have to special order the damn thing, and then they have to deliver it to another store in my town, where I have to go pick it all up.
The experience was so very 1980s that I almost gave up entirely—and probably would have if my health weren’t involved.
But let’s leave the 1980s and return to 2016. What happened to books in 2016?
You’ve seen the traditional publishing headlines, right? Traditional Publishing Needs A Blockbuster, one newspaper wrote. And it’s true. There was no breakout book in the last part of 2016. The breakout books of 2016 were pretty small potatoes compared with previous years. In fact, single title sales were unbelievably tiny compared with…ahem…the 1980s or even the early part of this century. The week before Christmas, for example, John Grisham’s new hardcover sold “only” 71,000 copies.
Why do I say “only”? Because traditional publishing is set up so that the hardcover bestsellers sell best during the holiday season, and should rake in the bulk of the book’s profits by then. I quickly tried a like-to-like comparison with Grisham, using Google, and here’s what I found.
In 2002, Grisham released two novels—one in February (which I’m not using) and a non-traditional Grisham title, Skipping Christmas, which released on November 1. By the end of the year, Skipping Christmas had sold (shipped) 1,225,000 units.
Eight weeks left in the year when Skipping Christmas was released meant the book had to sell about 150,000 units per week. Clearly sales didn’t work that way—some weeks the book probably sold more than others. But book sales around the holidays are pretty consistent, and sometimes rise rather than fall.
In 2016, Grisham released a new traditional (legal thriller) Grisham title, The Whistler, and the hardcover “only” sold 71,000 copies in week seven after release. Of course, competing with that was the $14.99 ebook which—when I looked it up on the night of January 8—was #27 in the paid Kindle store. Price be damned.
Does that mean that The Whistler sold at least 150,000 units in the last 8 weeks of year? Dunno. Probably. Or maybe more, since it’s easier to buy an ebook than it is to buy a physical book.
People who want the book now are willing to pay a premium, and not everyone wants the hardcover book to clutter up their shelves. They want the reading experience. And they have choices. There are 17 different “formats” for The Whistler listed on Amazon, including new and used $9 hardbacks.
After a rocky few years dealing with the transition, traditional publishing has caught a clue that choice is the way to go with books. The $14.99 ebook price is a win for traditional publishing, because that’s mostly pure profit. All those court cases trying to control price to protect the hardcover, all of that “windowing” and making the reader wait six months to get an ebook as if it were a mass market—that’s gone the way of the dodo.
Traditional publishing is finally figuring out how to survive in this new world. They’re still not surviving well—they’re still searching for the blockbuster—but just today, I saw a book advertised in Mystery Scene as “the non-stop book club bestseller.” That’s a slow-burn book with lots of readers, which probably sells more copies than books that hit the New York Times List. Finally, some traditional publisher has figured out how to market the slow burn.
So all of that means that hardcover sales are down, right? Well, they are compared to 2002. But compared to 2015? No. Hardcover sales are up. Hardcover sales are up 5.4% over last year. Print sales—even with publishers working to kill mass market—are up 3.3% over 2015. The biggest gains were in adult nonfiction. Fiction was actually down about 1%, which I think can be attributed to the lack of a runaway bestseller. (Those things always skew numbers.) Remove 2015’s runaway bestseller, whatever it was, and I’ll wager fiction sales were either flatlined or up slightly.
This marks the third straight year of growth in print sales. Growth. In print. Publishers Weekly, where I got these statistics (they got them from Nielsen Bookscan) attributes the sales of print to the declining ebook sales (people fleeing back to print). But there’s no real evidence of that.
Mass market has declined because there are fewer mass market retail outlets. Most grocery stores have gotten rid of their mass market slots, many big box stores no longer carry mass market paperbacks, and many of the chain bookstores have closed. Mass market is dying from a lack of oxygen and shelf space, not because people dislike the format. Trad pub is killing mass market all on its own.
So what’s fueling the rise in print book sales? Availability. Traditional publishers never had a clue about what some of us called the book desert. There were large swaths of the United States where you couldn’t find a new hardcover book for sale on any shelf. Rural towns had mass market racks (sometimes) and libraries (often) but no bookstores. So rural readers were stuck buying books when they went “to town” or buying mass market off the truck stop rack or buying no books at all.
Now there is no book desert. Any rural reader with a mailbox and a debit card can order a book online and have that book delivered in any format in which the book is available. As we discussed at writer lunch today, some readers are adamantly against ebooks. Some only read mass market editions. Some prefer hardcovers. And some adore ebooks.
