Author Earnings Hugh Howey Self Publishing Trade Publishing
What kind of reader are you? Big Pub thinks they know.
March 3, 2014
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                                                                                                 Via: Flickr

This past month we saw the birth of AuthorEarnings, a website created by best-selling author and self-publishing guru Hugh Howey, in trying to expose what kind of money authors, both trade and self published, are really making. Howey’s data has raised a bit of controversy, with rebuttals coming from several trade-publishing supporters such as Mike Shatzkin, Dana Weinberg at DBW, and agents such as Donald Maass calling the whole study such things as “incomplete”, “a stellar example of what not to do”, and saying that it “raises more questions than answers”.

I’m not going to argue Hugh’s numbers here. I feel they speak for themselves and people will twist them to support whatever agenda they have. Unlike other studies, Howey provides the raw data for just that purpose. One thing that I did notice in the many responses was the insistence by the trade-pub crowd that the numbers meant little, that it was simply not how the trade publishing world worked. They say this despite offering no data to support their argument. Regardless, they fail to see (or tactfully ignore) the main question that the reports attempt to answer; Is a new writer better off pursuing a trade-pub deal, or going it alone with self-publishing?

It’s often said that publishers no longer view the reader as their customer, the customer for the publishing industry is now accepted to be the book store. The reader is now viewed as a persona, a variable to plug into an algorithm in an attempt to find the next 50 Shades of Grey.

So, from a Big Publishing House point-of-view, what kind of reader are you? Most would answer by genre; I like Thrillers and Science fiction, or by author; I like Bella Andre and H.M. Ward. I think trade-pub sees the reader in an entirely different way.  To trade-pub, you the reader fall into one of three categories;

               The Voracious Reader: This is the reader who spends his entertainment time and money on books and little else. They put one down and immediately shop for the next one. They make up the smallest percentage of the reading public but spend the most dollars-per-person by a large amount. Most were early adopters of the e-reader, and due to their reading appetites seek out lower priced books. They are the group most likely to try an unknown self-published author.

               The Casual Reader: This is the reader who divides their entertainment time and money among several other different sources, be they TV, movies, or newspapers, in addition to books. They stick to authors they know, usually best-selling names, and rarely divert from them. Their busy lives and short supply of free time limit their reading to less than 12 books a year. Price is not much of an issue due to the low volume of books they purchase. They prefer paperback and hardcover or are late adopters of e-books. They are also the group least likely to try an unknown self-published author.

               The Social Reader: This reader prefers to get their entertainment from sources other than books, reading perhaps one or two a year at the most. However, they are by far the largest population of readers out there. They read mostly for social reasons; when the Casual Readers in their social group are all talking-FaceBooking-Tweeting about a book they will not hesitate to pick it up. They are the group most likely to be seen reading the hot book-of-the-moment, and also the ones telling the world via every social connection they have what it is they are reading, thus promoting it even further. The Social Reader is what makes a book a blockbuster. By their nature they are nearly impossible to market to. The Social reader requires a Casual Reader to stimulate their reading/purchasing of a book.

Most industries would target the voracious consumer as they would logically be their most valued customer. If your product were candy bars this would be true. Books however, are much different in flavor and ingredients. They also cost a significant amount of money to produce and a different recipe is required every time. It is much more profitable to make one candy bar that everyone likes and sell it millions of times than it is to produce millions of different candy bars and sell one of each to millions of people.

As book prices rose, voracious readers found other means than buying new to feed their habit. Libraries, used book stores, book swaps, etc. In example, for every reader who bought Stephen King’s latest in either hardcover or paperback, there were probably fifty who didn’t buy the book new but read it anyway. To test this I visited my local library when King’s book 11/22/63 came out back in July of 2012, I reserved it on the library list, and was informed that I was number 234 in the queue. That means 233 people who wanted to read his latest, but weren’t willing to pay retail for it, were willing to wait behind up to 232 others. I still have yet to receive a call telling me that it is now my turn. With low-priced ebooks, these readers are buying again, it’s very cost effective and there’s no wait. They can do so without leaving their chair. Here is where Big Pub is making a big mistake, again. By slapping high prices on ebooks, they are discouraging this group. The Author Earnings reports prove (to me) that this “shadow” market is now being served by indies.

