Does Bloomsbury really expect 25% of its sales in 2011 to be ebooks?

Bloomsbury, which publishes Harry Potter, is saying some very un-Publisher like things (found via TeleRead) –

  1. In January and February 2011 it saw a 600% increase in ebook sales.
  2. It expects that ebook sales of Bloomsbury titles in 2011 might be as high as 25% of total book sales – provided present trends continue.
  3. It expects ebook sales to account for more than 25% of profits. It obviously didn’t get the Secret Society of Publishers memo. Here’s what Bloomsbury’s executive director said –

    … would not reveal what proportion of profits ebook sales were likely to account for in 2011, but it is expected to be considerably higher than 25pc.

    Digital book margins are higher because there are no printing costs involved nor any extra costs incurred by over-estimating print runs or pulping books with errors in them. “The biggest saving is in cock-ups,” Mr Charkin said.

  4. There go Mr. Charkin’s chances of getting appointed to the Grand Alchemist Council of the Secret Society of PublishersNo Croquet in the Earl of Sandwich’s gardens for you, my boy. No Publisher in his right mind would ever admit that ebooks save money – that there are no printing costs, no errors, and no returns. Mr. Charkin fails to mention how difficult it is to convert digital book files into impossible formats like text and PDF and Kindle format. He also neglects to mention the little armies of magical gnomes that have to be hired and paid in gold coins from the time of Queen Victoria.
  5. In the US, Howard Jacobson’s Man Booker Prize-winning novel sold 42% of copies in ebook format. That’s not a mistake – it really is 42%.

It’s unimaginable. A Publisher admitting that ebooks are more profitable than paper books, that ebooks result in lots of cost savings, and that ebooks might account for 25% of book sales in 2011.

You almost think it’s some sort of joke and that tomorrow Bloomsbury will say – Oh, we just played our April Fool’s joke two weeks too early.

Estimating Kindle Book Sales + Wondering if $23.8 billion book sales will survive

There was a very interesting article in Forbes last week speculating about Amazon’s plans to leverage the Kindle to create a billion dollar eBook business.

The Forbes Kindle article pointed out a few things that would help Amazon sell more Kindle Books –

  1. The price-cut on the Kindle. Since then we’ve also gotten the new Kindle DX 2 at a lower price of $379. So Forbes are spot-on that Amazon will probably be selling a lot more Kindles and as a consequence a lot more Kindle ebooks.
  2. Kindle Apps on various platforms. Another valid point as having apps on most of the major phone platforms and on the PC, Mac, and iPad give Amazon a lot more channels to sell Kindle books.  
  3. The larger inventory of the Kindle Store.  

It then went on to predict that Amazon could earn $800 million from ebook sales in 2010.

Predicting Kindle Book Sales in 2010

Here are their assumptions (based on research done by Foner Books in June 2009) for ebook sales via Kindles –

  • 24 eBooks sold per Kindle per year. Not a bad assumption though you have to wonder – especially since we are only considering ebooks sold from the Kindle Store. A safer assumption would be 12 to 24 $9.99 books (let’s say 1.5 per month) and 36 to 48 $1 books (let’s say 3.5 per month).
  • 3 million Kindles in use in 2010. Not a bad assumption either – although taking a figure higher than the estimated sales by end 2009 would be good. In my opinion using a figure like 4 or 5 million would work better (let’s use 4.5 million).
  • Average selling price to be $12 per eBook. This is where they are being overly optimistic. We really should consider that there will be more sales of the cheaper books.

Forbes estimates $864 million in ebook sales revenue for Amazon in 2010 (just from Kindles). Our estimates are $809 million from $9.99 books and an additional 189 million from $1 books for a grand total of $998 million (what a remarkably convenient number).  

They also guessed that ebook sales from Kindle Apps might be $1.2 billion a year – That piece of guesswork is quite a stretch as they assumed an average of 1 book bought per Kindle App per year and that 100 million people would download the Kindle App to one or more of their devices.

Let’s go with a much more conservative (and probably more realistic) prediction for Kindle eBook sales from iPhones, Android phones, PCs, Macs, and iPads –

  1. Let’s say 5 million Kindle App users across iPhone, Blackberry, Android, and iPad. Each of them buy 2 books a year at $9.99 and an additional 2 books a year at $1. That’s $109.9 million in 2010.
  2. Let’s say 2 million Kindle App users across PC and Mac. Each of them buy 1 book a year at $9.99 and 1 book a year at $1. That’s $21.98 million in 2010.

We’re being a little conservative here – These numbers might go up drastically as more people start reading on their phones and their PCs. They will also probably go up more as people realize that the Kindle Store has far more choice than other ebook stores. The conservative estimate gives us an additional $131.88 million.

Our grand total estimate for Kindle Book sales in 2010 comes to $1.129 billion. Amazon probably already has a billion dollar ebook business.

While that number is impressive there’s another number that’s far more impressive.

