Book and Reading News

Have e-book sales gone exponential?

Trade Stats_09_03The trend line for e-book sales has hit an inflection point, a glance at the IDPF graphic (right) and other data at the IDPF site suggests. The graph represents wholesale e-book revenue by quarter and, as you can see, Q1 sales leaped substantially beyond earlier quarters. Bookselling has always been extremely seasonal, with most revenue falling in the last half of the year, so the rest of the year may, if the increase continues, represent the beginning of a steep rise in revenue for e-books.

A certain perspective is needed with these numbers, however. They represent “wholesale” sales, rather than retail sales. For example, if you add up the 2008 sales by quarter provided here ($53.5 million) and compare them against the annual sales reported by the Association of American Publishers, which were $113 million in 2008, these figures only represent 47 percent of the total revenue from e-books reported. Moreover, they are slightly counter-cyclical, with later quarters in the year growing less than Q1 and Q2. In fact, these numbers are only U.S. e-book revenues for a small sample of “wholesale channels.”

I think, because of the absence of inventories with e-books, that a different word than “wholesale” is needed. It’s a small but useful sample that can be helpful in understanding sales.

In any case, the question still remains, does Q1 2009 represent an inflection point at which sales will increase on an exponential curve, the so-called “tipping point.”

Q209EbooksalesTo answer the question, we need to look at the quarterly and annual changes reflected in this data. First, however, we’ll project Q2, 2009 sales based on the reported revenue in the first two months, April and May (the full quarter numbers should be available within days), which totaled $23.6 million, almost as much as the $25.8 million total sales in Q1 2009. E-books sales are growing month-over-month now, so that we can extrapolate that June’s numbers will likely be higher than either April or May, which averaged come to $11.8 million a month.

For the purposes of projecting, let’s say June e-book sales will come in at $12.5 million, for a Q2 total of $36.10 million. The results are shown in the data to the left: Q2 2009 sales will represent approximately a 211 percent increase over Q2 of the previous year.

Over the past seven years, the first quarter increase in sales has averaged 54.83 percent over the fourth quarter of the previous year. In 2009, the Q1 increase was 130.36 percent. The 211 percent increase in Q2 suggests that the trend is continuing. Check out, however, the Q4 2006 annual growth rate, 221.82 percent: It is higher than the current annual growth rate and immediately preceded a period of flat growth.

Now we must examine the quarterly changes to see if these, too, are in line with the quarterly trend.

Between 2002, the first year e-book revenues were reported, and 2008, the second quarter of the year’s e-book sales have fallen overall and typically average a two percent decline from Q1 results, which averaged a two percent gain over the previous quarter the same timeframe. Against those average changes in revenue, 2009’s 53.57 percent increase in Q1 revenue compared to Q4 2008 looks like a big break out, but the change in sales from Q1 to Q2 of this year is only projected to be about 40 percent. Average all the years available, including 2009, and the Q4 to Q1 average change is 5.48 percent, with a Q1 to Q2 average of 2.55 percent.

That’s a lot of numbers, but what it tells us is that there is a distinct pattern in Q1 and Q2 growth, with a drop-off to be expected in Q2, and that’s exactly what happens in 2009, as well. Quarter-over-quarter growth declines from 53.57 percent to 39.92 percent, according to these projections. Check the line chart below, which compares e-book revenue growth by percentage on a quarterly and an annual basis. Looking back over the years, the declines in quarterly growth rates have repeatedly cut off what appears to annual breakouts. The projected revenue for Q2 2009 e-book sales tells us we have not hit the tipping point in this market, though we may be close.

If June sales turn out to have been $24 million dollars (in “wholesale” revenue), for a quarterly total of approximately $48 million, the e-book market will be riding the “hockey stick” of exponential growth.

It’s more likely, though, that we are still on the slow climb. The difference will be told in that final figure for Q2 wholesale and not the AAP’s monthly totals, which I collect here. e-Book Sales Average ChangeObviously, much more news to come….

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