Consider this quote from Mike Shatzkin, made on his blog titled “Vendor-managed inventory: why it is more important than ever“, April 23, 2013;

              Looking at the store’s records for the month, 65% of the units sold were single units: one copy of a title. Only 35% were of books that sold 2 or more. (I didn’t ask the question, but that would suggest that 80-90 percent of the titles that sold any copies only sold one.)

               Then, the following month, once again 65% of the units sold were singles. But only 20-30 percent of them were the same books as had sold as singles the prior month. Upwards of 70% of them were different titles. And upwards of 70% of the ones that sold one the prior month didn’t sell at all.”

What Mike is describing is Casual Reader purchasing activity. A book a month and a different title each month.

If you combine this statement with the reader personas, then add in the economics of book production and distribution, it’s not hard to come to the conclusion that the targeted reader for the BPH’s, the one they spend their marketing efforts on, is the Casual Reader. Once you realize this every baffling practice adopted by Big-Pub falls into place; the select list of big-name authors, the monthly new releases, the high cost of trade-pub ebooks, Windowing, the purchased coop space, the limited marketing push for new authors, the six-month shelf life, the lack of marketing for the existing mid-list. It all makes sense now.

More importantly it leads to this; There is an upper limit to how many Casual Reader Authors a publishing house can have at any one time.

Following this profit-maximizing strategy is the way they position themselves for the elusive blockbuster novel. This is the book that attracts the Social Reader, the reader who was the real target all along. Once this happens that book becomes pure profit for the publisher.

While the Casual Reader is the target for all the Big-Pub marketing, the end-goal is always the Social Reader that they cultivate. Whether it be by word-of-mouth, social networks, or just peer pressure, they are the trigger that produces the blockbuster. It’s a trigger that Big-Pub cannot pull on their own. The Voracious Reader, and the authors they read, are viewed as the unfortunate cost of reaching the Casual Reader. The six-month trial period a new author/title gets is simply how long it takes Big-Pub to determine whether or not the Social Reader has come into play or not.

Trade-Pub lives in fear of losing the Casual Reader. They want to increase their number of Casual Readers without turning them into Voracious Readers, to do so requires that they feed them on a regular basis. If a Casual Reader were to become a Voracious Reader that would lead to less Casual Reader Authors being read, Big-Pub does not produce enough of them and if they did the cost of reading them all would be very high. If this were to happen it would reduce the chances of the blockbuster trigger being pulled. This is why Big-Pub regulates the release of Casual Reader Authors titles, slowing them down to a schedule that discourages the Casual Reader from becoming anything else. The Social Reader is an elusive animal, but their numbers are HUGE. 50 Shades of Grey did a lot to support this, most readers admitted that they had never read a book in that genre before, yet the book sold millions of copies.

This is further supported by the hand-written note made by Carolyn Reidy, CEO of Simon and Shuster, on the margin of an E-mail made to Eddie Cue of Apple in regard to the Big 6-Apple price fixing case;

               “Higher prices slows Ebks/casual purchaser/keeps retailers/stops authors leaving”

The Apple/Big-6 case points to just how afraid the publishers are. Price is usually the defense of the collusion charge, but the real reason is simply that Amazon can do something that they cannot; target the Voracious Reader.

In the beginning Amazon was like most on-line businesses, they just have a more forward thinking guy at the helm. He saw a future for books that they did not. Amazon was the first company that had a motivation to turn Casual Readers into Voracious Readers.

Jeff Bezos modeled Amazon around the idea that selling one unit each of a million products  would make the same amount of money as selling a million units of one product. Books were the perfect product for this, particularly in digital format. The only thing he lacked was the means and the content. This lead to the invention of the Kindle (the means) and the creation of Kindle Direct Publishing (the content). Amazon simply needed more content, a tsunami of it if you will, than the Big-6 were willing to produce.

