I should emphasize from the start of this post that as of this writing there are no signs that Barnes & Noble is close to bankruptcy.
And yet in publishing circles, the prospect of Barnes & Noble going the way of Borders is sort of like a doomsday conversation that is impossible to resist. It’s the rare business lunch that does not at least reference this nightmare scenario.
But what would really happen if Barnes & Noble bit the dust?
I turned to publishing sage Mike Shatzkin, who has been involved in the book business for decades and has advised some of the biggest players in the publishing industry. Mike is currently working on a book about publishing with Robert Riger for Oxford University Press.
Nathan: Barnes & Noble has an uncertain future as a print bookseller, as its revenues decline and it transitions toward diversifying its products toward games and toys. It didn’t take long for B&N to go from being the bad guy in You’ve Got Mail to the equivalent of the little shop on the corner everyone is rooting for. What impact is this going to have on publishers?
Mike: These three sentences open up a world of things for publishers to be thinking about.
There are two big shifts taking place in the book business that are not favorable for Barnes & Noble.
1. More and more printed books are being purchased online and fewer and fewer are being purchased in stores. The takeaway: sales of books in stores in total are likely going down.
2. More and more book titles are being delivered to the market with motivations other than pure commercial intent and fewer and fewer are being delivered by publishers trying to make a profit from publishing books. The takeaway: sales of books issued by those not overtly trying to profit will steal markets and mindshare and reduce margins for the publishers trying to run businesses.
The movement away from brick-and-mortar stores is an obvious challenge for B&N, but the weakening of commercial publishing is too. Non-commercial publishers — authors or entities that do books as an ancillary activity — will not take the financial risks necessary to put books on bookstore shelves. And the very real risks involved in putting books on store shelves are going to be on the minds of the publishers whenever adverse news about B&N’s financial health surfaces.
But the big publishers are only slightly less dependent on Barnes & Noble’s success than B&N’s shareholders themselves. All of the big publishers were built around their ability to “put books on shelves”. That’s what they can do that authors can’t do for themselves and, up until now, Amazon couldn’t do for them either. Although big publishers sell bestsellers that are on mass merchants shelves as well as bookstore shelves, Barnes & Noble remains the one stop for bookstore exposure which handles most of the output of the big publishers. B&N delivers as many retail locations as the indies do and, for the most part, more sales.
What would the landscape look like if B&N exited the book business entirely or, god forbid, went bankrupt?
Without Barnes & Noble, the business models of most of the publishers we know are severely challenged.
Although publishers would almost certainly have some warning about either a bankruptcy or an exit from the book business — neither would happen “suddenly” without at least a bit more “gradually” than we’ve yet seen — the absence of B&N would be a painful blow to the core business model of trade publishing. For about 100 years, the core proposition for mainstream publishers doing fiction and non-fiction for consumers has been “we put books on shelves”. That’s the proposition to the authors, as well as the service to consumers.
Putting books on bookstore shelves requires capital, knowhow, and organization. It is also the one function publishers perform that an author really can’t do for herself. Even the self-published authors who have made a print option available through print-on-demand — and both Amazon and Ingram enable that on what is almost entirely a marginal cost basis — don’t attempt to put speculative inventory on store shelves. The best they do is make their books available through established channels (Ingram) for special order on a customer request.
So were it to happen that the chain that supplies probably about ⅔ of the available shelf space for most titles were to disappear, the business model itself would be broken. The incentive for authors to shift to a self-publishing model, where they get a lot more per copy for ebooks and specially ordered POD books, would strengthen. And it would be pretty compelling in any case where the author brand was powerful or the author did most of the marketing of the book.
So publishers would be hurt at the revenue end and the IP supply end of their chain, which is the entry and the exit.
But the “financial risk” of losing B&N is one thing; there is also the financial risk and cash outlay involved in selling to B&N in the first place, namely that inventory has to be supplied to be paid for well after it is delivered. And return privileges have to be offered that involve taking back unsold books and attendant costs to accepting those returns, among which is — quite often — taking back inventory that will not be resold at full price.
Allowing bookstores and wholesalers to return unsold merchandise is one of the key and standard features of most publishers’ trading terms. It is so ingrained in the trade that booksellers would order without it only in extremely exceptional circumstances. For most books, it would be a non-starter for a store to take a book they couldn’t return if it didn’t sell.
The financial risk associated with returns is the main reason that indie authors don’t even attempt to get their books into bookstores. And it will suddenly be very much on publishers’ minds if B&N looks like it is hitting the financial rocks.
