Joe sez: Go and join the fun over at www.authorearnings.com if you want to see Hugh Howey blow the lid off of Amazon author earnings. To say it is a revelation is putting it lightly.
I've also duplicated the entire report here, with comments by me and my imaginary Big 5 gatekeeper buddy, Legacy John.
Hugh Howey: It’s no great secret that the world of publishing is changing. What is a secret is how much. Is it changing a lot? Has most of the change already happened? What does the future look like?
The problem with these questions is that we don’t have the data that might give us reliable answers. Distributors like Amazon and Barnes & Noble don’t share their e-book sales figures. At most, they comment on the extreme outliers, which is about as useful as sharing yesterday’s lottery numbers [link]. A few individual authors have made their sales data public, but not enough to paint an accurate picture. We’re left with a game of connect-the-dots where only the prime numbers are revealed. What data we do have often comes in the form of surveys, many of which rely on extremely limited sampling methodologies and also questionable analyses [link].
This lack of data has been frustrating. If writing your first novel is the hardest part of becoming an author, figuring out what to do next runs a close second. Manuscripts in hand, some writers today are deciding to forgo six-figure advances in order to self-publish [link]. Are they crazy? Or is signing away lifetime rights to a work in the digital age crazy? It’s hard to know.
Anecdotal evidence and an ever more open community of self-published authors have caused some to suggest that owning one’s rights is more lucrative in the long run than doing a deal with a major publisher. What used to be an easy decision (please, anyone, take my book!) is now one that keeps many aspiring authors awake at night. As someone who has walked away from incredible offers (after agonizing mightily about doing so), I have longed for greater transparency so that up-and-coming authors can make better-informed decisions. I imagine established writers who are considering their next projects share some of these same concerns.
Other entertainment industries tout the earnings of their practitioners. Sports stars, musicians, actors—their salaries are often discussed as a matter of course. This is less true for authors, and it creates unrealistic expectations for those who pursue writing as a career. Now with every writer needing to choose between self-publishing and submitting to traditional publishers, the decision gets even more difficult. We don’t want to screw up before we even get started.
When I faced these decisions, I had to rely on my own sales data and nothing more. Luckily, I had charted my daily sales reports as my works marched from outside the top one million right up to #1 on Amazon. Using these snapshots, I could plot the correlation between rankings and sales. It wasn’t long before dozens of self-published authors were sharing their sales rates at various positions along the lists in order to make author earnings more transparent to others [link] [link]. Gradually, it became possible to closely estimate how much an author was earning simply by looking at where their works ranked on public lists [link].
This data provided one piece of a complex puzzle. The rest of the puzzle hit my inbox with a mighty thud last week. I received an email from an author with advanced coding skills who had created a software program that can crawl online bestseller lists and grab mountains of data. All of this data is public—it’s online for anyone to see—but until now it’s been extremely difficult to gather, aggregate, and organize. This program, however, is able to do in a day what would take hundreds of volunteers with web browsers and pencils a week to accomplish. The first run grabbed data on nearly 7,000 e-books from several bestselling genre categories on Amazon. Subsequent runs have looked at data for 50,000 titles across all genres. You can ask this data some pretty amazing questions, questions I’ve been asking for well over a year [link]. And now we finally have some answers.
When Amazon reports that self-published books make up 25% of the top 100 list, the reaction from many is that these are merely the outliers. We hear that authors stand no chance if they self-publish and that most won’t sell more than a dozen copies in their lifetime if they do. (The same people rarely point out that all bestsellers are outliers and that the vast majority of those who go the traditional route are never published at all.) Well, now we have a large enough sample of data to help glimpse the truth. What emerges is, to my knowledge, the clearest public picture to date of what’s happening in this publishing revolution. It’s a lot to absorb, but I believe there’s much here to learn.
The Value Ratio
I’m going to start with some of the smaller lessons to be gleaned from this data. We’ll conclude this report by looking at author earnings, but I don’t want that bombshell to drown out these equally important observations.
