The Last Chapter

I've returned from parts unknown, mes auteurs, and I trust y'all enjoyed last week's guest posts while I was gone. Many thanks to our five guest posters!

All is not sunshine and lollipops in Ye Olde Publishinge Lande, however. If you haven't yet heard the sad news, Borders is converting from Chapter 11 bankruptcy to Chapter 7, meaning they are liquidating their assets and going entirely out of business.

First, my sincere condolences and heartfelt thanks to all the Borders employees who have helped me so much over the years and to whom I wish the best in their pursuits and endeavors after Borders. BGP's liquidation will entail roughly 11,000 layoffs—not including potential job losses at ancillary corporations, such as publishing, shipping, and food services companies that may have departments dealing exclusively with Borders—and my best wishes are with those who will be seeking work in this economy in the next several months.

Second, this will impact the industry in many significant ways, not all of which will become immediately apparent.

• There is now only one major bricks-and-mortar physical book retailer in the country: Barnes & Noble. B&N no longer needs to contend with any other major player in terms of physical co-op, in-store couponing, &c &c. I expect they'll continue to compete heavily with Amazon, however—especially in the increasingly popular e-book arena—so I don't foresee any immediate or comprehensive shifts in the price of physical books.

• There is now a significant surplus of physical books in the market. I'm not completely clear on the returns policy for distressed retailers, but I believe they're entitled to return most—if not all—of their unsold stock to the appropriate publishers. While I imagine many publishers moved to minimize their exposure back when Borders filed for Chapter 11 bankruptcy protection, I think a lot of them are going to get hit with big returns as Borders dissolves.

• Print runs are going to become smaller. When making final decisions in terms of binding books, publishers have taken two major chains into account; now they'll only account for one. While it's true that Barnes & Noble, Amazon, and (to a lesser extent) big-box retailers like Wal*Mart and small, independent book shops will absorb some of that business, a portion of it will be permanently lost.

• I think this will hasten physical/electronic equilibrium in the market. With fewer physical books being printed and more consumers going to Amazon and Barnes & Noble—many purchasing books electronically via the Kindle or Nook, respectively—I think the American market will be fully half e-books by the last quarter of 2013 or the first quarter of 2014. Over time, areas traditionally resistant to electronic media (such as art books, children's books, and international editions) will increasingly move in that direction, as well.

Again: is the physical book dead? Absolutely not. But the loss of Borders will, I think, hasten its transition to a secondary format.

The times, they are a-changin', ladies and gents, and I don't pretend to know what's going to happen over the next several months. I can tell you, however, that I'm not surprised by this turn of events—in fact, Borders managed to hang on much longer than I expected—and I was by no means alone in the industry in that expectation. Though the methods by which customers purchase books will undoubtedly continue to change, people will still need great stories. Books, whatever their form, are here to stay, and it's my sincere hope that Borders' demise will engender more opportunities than it dissolves.

The Vanishing Advance

You may have been hearing about this from other publishing professionals or from fellow writers, mes auteurs, but in case you haven't heard, the average advance has declined a bit over the past couple of years. Much of my evidence for this is either proprietary or anecdotal, so hopefully there are a few literary agents or editors in the house to confirm the trend.

In case you're curious, though, there are a few reasons I think lower advances have been—and continue to be—the norm.

Belt-tightening. With forbidding economic indicators such as unemployment still high and talk of a double-dip recession floating around, editors and publishers have become much more frugal in terms of the advances they offer. Many have modified their P&Ls to reflect current sell-through and consumer habits, and decreased demand for physical books has resulted in decreased up-front cash for authors.

Publishing is a business, and we've got to try to make money on as many books as possible in order to stay in business. Speaking of physical media, another reason (à mon avis) for lower advances is:

The shift to electronic media. Because e-books don't face the same kind of supply chain/distribution challenges as physical books and are not returnable, it's easier for publishers to run P&Ls for e-books and to simply offer higher royalties than to stick with the advance model.

True, the vast majority of titles currently acquired are eventually released as concurrent physical and electronic books, but I don't think the day is long off in which a substantial section of the market will comprise e-only titles. Once that occurs, I think the idea of the advance will become even more antiquated; it's much easier to pay an author a fixed percentage of dollars earned in the more or less real-time environment of e-book sales than to bother with advances.

In fact, much (though certainly not all) of the work done by advances is obviated by the fact that:

Advertising and marketing budgets for e-books are often lower than for physical books. While a publishing house—particularly a large one—will pay the advertising and marketing costs for their lead titles, there are many midlist titles and titles published by smaller publishers for which the burden of lining up media and marketing falls squarely on the author. The advance is a way of mitigating this hardship; authors can use the money given to them by publishers to pay to promote their books (e.g. conduct book tours, create book trailers, and so on).