Were a bankruptcy to occur, the stock in B&N, even the books that were not yet paid for, would be owned by the company in receivership and the the amounts owed to the publishers would be in a queue for payment along with what is owed to other creditors. (NB note: When Borders went bankrupt it owed $41.1 million to Penguin alone).
If that happens with an individual store or small chain, the publishers’ response is fairly clear: stop shipping without prepayment or, at least, very tightly restrict credit. But if that were to happen with their one existential brick-and-mortar account, the course wouldn’t be as obvious. Because a world without B&N is a very scary world for publishers and it would actually be “prudent” to take risks to prevent their demise if a publisher could.
So, yes, publishers are rooting for B&N today the way they rooted for the little shop on the corner against B&N two and three decades ago. But there was little publishers could do to save struggling indies when the chains were undergoing their Wall Street-fueled store expansion and there may not be much publishers will be able to do to help B&N overcome the combination of a changing retail marketplace and the chain’s own supertanker-like inability to conduct experiments and change its business model.
Assuming publishers were able to weather the initial financial shock of a B&N bankruptcy, how would they have to adapt in order to survive? Will it be viable to sustain all of the expenses associated with distribution of physical books (printing, warehousing, shipping, sales teams, etc.) in a world without B&N?
The major publishers would almost certainly weather the financial shock of a B&N bankruptcy; it wouldn’t bankrupt them. Some smaller publishers would undoubtedly be crippled severely and be unable to function. They would just become consolidated into larger ones.
How disruptive this would be to the overall business model would depend on the shape of the rest of the trade when it happened. As we sit here today, B&N might be 12-15% of the overall business for trade publishers. Big Five publishers sell a lot of their bestsellers in outlets that are not important for secondary publishers, like mass merchants. Various specialty book publishers might have outlets in museum shops or other specialty retailers like garden centers that reduce their dependence on B&N. Genre fiction — romance and sci-fi — sell disproportionate numbers of ebooks, so they are less dependent on B&N. But smaller general trade publishers without the ability to tap special markets have a higher reliance on B&N and would be hurt worst.
However, B&N’s share of the business keeps declining. They are losing share to Amazon and to independent general bookstores consistently. And bankruptcy for them is certainly not imminent. So the chances are that when the day comes that they go bankrupt, they’ll be 10% or less of most publishers’ business.
Where publishers will lose, badly, is in their ability to launch general trade books with any kind of substantial publication day laydown, or availability of books to the public in stores. The 500-800 indies don’t buy in any coordinated fashion. Big publishers can hit them all and persuade most, but smaller publishers really only get assured pub date distribution through B&N.
So what that means is that we’ll continue to see what we’ve seen for 20 years. The books at the top will sell an increasingly disproportionate number. What publishers have always called “midlist” — books that sell 5,000 to 50,000 copies — will lose share and become less attractive publishing propositions. There will be fewer of them launched.
The joker in the deck is definitely Amazon. Amazon has shown as much appetite for opening new retail locations as B&N has shown the risk of losing them. If Amazon has a handful of locations, like they do now, B&N going under won’t change much for them except to add substantially to their existing online retailing business. But if Amazon had 1000 locations when B&N disappeared — and that is a decent bet for anytime more than 2 or 3 years from now — then they could get a stranglehold on the commercial book business. That could mean buying a major house would make sense for them, or competing for titles that they would never go after now would become a reasonable proposition for their publishing arm.
I want to wrap up by thinking toward how all of this impacts authors. While the actual mechanics of self-publishing a book are actually pretty easy, there are two areas where it’s still very difficult for self-published authors to reach readers: at the end of the day, publishers can get print books onto shelves and they can generate reviews and publicity attention that self-published authors struggle to garner.
While there are undoubtedly some impressive self-publishing success stories, there still hasn’t really been a household name defection from traditional publishing to self-publishing, a J.K. Rowling, James Patterson, or Stephen King opting to go independent.
At what point do you think we’ll start to see some of these big authors reconsidering their options, and how much of a threat does this represent to traditional publishers?
Self-publishing currently has the severe limitation of it being just about impossible to put books on bookstore shelves. In this day and age, anybody can get themselves a sales force to solicit orders for books, but somebody has to take a substantial inventory risk for store placement. You have to print copies in advance, wait for payment, and subsidize the cost of processing returns as well as issuing the credits for them and most likely eating the inventory. That still requires a publisher.
But the world continues to change. It isn’t hard to imagine that five years from now, Amazon will be the biggest bookseller in the physical world as well as the online world. The inventory risk to them is minimized by the fact that bookstore shelves are also warehouse shelves; they can supply a book in response to an online order from any shelf on which they placed it. So the “risk” of putting books on those shelves is not as great for them as it is for everybody else.