The first thing that jumped out at me when I opened my email was these next two charts, which our data guru had placed side-by-side. What caught my eye was how they seem to be inversely correlated:
On the left, we have a chart showing the average rating of 7,000 bestselling e-books.1 On the right, we have a chart showing the average list price of the same 7,000 e-books. Both charts break the books up into the same five categories. From the left, they are: Indie Published, Small/Medium Publisher, Amazon Published (from imprints like 47North), Big Five published, and Uncategorized Single-Author.2
It’s interesting to me that the self-published works in this sample have a higher average rating than the e-books from major publishers. There are several reasons why this might be, ranging from the conspiratorial (self-published authors purchase their reviews) to the communal (self-published authors read and favorably rate each-others works) to the familial (it’s friends and family who write these reviews). But the staggering number of reviews involved for most of these books (over a hundred on average across our entire sample) makes each of these highly unlikely. As I’ve seen with my own works—and as I’ve observed when watching other books spread organically—the sales come before the reviews, not after. There are a number of more plausible explanations for the nearly half a star difference in ratings, and one in particular jumped out at me, again from seeing these two charts next to one another.
Note the shortest bar in one graph correlates to the tallest in the other. Is it possible that price impacts a book’s rating? Think about two meals you might have: one is a steak dinner for $10; the other is a steak dinner that costs four times as much. An average experience from both meals could result in a 4-star for the $10 steak but a 1-star for the $40 steak. That’s because overall customer satisfaction is a ratio between value received and amount spent. As someone who reads both self-published and traditionally published works, I can tell you that it’s getting harder and harder to tell the difference between the two. Most readers don’t know and don’t care how the books they read are published. They just know if they liked the story and how much they paid. If they’re paying twice as much for traditionally published books, which experience will they rate higher? The one with better bang for the buck.
This raises an interesting question: Are publishers losing money in the long run by charging higher prices? Are they decreasing the value/cost ratio and thereby creating lower average ratings for their authors and their products? If so, this might have some influence on long-term sales, and keep in mind that e-books do not go out of print. What if in exchange for immediate profits, publishers are creating poorer ratings for their goods and a poorer experience for their readers? Both effects will hurt a work’s prospects down the road (a road with no end in sight). And since ratings on e-books also apply to the physical edition on Amazon’s product pages, this pricing scheme ends up adversely affecting the very print edition that higher e-book prices are meant to protect [link].
It is common these days to hear that the quality of self-published work is hurting literature in general. I counter this notion with one of my own: Pricing e-books higher than mass market paperbacks used to cost is having an even more deleterious effect on reading habits. Books are not only in competition with each other, they compete with everything else a reader might do with their time. Creating a poor experience is a way to lose readers, not a way to protect a physical edition or a beloved bookstore. And high prices are a quick and easy way to create a poor reading experience, harming everyone.
High prices are also a way to drive customers to other, less expensive books. Rather than serving to protect print editions, publishers are creating a market for self-published works. And harmful price practices is not the only way the Big Five are powering the self-publishing revolution.
Joe Konrath: "And I heard, as it were, the noise of thunder. One of the four beasts saying, 'Come and see.' and I saw, and behold a white horse"
Welcome to the Book of Revelations.
The shadow industry of self-publishing now has a tiny bit of light shed on it, and it's blinding.
Many worried about the Tsunami of Crap, bringing down the overall quality of books. I countered that argument in 2011 using common sense. Now here are the facts to back it up.
But how will the industry react to this news? Let's ask Legacy John, an imaginary amalgam of gatekeepers created by me from the nonsense they continually spout.
Legacy John: This data doesn't reflect our own data. Readers are continuing to pay higher prices for what they consider to be premium material, and overall gross is what ultimately matters, not average reviews that are only differentiated by a fraction of a percent.
Readers recognize the imprimatur that comes from our brand, and will pay what we want them to pay. In fact, if we controlled the retail price, we could make them pay even more.
Joe: Uh, LJ. You tried that. It was called the Agency Model. And the DOJ filed suit for collusion. And you lost.
Legacy John: Listen to me! Readers WANT to pay more! Watch and see how the data confirms this.
Joe: Okay, let's watch...
Hugh: Next, we’re going to look at some sales numbers within these genre bestseller lists to see how underserving a high-demand market has resulted in the creation of a brand new supply of books.
Listening to Reader Demand
The next chart shows the percentage of genre e-books on several Amazon bestseller lists according to how they were published:
The bestseller lists used were Mystery/Thriller, Science Fiction/Fantasy, and Romance. All of the subcategories within these three main genres were also included. Why choose these genres? Because they are the most popular with readers. Our data guru ran a spider through overall bestseller lists and found that these three genres accounted for 70% of the top 100 bestsellers on Amazon and well over half of the top 1,000 bestsellers.3 Future earnings reports will look at all of fiction4, but for now, we started with a simpler data set that captured the vast majority of what readers purchase.
