4 reasons why e-book growth will be slower than expected

[L.J. Sellers]

I read this opinion piece by Michael Hyatt, CEO of Thomas Nelson Publishers, and thought it was interesting enough to share.

http://michaelhyatt.com/four-reasons...ves-think.html

[fruiter]

Thanks for the link, it seems really interesting!

[queentess]

2. E-book sales are still relatively small. The media hype has outstripped the reality. According to a study by BISG, e-book sales for the fourth quarter of 2010 were only 7 percent of all book purchases. That’s up from 2 percent in 2009 and represents dramatic growth. But this is still a long way from “50 percent by 2014.”

Didn't Amazon just say they were selling more ebooks than pbooks (in the U.S.)? I'm not sure how that translates to 7% of all book purchases, unless he's talking world-wide and including used books sales? I think ebooks are a pretty healthy percentage of the new book market. Though the recent Amazon numbers could be a spike due to all the Kindles gifted for the holidays.

3. The music industry hasn’t even reached this benchmark yet. Apple launched the first iPod in the fall of 2001. Almost ten years later, digital music sales are still only 46 percent of the overall music market. Yet, if you read the press, you would think CD sales died years ago. Certainly, the music industry has gone through enormous disruption, but digital music has not yet reached half of all music sales.

I'm not sure this is a comparable market. Many audiophiles prefer vinyl or want the enclosures that come with cds. I'm not really part of this market though, as my husband and I have XM Radio, which fits all our needs. We don't often buy music.

4. Readers are more attached to print books. Music has always been an audible experience. It doesn’t matter if the device generating the sound waves is a CD player or an iPod. For everyone but audiophiles, the experience is the same. This is not true of books. Holding the book and flipping through the pages is a cherished part of the reading experience for many readers. (Even e-readers try to replicate the page-turning experience.) So expect readers to embrace e-books more slowly that music lovers have embraced digital music.

Eh... this might have some traction, though it doesn't apply to me. I think if we looked at ebook sales spread across types of books we'd see a clear trend. Fiction will have a much stronger hold on ebooks than nonfiction or technical books, and there will continue to be a market for special editions.

[=X=]

His reasons are pretty weak with the exception of number 3, which in itself can justify his prediction.

=X=

[fjtorres]

His arguments aren't bad and pretty much in line with Bill Gates' old observation that "people tend to over-estimate the impact of new technologies on the short-term and underestimate their impact in the long-term".
The thing is, the example he uses, the digital music business is *not* a perfect model for the book industry. Digital music downloads are not by nature a substitute for CDs but rather a supplement; they arose because the music studios did not provide a replacement for the old 45rpm singles and there was a market among followers of Top-40 music for an inexpensive format that didn't require the purchase of a full CD. In addition, for people who *do* like to buy a full CD of music, the CD is *still* more economical and flexible to buy and easily transcoded, aka, "ripped" into DRM-free tracks.
Thus, I would posit that digital singles may have actually peaked in popularity and that CDs will likely endure indefinitely (or until the studios wise up and introduce a new, more compact physical media product to replace it. But since the same studios are now 15 years+ late in introducing the CD replacement...).

Books, of course, are not as easily converted into ebooks.
And ebooks are in fact a full replacement for print books; unlike compressed music downloads that offer slightly lower quality that their CD incarnations, ebooks are lossless conversions of the original material.
Also, while a significant portion of book buyers do like to collect and retain their purchases, there is also a significant (probably larger) portion that considers books as disposable entertainment. Unlike music with has extensive replay value, books are often once-through purchases, which adds value to the mass-less quality of the ebooks.
Finally, unlike music, which even in digital form is still relatively bandwith-intensive, ebooks lend themselves to near-instant gratification over existing wireless networks, thus providing added value in accessibility. (The calling card of the Kindle and Nook platforms.)

To me, all this suggests to me that ebooks offer adopters more value compared to print book buyers than commercial music downloads do compared to CD buyers. Indeed, the case can be made that for *album* music buyers, CDs are a superior delivery mechanism and often cheaper. While the BPHs are trying to price ebooks high enough to protect their investment in print books most other publishers are more than happy to ride the ebook superior value proposition to a larger market share.