Trade-pubs biggest fear is due to the fact that they have no way to copy or compete with this. If they join Amazon (without the aid of collusion) they lose a large degree of control (read; Pricing). Remember, Trade-pub depends on the Casual Reader > Social Reader > Blockbuster Model. They count on the Grisham’s, Patterson’s, Brown’s and King’s to keep them afloat and provide the funds necessary for them to throw mid-list spaghetti at the wall hoping for the next 50 Shades to stick.

To be fair, Amazon, and the self-publishers they enable, are doing the same thing. Most are also hoping to trigger a blockbuster. They are just doing so by way of the Voracious Reader > Social reader > Blockbuster Model. The big difference is that while doing so they are keeping their copyright, maintaining complete control of their product, publishing on their own schedule, writing what they wish to write, giving the readers longer than six months to discover them, and according to Hugh’s data, making money when, under the traditional model, they’d probably still be waiting to be accepted by an agent.

As soon as writers realize that Big-Pub is not even looking for the next John Grisham, and is only looking for the next E.L. James, will they still go the way of the query letter? Will they still spend months on submissions and hand over 15% of a advance to an agent, all while they wait a year or more for their book to get its six-month chance at the lottery, a lottery that may not even exist as they think it does? What will the mid-list authors currently under contract do with their next book?

What will the Big Publishers do when the quality writers no longer submit their work? What will happen when the successful self-published authors refuse to be cherry picked, turning down million dollar offers, or be culled, as one agent recently put it? Without content and a steady supply of fresh spaghetti to throw at the wall, where will they go?

Randall Wood is a former Special Operations Medic and the author of the political thriller Closure.

About author

Randall

Randall Wood is the author of the popular Jack Randall series of thrillers as well as several short stories surrounding the main characters.

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There are 27 comments

  • Jim Self says:

    Good points! It’s pretty funny when you look at it through the lens of the “1000 true fans” approach.

    I’d add one thing: what will happen when the advantages of publishing through a Big X publishing house (paper distribution, advance, and access to markets like Wal-Mart) become less relevant? What will they have to entice the E.L. James’ of the world when they’re only offering 25% royalties on ebooks in exchange? Even 50% royalties? If the unit sales of the entire book market is at 50%+ ebooks, you have to start offering ebook royalties of 50%+ as well just for the author to mathematically come out even when comparing tradpub to indiepub. Instead, they’re offering a shrinking royalty for a shrinking section of the market.

  • Randall says:

    Good point, Jim,

    I also wonder if we’ll see a day where the Amazon royalty percentage starts to come down and the Trade-Pub percentage goes up, meeting somewhere in the middle. They’d still have to clean up their act in a million other departments, but it’d be a start.

    • Jim Self says:

      I guess whether Amazon drops their royalty rates depends on how that plays into their strategy for the Big X. If Amazon dropped their rate, would they also drop the rate they paid big and small publishers? Cutting publishers’ share of the profits would encourage them to go out and actually build a decent competing marketplace (or entice one of their multi-billion dollar parent companies to do so). If publishers’ shares weren’t cut, Amazon would have to explain to indie authors why indies were getting a worse deal, and it would entice some company to open a competing indie marketplace.

      • Randall says:

        I don’t see it happening, yet.

        Right now Amazon needs the volume of content they get from the self-publishing community that enables them to target the VR. I think B&N’s big mistake was not matching or beating that royalty and/or offering their own version of Select. Amazon isn’t beating them, they’re beating themselves. For the publishers to build their own marketplace, one that would carry Big-P books and no others, would require a certain word; Collusion. 🙂 Something they apparantly suck at.

        • Jim Self says:

          Well, yes and no. They could create a marketplace with such draconian restrictions that virtually no one aside from a big corporation would find it worthwhile to get books into it. Ya know, typical big corp strategy. While ostensibly it would be open to everyone, realistically you’d have to have staff to get in.

          Won’t happen, though. We’re talking about the people that thought Bookish was going to stem the indie tide.

  • Paul Draker says:

    Fascinating. I think you nailed it.

    You tied together several disparate phenomenon (observable categories of readers with very different purchasing habits, counter-intuitive BPH policies and practices, and the hard-to-argue-against reality of Hugh’s data) into a cohesive picture.