What this chart shows is that indie and small-publisher titles dominate the bestselling genres on Amazon. We can clearly see that the demand from readers for more of these works is not being fully met by traditional publishing. Among the advice given to aspiring writers, you’ll often hear: “Write in the correct genre.” And here we see the sales-potential of that advice.
Looking back to the price/review comparison and also to the chart above, we can surmise that major publishers would be well-served by publishing far more titles in these genres and also by charging less for them. This is wisdom the indie community knows very well. Publishers must be tuning in, as prices began to decline last year [link], and publishers such as Simon & Schuster have announced new genre imprints [link]. Hopefully this data will help accelerate these trends, for the benefit of both the reader and the newly signed author.
Now take a look at this chart:
Again, daily unit sales are estimated by sales ranking, using publicly shared data from dozens of authors who have logged the correlation between rank and daily purchases (included among those authors are the two involved in this study).5 Some obvious things immediately jump out. The first is that Amazon has an incredible ability to market their own works, which shouldn’t be too surprising, considering it’s their storefront. We see from this and the previous chart that their 4% of titles command an amazing 15% of the sales. That’s impressive. It’s nearly 4 times the average unit sales volume per book. Now look at the Big Five, who with all their marketing efforts and brand recognition actually end up with pretty average per-book sales: a mere 1.2 times the overall average.
The other eye-popper here is that indie authors are outselling the Big Five. That’s the entire Big Five. Combined. Indie and small-press books account for half of the e-book sales in the most popular and bestselling genres on Amazon.
Joe: "Then another horse came out, a fiery red one. Its rider was given power to take peace from the earth and to make men slay each other. To him was given a large sword."
Legacy John: Why do you keep quoting scripture?
Joe: Because your ass is getting kicked in biblical proportions.
Legacy John: Maybe you and I are reading different data, but this is based on unit sales, not gross sales.
Joe: So?
Legacy John: Since we price our books higher than you do, we make more money than you do. And people are still willing to pay the prices we charge. So who's looking stupid now? If we charged $3.99 for an ebook, we'd be leaving money on the table.
Joe: Whose money?
Legacy John: Come again?
Joe: Whose money would you be leaving on the table?
Legacy John: Our money, of course. We make 75% of net on ebooks. Why would we want to lower prices?
Joe: Because authors are only making 25%, which translated to 12.5% royalties of the Digital List Price you set. Why do you think authors are going to continue accepting 12.5% when they can get 70% by self-pubbing, and outsell you in units? Your average book price was $7.00, which means $0.88 goes to the author. The average self pubbed book price is $3.25, which means $2.28 goes to the author.
Authors make almost three times as much when they self-publish.
Legacy John: The data is cherry picked. It only counts a few bestsellers.
Joe: The royalties remain the same. On average, self-pubbed books earn authors more money, and sells more copies than the books you publish.
Legacy John: Well, we can always lower prices. Then we'll outsell indies and make it up in quantity.
Joe: Do you really think if you lower your prices from $7.00 to $3.25 your sales will triple in volume?
Legacy John: It could happen.
Joe: When why haven't you done this sooner?
Legacy John: We've lowered prices on select titles.
Joe: And those titles are no doubt included in this data. Know what I think? I think if you lower prices, you'll gain a bit in volume, but not enough to overcome the overall loss of income. On a $3.25 legacy book, the author only earns $0.41.
Legacy John: Why do you keep bringing up how much the author earns?
Joe: Wrong question. The question is, "Why don't you care how much the author earns?"
Legacy John: Look, we do more than simply push a button to publish books. We edit, provide art, proofread…
Joe: Self-pubbed writers can hire professionals to do that. For sunk, fixed costs that don't require giving up royalties for the term of copyright (death plus seventy years.)
Legacy John: We have whole divisions devoted to marketing, advertising, and publicity…
Joe: How do you advertise ebooks?
Legacy John: Excuse me?
Joe: I know you spend a lot of money on Amazon. According to the New Yorker, you have to give Amazon a percentage of your annual gross sales, from 5%-7%. That's what you pay for various Amazon promotions, right?
