Posted: 23 Jan 2014 07:16 AM PST''
One
of the subjects we have been probing for a long time is the inevitable
impact that increased purchasing of books online would have on the shelf
space at retail and what that would mean to trade publishers. (You’ll see that this speech that is well more than a decade old also says publishers are going to have get audience-centric, or vertical, as well.)
Of course, there has already been one shock to the system — one
“Black Swan” event — which was the closing of Borders stores in 2011.
That suddenly took about 400 very large bookstores out of the supply
chain. Since then, the anecdata about independents — which includes
encouraging, but unaudited, financial information from the BEA and a lot
of rah-rah from thriving indies (a fire we threw a log on with a great
break-out session at DBW last week) — has been very upbeat (although Bowker data seems to suggest Amazon gained more
from Borders’s passing than anybody else did). And while B&N has
continued to show some sales slippage, its more drastic setbacks have
been in the Nook business, not selling print in stores.
One distracting fact for analysts considering this question has been
the apparent slowdown in the growth of ebook sales, suggesting that
there are persistent print readers who just won’t make the switch. The
encouraging fact is distracting because it is incomplete as far as
predicting the future of shelf space at retail, which is the existential
question for the publishers, wholesalers, and bookstores (and,
therefore, by extension, for legacy authors too). We need to know about
changes in the division of those sales between online and offline to
really have a complete picture. If ebook takeup slows down but the online buying shift doesn’t, the bookstores are still going to feel pain.
This point about the key index being online sales versus offline
sales rather than printed book sales versus digital book sales is a key
one that we’ve been hammering for years. It was nice to see Joe Esposito
emphasize it in a recent post of his addressing some of my favorite questions about Amazon.
We had a panel of four successful independent booksellers at DBW. One
of them, Sarah McNally of McNally-Jackson, has recently been quoted as
saying she worries about the future of her Soho bookstore when her lease
is up. (Rents rise quickly in that part of the city.) Meanwhile, she’s
taking steps to move beyond books to retailing design-heavy but
perhaps-more-enduring retail goods like art and furniture. (And, in that
way, McNally-Jackson takes a page out of Amazon’s book, not limiting
themselves to being a bookstore brand.)
A friend of mine who is a longtime independent sales rep says that
even the successful indies are finding it necessary to sell books and other things
— cards, gifts, chotchkes — to survive. The mega-bookstore with 75,000
or 100,000 titles or more was a magnet for customers in the 1970s, 80s,
and 90s. It isn’t so much anymore because the multi-million title
bookstore is available through anybody’s computer. This is a fact that
makes the number of successful stores a weak indicator of the
distribution potential available to publishers. If replacement stores
carry half the inventory of the ones that go out, we can have a lot of
indie retail success stories but still a shrinking ecosystem into which
publishers distribute their books.
In general, the proprietors of successful indie bookshops and their
trade organization, the American Booksellers Association, paint the
times as hospitable to independent bookselling.
They dismiss the skepticism of people like me that believe that the
current surge of apparent good fortune is due to a window of time (now)
when Borders’s closing removed shelf space faster than Amazon and ebooks
had removed demand for books in retail stores.
It has been an unspoken article of faith that bookstores would not go
the way of stores selling recorded music or renting and selling video,
both of which are segments that have just about entirely disappeared.
The physical book has uses and virtues that a CD, a vinyl record, a DVD,
or a videotape don’t, not the least of which is that a physical book is
its own “player”. But it also provides a qualitatively different
reading experience, whereas the other “physical” formats don’t change
the consumption mode at all. Of course, that only helps bookstores if
the sales stay offline. People ordering books online are overwhelmingly
likely to order them from Amazon. In other words, it is dangerous to use
the book’s ability to endure as a proxy for the bookstores’ ability to
sustain themselves. The two are not inextricably connected.
