Electronic Publishing: The Year 2012 in Review e-Books Come of ...

Electronic Publishing: The Year 2012 in Review
e-Books Come of Age,
Self-Publishers Find Peace,
e-Booksellers Brace for War
A white paper for The Society for New Communications Research
Copyright © 2012 by Danny O. Snow, SNCR Senior Research Fellow
(About 3000 words unabridged, also available in print and digital formats; see the end of
this report for details.) Visit http://www.u-publish.com/2012 to preview a simplyformatted
draft of this report with live hypertext links in a Web browser. Updates and
clarifications will also be posted at this location.
[Palo Alto, Calif. — 15 Dec 2012] In the history of the written word, 2012 will be
remembered as the year that e-Books finally came of age. This year they achieved
unquestionable, widespread adoption by readers and writers — and by the corporations
that profit from them — after more than a decade of wishful thinking on the part of
technology futurists. Bullet points:
• The popularity of tablets and smartphones established a solid hardware platform
for the consumption of e-Books in 2012
• Self-publishing matured, doubling the volume of reading material in digital form
available to consumers
• The factors above gave corporate giants an incentive to fully embrace the
medium, both in terms of production and consumption
TABLETS RULE: In developed nations, the wild popularity of tablet computers such as
Apple’s iPad and Amazon’s Kindle (among others) in 2010 and following laid the
groundwork for the digital landslide of 2012. The near ubiquity of e-Book capable
smartphones added to the potential markets for e-Books.

Image courtesy of http://www.teachingdegree.org/2012/11/26/ebooks-vs-print-books
SELF-PUBLISHING ASCENDANT: Fifty Shades of Grey by E.L. James sold more
than 65 million copies worldwide in 2012. According to Publishers Weekly, “Although
James did not ‘self-publish’ in the technical sense of the word—she might as well have.”
“…The exponential growth of e-books and digital readers has accelerated change,
because physical stores are no longer the only way for authors to connect with readers,”
says Keith Ogorek of Author Solutions, Inc., a company that caters to aspiring writers,
which was purchased by Penguin for $116 million in 2012. “While these changes have
made now the best time in history to be an author, they have also made it one of the most
confusing times to be an author,” he concludes.
The ability of writers to independently publish nearly anything today in printed and/or
electronic formats with remarkable speed and economy was a crucial factor in the 2012
watershed. With the stigma of “self-publishing” largely fading, both wannabe and
established authors bypassed publishers in record numbers. In 2011 alone, more than
230,000 new books were released by their authors in print or online, according to The
Book Industry Study Group; at this writing, it appears that this record will be shattered by
a wide margin in 2012, perhaps totaling 300,000 or more new titles.
On the other side of the coin, in the mainstream book trade, Publishers Weekly (6 June
2012) estimated that nearly 350,000 conventional printed books were released by
mainstream U.S. publishing houses in 2011, with a very large percentage available in
both printed and digital formats.
Old school (“legacy”) book publishers faced additional urgency to embrace e-Books in
2012, because their most important outlets for tree-Books — “brick-and-mortar”
bookstores — were simultaneously faltering.

After the collapse of Borders in 2008, online bookselling claimed a greater and greater
share of total sales in both printed and digital form, year after year. In 2012, Barnes &
Noble still maintains its own stores, Web site, a line of Nook e-Book reading devices, and
a bare-bones, do-it-yourself e-Book publishing service called PubIt! but in spite of a $300
million investment by Microsoft this year, it remains a minor player compared to giants
like Amazon, Apple and Google. Its late 2012 announcement of launching outlets for its
Nook e-Book reading devices in 2,500+ brick-and-mortar U.K. storefronts, while
promising, has yet to prove a game-changer.
FOLLOW THE MONEY: As the number of e-Book capable tablets and smartphones
on the street reached hundreds of millions, while the volume of available reading material
in digital form grew exponentially, commercial giants like Amazon, Apple and Google
redoubled their efforts to capture market share, pouring more of their vast resources than
ever into a battle for control of digital publishing.
In 2011, e-Books generated about $3.2 billion in revenue, expected to triple to $9.7
billion by the year 2016, according to a Juniper Research report. Historically, printed
book revenues have hovered around $25 billion per year in retail sales. Some industry
observers speculate that e-Books could account for 25% or more of total book revenues
in 2012, and almost certainly in 2013.
Image courtesy of http://www.teachingdegree.org/2012/11/26/ebooks-vs-print-books
It is easy to conclude (falsely) from this growth rate that e-Books will soon overtake tree-
Books in total revenues. One reason they will not is that tree-Books still command much
higher prices than their digital counterparts, and therefore publishers generally earn more
from the sales of paperbacks:

Tree- Book e- Book
Percent
of retail
Price price
Price
Retail price $14.99 $4.99
Percent
of retail
price
Average wholesale discount @ 50% $7.50 50% $0.00 0%
Printing cost $1.50 10% $0.00 0%
Warehouse/investment/shipping cost $1.00 7% $0.00 0%
Internet retailer's cut @ 30% $0.00 0% $1.50 30%
Author royalty @ 10% of cover price $1.50 10% $0.50 10%
Total costs $11.49 77% $2.00 40%
Publisher's net per copy $3.50 23% $2.99 60%
Publisher's gross revenue $7.50 $3.49
Publisher's profit as a % of gross
revenue 47% 86%
In the breakdown above, it’s important to note that the difference in net profit between
the e-Book and the tree-Book is almost exactly the amount of the author’s royalty. For
this reason, a self-publishing author (who retains the royalty) may earn virtually the same
amount from an e-Book as from a paperback. On the other hand, a paperback priced at
$14.99 may command only $2.99 or $3.99 (or less) as an e-Book, further widening the
revenue gap in favor of the tree-Book... or worse, especially for the self-published author,
both e-Book and tree-Book may not sell at all.
“Fast & Easy” versus “Slow and Hard”
Brick-and-Mortar versus e-Commerce
But publishing paperbacks requires more up-front investment, and may involve far more
paperwork, greater accounting and overhead expenses, and other artifacts of “brick-andmortar”
commerce. “Print-on-Demand” technology has eliminated a great deal of the old
infrastructure of print publishing, such as warehousing, inventory taxes, unsold books,
etc. Just the same, publishing in print takes more time, money and work. For these
reasons, in the future more and more publishers may opt for the slightly lower profit from
an e-Book… but not in every case.

Image courtesy of http://www.teachingdegree.org/2012/11/26/ebooks-vs-print-books
As shown above, regardless of the economics of publishing, everyday people read books
for different reasons — and some of them are still better served by tree-Books. On this
basis, plus the near-saturation levels of new e-Books appearing each year, we predict that
in the U.S. sales of e-Books may plateau at about 25% of total revenues by mid-2013,
while continuing to grow internationally, as discussed later in this report.
NEW PUBLICITY PARADIGM: Another important trend paralleling the explosive
growth of e-publishing is the role of the author as book publicist, largely driven by social
media such as Facebook and Twitter. Traditional media such as print advertising, book
reviews in newspapers and magazines, talk show tours, brick-and-mortar bookstore
signings, etc. are rapidly taking a back seat to Web-driven publicity.
The growing use of social media as a method for cultivating readers also put unknown
writers closer to parity with bestselling authors than ever before. Formerly undiscovered
writers such as Amanda Hocking and John Locke (to cite just two examples) catapulted
from obscurity to millions of book sales using online promotion almost exclusively to
cultivate their audiences. In 2011, Locke self-published an e-Book titled How I Sold 1
Million e-Books in 5 Months describing how he used Twitter and ’Blogging as virtually
the sole methods of publicizing his 99 cent detective e-Books. Ironically, both Hocking
and Locke later signed traditional royalty publishing contracts rather than continue to

