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Kindle Store Bestseller Prices Continue to Fall: 
Titles Under $5 Grows from 37 to 55 While $10-Plus Listings Fall from 34 to 18;
Big Publishers’ Market Share on Bestseller List Evaporating Fast

By Steve Windwalker

In the wake of our comments the other day on Amazon’s growing domination of the U.S. book business, it’s time for a fresh look at the breakdown of prices on the Kindle store’s bestseller list. From time to time we do this kind of analysis somewhat more comprehensively, but instead of looking at all 1.8 million Kindle titles today we’ll keep it simple and look at the Top 100 Bestsellers in the Kindle Store based on comparative snapshots of Kindle bestseller prices today with a couple of important points in the past:

  • April 1, 2010 – the day before the big publishers and Apple began their agency-model price-fixing scheme; and
  • April 15, 2012, two years later, at the height of agency model pricing

First, there’s a bit of an apples-and-oranges thing that we have to deal with here, since in April 2010 Amazon was still maintaining a single bestseller list in which free “sales,” i.e., downloads of free titles, were being counted right alongside paid titles on a single bestseller list. But if we take that properly into account we can still make some use of that comparison.

Here are the headlines:

  • The percentage of paid Top 100 bestsellers priced at under $5 has grown from 37% to 55% in the past nine months.
  • The percentage of paid Top 100 bestsellers priced at $10 and up has decreased from 34% to 18% in the same period, and the number of paid Top 100 bestsellers priced at $15 and up has gone from 4 to zero during this stretch.

So, it may be stating the obvious to say that ebook prices are falling, as we all knew they would fall once the agency-model price-fixing scheme gave way to more natural market competition.

But while it is fair to say that some of that price decline is due to more competitive pricing of bestsellers by the big publishers — including some very aggressive pricing like Simon and Schuster’s current $3.99 price point for Stephen King’s 11/22/63, that’s only part of the story, and it may be the less important part of the story.

What could be bigger than a $3.99 ebook price point for a full-length Stephen King bestseller?

Just this: big publishers’ market share of the Kindle Store bestseller list continues to evaporate. Books published non-traditionally, either by authors themselves or by Amazon Publishing imprints, held #s 2, 4, 6, 7, 8, 9 among Kindle Store Bestsellers as of this morning, and 21 of the top 50 spots.

It was just Wednesday that we posted on the possibility that Amazon may be moving toward 50% market share for the U.S. retail book business, all formats, and we were not just being cute when we listed the U.S. Department of Justice among those who would be affected in significant ways. If Amazon were also to reach the point where it was effectively the publisher for something approaching half of the U.S. ebook business, DOJ might have to create a permanent Amazon desk! I’m just saying.

Amazon May Already Have Reached 50% Market Share of the U.S. Fiction Book Market Across All Formats

By Steve Windwalker
Editor, Kindle Nation Daily

Amazon's website 1.0, Aug. 1995
Amazon’s website 1.0, Aug. 1995

It will come as no surprise to long-time readers that, fairly consistently over the past two years, I have been saying something shocking and outrageous. My crazy notion first started cropping up in a Kindle Nation Daily post back on February 3, 2011.

The big story is that in just three years Amazon has positioned itself to triple its overall share of the U.S. book business for all formats. Before the end of 2012, Amazon could own more than half of the U.S. book business across all formats.

How stunning a development would that be? Prior to the launch of the Kindle in 2007, Amazon was widely considered to account, at most, for somewhere around 15 percent of all U.S. book sales in all formats by all retailers.

There were plenty of people who were willing then to tell me I was nuts, or that it didn’t matter anyway because Amazon’s pricing was going to continue to drive the company toward, or right into,  red ink. (Indeed, that red-ink thing happened in Amazon’s last quarterly financial report, and the company says it could lose as much as nearly another half-billion dollars in its own guidance for the 2012 4th quarter on which its will report later this month.) And apparently my critics talked some sense into me, because more recently I have been projecting that Amazon was more likely to reach that 50% market share threshold in late 2013 or 2014.

So, it has probably not happened yet, and let’s give or take a year or so, please. After all, what would be amazing about this kind of development would have nothing to do with it being predicted (by me or anyone else), and nothing to do with it happening in any given specific month. (But since we all like to keep score, if it does happen by early 2014 I’d like to apply futurist Ray Kurzweil’s rule and call this prediction “essentially correct.”)

