With Amazon.com (AMZN) CEO Jeff Bezos battling major publishers to divvy up the economic spoils of the book market, both sides could point to seemingly good news in the latest industry statistics.
U.S. publishers collected about $3 billion in trade ebook sales last year, virtually unchanged from 2012, according to the new report from the Bookstats Project, jointly produced by the Association of American Publishers and the Book Industry Study Group. Total revenue from print and digital books in the trade category, which excludes textbooks and journals, declined 2% to $14.6 billion. The figures are based on how much publishers collected, not how much retailers charged and consumers paid, but they still give a snapshot into trends in the business.
If growth has stalled at just 21% of total dollar sales for ebooks, where Amazon has the strongest position, the online retailer may have less leverage in negotiations with publishers than most in the industry once expected -- or feared. Another beneficiary could be Barnes & Noble (BKS), which announced plans this week to spin-off its Nook ebook unit.
The slowdown, after years of exponential growth, could help explain why major publisher Hachette, owned by French media company Lagardere, has been holding out against Amazon, according to Robert Picard, director of research at the University of Oxford's Reuters Institute and an expert on media economics.
"The conflict is a result of the maturation of online book sales distribution and publishers’ starting to find effective ways to directly distribute themselves or in cooperation with other publishers," he says. "Some, like Hachette, are now willing to challenge Amazon."
But before publishers get too giddy, they should consider another way to look at last year's sales. In 2013, for the first time, publishers’ revenue from online sales of all kinds, at $7.5 billion, exceeded sales from physical locations, which totaled $7.1 billion, Bookstats reported. Splitting the market that way, Amazon is far in the lead and still gaining.
Which, in turn, may help explain why Amazon is adopting the tough tactics against Hachette that are used more commonly by physical retailers. Amazon has reduced its inventory of the publisher's books, creating shipping delays for customers, and has cut discounts and yanked pre-orders for upcoming titles.
The end result of the talks will likely spill over into future negotiations with Penguin Random House, owned by German media giant Bertelsmann, CBS’s (CBS) Simon & Schuster unit, News Corp’s (NWSA) HarperCollins, and Macmillan, which is owned by German publisher Georg von Holtzbrinck.
Anomalies in the data
There also may be anomalies in the data showing the supposed ebook slowdown. The industry reports have never made much headway in tracking sales of self-published works but two additional factors appear to have skewed ebook revenue last year. One was the court-ordered price cuts that followed publishers' settling price fixing charges in the fall of 2012. The other was the lack of a so-called “Young Adult” super blockbuster like "The Hunger Games" or an ebook phenom, such as the “I don’t want you to know I’m reading this” "Fifty Shares of Grey" trilogy.
While total ebook revenue was unchanged, the number of ebooks sold rose 10% to 513 million. That represented 22.1% of all trade books sold last year, up from 19.7% in 2012. With higher volume and flat revenue, the average amount publishers received per ebook declined to $5.93 from $6.57 last year (again, that’s not how much consumers paid but how much publishers collected from retailers). So ebooks are still growing and taking a greater share of the total marketplace. But, thanks to antitrust regulators busting artificially high ebook prices, revenue was down.
The changing composition of best sellers also may have hurt ebook sales last year. The final volume of Suzanne Collins’ "Hunger Games" trilogy came out in 2012, prompting sales of some 28 million books in the series that year. Many consumers older than young adult bought the books, and they tend to prefer the ebook format for the YA genre, helping push ebooks to almost 50% of unit sales for "Hunger Games."
And the "Fifty Shades" trilogy sold 30 million copies in the United States in 2012, also with a much higher than typical proportion of those sales in the ebook format. Half of the publisher’s revenue from the trilogy came on ebooks versus 20% for most titles.
Adjust both trilogies' 2012 ebook sales to a more typical ratio and 2013’s ebook sales suddenly look a whole lot better, with unit sales increasing about 15%. Revenue growth would also improve, although that is more difficult to estimate.
And looking beyond the publishers' association data, other surveys show interest in ebooks continuing to mount. A January survey from the Pew Research Internet Project found that 28% of U.S. adults read an ebook in the past year, up from 23% in the 2012 survey and 17% in 2011. And 32% of adults said they owned a dedicated e-reader, up from 24% last year and 19% in 2012.
As negotiations between Amazon and Hachette drag on, the battle may turn on which side's data proves the strongest.