As advertising and marketing have become easier and cheaper—predominantly by way of social networking services like Facebook and Twitter—the cost of promoting books through these channels has necessarily also fallen. If publishers feel they can pay less money for the same commercial success from any given title, they absolutely will. Wouldn't you?

So that, dear readers, is my take on why average advances seem to be declining in this industry. It may be a relatively short-term reaction to the continuing economic uncertainty inherent in the recession, or (as I believe) a long-term reaction to the drastic changes that are occuring in the publishing industry as it transitions from physical to electronic media. Regardless of which, I think it signals an industry-wide recognition of the challenges the business is facing.

What do you think, gentle readers?

Panic! at the Library

As part of my ongoing coverage of the astounding (and often strange) turns the publishing industry is taking as it shifts from paper-based to electronic media, I bring you this, mes auteurs: The Consumerist's report that HarperCollins is capping e-book loans at 26 check-outs. If a library purchases a HarperCollins e-book, they can only lend it 26 times before it "expires" and the library must purchase a new license from the publisher.

This is, à mon avis, completely nuts for several reasons.

First, the idea of forced obsolescence is probably so repugnant to most librarians that, rather than buy and re-buy the same e-book over and over, they're probably just not going to purchase HarperCollins e-books.

The publisher seems to be betting on librarians' collective fear that if they don't stock their e-books, patrons will simply buy e-books on-line and the libraries won't be able to justify their continued existence. If there's a way to breed ill will among your customers (that is, the librarians actually purchasing books for their libraries), this is it.

Second, the number 26 seems completely arbitrary to me. I'm not privy to any of the logistical tinkering or number-crunching the folks at HarperCollins did in order to arrive at this figure, but it seems to me (and you can see from the video in the article) that physical books last much longer than 26 check-outs (and I can tell you from experience that they consistently survive many more).

It's possible that this is an average number that takes into account all the books that go on shelves and are never or rarely checked out, left to rot over a fifty-year period with only a couple of loans. If that's the case, though, libraries would chuck the book when it became unusable and would probably not buy a new one, since no one wanted the original to begin with.

If a publisher is going to enforce a loan cap, I think it 1.) needs to be much higher than 26 (based entirely on my uninformed opinion), and 2.) should vary depending on the work in question. Harry Potter and the Seven Figure Advance is going to be borrowed a lot more often than Actuarial Mathematics for Dummies, and the loan cap should reflect this.

Finally, the whole reason the loan cap exists is as an analogue to the wear and tear suffered by physical books that eventually need replacing. I think one of the most destructive tendencies inherent to the publishing industry is not its resistance to electronic media, but its slavish insistence on making them exactly like physical media.

Instead of panicking over a perceived loss in revenues caused by books that no longer need to be replaced, publishers should be touting the non-physical nature of e-books as a tremendous boon: "You'll never need to replace this e-book! That means that rather than buy a new copy of the same book, you can spend the money you'll save on more of our e-books."

E-books don't take up physical shelf space, so the limiting factor that once forced a librarian to choose between replacing a popular title that's worn out and purchasing a different title—that is, space—no longer exists. More titles sold is good for everyone.

My rant is over for today, meine Autoren, but what do you think? Should publishers be able to cap library loans, and if so, is 26 a reasonable number?

This Is A Business: Redux

I first made this point a little over a year ago, gentle readers, but it bears repeating.

The other day I overheard a conversation in which one book-loving acquaintance of mine expressed the opinion that selling e-books amounts to a betrayal of the physical book.

Let me be the first to say: this a bunch of maudlin nonsense.

The book business is precisely that, mes auteurs: a business. Yes, in many instances we're selling art, but I've always been of the opinion that the art of the book is almost always found in its content, not in its form; if a majority of consumers want their books electronically, any publisher or bookseller resisting that change will likely be driven out of business. If it sounds Darwinian, that's because it is. If you're not selling what people want, you're not going to be in business very long.

This isn't at all to say that the physical book is going extinct (though hardcover fiction may, à mon avis, be more or less gone within a few years)—I'm only saying that refusing to cultivate an electronic platform or sell e-books due to the misguided notion that you're somehow betraying an inanimate cultural medium is, well, childish. Books aren't people; they don't have feelings. Those who really love them will buy and sell them in whatever format is available.