$23.8 billion a year in US Book Sales – Wondering if it’ll survive

The US Book Market generates $23.8 billion a year in book sales revenue. That’s an astounding number and it makes you realize the upside for Amazon’s Kindle platform. $23.8 billion a year also explains why Apple want to pretend the iPad is an ebook reader and why Google want so badly to get into selling books.

We’re impressed by the fact that Kindle Book sales might be $1.129 billion in 2010 and that’s still only 4.7% of the total.

When we try to expand the share of ebooks beyond this 4.7% figure we run into a few very interesting problems –

  1. Straight off we know that we have lower priced ebooks. We get a lot of $1 ebooks, lots of ebooks between $1 and $10, a smaller number of $12.99 ebooks, and a very small number of $14.99 books. Contrast that with physical books which are usually priced higher.
  2. We also have to factor in that there are a ton of very cheap books and free public domain books that are eating up time that readers might otherwise devote to $6 paperbacks and $12 hardcovers or even $7 ebooks. With physical books readers were paying $4, $6, or $8 for the same books that in ebook format they can read for free or for a dollar.
  3. There’s an assumption that higher sales volume will make up for lower ebook prices. However, we don’t know for a fact that sales will be higher – People might not buy more books, people are rather unlikely to find more time for reading, and it’s not like they’ll suddenly start reading much faster. Plus there’s the whole Greater Depression to consider.
  4. There will be a lot more piracy. There’s no way around it – Earlier if people wanted to read a book they had to buy it. Now, they can buy it or they can rationalize stealing it. Some will choose the latter.
  5. We’re just getting started. We’re seeing low prices and brutal competition and this is the very beginning. What’s going to happen when the stakes are higher for both authors/publishers and eBook Stores/Platforms.

My guess is that we’ll see three stages of destruction of the $23.8 billion books business. If at any point a company gains overwhelming market share and control they’ll halt the slide. However, it’s much likelier that we progress through these three stages of destruction steadily and painfully.

Three Stages of Destruction – Bidding Farewell to $23.8 Billion

As a reference point we’re looking at a $23.8 billion books business (as of 2008) that’ll probably morph into a $21 billion physical books business and a $1.5 billion ebooks business (by end 2010). From there we’ll see three progressively worse stages –  

  1. eBooks hit 25% share and competition gets brutal. The market leader (probably still Amazon) will see their ebook revenue explode from $1.129 billion to $5.645 billion. Imagine that – Over $5 billion just from ebook sales. At this stage a lot of companies like Apple and Google will feel it’s worth it to steal this market – Even if it involves blowing up the market and reducing it from $5.645 billion to $2 or $3 billion.
  2. eBooks hit 40% share and revenue and profits fall off a cliff. If Amazon lose their dominant position and we get lots of competition we’ll definitely see this happen. Book sales will be 60% of the $23.8 billion ($14.28 billion) and the remaining 40% ($9.52 billion) will be ebooks – Except that the brutal competition and lower prices will morph that $9.52 billion into a much smaller $4.75 billion (roughly half). Yes, we’re claiming that ebook sales revenue when ebooks have 40% market share will be much less than at 25% market share – If you think about it it makes a lot of sense. Companies will feel it’s OK to blow up half of the $9.52 billion that shifts to ebooks IF it ensures that the remaining half goes to their pocket.
  3. eBooks hit 60% and revenue and profits are decimated. This will happen if we continue to see lots of competition. Book sales will be just $9.52 billion and be relatively protected. However, the 60% that is ebook sales will not be $14.28 billion. It would have shrunk to just $4 or $5 billion. It’ll be the result of the same destructive, self-centered tendencies – A company would rather that $4 billion goes into their pockets and $10.28 billion disappears than let another company get the money. At this stage 43.2% of the $23.8 billion book sales revenue would have disappeared – destroyed by the brutal competition in eBooks and eReaders.

If a company gets overwhelming market share at any point during the process it might be able to stall the decline of book sales revenue. However, it’s not a given since there will be infinite competition – Local bookstores want to sell ebooks, any random website can start selling ebooks, every company is getting into eReaders. We basically have a giant mess on our hands – The Tragedy of the Commons at its finest.

Ask any company – Do you want to blow up $10.28 billion of book sales?

They’ll shudder at the thought. However, ask them a different question –

Do you want to get $5 billion a year? All you have to do is blow up $10.28 billion of book sales. Will you do it?

They’ll agree in a heartbeat.

That’s what it comes down to – Taking that $23.8 billion a year in book sales revenue and carving out a piece of it. Companies will do anything for a piece – including blowing up most of the $23.8 billion.

Survey says 33% of iPad owners frequently read ebooks

Well, sort of. It is a survey after all.

Change Wave did a survey that asked 153 iPad owners what they most often utilized their iPads for. Each respondent was allowed to choose up to 5 uses. The results were –

  1. Surfing the Internet – 83%.
  2. Checking Email – 71%.
  3. Apps from Apple App Stores (whatever that means) – 56%.
  4. Watching Videos – 48%.
  5. Reading eBooks – 33%.
  6. Playing Games – 29%.
  7. Reading Magazines/Newspapers – 28%.
  8. Listening to Music – 18%.

