We've been covering how more indie authors are discovering that just releasing their works as incredibly cheap ebooks can be amazingly profitable. But just how cheap? Kevin Kelly highlights how JA Konrath, who is the leading experimenter in this arena, has just discovered that $2.99 might have been too high. As an experiment, he dropped the price on one book that was $2.99 down to $0.99... and saw sales leap from 40 per day to 620 per day. As Kelly notes (his original math was wrong, but now there's updated math and more, including Amazon's cut:
Do the math:
2.99 x 40 = 11.96
.99 x 620 = 613.8
Amazon pays out 35% for ebooks priced below $1.99, and 70% for ebooks that are $1.99 and up.
So the math is:
2.99 x 40 = 119.60; x .70 = $83.72
.99 x 620 = 613.80; x .35 = $214.83
I don't think publishers are ready for how low book prices will go. It seems insane, dangerous, life threatening, but inevitable.
It's not even that publishers aren't ready for how low book prices will go... it's that they still don't even realize that the prices are going to go down at all. Instead, many of them are still looking to make the prices go up, not realizing the umbrella they're creating for disruptors.
Just as a whole bunch of folks have been sued in one of these mass copyright infringement shakedown lawsuits over sharing of Funimation anime, it seems worth pointing out that a new Japanese government study on the impact of unauthorized file sharing of anime has concluded that unauthorized copies of anime often appear to increase DVD sales. The study looked at both videos showing up on YouTube as well as those that appeared on Winny, the super popular file sharing platform in Japan. The study found a very strong impact from YouTube -- even saying that it appears many people learn about potential anime DVDs by watching the videos on YouTube first. With Winny, the impact wasn't as strong, and could decrease rental income, but did not decrease DVD sales. Of course, the study only looks at the correlation of videos appearing online and sales, rather than proving any causal link, so it's possible that other variables are involved. At the very least, though, this study (which is similar to other studies we've seen) certainly suggests that having the video widely available doesn't kill off sales, as many industry folks insist.
As pretty much everyone knows, focus and perspective make all the difference in how you view anything from politics to family, and in business too. Many times in discussions on the true impact of piracy, the comments are flooded with what seems to be two firmly entrenched sides. You have those that suggest that the focus should be on whether or not infringement is wrong. On the other side, you have those that want to look at the overall impact of what is occurring.
Now, I won't stake out a position on the validity of either argument, but one of the things I hear quite often from those making the moral argument is that it's important to consider the wishes of the creator when thinking about this stuff. I happen to agree. But I also happen to think that an important change that is occurring is that creators are beginning to push away from the easy reaction of getting upset at piracy and beginning to look at the vastly more important bottom line of their business.
"This post was going to be about Christmas and how it was responsible for the (relatively) long term increase in my app sales."
But then he noticed something strange. He found that the timing with folks receiving new phones or devices for Christmas didn't really match up with the sales. Also, even after what you would expect to be the Christmas rush, the increase in sales maintained. He supplied the graph below:
Note that, whatever the timing, as piracy of his app increased, so did sales, although certainly not to correlating scale. But who cares? He got more sales! As Daniel himself notes:
"It's pretty obvious why developers get upset about piracy: uh, it's stealing. Aside from that, I'm pretty straightforward about the fact that decisions should be profit-driven. Throughout Punch 'Em!'s paid lifetime, I couldn't raise its sales count in the long term. So if thousands of users end up pirating my app, but hundreds buy it as a result of hearing about it from their pirate buddies, why should I cry?"
Forgive Daniel for conflating infringement with stealing because, as I said, I understand the natural reaction to get upset at piracy. His conclusion is far more important: it's the bottom line that matters. And that brings me back to the premise I posed at the beginning of this piece, that focus and perspective make all the difference. The bottom line is that two things happened at the same time for Daniel's iPhone app. Infringement increased nearly 40x and sales increased by more than 2x. He could easily have focused on the infringers and the fact that clearly his sales should have gone up more than 40x (even if that's not strictly a factual way of looking at it). Instead, he focused on the fact that his sales doubled, and now he's happy. And he even tried to go the DRM route and found out why that path didn't work:
"Interesting thing, I had code in previous versions which did just this. It checked (through various means) if the IPA had been cracked, displayed a message asking that they purchase the app, and exited. My conversion rate was 0%. Beyond the conversion rate issue, my app was pirated very little--after all, my app quit almost immediately, so why share it at all?"