    I’ve been wondering why BPH, in the face of evaporating market share, seems to be committing suicide through denial. I kept asking myself, “Surely these people aren’t all this stupid? Can’t they *see* the ship sinking under their feet?”

    What your post helped me understand is that they are acting with reasonable coherence and consistent with their past business strategy.

    This isn’t stupidity we’re seeing.

    BPH is hoping to hang on to the Casual Reader->Social Reader. That’s their survival plan.
    They’ll downsize as much as they have to, to subsist on those readers alone.

    And they just might manage to, short term, as long as:
    1) Enough authors buy into the “Stephen King!” lottery dream to continue submitting/querying
    2) The paper distribution channels remain robust enough so that Casual Readers don’t start moving to e-readers
    3) The paper distribution channels don’t start opening up to well-funded indies

    Still, the next generation of *all* categories of reader (Voracious, Social, Casual, etc.) is growing up with e-reader in hand…

    Well reasoned, well thought out analysis, Randall.

    • Jim Self says:

      Paul, you might be overestimating them. Publishing has a very powerful culture around it, one that willingly excuses its members from thinking in ways everyone else would call responsible.

      • Paul Draker says:

        Dumb plan or no plan: the only difference will be whether they are roadkill 18 months from now or 3 years from now.

        • Jim Self says:

          Wanna give me odds? I like a sure thing. 🙂

          • Paul Draker says:

            If you’re looking for a sure thing, this ain’t the right industry 😉

            But in all seriousness, it depends on how fast BPH’s e-book market share shrinks and how quickly authors abandon the old-school querying silliness. Even so, there’s a year or two of lag built in, because of the slow BPH product pipeline and already-contracted book obligations from today’s trad-pub authors.

            B&N’s closure or high-profile authors publicly switching to self-publishing would accelerate the meltdown.

      • Brian Meeks says:

        You make a valid point. I wonder how much of the desire to hold on to the old “society” they’ve created is the driving force behind unwillingness to see the change.

        Their Manhattan offices are probably the biggest problem, both in cost and status. Do they really need an office anymore? The sunk costs that the Big 5 deal with are massive.

        The costs for me to publish form my home in Martelle, Iowa, population 255, are much less.

        I think the fantasy land of working in “Publishing” and being a “King Maker” is what they are trying to hold on to.

        • Jim Self says:

          I think that’s it, too. We all do that with some part of our lives. People who work in publishing tend to be idealists (they aren’t there for the money) and idealists fall in love with the character and culture of what they’re involved with. And now those horrible villagers are coming to kill their beloved!

    • Liz says:

      I don’t think they’re stupid. I think they’re unable to change. They don’t have the tools and probably haven’t been encouraged to really think differently for a very long time. The book business has been relatively stable for a long time and they haven’t had to deal with anything like ebooks until now.

  • If this is true (and I think it is), what authors who play the trad-pub lottery need is to be able to get their rights back within a reasonable amount of time, so they can pull out of the market that they haven’t succeeded in (casual readers) and succeed in the market they haven’t been in (voracious readers). Current contracts don’t provide well for that.

    • Brian Meeks says:

      I agree.

      As for it being a “lottery” it’s a strange sort of game. For those who get picked, and then sell a million books, they have made a fair amount of money…but they have to live with the thought that maybe they would have gotten to the same spot on their own. I mean, they probably did all the marketing anyway…the only difference is they don’t get 70 cents on the dollar.

      Maybe, those who play that game aren’t the type to do the math afterward, so it won’t haunt them. Me, I’m the son of a mathematician…I can’t help it.

  • William Ockham says:

    Randall,

    This will blow your mind. Some physicists studied book sales rank at Amazon 10 years ago. Before ebooks. Remember that rambling I did about directed network graphs? Here’s the math I needed to make it work:

    The Dynamics of Book Sales: Endogenous versus Exogenous Shocks in Complex Networks
    http://arxiv.org/abs/physics/0412171

    Endogenous Versus Exogenous Shocks in Complex Networks: an Empirical Test Using Book Sale Ranking
    http://arxiv.org/abs/cond-mat/0310135

    My favorite quote:

    In the absence of strong external influences, a peak in book sales can occur spontaneously due to the interplay between a continuous stochastic flow of small external news and the amplifying impact of the epidemic cascade of social influences.