It’s impressive that ebooks beat out games (almost to the point that it makes you wonder about the accuracy of the survey).

It’s also worth noting that for all the hype of the iPad being an eReader and Apple trying its best to force the iPad into the eReader niche only 33% of users listed reading books as one of the main things they do. They had up to 5 slots and only 33% of them chose reading ebooks.

The numbers add up to 356%. Not sure exactly how those 5 choices were tallied up – Guessing they just counted a vote for ebooks if it was listed in any of the 5 slots.

33% of 1 million? 33% of a couple million?

The Press not only wrongly categorize the iPad as an eReader they also compare iPad sales figures against eReader sales figures.

If this survey is correct (and it’s positive about the iPad so the Press will assume it is) then it means only 33% of iPad owners are actually reading books on it.

Let’s say 2 million iPads have been sold so far. And that 5 million sell this year.

That would mean 660,000 people reading books on their iPad so far and 1.66 million iPads that are used for reading books by the end of the year. That brings up 3 questions –

  1. If only 33% of iPad owners read books – That’s 1.66 million by end of 2010. How significant is that? Obviously not as significant as pretending every iPad owner reads ebooks.  
  2. Do people who read on the iPad buy and read books as often as Kindle owners (and owners of other dedicated eReaders)? If not, what is the difference?  
  3. Are these people who weren’t reading and now are reading because they can get ebooks on the iPad? Are these people who would have bought a dedicated eReader – If so, are they reading less or more?

The figure of 33%, if correct, gives us a starting point for guessing lost eReader sales.

Guesstimating lost eReader sales

Assuming 2 million iPads have been sold so far we get 660K people who read ebooks on the iPad.

  • Let’s say half of them did not consider an eReader. That leaves 330K.
  • Let’s say 50% of the remaining  would have ended up buying an iPhone or iPod touch or some other multi-purpose device. Simply because being able to do multiple things appealed to them. 
  • We’re left with 165K lost sales.

It’s fashionable (as in this survey) to refer to ‘so many iPad sales in just a couple of weeks’. However, we had –

  • January 27th to April 3rd. When people were delaying their purchases. 
  • April 3rd to May 21st. When iPads were actually available.

That’s over 3 months and 3 weeks. Let’s say 3.75 months. So eReaders lost 165K units of sales in 3.75 months. That’s 44,000 lost ereader sales a month.

What eReader sales might we lose over the course of 2010?

So far we’ve had 165,000 lost sales at the rate of roughly 44,000 sales lost a month.

Over the next 7 months in the best case scenario sales losses occur at the same rate – which equates to an additional 308,000 lost. That means a total loss of 473,000 sales. A significant loss but not a huge one.

In the worst case scenario the rate of lost sales keeps going up and we’re losing an average of 100,000 sales a month. That would mean 865,000 eReader sales lost to the iPad in 2010. Pretty significant – However, it still wouldn’t kill eReaders. In fact, they’d probably sell more than they did last year (assuming 5 million in 2009).

That 865,000 sales lost number is pretty much the upper limit. It’s assuming 100,000 sales lost a month from here on out.

In the worst case the iPad will eat up 20% of eReader sales

It’s obviously a very different figure for ‘lost eReader sales’ if you compare number of iPads sold against number of eReaders sold. However, as this survey shows, only 33% of people read ebooks on their iPad. So it’s pretty unrealistic to count the other 67% of iPads as ‘lost eReader sales’.

In the realistic worst case scenario we lose 865,000 eReader sales to the iPad which would be less than 20% of eReader sales for 2010.

If you want to play games with numbers you could claim that all 33% of iPads that are used for reading books are lost eReader sales (even though they’d probably have been iPhone and iPod sales if the iPad wasn’t around). If we do go with that and we have 5 million iPad sales, then we get 1.66 million iPads sold that were lost eReader sales.

If 5 million eReaders were supposed to be sold this year then a loss of 1.66 million is 33%. A huge number but it’s still not a big enough number to kill the eReader. Also, with this we’re assuming that just 3.34 million eReaders sell this year. That’s unlikely – Amazon alone might sell that many Kindles.

Basically, the iPad is doing exactly what you’d logically think it would – stealing chunks of various markets (iPod, Mac, Netbook, Laptop, Kindle, etc.) and combining those to get big numbers – at least so far.

What’s the benchmark for the iPad to be considered a huge success?

If you’re thinking ‘revolutionary and magical’ and a new paradigm of computing then it’s probably tens of millions of units. That would mean hitting 5 million or more in its first year.

If Apple persists in going with the eReader route then it can keep claiming it has huge comparative numbers even though only 33% of them actually read ebooks. This is probably what Apple is going to do. Pick markets like Tablet PCs and eReaders that are small and try to show that the iPad dominates them. It’s hoping that the buzz gets lots of people into buying the iPad.

That in turn would let Apple hit economies of scale and sell the iPad at a more compelling price point.

The 33% number is really surprising. Guess the Apple reality distortion field had affected me too because it seemed like 75% of the people who bought an iPad talked about reading lots of books on it.