As Nina Paley said recently, sharing increases value. Focus on the value awarded by sharing and you'll find that "piracy" can make you happy (and money!). Isn't that bottom line the most important thing on which a business can focus?
from the who-could-have-possibly-predicted-that... dept
About a year and a half ago, I gave a presentation at a music industry event, where one of the points I tried to make was that those who were betting on digital sales as a savior were making a fool's bet. However, many in the industry have been infatuated with this idea, even if the evidence always suggested that digital sales would only ever make up a small fraction of what CD sales used to bring in. Earlier this year, we warned that the growth rate was slowing, and now as we hit the end of the year, it's confirmed that while there's still some growth, it's slowed down dramatically. Betting on digital sales as the key business model for music is, and is going to remain, a mistake. There are lots of other opportunities to make money, but you have to think beyond just selling music.
Amazon seems to have a way with presenting information about its ebook sales in a way designed to mislead people into thinking it's more significant than it really is. You may remember last year, when Amazon announced that on Christmas day, for the first time ever, ebooks outsold regular books. That got a lot of press coverage. But it was somewhat meaningless. That's because on Christmas, plenty of people who received a Kindle probably decided to buy an ebook or three. And it's also a day when fewer people have reason to go to Amazon and buy a physical book, since they may have just received some books as gifts (though, to be fair, some may have received Amazon gift cards too, but you don't necessarily need to use them that same day).
So what happens if you ask how many "printed books" Amazon sold, instead of using the smaller number of "hardcover books"? Following the same ratio, Amazon would be selling approximately 334 paperbacks for every 100 hardcover books -- or a total of 434 printed books for every 180 ebooks. That would mean over 70% of the books Amazon sells are still printed books -- 180 out of 614 -- with ebooks accounting for just 29.3% of all the books that Amazon sells.
Add to that the twin facts that Amazon covers 90% of ebook sale and that it only represents 19% of the overall book market, and you get an estimate that ebooks represent about 6% of the total market. This is certainly a non-zero number, and there's no doubt that it's growing, so it's a trend to watch out for. But we're a long, long way from ebooks really being a majority of the market. As the blog points out, even Amazon admits that no ebook has sold more than a million copies:
According to Amazon's own figures, no ebook has ever sold more than one million copies. (Though Stieg Larsson's three ebooks, added together, total one million in sales -- an average of just 333,333 per book.) PC World reports Stephenie Meyer is close to selling one million ebooks -- though she's sold over 100 million printed books.
This isn't to say the ebook market isn't important, but Amazon's statements promoting ebook sales seem purposely designed to pump up the significance of ebook sales, which still represent a much smaller proportion of the market than the company would have you believe.
Well, well, well. A few years back, we noted that Eminem's publisher was upset about the royalty cut they were getting from sales on iTunes, and they eventually sued both Apple and Universal Music over this (though, I'm still confused why Apple is involved). The issue is a contractual one: as is standard in lots of recording industry deals, musicians make very little money from each album sold. However, when their music is "licensed" for other things -- such as a commercial, movie or video game, they make a much larger percentage. The reasoning, of course, is that there are a lot more "costs" that go into making and selling a CD, which the label is taking on.
But here's where it gets tricky: what is a sale via iTunes? Is that a "sale" like a CD (meaning a small percentage royalty)? Or is it a "license" like for a movie (meaning a much bigger royalty)? Conceptually, you can make a reasonable argument for either side. After all, from the consumers' perspective, it's very much like buying a CD. But... from a technological perspective, it's really a lot more like licensing, since you don't have the same production, physical goods, shipping and distribution costs. A jury originally sided with Universal Music, saying that it's really just like a CD sale, and thus, the lower royalties should apply.