self-publish using the techniques they popularized. Just the same, online promotion has
now largely supplanted traditional media for book publicity industry wide, not just for
self-publishers.
THE AMAZON MONOCULTURE: Amazon has played a pivotal role in both the
growth of e-Books, and the self-publishing boom. It popularized the Kindle as a hardware
platform for e-Books by selling the devices for less than the manufacturing cost, then
established royalty structures that heavily favored low prices from $2.99 to $9.99, giving
consumers an incentive to opt for e-Books in favor of more expensive tree-Books. As
with Apple’s genius in making iTunes music downloads effortless, Amazon has been
successful in making e-Book buying “one click” easy, with instant delivery. These factors
combined to build a robust market for e-Books now totaling billions of dollars annually.
At the same time, Amazon invested in self-publishing at unprecedented levels, starting in
print with its CreateSpace.com site, which makes it possible even for writers with modest
computer skills to publish a fairly presentable paperback at no cost. (Authors and
publishers with more advanced technical skills can produce paperbacks that are
competitive with nearly anything from well known publishing houses.) It followed with
Kindle Direct Publishing (KDP), which made it equally easy (and free) for writers to
create Kindle editions of their work. By late 2012, 17 of Amazon’s top 100 books were
self-published. Although there continues to be a glut of marginal material from selfpublishers,
the stigma of self-publishing as a venue strictly for amateurs has now largely
vanished.
In addition, Amazon devised a controversial e-Book “lending” program called KDP
Select, which allows its “Prime” customers to borrow one e-Book per month free of
charge. Amazon pays the author or publisher a share of a monthly royalty pool of
$500,000 or more. For the month of December 2012, the pool reached a record $1.4
million. To become “Prime” customers, consumers pay Amazon $79 per year. In return,
they get free shipping and access to nearly 15,000 movies and TV shows, as well as
borrowing e-Books for free.
For authors and publishers who enroll in KDP Select, a popular feature is the option to
make their books free, for up to five days every three months. While this may sound
counter-intuitive for career writers who earn their livings by selling books rather than
giving them away, it has proven a boon for some formerly undiscovered self-publishers.
According to Rachel Thompson, author of the bestselling e-Books A Walk in the Snark
and Mancode: Exposed, “For me, it’s been wonderful in terms of visibility and exposure,
as well as sales. I can tell you that on the months where I have a free book, I sell
hundreds (in a few cases, thousands) more after a free promotion. Keep in mind also that
this is a Kindle-only program, meaning your paperbacks can still be sold everywhere.
AND people don’t need a Kindle to read eBooks from Amazon — they have free apps for
smartphones, computers, and tablets.”

However, in order to participate in KDP Select, Amazon requires exclusivity for at least
90 days. This deprives rivals such as Apple’s iBookstore, Barnes & Noble and
Smashwords.com, from tens of thousands of titles.
“Amazon flexes muscle with exclusivity, says Mark Coker, founder of Smashwords, an
early (and free) e-Book publishing service that now boasts more than 190,000 titles, and
is the largest distributor of self-published e-Books. Forbes.com called it “Apple’s biggest
unknown supplier of e-Books.”
“While no one is paying attention, Amazon’s working to lock indie authors into their
platform with KDP Select. Publishers don’t care, because they don’t yet understand that
authors are the future of publishing,” Coker insists.
THE APPLE MONOCULTURE: Apple became a serious player in the e-Book and
self-publishing worlds later in the game than Amazon, largely due to the wild popularity
of the iPad. While the game-changing iPhone was more than e-Book capable, the iPad
posed Apple’s first serious challenge to the Kindle as an e-Book reading device.
However, with its “walled garden” philosophy and a captive audience of fanatic
followers unlikely to change brands regardless of advantages offered by competitors,
Apple has not (as yet) been as welcoming to e-Book developers or to self-publishing
writers as Amazon... except those who are prepared to turn their backs on other outlets.
Yet its legions of loyal customers make Apple a potent force to acknowledge in 2012 and
beyond. As the next section explains, Apple is taking this challenge seriously.
PLAYING HARDBALL: With billions of dollars per year now at stake, competition in
the marketplace for e-Books has grown more cutthroat than ever. Apple made headlines
in 2012 when it was sued by the U.S. Department of Justice for conspiring to fix e-Book
prices with Macmillan, Penguin, Hachette, HarperCollins, and Simon & Schuster. Apple
was also lambasted for claiming exclusive rights to e-Books formatted using its “iBook”
tool, even if the author or publisher removed the e-Book from the iBookstore. On its part,
Amazon has faced criticism for its exclusivity policies, for royalty structures that
suppress e-Book prices, and (prior to the DOJ lawsuit against Apple) for selling e-Books
at a loss in order to stifle competition. While Google has made progress in 2012 toward
settling its long-running dispute with the Association of American Publishers and the
Author’s Guild for scanning millions of books without permission, its “Google Play” e-
Book store has been relatively absent from the headlines this year.
Foresighted observers of the publishing industry caution authors and publishers against
underestimating the power of the big online booksellers to sway consumer preferences,
which the giants are actively trying to do. Major booksellers clearly recognize that their
bottom lines are fatter from sales of “clicks” rather than “bricks” when there is no
physical inventory.
As a result, many authors and publishers feel that their print publishing options are more
limited, and more costly, than e-Books. Meanwhile, consumers are lured by the low
prices of e-Books and instant gratification. If a lay reader can buy the same story for $5

