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My wife and I talk about this a lot. She enjoys writing and wonders about how much to think about audience interests.
I feel pretty strongly that creators should create what they find most meaningful and not really think about the audience. There's an entrepreneurial discovery aspect to story telling that is overlooked by those who consciously try to fill known niches.
My flippant answer is that good books are written when you pay attention to the audience. Great books are written when you pay attention to yourself.
I've spent (wasted?) years writing books and stories that no one wants to read. It's not a very satisfactory feeling. Your wife is probably right to consider audience interest at least a little.
Actually, when Tolkien released LOTR he wasn't as established as a writer, although he was already quite famous with The Hobbit, from a few years earlier, and he was a prestigious professor; he already had his audience... what catapulted him to fame was his effort and dedication in these other books.
As I recall, the Hobbit was created as a bedtime story for his kids.
Yes... according to him, it was one of his very demanding children who told him something like, "Bilbo's front door was blue, and now you've said it's red," or something like that. So he started writing down the story so he wouldn't contradict himself, hahaha. Afterward, the writings began circulating among friends until they reached a woman who was an editor, and she convinced him to finish the work.
The video I posted shows how he started writing the story.
EDIT:
I bought this book here at home a while ago, to introduce my child to Tolkien's work.
People like this who define new genres are so impressive to me. There is no limit to the number and kinds of stories that will exist in the world. Perhaps today we will see the invention of a new genre.