The amazing thing would be that, in three waves of about half a dozen years each, Amazon would have  completed a total transformation of the U.S. publishing and bookselling business. (Only the third wave, of course, has been strictly about ebooks.) And for better or worse, that transformation is a game-changer in every sector of publishing and bookselling activity including, of course, the activities of authors and readers.

The enthusiasm with which publishing industry pundits seek out data suggesting that “ebook sales growth is slowing down” make it unlikely that we will hear any announcement from within the industry when Amazon reaches that 50% threshold, but one of the smartest and most articulate inside observers of the publishing industry — consultant, author and blogger Mike Shatzkin — shared some data this week from which it is interesting to make some extrapolations, even with the caveat that Shatzkin’s information is anecdotal, based on “an exercise” that he tried earlier this month “of asking a few agents for their impressions of the evolving ebook marketplace.”

I won’t revisit here the various equations that I used in early 2011 to reach the conclusion that Amazon was on its way to reaching a 50% market share in the book business/all formats, other than to say that I relied heavily then on information reported by Publisher’s Weekly, Publisher’s Marketplace, and Amazon, and that actual events since then have served to confirm the conclusion. But let’s look at some of Shatzkin’s data points and where they lead.

He starts by saying that “sales of ebooks for fiction more often than not top 50% of the total sales,” and then says of total book sales that “only about 35% of it is selling as print in stores (because 25-30 percent of the print sale is online).” 

So, to make the process of extrapolation as straightforward as possible, let’s say that the entire universe of fiction book sales consists of 100 books sold. It’s generally accepted that Amazon owns  an ebook market share of about two-thirds as well as a market share of about 85% of online print book sales, so here’s where Shatzkin’s data points lead for fiction book sales:

  • 100 books sold, all formats
  • 51 ebooks sold, including 34 Kindle books
  • 3 audiobooks sold, including 2 Audible.com (Amazon) audiobooks
  • 46 print books sold, including 14 copies online, and 12 of those 14 by Amazon

That’s a total of 48 out of the 100 books sold by Amazon, or 48% market share based on units sold. Since all of this is anecdotal and the extrapolations themselves are based on assumptions, Nate Silver would probably tell us that it’s fair to say that Amazon’s actual fiction market share for the period we’re discussing was somewhere between 43 and 53%.

It doesn’t mean 48% of all retail book revenues; it’s just units. It doesn’t mean all books; it’s just fiction books. And it’s anecdotal.

But it is worth pointing out, as well, that this anecdotal information shared with Shatzkin by literary agents is not a snapshot of where things stand today in January 2013. Instead, as Shatzkin points out “the data presentation which most shapes the agents’ impressions is provided in royalty reports. This past year, and especially this past season, have not yet been delivered in the data they study most intensively.”

When you take that “lagging report” factor into consideration, combined with recent reports that January 2013 ebook sales are up 10 to 15% over January 2012 ebook sales, it’s even possible that Amazon may have already reached a 50% market share for fiction.

Maybe, maybe not. It’s only fiction, not all book sales. But the nature of tipping points in the book business has several likely consequences for this discussion:

  • The reported 2:1 ratio between ebook market share for fiction and ebook market share for immersive nonfiction (in Mike’s felicitous phrase) is likely to narrow, because fiction will almost surely serve as a wedge driving readers’ behavior in terms of platform comfort and library storage choices.
  • Shatzkin points out the 35% share for print books in physical stores is down from about 90% ten years ago and 80% five years ago. You can call that a pattern; I call it an avalanche. Print book distribution channels are drying up at an alarming rate, and taken together all of the patterns that are part of this conversation will only accelerate that process, which in turn will accelerate the process of Amazon growing its market share across all platforms.