on a tablet or smartphone that costs $15 in print (and start reading it in minutes without
leaving home) s/he often will... and this is especially true of readers aged 30 or younger.
They are the next generation of book buyers who will dominate the market for the next
20-30 years.
The problem for authors and publishers is that while a $5 benchmark price for an e-Book
yields roughly the same net as a $15 paperback, traditional revenue models begin to
break down with e-Books sold at lower prices. Moreover, competition for buyers of e-
Book is incredibly tough, and growing tougher by the year.
GOING GLOBAL: As the U.S. e-Book market matures in 2012, industry giants are
already pushing to break down international boundaries. Apple’s iBookstore is now in 50
countries; Amazon now operates in 10 countries, plus imminent openings of Kindle
stores in Brazil and Canada. Barnes & Noble is expanding its Nook line to the United
Kingdom. As e-Book sales in the U.S. level off in 2013, sales overseas will grow.
Mark Coker of Smashwords predicts “All countries outside the U.S. are now entering the
same exponential growth curve in e-Books that the U.S. entered a few years ago. The
next few years will be massive on a global basis for e-Books, because digital distribution
eliminates all geographic barriers and economic inefficiencies (of moving bits of paper
and glue), and e-Books are lower cost to consumers so this makes books and reading
more affordable and accessible to more readers. Also related to global [trends] is the
growth of mobile smartphones, which mean[s] that ‘there’s a bookstore in every
pocket.’”
CONCLUSION: The year 2012 has seen e-Books, self-publishing, online bookselling
and the use of social media for book publicity coalesce into a leaner, greener, more
egalitarian industry than anything imaginable barely more than a decade ago. The
publishing industry has now changed for real, and changed forever.
Just as some lament the incipient passing of newsprint as the dominant medium for
delivering news in a growing number of localities, some book lovers are saddened to see
that e-Books, self-publishing and related trends are here to stay. But traditionalists can
take some comfort in knowing that tree-Books don’t have “a foot in the grave” the way
that record stores and a growing number of newspapers do.
Instead, without killing tree-Books, e-Books are delivering economic and environmental
benefits to a growing number of readers, while giving more writers a chance get
discovered. For authors who self-publish, there is now a way to wring more revenue from
each book sale, in spite of unprecedented competition. As a whole, the brave new book
world of 2012 faces unparalleled challenges and opportunities, which we will continue to
cover here in the years ahead.
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This report is also available in print ($9.99) or e-Book formats ($4.99) for Kindle,
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details. Discounts for nonprofit and educational institutions are available.
Visit http://www.u-publish.com/2012 to view a simply-formatted draft of this report with
live hypertext links in a Web browser. Updates and clarifications will also be posted at
this location.
Acknowledgement:
SNCR extends special thanks to Allison Morris of TeachingDegree.org for permission to
use some graphics presented in this report.
About the Writer:
Harvard graduate Danny O. Snow was named a senior research fellow of The Society for
New Communications Research in 2008. SNCR is “a nonprofit global think tank
dedicated to the advanced study of new and emerging media and technologies,” based in
Palo Alto, California.
His 2007 white paper for SNCR titled “On the Evolution of Content,” co-written with J.
Dawn Snow, anticipated many revolutionary developments in the history of the written
word that have now taken shape.
Snow is currently a columnist for Publishers Weekly and has been widely quoted about
new media and publishing technologies by other print, broadcast and online media coastto-coast,
including AP, NPR, UPI, The Los Angeles Times, The Wall Street Journal and
others.
He has served as a panelist and moderator at many leading publishing industry events
such as Book Expo America, and on the faculty of the Independent Book Publishers
Association’s “Publishing University,” as well as serving a two-year term on IBPA’s
Board of Directors, 2009-2011.
He is co-author of U-Publish.com: Behind the Self-Publishing Boom, Print-on-Demand
and e-Book Publishing (Unlimited Publishing LLC, 2000-2013), a contributor to Digital
Book Publishing for Dummies (BISG.org and Wiley & Sons, 2009) and author of Steal
this e-Book! (Booksurge, 2002), an irreverent collection of articles and letters about the
“prehistoric days” of e-publishing, circa 1997-2002.