    Translation: Word of mouth, but with math!

    • Randall says:

      I do remember that now that you mention it! I’ve been racking my brain trying to remember our conversation.

      I also recall the epidemic comparison. We were comparing the undiscovered blockbuster to a zero patient and the growth from that discovery to a plague.

      I think your theory on that is holding true in light of Hugh’s data. Will you be able to use his data to build a model? If you can you’ll be elevated to superhero.

  • acflory says:

    Thank you! As an Indie, I’m not much concerned with the rise and fall of Big Publishing. However your analysis of the voracious >> casual >> social reader categories has put a million baffling things into perspective for me, not least of which is marketing. This is information every Indie should know.

  • bidinotto says:

    Brilliant analysis. Thanks to you and Mr. Ockham for shining a beacon through the fog of Big Publishing. You guys really should link your analysis to what Malcolm Gladwell describes in “The Tipping Point.”

    • Randall says:

      Robert,
      Thanks for the kind words. I enjoyed Hunter last year while on vacation, you write my kind of book.
      I’m sure William will be crunching numbers on this for some time, I can’t come close to his skill in that department, I’m more of a words guy. I wouldn’t be surprised if he had something big to show us soon.

  • Randall, this is a fantastic and eye-opening post. I heard about it via The Passive Voice, and then Hugh linked to it on Facebook… so I came to read it all.

    You’ve cleverly linked the buying habits of readers with a clear disconnect in response to the new publishing paradigm by Big Publishing. I do agree that they are stuck in a time warp — passionate people who are dedicated to books, but full of an unwarranted sense of their own importance in creating and maintaining “literature.” What is both frustrating and comical is the way we keep talking past each other, wherein BP looks at how much a book makes, and SP writers look at how much the WRITER makes. We don’t CARE if Amazon siphons a bit off the top (which is $ given away, in the BP mind) as long as the author is able to keep a larger percentage of the whole pie for herself… after doing all the work of creating the actual product!

    As to good writers leaping off the sinking ship… it is already happening. And a lot of new writers are not even interested in trying to get on board. But there are still a lot of others who believe that BP is the Ivy League of writing, and they think that’s a way to make it in the big time. I liken it to doctors and lawyers (full disclosure: I’m a lawyer) believing that new medical and law school grads should be subject to the same rigorous — and sometimes absurd — hardships they suffered through, in order to pay their dues. That, and the Stockholm Syndrome.

    I started self-publishing in the summer of 2011. If I had queried, gotten a partial request, gotten a full manuscript request, gotten an agent, then sold a book, I might be just now looking at publication. Instead, I’ve been slowly growing my sales from a few hundred dollars a month to a few thousand. I’ve easily made more than 10 times the typically first advance already, and with the traditional route I would be just coming out of the gate… for my six-month lottery chance.

    It’s an exciting, amazing, scary ride for an indie writer today. Thanks for shedding some light on the path.

    • Randall says:

      Patrice,

      I think you nailed it right here;

      “As to good writers leaping off the sinking ship… it is already happening. And a lot of new writers are not even interested in trying to get on board.”

      What bothered me the most was the doodle on the margin of the Eddie Cue e-mail. Particularly the last part; “Stops authors leaving”. This tells me that Big Pub IS afraid of losing their A-list talent, despite all the claims to the contrary.
      The next year is going to be interesting. I think we may just see a big name leave a major publisher. The fallout will be the small vibration that sets off the avalanche.

      Thanks for stopping by.

  • […] This past month we saw the birth of AuthorEarnings, a website created by best-selling author and self-publishing guru Hugh Howey, in trying to expose what kind of money authors, both trade and se…  […]

  • Anna Erishkigal says:

    Fantastic article! It put a few things that had left me scratching my head insofar as tradi-pub arrogance in perspective for me, but also gave me a much clearer plan of what my -own- marketing plan should be. Back to nurturing those ‘1000 core readers.’ Already knew they were precious, but it makes me want to hug them even more!