So if we get to a world where Amazon sells more than half of the bookstore books, or any substantial percentage of them, we could also see a rewriting of the commercial rules. Right now, the retailer takes a (temporary) risk equal to the wholesale price of the book and the publisher takes a risk equal to the cost of printing the book plus the cost of shipping it out and receiving it back. It wouldn’t be crazy for Amazon to say “pay the cost of PRINTING this book and we’ll put it on our shelves and (effectively) refund that cost of we sell it.”
One of the most surprising aspects of the self-publishing revolution to me (so far) is how little attraction it has held for the biggest authors. The defection rate of authors the publishers really want to keep is trivial, although it might be true that publishers are paying more to keep them than they’d like or that they would have without the threat that they could self-publish.
Of course, as more and more of the business goes to Amazon it gets easier and easier for them to deliver a proposition that provides as much revenue to an author for being exclusive to them as the author could get with a publisher sharing the revenue to get them more ubiquity and more sales.
Art: William Joy – A Lugger Driving Ashore in a Gale
An interesting, if USA-centric, interview. Luckily, B & N have no presence outside the USA, and Amazon has been surprisingly slow to expand internationally, leaving whole swathes of the world to other retailers. Only two of the ‘Big Five’ publishers are US-owned.
Was in a Barnes recently and it was a dull and antiseptic experience. I doubt readers will care when and if it goes kaput. Toy shoppers might be upset.
Curious what Mike Shatzkin thinks about a new trend I notice; small independent publishers who don’t sell on Amazon or in bookstores. Outfits like Lost Art Press seem to be doing very well by doing things differently.
Something not factored into this equation is the availability of POD presses. Some models are certainly small enough for Amazon to place them in their Brick and Board stores. It might be possible for a bookstore to be more of a sampling location with one review copy of many many books, and a POD press for instant copy production. THAT would certainly change the bookstore model.
I live in a small town, and the closest B&N is an hour away, so I love online shopping to get my book fix. But the few times that I do venture out of town, I love browsing the big bookstore. I confess I haven’t really looked at the toys they carry, but I always come out with an arm full of books. I hate to think about the day I won’t be able to stop in and find something new, something I can touch that second rather than two days later when prime shipping sends it my way.
What a marvelous column, Nathan. Doomsday scenario, indeed. The world of the Big 5 book business enters dystopian realms when B&N staggers and falls. You could see a scenario where the Big 5 would prop up the chain of stores that brings them a huge chunk of profits. But it’s pretty much impossible when considering one sentence in Shatzkin’s reply. “But there was little publishers could do to save struggling indies when the chains were undergoing their Wall Street-fueled store expansion.” Little they WOULD do, because there’s got to be a way to keep independent resellers who genuinely sell books from struggling. The computer industry has been doing it for decades. It’s a matter of desire. The Big 5 had no interest in helping the best tier of indie booksellers, because it was so easy to sell to massive chains like Borders and Barnes & Noble. Publishing at the Big 5 level has been hidebound and recalcitrant for decades. It’s produced great books and buried gems, too. Making the indies important again probably starts the day after the Chapter 11 (or 7) notice goes out about B&N. Or it could start today, but there’s that “battleship turning in a bathtub issue” of changing course for the Big 5. Here’s your next column: What would happen if two or more Big 5 publishers went bankrupt? Seems the indie publishers could step in. In many authors’ lives, the world of indies has already become The Day After.
Dear Former Agent Man:
Well, this was a very interesting and insightful post on what the world might look like without B&N.
Except for one thing: there is no discussion in here of what the world of publishing USED to look like, before B&N, and before even Amazon.
While it seems logical that Amazon might be waiting in the wings to essentially fill any void left by B&N dropping out of the book retailing/selling picture, there is next to no historic discussion of how publishing houses managed to build themselves BEFORE B&N existed.
It is as if, facing a world where a major bookseller didn’t essentially exist to make the decisions for the book publishers as to what books to publish, the publishers would be bereft of reason and unable to make publishing decisions for themselves–the risk being too great–as they used to have to do.
Our “literature” has largely gone the way of other things based on popularity, rather than in at least a few instances, quality. Gone are many of the book reviewers and critics on newspapers and magazines; gone largely is the word-of-mouth by readers, replaced by the video “trailers” and other advertising gimmicks; gone, in fact, are publishers willing to take real risks on publishing writing they consider good, or stories they consider resonate, for fear not so much of “returns” (there is little to no return fear with a Print-On-Demand book, and as the technology currently exists, publishers could certainly limit a “print run” to a few books to test sales in any bookstore in the country) as not being able to recoup the costs in terms of time and salaries of maintaining a major media organization–which most “big” publishers are now beholding to.