One other likelihood is that we won’t have any absolutely certain data that makes all this clear — for 50%, 60%, 70% or any other market share threshold — until months or even a year after it has happened. And while it is interesting to think about the market share thresholds themselves, it is probably far more important for us all to think about what any of those Amazon market share thresholds will mean for everyone associated with the book business:

  • readers
  • authors
  • agents
  • big publishers
  • small publishers
  • indie bookstores
  • used book sellers
  • Barnes and Noble
  • Amazon’s other retailer competitors
  • Amazon’s ebook competitors
  • Amazon
  • and last but not least, the Department of Justice

In our February 2011 piece raising the 50% market share possibility for the first time, I quoted Amazon executive Russ Grandinetti as saying: “However fast you think this change is happening, its probably happening faster than you think.”

That’s all we’re really saying. And in the next few days we’ll try to focus on what these developments could mean — in terms of ebook pricing, royalties, profitability, and in some cases life or death — for the players listed above.

Originally posted Feb. 3, 2011, and not *exactly* right:

The Real Story Behind Those Single-Digit Kindle Margins:

Amazon Has Positioned Itself for a 50% Overall Market Share

in the U.S. Book Business

(Editor’s Note: I originally published this post on February 3, 2011. The bottom-line prediction that “before the end of 2012, Amazon could own more than half of the U.S. book business across all formats,” isn’t quite right. But there seems to be increasing evidence that, to borrow a phrase from futurist Ray Kurzweil, it could soon prove to be “essentially correct.” What’s your take? -S.W.)
By Steve Windwalker
Editor, Kindle Nation Daily

Amazon’s (AMZN) report of quarterly earnings last Thursday was greeted widely as an indication that the company can’t generate sufficient margins with Kindle devices and content. That interpretation has been reasonably straightforward, with strong echoes of sentiments that characterized critics’ views of Amazon during its early pre-profitability years in the late 1990s and into the 21st century.

“Despite rapid growth in Kindle hardware and content sales,” so this thinking goes, “the combination of competition and Amazon’s penchant for pursuing loss-leader strategies to capture market share have forced Kindle-associated margins so low that, as the Kindle portion of Amazon’s overall business grows, it will lead inevitably to erosion of profits.”

Due in part to this interpretation, Amazon’s share price, which closed Thursday within 3 percent of its all-time trading high, dipped dramatically in after-hours trading that day and has gained back only a fraction of those losses since.

But the low-margins interpretation misses another, much more dramatic story. The big story is that in just three years Amazon has positioned itself to triple its overall share of the U.S. book business for all formats. Before the end of 2012, Amazon could own more than half of the U.S. book business across all formats.

How stunning a development would that be? Prior to the launch of the Kindle in 2007, Amazon was widely considered to account, at most, for somewhere around 15 percent of all U.S. book sales in all formats by all retailers.

Amazon has not reached 50 per cent yet, and is still far from that range where all titles are concerned. But one of the most reliable crystal balls for determining future bookselling trends is to examine and parse developments as they play out with individual bestsellers in the overall book marketplace, when numbers are available.

Last week both Amazon and one of its most consistent publishing business critics, paid subscription site Publishers’ Marketplace, shined their respective spotlights on sale trends that have been playing out with a single bestselling novel, Emma Donoghue’s Room. The hardcover, discounted by Amazon to $14.41 (20 percent higher than the Kindle edition), is #43 in the main Amazon store. It is #13 among far fewer available bestsellers listed in the Apple (AAPL) iBooks store, and #35 on the Barnes & Noble (BKS) Nook. Importantly for these discussions, the book has also been on the IndieBound bestseller list for independent brick-and-mortar booksellers for the past 20 weeks, and currently stands at #4.)

Helpfully, it turns out that we know a lot about Room sales, thanks to Amazon and Publisher’s Marketplace.

Russ Grandinetti, Amazon’s vice-president for Kindle Content,told a Digital Book World conference last week that, for Room, “total Kindle sales are equal to 85 percent of Nielsen BookScan’s print sales number.” Publisher’s Marketplace then performed some very helpful extrapolations and further calculations arriving here:

If the BookScan number is 80 percent of the print sales total, then Kindle sales here would 68 percent of all print. More importantly, though, to calculate what percentage of the book’s total sale was on Kindle, you need to add Kindle + BookScan + that other 20 percent together and look at Kindle as a percentage of that sum. So it’s 68 over 168, meaning that Kindle sales were 40 percent of the total sale in all formats for Room.