Self-pubbed authors pay Amazon nothing, and those in KDP Select get Countdown Deals and free days. Amazon-published authors also get these services (email campaigns, Kindle Daily Deal, Gold Box, banner ads, etc.) for free, and A-Pub pays a minimum of 35% royalties off list compared to your 12.5%. Do the promotional fees you pay Amazon come from your royalties, or off the gross so the authors have to bear the expense too?
Legacy John: Huh? I… uh…
Joe: As a self-pubbed author who made $1M last year, I paid about $10k in various promotions. About 1% of my income. Sounds like you're paying quite a bit to sell as well as you're selling. And that doesn't even include all the money you must spend through your marketing, advertising, and publicity divisions that do… what exactly do they do for your average author?
Legacy John: Well, we do print ads.
Joe: Uh-huh. How effective are those?
Legacy John: We're not really sure. And we've never tried to figure it out.
Joe: Sounds smart.
Legacy John: We also get reviews.
Joe: I have 10,000 reader reviews on Amazon.
Legacy John: And we... we give away galleys and advance reading copies! Yeah! Because print is still 70% - 75% of the business, haven't you heard?
Joe: I've heard. But I've found that data to be lacking because it doesn't account for Amazon and the shadow industry of self-pubbing.
Legacy John: Well, the data is true. It certainly is. Maybe self-pubbed ebooks cost less, and outsell our ebooks, and earn the author more, but the big money is still in paper.
Joe: Really? Let's look at some more data.
Hugh: Instead of feeling any sort of confirmation bias, my immediate reaction was to reject these findings. Surely they weren’t accurate. And so I complained to our magical data snoop that we were only looking at e-book sales. What percentage of the overall reading market does this represent? Our data guru said this was a question we could easily answer. You won’t believe what he found.
Everything You Know About E-Books is Wrong
The experts? They have no idea. It’s not entirely their fault; it’s just that the data they’re working with is fundamentally flawed.
You may have heard from other reports that e-books account for roughly 25% of overall book sales. But this figure is based only on sales reported by major publishers. E-book distributors like Amazon, Barnes & Noble, Kobo, the iBookstore, and Google Play don’t reveal their sales data. That means that self-published e-books are not counted in that 25%.
Neither are small presses, e-only presses, or Amazon’s publishing imprints. This would be like the Cookie Council seeking a report on global cookie sales and polling a handful of Girl Scout troops for the answer—then announcing that 25% of worldwide cookie sales are Thin Mints. But this is wrong. They’re just looking at Girl Scout cookies, and even then only a handful of troops. Every pronouncement about e-book adoption is flawed for the same reason. It’s looking at only a small corner of a much bigger picture. (It’s worth noting that our own report is also limited in that it’s looking only at Amazon—chosen for being the largest book retailer in the world—but we acknowledge and state this limitation, and we plan on releasing broader reports in the future.)
There’s a second and equally important reason to doubt a 25% e-book penetration number: The other 75% of those titles includes textbooks, academic books, cookbooks, children’s books, and all the many categories that are relatively safe from digitization (for now). Print remains healthy in these categories, but these aren’t the books most people think of when they hear that percentage quoted. E-book market share is generally spoken of in the context of the New York Times bestsellers, the novels and non-fiction works that are referred to as “trade” publications. If we look specifically at this trade market, it’s quite likely that e-books already account for more than 50% of current sales (some publishers have intimated as much [link]). Factoring in self-publishing and further limiting the scope to fiction, I’ve seen guesses as high as 70%. But that can’t be possible, right?
I asked our data guru if we could find out. Could we look at the bestseller lists and tally by format? Of course, we would be looking only at Amazon, which might skew toward e-books—but to reiterate, we are looking at the largest bookseller in the world, digital or print. To do a first study of this sort on a smaller distributor would be less than ideal. Still, keep this caveat in mind.
We analyzed the overall Amazon bestseller lists for several categories and used the web spider to grab the text description of format type: paperback, hardback, e-book, or audiobook. This is what we found:
Did the smelling salts work? Are you with us? It turns out that 86% of the top 2,500 genre fiction bestsellers in the overall Amazon store are e-books. At the top of the charts, the dominance of e-books is even more extreme. 92% of the Top-100 best-selling books in these genres are e-books!
I know, right? Allow that to soak in for a moment, and then let’s look at author earnings. Here, we will see that publishers should cross their fingers and hope that the share of e-book sales increases rather than flattens. Because they are doing quite well on the backs of their authors. Major publishers are taking in record profits [link], but they aren’t the big winners to emerge from this report. Read on. The real story of self-publishing is up next.