How did Charles Scribner & Sons grow a publishing house into a perennial sales generating machine based not on major risks with new titles, but the reputation and endurance of titles published when Charles Scribner Sr. was first publishing books?
I predict that if a publishing house, such as, let’s say, Algonquin Books, concentrated on not trying to find the next “best seller,” but instead books they know people will read, because the writing and or story are so compelling, rather than waiting for 15 minutes with a B&N bookbuyer they have to convince, we might actually get back to a world in which good writing, rather than high-volume sales, make a publisher’s reputation, and affords a decent living for the say 20 to 100 people involved in putting out books in a publishing house the size of the original Scribners.
Look at how well Andre Shiffrin did?
B&N, at its core, is a book distributing and selling company.
It seems to me that, without them around, publishers might actually have to go back to trying to sell books to bookstores themselves, and to book clubs, Amazon, maybe restart the Book-of-the-Month Club, and libraries and schools. Rather than deciding the fate of literature based on what B&N decides is not necessarily “important” or, God forbid, “new,” but will generate the most cash for the most people–least, of course, for the writer.
How much money has Scribners made off of The Great Gatsby, for instance–which did not sell well from its first print run to F. Scott Fitzgerald’s death? Or from The Sun Also Rises, which did, and couldn’t be published (on caveat of the author) without simultaneously publishing the horrid “Torrents of Spring”? How did Boni & Liveright manage to publish anyone and sell any books, enough to make a decent living for themselves?
How did any books get published, let alone distributed and sold, before “You’ve Got Mail” and B&N’s takeover of bookselling?
It’s a conundrum. But not, actually, new. In fact, the solution, should B&N ever actually go the way of most business models built on taking over an industry, as was Borders, is actually old.
Publishing houses without such enormous overhead, not owing to a major media corporation that owns them any revenue, with the technology that exists, could go back to spreading news and advertising–you know, what used to be referred to by department as “publicity”–about a book or an author, and get orders for a few copies to test on shelves, and send to libraries and schools, and do it with far better margins in terms of costs using modern, print-on-demand technology (nobody “sets type” anymore, and has to pay a staff of printers to do that, by hand–everything is done by computers, as with newspapers for decades now), and writers will still be thrilled to be published, to see someone else has thought of their work worthy of publication and distribution, and to see their book in the window or at least on a shelf of their local bookstore.
Which, as noted, you can pretty much guarantee will NOT be a B&N. Until they merge with Starbucks to justify the cost of their brick-and-mortar locations.
Bravo!
For me, born in 1954, I can see that by comparison there is less time for reading books and more competition than ever before. I remember a time before TV where the only entertainment diversions where radio, movie theatre and live theatre. There were no mobile phones, computers, internet, televisions, etc. Before these otpions, I read heaps – and even when TV became popular I still read often until I took delivery of my first computer and connected to the internet. Then I discovered that everything I needed to know was found through the internet, and there were endless videos with every kind of entertainment anyone could think of. Suddenly books didn’t seem as interesting – to me – as so much more work had to be invested, regarding time and concentration. While I still had a desire to read, and occasionally visited the library, I ended up returning the books unread.
In view of my own experience and preferences, I wonder if less (paper) books are being purchased now leading to more competition between publishers and book stores for sales. I do occasionally buy digital books as they’re so cheap and easy to access, but most of them languish on the PC hard drive unread.
1) Amazon stocks their new bookstores with only 3,500 titles, less than 10% of the title base that a Waldenbooks or B. Dalton used to carry. If they had a 1,000 outlets doing this, it would exacerbate the trend of topselling mega-titles, with midlist and backlist suffering.
2) Amazon utiltized books as a means to learn the best way to do online retail — and conquered the world of online retail, with books becoming an minor revenue stream for them (even as they became a primary revenue stream for publishers). Now, they are utilizing books to learn new ways to do physical retail. With the lessons they learn, they’ll move on to dominate storefronts for groceries, clothes, housewares, etc. That’s their endgame. Not selling more books.
It’s a changing world but it’s always been changing. Authors and publishers will always face challenges. The odds for the author to succeed will always be against them but in the end we somehow survive. The smart ones take advantage of the changing world while others sit around and complain. We make a choice where we want to be. With that being said, not a lot has changed. It was a changing world a 100 years ago and it will be a 100 years from now.