But it doesn’t end there. Grandinetti and other Amazon spokespersons said repeatedly last week that Kindle editions were currently outselling Amazon sales of their hardcover counterparts by a 3-to-1 margin, which means that Amazon hardcovers equal about 25 per cent of combined sales for these titles. Even if hardcover sales of Room fell short of this and constituted only 20 percent of Amazon’s combined, this would mean that total Amazon sales of Room constitutes about 50 percent of the title’s total sales in all formats.

It’s just one title, but what we’ve been seeing quite often with Amazon and the Kindle over the past few years is that what happens first with one title happens subsequently with more titles and then, ultimately, with most titles. It was a big deal in 2009 when Kindle sales of The Lost Symbol outstripped Amazon’s hardcover sales right from the drop, and a little over a year later Amazon announced that all Kindle editions were outselling hardcover units for the same titles, across the board.

But there are other forces at play, and I’m not just talking about the fact that Room is one of the strongest sellers over the past five months for indie booksellers. Back on January 5 when USA Today reported that 19 of the top 50 titles on its bestseller list had sold more ebook than print copies for the previous week, publishing industry insiders blamed Santa Claus and downplayed the significance.

“What’s most interesting is what happens next week or over the next month. About 3 million to 5 million e-readers were activated last week. Will the people who got them keep downloading e-books, and at what rate?” asked Publisher’s Marketplace founder Michael Cader. Bowker’s Kelly Gallagher, too often a cheerleader for the status quo in publishing, was quoted saying that the surge in e-book sales “is not a sustainable trend.”

Right. Well, that was January 5. Now it’s February 2, and that trend, far from declining, has actually become stronger. On USA Today‘s most recent bestseller list, for the week ended January 23, the number of titles with greater ebook sales than print sales had grown from the 18-19 range for the first three weeks after Christmas to 23 of the top 50.

There is a wide range of factors that are likely to push the velocity of change even faster for ebook sales specifically and Amazon’s share of the overall bookselling market in general, but the fact that brick and mortar bookstores are closing at a faster rate than ever, from local indies to chains, is bound to contribute to a snowballing effect. The imminent bankruptcy of the Borders (BGP) chain is this week’s headline, but it’s just the headline. And despite the recent fuss about the new partnership for ebook sales between Google (GOOG) and the American Booksellers Association, it is inevitable that as ebook sales rise, brick-and-mortar stores will decline and publishers will gradually lessen their investment both in the bookstore-based physical distribution network and in print editions.

Finally, there’s Amazon’s not-so-secret weapon for building retail market share for its Kindle and print content sales: Direct publishing, Amazon exclusives, and indie authors. Recent developments in this area deserve a post all their own, but for now we’ll just note that 36 of the top 100 bestselling ebooks in the Kindle Store are published either by indie, direct-to-Kindle authors or by Amazon publishing subsidiary programs such as AmazonEncore, AmazonCrossing, or Kindle Singles. The vast majority of these titles are either not listed or not selling at any appreciable level on any other retail venue, and they are not yet included on any bestseller lists other than Amazon’s own, although their sales would in many cases justify such inclusion. But the sales are there, the profits are there, and once again Amazon has positioned itself to dominate the market share for this, the fastest growing sector of the fastest growing sector in bookselling.

Which brings us back to Amazon executive Grandinetti, and his summary point in last week’s discussions: “However fast you think this change is happening, its probably happening faster than you think.”

Whatever the rate of change, and whatever the velocity of change, most of the other players in the book business and many of Amazon’s market analysts and investors may be missing the point as to exactly where this change leads. AMZN is not a day-traders’ stock, but for investors who take a long view it may have just moved into a new and very positive category.

If Amazon has decided to accept single-digit margins during this Kindle “investment phase,” and the result is that the company has set itself up to own a 50 per cent market share of the entire U.S. book business by the end of 2012, there will be no shortage of happy investors — and devastated competitors — at that point in the relatively near future.

Summing Up the Last Week for Amazon: Phases I, II, and III of the Kindle Revolution Are Over, and Amazon Has Won All Three

By Stephen Windwalker, Editor of Kindle Nation Daily

Every few months we get a particularly strong dose of doom and gloom from a large number of the market and media pundits who follow Amazon and the Kindle, and another negative wave seems to have been cresting in the past several days.