But the fate of almost all trade publishers is inextricably connected
to the fate of bookstores. There are only two exceptions. Penguin
Random House is one, because they are large enough to create bookstores
on their own with just their books. The other is publishers who are
vertical with audiences that open up the possibility of retail outlets
other than bookstores. Children’s books and crafts books are obvious
possibilities for that; there aren’t a ton of others.
The feeling I had at Digital Book World is that most people in the
trade have either dismissed or are wilfully ignoring the possibility
that there could be such serious further erosion of the trade over the
next few years that it would threaten the core practices of the
industry. With more than half the sales of many kinds of books — fiction
in the trade area, of course, but also lots of specialized and
professional and academic topics — already online, many seem to feel
whatever “adjustment” is necessary has already been made. They got
support for optimism at Digital Book World. Stock-picking guru Jim
Cramer touted Barnes & Noble’s future (because they’re the last
bookstore chain standing) and, from the main stage, the idea was floated
that Wal-mart might buy and operate B&N as part of an overall
anti-Amazon strategy.
All that is possible, and I have no data to refute the notion that
we’ve reached some sort new era of bookstore stability, just a stubborn
feeling in my gut that over the next few years it will turn out not to
be true. I don’t mean to ignore the positive signs we’ve seen over the
past year or so. And the overall decline in physical retail versus
online purchasing affects all retail, not just books, so it is possible —
some might say likely — that the rent squeeze will ease. It isn’t just
bookstore shelf space that seems to be in oversupply compared to demand;
that’s broadly true of retail. So your gut may differ and would have
some logic to support a contrary point of view.
But my hunch (and this is not a “prediction” as in “this will happen;
take it to the bank”) is that shelf space for print in Barnes &
Noble and dedicated bookstores could well shrink by 50 percent over the
next five years. What CEO or CFO of a trade publishing house would
consider it prudent not to consider that possiblity in their own
planning?
Obviously, less shelf space and more online purchasing change each
publisher’s practices in many ways. They will want to deploy more
resources for digital marketing and less for sales coverage. They will want to own less warehouse space and less inventory, changing the overall economics of their business.
As we’ve been saying for years, they’ll find it sensible to become more
vertically consistent: acquiring titles that appeal consistently to the
same audience. Each house’s own database of consumers will become an
increasingly important component of their equity: an asset that provides
operational value today and balance sheet value if they become
acquired.
But, most of all, publishers are going to have to think about how they maintain their appeal to authors
if putting printed books in stores becomes a less important component
of the overall equation. It is still true that putting books in stores
is necessary to get anywhere close to total penetration of a book’s
potential audience. Ignoring the in-store market obviously costs sales
in stores but it also costs awareness that reduces sales online. (After
all, stores are very aware of the “showrooming” effect: customers who
cruise their shelves with smartphones in hand, ordering from Amazon as
they go!)
But that’s today when the online-offline division may be near 50-50
overall and is 75-25 for certain niches. If those numbers become 75-25
and 90-10 over the next five years, the bookstore market really won’t
matter that much to most authors anymore. Whether through
self-publishing or through some fledgling publisher that doesn’t have
today’s big publisher capabilities but also doesn’t have their cost
structure, authors will feel that the big organizations are less
necessary than they are now to help them realize their potential.
Higher ebook royalty rates,
more frequent payments, and shorter contract terms are all very
unattractive ways from the publishers’ perspective to address that
issue. So far the marketplace hasn’t forced publishers to offer them. If
bookstores can hold their own, the need to move to them may not be
compelling for a long time. But if they don’t, most legacy publishers
will have very few other levers to continue to attract authors to their
ranks.
We are already seeing big publishers quietly moving away from
publishing books that haven’t demonstrated their ability to sell as
ebooks: illustrated books,
travel books, reference books. That implies an expectation that the
online component — particularly the ebook segment of it — has already
changed the marketplace or certainly will soon. Adjustment of the
standard terms with authors is a shoe that hasn’t dropped, but if the
marketplace continues to change, it might become very hard to keep
things as they’ve been.
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