However, the 9th circuit appeals court has just ruled the opposite way, saying that the contract is "unambiguous" that iTunes sales count as a license, for which the higher royalties apply:
This could have a major impact on how much Universal has to pay out to musicians for iTunes sales. Of course, Universal Music is downplaying the ruling, saying that it's unique to Eminem's contract, and that the company plans to fight the ruling. However, Universal Music (and others, potentially) may be in bigger trouble than they care to admit over this ruling. There are other, similar cases underway as well. While I'm sure its more recent contracts are quite specific on this point, for large segments of the back catalog, Universal could be looking at actually having to pay out significantly more in royalties. Of course that assumes they have accurate records somewhere -- which certainly is no given.
When we talk about business models for content, one question we get asked a lot is how these business models could possibly apply to authors. We're always told that such business models might work for music, but couldn't possibly work for authors. To be honest, I find this sort of response incredibly uncreative. If you look around, it's actually not hard to find authors who are making use of new and innovative business models, and even publishers who are willing to embrace that kind of thinking. This is definitely a good thing, but we're always interested in hearing new and more examples of this happening.
A cookbook author, for example, not only sells books through OpenSky but also hawks a favorite barbecue sauce and grill. The author pockets 50% of the profit, with the rest going to OpenSky and others involved in the transaction.
David Hale Smith, a Texas literary agent, was about the only one who hadn't morphed roles since Naples last saw him. After they sat down at a table near that escalator, Smith immediately handed her a copy of a client's newest novel: "So Cold the River" by Michael Koryta. Smith mentioned that it's set in an old hotel in central Indiana known for its Pluto Water, believed to have healthful effects.
Naples lit up: "If [Koryta] was on OpenSky, the novel could be tied to a promotion of the hotel. He could have a button on his site for readers to buy the book and the water." (OpenSky would find a supplier to bottle and ship it.) She described other commercial possibilities: a sneak-peak download of a chapter of his next book, a "webinar" with him discussing his stories.
I can already hear the critics complaining about this sort of "crass commercialism" that I'm sure is "destroying" the concept of "art for art's sake," but I find it odd that those who focus on the whole "art for art's sake" argument are the same folks who also complain that the changing marketplace means content creators can't make money any more. No one is saying anyone has to adopt these models -- just that for those who feel comfortable doing so, it's now easier than ever to embrace infinite concepts -- and use them to make scarce goods more valuable.
That said, after reading about all of this, I went and looked at OpenSky, and I don't see any of this on their website. Instead, it looks like a plain old store. If they're really focused on helping content creators, it seems like they would be a lot better off promoting content creators on their site as well.
With all of the buzz lately around the fantastically successful Old Spice campaign, some numbers are finally starting to trickle in about whether or not the campaign actually translated into more sales of the body wash. Although initial reports suggested that the ads did little to boost sales, according to Nielsen, sales of the body wash rose 107 percent in the past month. That said, the increase cannot be necessarily attributed entirely to the social media campaign, since a coupon campaign for the body wash was also running at the same time. In an age, driven largely in part by the supposed traceability of online advertising, where there has been a large push to track ad spends all the way down to individual purchases, this ad campaign reiterates the adage attributed to John Wanamaker: "Half the money I spend on advertising is wasted; the trouble is I don't know which half." Since this campaign was very much a branding campaign, just because it happens online does not necessarily make it more traceable, so it's difficult to say what percentage of the increase can be attributed to the campaign. That said, at least for me, I know I considered buying some Old Spice body wash when I was at Walgreens last week, and apparently I was not alone.