It may have begun with Amazon’s corporate earnings release last Thursday, when the company announced first quarter earnings of $394 million ($0.66 per share, equalling consensus expectations) on revenues of $7.13 billion that outstripped street expectations as well as Amazon’s own guidance. In that earnings report and the subsequent conference call, Amazon offered what some have called “soft” guidance concerning its own projections for the second quarter: Amazon is estimating earnings of $220 million to $320 million for the second quarter, on revenues of $6.1 to $6.7 billion. That kind of earnings growth of only 39% to 102% over the year-ago quarter, could certainly explain the doom and gloom, yes?

Well, not really. The amusing thing is that the movement of Amazon’s stock over the last few trading days is pretty much a mirror of what often happens to the company’s share price around the time of its quarterly earnings reports:

  • As I posted on Thursday morning (April 22, 2010), Amazon opened that day trading around $147, within a whisker of its all-time high. 
  • Over the course of that day’s trading session, high expectations for the future of Amazon and the Kindle caused the AMZN share price to blow through its all-time high as well as the “psychological barrier” and “short-covering stop loss price” of $150. It closed that day, seconds before the release of the earnings report, at a new all-time high of $150.09.
  • In typical Wall Street “buy the rumor, sell the news” fashion, after-hours and Friday traders responded to the earnings report by selling off shares to lock in profits from the fact that the company’s stock has roughly doubled over the past year. Although Friday’s closing price was down from Thursday’s closing price, the fact is that during the Friday daytime session the stock actually made back about half of what it had lost in the lower-volume after-ours session Thursday evening.

But Wall Street analysts take the long view, right? They take a collective memory that extends back about five hours and apply it to the “news” of the last 15 minutes, and then try to construct a narrative that explains things.

Explain things indeed.

So what we get over the weekend is a spate of items like these:

My, my.

Let’s take that last one first. It is stunning news that the Nook outsold the Kindle in March, after a November-December Nook roll-out that was the second coming of the Ford Edsel. Only one problem: it didn’t happen. The report on which these Nook-beats-Kindle stories are based is a report from PVI, the Taiwan-based company that provides e-ink displays for both devices. PVI said that it had shipped more manufacturing units of the Nook than of the Kindle to the U.S. in March. Well, that would be necessary if Barnes & Noble were going to finally begin providing ample Nook inventory in the thousands of retail outlets where it has the capacity to sell the Nook. Given the fact that Barnes & Noble has just completed what sounds like a promising Nook feature upgrade, that inventory boost is significant and, not to be a cynic here, but the company could even have primed the numbers and the media pump a bit with the PVI story in order to cash in on some of that Kindle-Killer Koverage. It won’t suprise me at all if there are more ebooks sold by the Barnes & Noble eReader store and app this year than by Apple’s iBooks store (you can’t sell what you don’t stock), or if Amazon moves quickly to make the Kindle ePub-compatible so that it can read ebooks sold by B&N and others. But let’s not confuse inventory with sales. Sales put cash in a company’s pockets, inventory draws cash down.

Then there are the share prices. Even the mainstream coverage of Amazon’s earnings report and subsequent trading was all about how the markets were underwhelmed by Amazon’s performance, causing a huge selloff. It’s just that none of them mentioned that the stock was actually up for the week, and certainly we can’t expect any of them to still be sticking around today to explain why the stock has climbed back above $147 to exactly where it was when I posted on Thursday morning.

Perhaps that share price will get to $90 by going to $175 first?

One thing that is true about Amazon is that, while it has been known to hype a product or two, it tends to play its hand in very understated ways with regard to its quarterly need to provide guidance about future earnings, so the result is often that the company either has to revise its guidance upward or to simply release numbers, at the appropriate time, that blow the doors off market expectations. With serious new competition and some difficult retail pricing issues to resolve, it is perfectly plausible for Amazon to project second-quarter earnings that could be only 60 to 80 percent of its first-quarter earnings.

But when all is said and done, don’t be surprised if Amazon finds it necessary to revise those estimates upward sometime in mid-June, or announce in late July that it drew down earnings by significant amounts to make some serious capital investments in feverish expansion of its already impressive device ubiquity,  in the worldwide expansion of Kindle Nation, er, the population of those who read Kindle content, and in a growing and language-diverse catalog that may, by the end of this year, put even Google’s to shame.