So, I would respectfully suggest that, while the pundits and analysts are very likely miscalculating the speed of ebook adoption, they are just as likely to be underestimating it as overestimating it and that unit sales parity is going to come to ebooks faster than to music downloads. (Where it may never actually arrive without a further disruption and newer business models.)

[whitearrow]

I agree the music market is not comparable, because it's so easy to convert a CD to the digital format of your choice, with full control over audio quality. I listen to music exclusively on my iPods and phone, but I still buy a CD sometimes if I see one I was thinking of buying on sale in Target.

Books aren't easy to format-shift (yet, at least).

[saoir]

After reading this article I am even more convinced that the growth will be far greater than predicted !

[GA Russell]

Thanks for that link, LJ! I found the comments to the article interesting as well.

[fjtorres]

By the way, Amazon's recently reported unit sales ratios--1.15 ebooks per paperback, 3 ebooks per hardcover--works out to a 45/40/15 sales rate of ebooks/paperbacks/hardcovers.

It's pretty clear that Amazon is already where the music industry is in digital sales and *still* growing ebook share, so setting the bar at 50% unit share is pretty low, even granted that as the industry leader, Amazon is several years ahead of their competition. Because Amazon is clearly pointing out that, given abundant, reasonably-priced ebooks, readers are *not* so wedded to print that the 50% mark is out of reach. More, with the dual examples of Amazon's ebook success and Borders' deathspiral, most retailers will *have* to look to growing their ebook markets to survive. Essentially retailers have to follow Amazon, as B&N is doing, or risk following Borders.

All in all, given the current growth rate, I would expect to see the ratios stabilize at something like 60/30/10 unit sales in the near future. And that is with the price-fix scheme in place. If Agency pricing should vanish, publishers are going to be facing a *lot* of downwards pressure on pbook pricing. Which might explain why they're actively looking for signs of hope even from industries that don't map particularly well to theirs.

[CazMar]

He probably left out one big reason why sales may not reach intended figures - the appallingly bad formatting of some DRM'd books on sale (particularly in EPUB). The books on this site, Gutenberg and other free sites are just so much better. As EPUB requires some expertise with HTML (hardly a new technology) this seems to have left publishers floundering around and trying to pass off shoddy product as a digital book. And If I buy any more like this I am going to demand my money back! People aren't fools and will vote with their credit cards. In fact, if a publisher actually advertised that their books were beautifully formatted they might even get more sales. (Hint, hint to book publishers!)
Yes, I think it will end up as fiction = ebooks, reference books either pbooks or subscription websites (like legal and accounting "books" are sold - with a subscription update service). But the tablet is still in development - maybe there is a colour e-ink type of screen with ultra clear graphics and low power usage just around the corner.

[Greg Anos]

46% vs. 50% in downloads? Sorry, that's a quibble.

IF e-books make 35% of the market by 2014, it will have disrupted the entire business.

[Piper_]

Originally Posted by fjtorres

By the way, Amazon's recently reported unit sales ratios--1.15 ebooks per paperback, 3 ebooks per hardcover--works out to a 45/40/15 sales rate of ebooks/paperbacks/hardcovers.

It's pretty clear that Amazon is already where the music industry is in digital sales and *still* growing ebook share, so setting the bar at 50% unit share is pretty low, even granted that as the industry leader, Amazon is several years ahead of their competition. Because Amazon is clearly pointing out that, given abundant, reasonably-priced ebooks, readers are *not* so wedded to print that the 50% mark is out of reach. More, with the dual examples of Amazon's ebook success and Borders' deathspiral, most retailers will *have* to look to growing their ebook markets to survive. Essentially retailers have to follow Amazon, as B&N is doing, or risk following Borders.

All in all, given the current growth rate, I would expect to see the ratios stabilize at something like 60/30/10 unit sales in the near future. And that is with the price-fix scheme in place. If Agency pricing should vanish, publishers are going to be facing a *lot* of downwards pressure on pbook pricing. Which might explain why they're actively looking for signs of hope even from industries that don't map particularly well to theirs.