The book is very old, cats & kittens, but before we had them we had scrolls and before that we had tablets and before that we had oral traditions. The codex—a book with a cover and pages—hasn't been around forever and it won't be around forever, and the sooner publishers, booksellers, and other industry insiders realize this and not only accommodate but embrace the changes that are revolutionizing the way people read, the better.

A Lesson on Brand Management

As I've mentioned a few times before, mes auteurs, publishing is a strange industry in many ways. One of the ways in which it differs from other enterprises is that the author of the work, not its physical manufacturer, is the brand name. For the most part, no one cares who publishes a given book; they only care about who wrote it and what it's about.

Part of this is intrinsic to the industry: just like with movies and music, the writer(s)/actor(s)/artist(s) is/are the source of the desired material, so regardless of whose label is affixed to those names, consumers will make their purchases based principally on the artists involved. As a culture, we care about Johnny Depp more than Lionsgate, Jay-Z more than Def Jam Recordings, and Suzanne Collins more than Scholastic.

Another part of it, however, is due to publishers' treatment of their own brands. Many include their logos on the spines and back covers of their books, but never the front (Penguin Classics is a notable exception), and publishers with myriad subdivisions and imprints further confuse consumers by including those logos but not the logo of the parent company.

How many of you knew that Dutton, Gotham, Prentice Hall, Riverhead, and Viking were all part of Penguin? That Knopf, Crown, and Ballantine are all Random House (and that those groups contain their own smaller imprints)? That Grand Central (with its imprint, Twelve) is Hachette's, as is Little, Brown & Co.? I could go on, but you get the point.

I think a significant problem for publishers in the industry today is a lack of brand consolidation. A lot of it is because individual imprints have their own specialties and want to maintain their identities apart from their parent publisher: Threshold (Simon & Schuster) specializes in conservative politics and nonfiction, Tor (Macmillan) in science fiction and fantasy, &c. This is all fine and good—or at least, it has been—but with companies like Amazon and Barnes & Noble beginning to dominate the market, publishers will have to change the way they play the game.

As Sarah Lacy at TechCrunch notes, Amazon is preparing to take over the role of publisher in the world of tomorrow. And in that hypothetical world, I think Amazon's name would be just as important as most of its authors'.

Unless traditional publishers can reinforce their names and reaffirm their relevance over the next five years, I don't see why anyone will prefer a Random House book or a Penguin book over an Amazon/Kindle book. Authors will always be major brands in publishing, but I think publishers will need to increase their visibility as well. If they continue to bank on running the show from behind the scenes, it's my opinion that it will be to their long-term detriment.

Books Without Borders?

Happy 2011, mes auteurs, and a big thank you to all the guest posters from the last seven days. You guys rock.

But alas and alack, faithful readers, it's not all sunshine and lollipops in the land of publishing. As you by now surely know, Borders is (still) in trouble.

On the last day of 2010, BGP announced it would be delaying payments to vendors (i.e. not paying publishers for books). This caused some publishers to stop shipping them books, and Borders' stock tumbled (insofar as one can tumble from under a dollar per share) as a result. After a low of $0.83/share, it's trading at heavy volume at a shaky $0.88/share. Borders' market capitalization hasn't budged much from $60 million (that's "million" with an "m"). For reference, Barnes & Nobles' (BKS) is $930 million and Amazon's (AMZN) is $82 billion ($82 thousand million).

After two top executives resigned, Borders management traveled to New York City for a meeting with major vendors, which (one assumes) included the Big Six publishers that comprise Borders' largest source of books (and therefore income). Borders is apparently asking publishers to convert delayed payments into interest-bearing debt while simultaneously trying to renegotiate their loans with GE Capital and Jefferies Group. In short: they're out of cash and trying to find a way to keep the doors open and the lights on.

With staff apparently being advised to seek employment elsewhere, however, I don't think that's going to be much longer. In my opinion, Borders will be lucky to survive the month, much less the first quarter. They're strapped for cash and straining their relationships with suppliers, and it would be the understatement of the year (granted, it's early yet) to say they're poorly positioned for the ongoing digital shift in publishing: their website is inferior to their competitors', their continous couponing and deep discounts don't seem to be slowing the decline in their sales, and without a dedicated e-reader, they're nowhere near in league with the Kindle or the Nook.

That said, gentle readers, I'm afraid (barring divine intervention or acquisition by another company) Borders is more or less finished. Amazon, Barnes & Noble, and (to a lesser extent) Apple will be left to determine the future of publishing when the dust from BGP's fall clears. I can only hope some of those empty storefronts become independent book stores.

What about you, meine Autoren? How would the demise of Borders affect you and your reading habits?