I know of smart people who listened to Amazon’s earnings conference call and concluded that Amazon’s executives did not say anything new or interesting about the Kindle. I suppose you could see it that way, but I’ve been listening to Amazon conference calls for a decade and I heard some very telling statements and shifts of emphasis that suggested, to me, a company that is very confident about several things:

  • There are major advances coming soon in explosive growth of the Kindle catalog, including a wider and wider portal for authors to march through either directly or under the auspices of companies like Open Road and RosettaBooks.
  • The stunning success of the iPad, iPhone, and iPod Touch, combined with the poverty of the iBooks catalog, will drive continued explosive growth in the number of people who navigate to Amazon’s website to buy Kindle books, other books, and just about every other street-legal product imaginable.
  • Phases I, II, and III of the Kindle Revolution are over, and Amazon and the Kindle have won each phase. The goal of Phase I was to move ebook reading from an off-the-radar activity to something that a significant percentage of the world population wants to do. Check. The goals of Phase II were to make the Kindle store and reading environment dominant so as to position Amazon as a kind of market maker in all ebook matters, and Amazon has succeeded beyond its own wildest dreams with more than a 60% share of ebook device sales and a market share of ebook content that reached somewhere between 80 and 95 percent by late last year.  Check. The goals of Phase III were to achieve sufficient success and buzz to lure other bigfoot players to the tablet and ebook reader device market — even those who might have opined not so long ago that “nobody reads any more” — so that they would take up some of Amazon’s burden with respect to device manufacturing, inventory, and sales, and leave Amazon, even while it continues to ship a few million Kindle devices each year, to focus on making sure that all of its competitors’ devices would be Kindle-compatible to allow Amazon to market its world-leading ebook catalog to, in time, everyone in the world. Check.

What’s next? Let me go back to my tulip texts, and I’ll report back here as soon as I have something.

Around the Kindlesphere, February 28, 2010: New York Times Parrots Surprisingly Low Figures on eBook Sales

By Stephen Windwalker, Kindle Nation Daily
Originally posted February 28, 2010 – © Kindle Nation Daily 2010

Should we file this one under “The Count” or “The Miscount?” Only time will tell.

In a 154-word piece that runs today under her byline and the headline “So Far, E-Books Aren’t Making Sales Waves,” the New York Times’ Phyllis Korkki leads with this paragraph:

The publishing industry’s alarm over the electronic book isn’t based on current use. Last year, less than 2 percent of all books sold were e-books, according to Bowker, which tracks the industry.

Korkki goes on to compare that 2 percent figure with other figures that seem to have been spoon-fed her by Bowker:

  • 35 percent of all book sales last year were hardcovers.
  • Another 35 percent were trade paperbacks.
  • 21 percent were mass market paperbacks.
  • That 2 percent share for ebooks was matched by 2 percent audiobooks and far outstripped by 5 percent for that popular format, “other.” 

What’s wrong with this picture?

Maybe these percentages are accurate, but they seem awfully 2008 to this observer’s eye based on several data points:

  • The Times itself has reported that the ebook market has been growing at a stunning year-over-year rate since the Kindle’s 2007 launch.
  • Amazon is widely seen as having reached or nearly reached 20% market share in the overall U.S. trade book market. 
  • And Amazon itself, stingy as it is with real numbers, nonetheless volunteered the information that it now sells 6 Kindle-formatted copies for every 10 print-formatted copies of books that are available in both formats.

If ebooks account for only 2 percent of the total trade book market rather than a relentless growing percentage that is now somewhere in the 5 to 10 percent range, would traditional book publishers be causing such a stink about Amazon’s ebook prices?

A little more information about Bowker’s actual measurements would be helpful, and this is just a hunch, but I wouldn’t be surprised if they revealed that Bowker’s figures were based on gross sales dollars rather than sales units. But one of the problems with scooping a soon-to-be-published research report before it is published is that it’s impossible, for now, to evaluate the methodology and accuracy of the research.

Meanwhile, the piece would also seem somewhat less hurried and scoop-driven if there was some commentary by industry experts, many of whom one would expect would be surprised by the Bowker report.