One thing I wonder about using Amazon's unit sales numbers to project is all those ebooks that were free promos and $0.99 - 2.99 indy books they sell, and if/how they're included in the ratio.

[Elfwreck]

Originally Posted by queentess

Didn't Amazon just say they were selling more ebooks than pbooks (in the U.S.)? I'm not sure how that translates to 7% of all book purchases, unless he's talking world-wide and including used books sales?

7% by dollar value; Amazon sells more ebook units than paper, but a lot of those ebooks are .99 each.

Of course ebooks outsell hardcovers - Amazon doesn't offer several thousand hardcovers at under $5 each. Repeat for paperbacks; the margins are closer, but ebooks are still, on average, a lot cheaper.

[Fbone]

From the article:

One conclusion was that “by 2014, [publishing] executives predicted that half of units sold will be e-books, although it was not clear at what price e-books will be sold.”

I hope they are wrong. The 20% is better.

[fjtorres]

Originally Posted by Piper_

One thing I wonder about using Amazon's unit sales numbers to project is all those ebooks that were free promos and $0.99 - 2.99 indy books they sell, and if/how they're included in the ratio.

Amazon made it clear free books were not included in their tally.

But, lets face it; a book sale is a book sale, regardless of price. And a lot of those discounted/promo books are displacing used book and loaner reads. (Remember, evil DRM makes resale impossible and--on paper--severely restricts lending.) Also a lot of those low price sales, as attested to by the writers and publishers, result in follow-up sales at higher prices. Don't deprecate them. There is method to their madness; they are literally making up in volume. The core goal is to sell *customers* on ebooks. To sell the idea of ebooks to the masses.

That's why I pointed out the *eventual* price pressure effect of expanding ebook unit sales.

eBooks are clearly expanding the market for books. For now. Act one.
That will not be true much longer, though. At some point in the very near future ebook sales will start to cannibalize print book sales, *precisely* because of all the lower-priced quality reads available in the ebook arena. That's act two.

Act three is when the declining volume of print books saps all the profitability out of the existing model of high volume batch-print runs. What follows depends on how soon the tipping point arrives and what the big publishers (who are most vulnerable because of their bloated overhead) do to try and stay afloat once they realize price-fixing isn't the answer.

The way it is playing out so far is that eBooks are expanding the overall market for books by drawing in the high volume readers and making high-volume readers out of some casual readers. So far, the total market is buying print books at a slightly higher rate than before; ebooks are all extra sales. Everybody is winning.

But...
The business started with early adopters and hobbyists (the likes of which frequent these forums) and is now filtering through the mainstream, bringing in what could be called early followers. Eventually, the economics of increased ebook sales (and cheaper readers) and increased visibility of the tech will bring in reluctant adopters and laggards. Included in that wave will be the legion of folks that read a handful of books per year and who can't currently justify a reader for that volume of use. And those "converts" will *not* be a net addition to the market but instead a full substraction from the pbook side of the business.
That's when the long-term losers on the upstream side will be revealed.

As I said, the real issue at stake isn't how many books of either kind are sold.
The issue is the number of *customers* that are sold on ebooks as their venue of choice for reading. And the best guide to that is unit sales because it reflects their commitment to the new platform.

Focusing on the dollar value of the ebooks is just a way to minimize and marginalize ebook penetration and pretend all is well. For a scary comparisson, look to the Detroit automakers in the 90's who were losing auto market share to asian brands left and right but consoled themselves counting the cash they were raking in selling high-priced trucks and SUVs. Then, when recession hit and buyers started looking for cheaper, more fuel efficient basic transportation, wham! The Detroit brands found themselves without viable product.

There are limits to any analogy but the one thing that is clear is that there are limits to how many books a person can read (even hoarders) and that cheap ebooks *are* every bit as significant as expensive hardcovers in feeding that demand.

A tipping point is coming.
Print book volume *will* start to shrink.
We just don't know when.