Some, like me, are agnostic. I prefer mass market—unless the book is too fat, and then I’ll take a hardcover—unless the book is too heavy, which means I’ll buy the ebook—unless the price is too damn high. And what do I mean by high? Well, if I want to read it Right Now, and I love the author, I might pay that $14.99 for the ebook. Or I might decide to read something else. Or I might decide to fight with the overweight hardcover. It depends on the book, the author, my mood, and my pocketbook.
But think about it, folks. We’re coming back to consumer choice. In the words of Tom McGee, president and CEO of the International Council of Shopping Centers:
The convergence of physical and digital continues to be important as consumers have come to expect an integrated experience allowing them to buy products through a variety of channels. The survey data proves that omnichannel retailers are the real winners this season as they offer purchasing options that satisfy the shopping behaviors of all generations.
The key phrase? “…consumers have come to expect…”
Yes. Online shopping has been around long enough that consumers have come to expect availability. Ebooks have been around long enough that consumers expect an available ebook. Paper books have been around even longer, and consumers definitely expect a choice there as well.
Perhaps the biggest retail story of 2016 came out last June where study after study showed that shoppers now make more than half of their purchases online. Remember when you knew a lot of people who refused to buy something online? Now, try to find someone who hasn’t ordered at least one thing online in the past year. If you’re dealing with people who have some disposable income (and aren’t living near the poverty line), then you’ll have a hard time finding someone who hasn’t ever bought anything online.
Consumers are moving between the digital world and the brick-and-mortar world with incredible ease. The transition is happening, folks, and we’re getting used to the new world.
What does this mean for indies? Especially since, anecdotally and from Data Guy’s spider crawl in October, indie ebook sales are down.
Well, let’s look at the indie transition.
It’s still ongoing. As I wrote last week, the gold rush is over. Indies can’t make a fortune with a poorly designed crap-ass book that tells a good story but has a horrid cover and no copy editing. [link] These books must now compete with better designed books, for a better reading experience.
I think 2017 is the year indies must give their readers a wide choice of formats as well—including some kind of paper format. Look at that growth in paper sales. Even if you “only” sell a few dozen paper copies of your book, that represents a few dozen new readers (most likely) who will proselytize the gospel of your fantastic writing to other new readers.
But let’s get back to the decline in indie ebook sales, because that’s what many indies are grappling with in this first month of the year. For the first time, indies have experienced negative growth, to use a business term.
Note that I said “for the first time.” Because it happens. Look at the traditional publishing statistics that I’ve been throwing at you throughout this post. Traditional publishing sales grow, decline, tank, soar, and surprise from year to year. Yet those sales usually fall within a predictable range—a decrease of 2% or an increase of 3.3%. It’s very rare to see an increase of 20% or even 10% over the previous year, because the businesses are relatively stable and predictable. (The last time there was large growth in traditional publishing was during the Fifty Shades of Grey phenomenon, and trad pub had no idea what to do with all of that money. Because they hadn’t planned for it.)
Like many first-time business owners, indie writers never planned for a year with a decrease in sales. Most indie writers have no contingencies in place. Indie writers don’t know that no sales curve goes up forever, as Porter Anderson said in that white paper. Because, for some indies, the sales have continually gone up—until they stopped or fell.
The end of 2016 will take out a lot of writers, not because their books aren’t selling, but because their books aren’t selling well enough. Those writers planned for a particular increase over the previous year, falsely thinking that if the writer releases a new book in their popular series, that book will sell at the same or better rate than the previous book had. If the book doesn’t sell that well, then the writer will goose the sales with some kind of freebie or ad buy or new marketing gimmick.
Goosing only goes so far. And then consumer behavior changes or an election year rolls around or Amazon changes its algorithm or All Romance Ebooks vanishes and there’s no way to make up for the lost sales.
There’s some really telling stuff in Mark Coker’s Smashwords Year in Review post and it comes in this paragraph:
Profitability – Despite a challenging business environment, Smashwords had another profitable year. As I’ve mentioned in previous years, I view profitability a big plus for our authors because profitable companies are lasting companies. As a small company, our profits are modest by any measure, but I’ve always believed we should invest as much as possible back into the business for the long term. Smashwords is debt free and we’ve got a solid, fully funded balance sheet to cushion us and our authors against the inevitable ups and down of this hypercompetitive industry.
Unlike the owners of All Romance Ebooks, Mark has owned businesses before. He knows that undercapitalization can kill a business faster than anything. The reason that the Smashwords site looks dated isn’t because Smashwords is unaware of the problem: it’s because Smashwords isn’t rushing to make changes it can’t afford to make. As Mark had to point out in the week that All Romance disappeared, his business is debt-free, which means it’ll be around a while.