Joe: Hmm. That kinda blows your "paper accounts for 75% of sales" theory all to hell.
Legacy John: That doesn't count all paper sales! That data is just looking at Amazon, not B&N or libraries or other places paper books are sold.
Joe: Last year Bowker estimated that online retail accounts for almost half of total book sales, and that 30% of that was ebooks. Now, I don't know where they got their data, because Amazon doesn't reveal it. But according to Hugh's data, of the Top 2500 bestsellers, only 5% sold on Amazon were paper.
I'm no math whiz, but your paper sales must be astronomical outside of Amazon. If that's the case, you certainly have nothing to worry about. Your robust paper industry will no doubt endure forever.
Or at least until B&N closes. I heard they just fired a lot of their Nook engineers. But that probably doesn't mean anything…
Hugh: Writing Doesn’t Pay?
This is a story that has been sensed by many. The clues are all around us, but the full picture proves elusive. It is being told in anecdotes on online forums, in private Facebook groups, at publishing conventions, and in the comment sections of industry articles. Authors are claiming to be making more money now with self-publishing than they made in decades with traditional publishers, often with the same books [link]. I’ve personally heard from nearly a thousand authors who are making hundreds of dollars a month with their self-published works. I know many who are making thousands a month, even a few who are making hundreds of thousands a month. But these extreme outliers interest me far less than the mid-list authors who are now paying a bill or two from their writing.
My interest in this story began the moment I became an outlier. When major media outlets began asking for interviews, my first thought was that they were burying the lead. My life had truly changed months prior, when I’d first started making dribs and drabs here and there. And I knew this was happening for more and more writers every day. But that inspiring story was being buried by headlines about those whose luck was especially outsized (as mine has been).
Before we reveal the next results of our study, keep in mind that self-publishing is not a gold rush. It isn’t a get-rich-quick scheme. There are no short cuts, just a lot of effort and a lot of luck. Those who do well often work ludicrous hours in order to publish several books a year. They do this while working day jobs until they no longer need day jobs. This is also true of the writers earning hundreds or even thousands a month. Please keep this in mind. The beauty of self-publishing is the ownership and control of one’s work. You can price it right, hire the editor and cover artist you want to work with, release as often and in as many genres as you want, give books away, and enjoy a direct relationship with your reader. It isn’t for everyone, but you’re about to see a good reason why more authors might want to consider this as an option.
Here is what our data guru found when he used sales per ranking data5 and applied it to the top 7,000 bestselling genre works on Amazon today:
Looks good for the Big Five, doesn’t it? When it comes to gross dollar sales, they take half the pie. Remember, they only account for a little over a quarter of the unit sales. Also keep in mind that they only have to pay 25% of net revenue to the author. By contrast, self-published authors on Amazon’s platform keep 70% of the total purchase price.6 Let’s now look at revenue from the author’s perspective:
It’s a complete inversion. Indie authors are earning nearly half the total author revenue from genre fiction sales on Amazon. Nearly half. This next chart reveals why:
Blue represents the author. You can clearly see that for Big-Five published works, the publisher makes more than twice what the author makes for the sale of an e-book. Keep in mind that the profit margins for publishers are better on e-books than they are on hardbacks [link]. That means the author gets a smaller cut while the publisher takes a larger share. This, despite the fact that e-books do not require printing, warehousing, or shipping. As a result, self-published authors as a group are making 50% more profit than their traditionally published counterparts, even though their books have only half the gross sales revenue.
Before we move on, take another long look at this chart. Here you find everything that needs to change in the publishing industry. Readers and writers alike should take note.
A quick note on how we calculated author earnings for the Big Five publishers in the above graphs. These numbers are based on estimates of wholesale pricing for e-books (publisher’s net was modeled as 80% of Amazon price). That estimate could be off by 10% either way, but even if we adjusted it to assume a wholesale price of 120% of retail (which would mean Amazon is taking a loss on every traditionally published e-book sold), indie authors would still come out on top. Also interesting is the observation that for the top-selling genres, Amazon is currently making nearly as much profit from indie e-books as from Big Five e-books.7
It’s also worth keeping in mind that this graph ignores the long tail of publishing. We’re just looking at the top 7,000 genre e-books. This represents the most popular offerings from both self-published authors and their traditionally published counterparts, which makes it an extremely fair comparison. Other surveys have compared<span c