Trade E-Books Find Their Way

Will the e-book kill the paperback star? Sales figures suggest the shift to the new publishing platform is well under way

Amazon‘s (NASDAQ:AMZN) Kindle, Barnes & Noble‘s (NYSE:BKS) Nook, Apple‘s (NASDAQ:AAPL) iPad: These handheld electronics aren’t the new smartphones, nor the new PCs. They are the new grab-and-reads in the grocery store checkout line. The wan looking airport bookstore. That rack of romance novels sitting in the back of Rite Aid (NYSE:RAD).

E-books and the e-readers that host them are the new mass-market paperback books, and, according to a new report from the Association of American Publishers, e-books are eating mass-market trade paperbacks alive.

While trees are breathing sighs of profound relief knowing that they won’t be pulped for the print industry, what about the companies that control e-book distribution and the publishers who thrived on the mass-market trade?

First, some clarity. Mass-market trade paperbacks are the small paperback books purchased at low prices from any number of retailers. Mystery, romance, horror, science fiction, out-of-date fad diet guides, they are the go-to genres of the grocery store checkout counter and the bread and butter of the mass-market paperback trade. Mass-market is part of a larger segment of publishing that the industry refers to as “trade,” a segment that accounted for more than $6.1 billion in 2010.

Paperback vs. e-book

The AAP hasn’t released full 2011 sales data for the publishing industry yet, but the trade segment saw a noticeable decline in sales, dropping 4%, to just below $5.9 billion. The greatest decline was in mass-market paperback sales, which fell almost 36%, from around $674 million to roughly $432 million. E-book trade sales meanwhile regained all that lost money and more, growing more than 117% from $446 million to nearly $970 million. You could say that the e-book business has finally, after years of hype, come into its own.

The holiday season alone was a killer. In December 2010, the trade market pulled in just over $563 million total. More than $57 million of that was from mass market, a crucial earner alongside children’s books.

Now the bad news for the print side of mass market: in December 2011, sales dropped almost 41%, to below $34 million. E-book sales in December soared, growing 72%, from just above $49 million to $85 million year-on-year.

E-book publishing by stalwarts, newcomers

The AAP’s report is based on data from 77 publishers, so the entire industry isn’t reflected in the numbers, but there’s certainly enough evidence to point to a trend: People are buying their cheap books electronically these days. The losses aren’t all in the mass-market print business. The adult hardcover and adult paperback segments—the popular higher-cost books, including mainstream fiction titles like The Hunger Games, that are the biggest earners of the larger trade segment—both saw year-on-year sales decline between 15.5% and 17.5%. E-book editions are certainly taking their toll on hardcover and paperback sales, but nowhere near to the extent that they are in the mass-market category.

How this shift will ultimately affect publishers like News Corp.‘s (NASDAQ:NWS) HarperCollins, Bertelsmann and its many subsidiaries like Random House, Pearson (NYSE:PSO), Scholastic (NASDAQ:SCHL), and many others is still up in the air. Provided those publishers retain control of their properties, sales stay steady, and e-book access continues to proliferate through mobile devices, the overall publishing industry will be able to resume growth and everyone will be happy. However Amazon and others that control e-book distribution are increasingly publishing their own wares. Even if consumers ultimately shift spending from physical goods to electronic goods, saving publishers on manufacturing costs, that revenue may be going to different businesses.

The era of the e-book as grocery store checkout line staple may have arrived, but it’s still a mystery who will control that business.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


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