How many indie writers can say that they’re debt-free? How many increased their operating expenses to meet that expected income? How many have money socked away for difficult times just like this?
Judging by the panic I’m seeing online, not nearly enough.
You indies have moved into the business world. The business world is marked by both risk and conservative behavior. To be a business person, you need to embrace risk. Owning your own business is all about risk. But once you’ve started that business, you have to manage risk. And part of that management is learning how to deal with setbacks like these last six months have been.
Will there be more setbacks? Probably. The indie world is still in transition. The good side is that most consumers will buy an indie book as readily as they’ll buy a traditionally published book. If traditionally published books weren’t so ridiculously priced, most readers wouldn’t even notice the difference. A quick glance at Data Guy’s numbers show that the purchases of indie versus traditional seem to be one to one—in other words, readers don’t care as long as they get a good story in a format that’s not distracting.
So now it’s up to indies to stay in the game. And that’s all about excellent writing and excellent business skills.
On that note, let me point to a hybrid traditional-indie model. Open Road Publishing started several years ago as a place for traditional writers and many publishers to get backlist up efficiently. Some traditional writers I know love their partnership with Open Road; the more business savvy writers have left to handle their own ebooks. (That they can leave shows that Open Road’s contracts are fairer than most traditional publishers.)
I’m not recommending Open Road. I’m not dissing them either. They are an effective publisher of ebooks, and they’ve had a heck of a year. When everyone else’s businesses are decreasing, Open Road announced significant growth in the fourth quarter and “better than expected earnings.”
Why? Because they concentrated on growing the business slowly. If there’s a new trend in marketing, I’ve seen Open Road test it. They spent 2016 getting data about what does and doesn’t work for them, and then focusing like a laser on the things that are working.
Frankly, judging from my outside perspective, they started those tests hardcore in 2015, and it paid off in 2016. Open Road grew where others declined.
WMG did too. We grew in 2016, after an expected decline in the first part of the year. Our second half of the year was much better than the first half—and we knew that was going to happen. Even the election downturn didn’t affect us much. We might not have grown as much as we would have in a non-election year, but we can’t ever know that for certain.
Like Mark Coker, like the folks running Open Road, we’ve owned businesses before. We know that the marketplace goes up and it goes down. It’s never a straight-line increase, and consequently, we plan for dips as well as increases. We’re constantly adjusting, making sure we’re on the right path.
2017 is going to be fascinating because the world economic situation is in flux, just like our industry is in flux. What we do know is this: People read books in good times, and people read books in bad times. We just have to figure out how to get people to read our books.
How do we do that?
First, we write the best damn stories we can. That’s why people read. They want to escape (or get information and escape, in the case of nonfiction).
Second, we produce the best product we can, in as many formats as we can manage, so that our readers have choice.
Third, we let our readers know that a book is available. Note that Open Road succeeded by putting backlist books on bestseller lists. Five years ago, traditional publishers said such things were impossible.
Fourth, we plan for the good and the bad. Readers want us to keep writing. They want their favorite authors to publish as many books as possible as fast as possible. Readers also know that we’re not machines, so they move to other writers while they wait for us. But readers will wait.
So if you’re having a rough year, figure out what it will take to survive that rough year. Then return. And as you plan for your future after that rough year, plan for the good and the bad. Try to be debt free. Try not to overpromise. Start learning your business and grow, slowly, so that you can be around ten years from now.
Because 2016 has shown us—or me, anyway—that the new world of publishing is morphing into the world of publishing. The word “new” doesn’t really apply any more.
Online is as viable for consumers as offline. Readers are consumers. They’ve already adjusted their behaviors toward the digital world, and will continue to do so. That doesn’t mean they’ll read more ebooks. That means they’re read more books in whatever format the reader prefers.
So, those of you who suffered declines in 2016, pick yourself up, dust yourself off, learn from the fact that what goes up will come down, and move forward. The future is still ours. There’s still tremendous growth ahead. I’ll be writing about that in future columns.
Do your best to make sure you have a piece of that growth.
Because the future is still bright, my indie friends. In fact, it might be brighter than it ever was, because a lot of the major flux is behind us. Now we can start planning.
And in business, planning is a good thing.
I made a decision at the end of 2016 to write this blog early. That meant I had to write two blogs in a row over the new year, but now I’m ahead. We’ll see how long that lasts. I’m hoping it’ll last all year, because it really helps my writing schedule a lot.
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“Business Musings: 2016 Disappointments,” copyright © 2017 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2017 by Can Stock Photo / pmphoto