We recently had a post questioning whether the RIAA's legal campaign was a success or not. It seemed like there was plenty of evidence that it has been an incredible failure. Separately, we had a post about Radiohead's Thom Yorke, suggesting that the major record labels were going out of business in a matter of months. While we felt that was a bit of an exaggeration, one of our commenters, Ccomp5950 compiled data on RIAA label sales, along with some helpful notes about what other factors were going on at the time:
Year: $ in Millions
1993: 10046.6 (CD players started to get more affordable towards mid-year)
1999: 14651 (Work made for hire controversy)
2000: 14404 (Napster sued into bankruptcy)
2001: 13700 (Ipod came out October 2001)
2002: 12,614.2 (Price Fixing lawsuit hits RIAA)
2003: 11,854.4 (Grokster lawsuit, "induced infringement" introduced) (Mass lawsuits by RIAA start(AKA: The education campaign))
2004: 12,345.0 [Revenue Physical / Digital] (BMG gets out of the music business, sold to Sony later on: Big 5 becomes Big 4 for RIAA)
2005: 12,296.9 [91%/9%]
2006: 11,758.2 [83.9%/16.1%]
2007: 10,370.0 [77%/23%]
2008: 8,768.4 [66%/34%] (RIAA declares it's going to stop mass lawsuits with member money problems and EMI almost bankrupt)
2009: 7,690.0 [59%/41%] (Massive layoffs hit RIAA around Febuary: Blames piracy)
It's a great list, but I felt it could be even more powerful as a graph, so I just threw the following together, based on the info above:
And, that, right there, does a nice job painting a picture on the decline and fall of the RIAA and the major record labels. A few points are worth highlighting:
If you're not familiar with the "works for hire" scandal, you can read the full background here. Basically, a Congressional staffer by the name of Mitch Glazier snuck a tiny unnoticed amendment into a much larger bill in the middle of the night -- supposedly at the request of the RIAA -- without telling anyone. It effectively changed the definition of music recordings into "works made for hire," which was really important, because it meant the RIAA labels could hang onto musicians' copyrights for much longer, avoiding termination rights that let musicians reclaim their copyrights. Just a few months later, Glazier left his low-paying Congressional staffer job for a $500,000 job with the RIAA, which I believe he still holds ten years later. Thankfully, people quickly recognized what he had done and Congress had to go back and fix Glazier's sneaky wording. However, it is worth noting that the peak of this chart is right when Glazier inserted his infamous four words.
As we discussed last fall, now that musicians do have termination rights, they're lining up to use them and take their copyrights back from the labels. They can start getting the copyrights back in 2013. If you're looking for a date when the bottom totally falls out for the RIAA labels, that may be it. When the rights to their back catalog starts to drop out, this chart looks even worse. The RIAA won't give up easily, of course. The latest stunt they're trying to pull is to "re-record" albums, claiming that it creates a brand new copyright, that gives them another 35 years before termination rights are applicable. That is, of course, ridiculous, but the RIAA will likely try to fight it out in court for many years to extend that 2013 deadline by a few more years. Of course, all that money on legal fees could have gone to innovating, but that's just not the RIAA way.
Note that digital music sales is not even close to being a savior. The total is still dropping rapidly.
Of course, many have argued that the rise and fall may have a lot more to do with CD replacements of previous formats -- and this chart certainly suggests that could be an explanation. The big jump happened right when CDs became affordable, and people needed to go out and replace their vinyl and cassette (and 8-track!) collections. After a few years of that, it makes sense that the market should drop anyway.
Once again, it's important to point out that the chart above is not the entire music industry, but a limited segment of it: the RIAA record labels, mainly comprised of the big four record labels. It doesn't take into account all of the other aspects of the music business -- nearly every single one of which has been growing during this same period. It also doesn't take into account the vast success stories of independent artists and labels doing creative business models and routing around the legacy gatekeepers.
We've noted in the past the various stories of individual authors like Paulo Coelho and David Pogue, who showed that free (non-DRM'd) versions of their ebooks helped increase physical book sales. Then, in February, we wrote about some actual research that showed that when unauthorized ebooks get out into the wild, there is a "significant jump in sales" of the physical book. And, now there's even more evidence to support this. A recent paper by a PhD. candidate noticed that free ebooks tend to increase sales of physical books. In this case, rather than looking at "unauthorized" ebooks, it looks like they focused on authorized free ebook versions. Not all of the books increased in sales, but you can see that there are lots of variables that impact this (how are the ebooks offered, how are the physical books offered, what types of books are they, etc.). Either way, though, it seems like there's increasing evidence that when done right free ebooks can certainly increase the sales of physical books -- despite claims from companies like Attributor that unauthorized ebooks are costing publishers money.