Should Bookstores Be Publishers Too?

Lev Grossman and Andrea Sachs write in Time magazine about our love-hate relationship with Amazon. Their conclusion? It depends on who's doing the loving and who's doing the hating. Defining Amazon is about as easy for us as defining the elephant was for the blind monks of Chinese legend. Time succinctly states the case:

"Amazon has diversified itself so comprehensively over the past five years that it's hard to say exactly what it is anymore. Amazon has a presence in almost every niche of the book industry. It runs a print-on-demand service (BookSurge) and a self-publishing service (CreateSpace). It sells e-books and an e-device to read them on (the Kindle, a new version of which, the DX, went on sale June 10). In 2008 alone, Amazon acquired Audible.com a leading audiobooks company; AbeBooks, a major online used-book retailer; and Shelfari, a Facebook-like social network for readers. In April of this year, it snapped up Lexcycle, which makes an e-reading app for the iPhone called Stanza."

As if all that were not enough, Amazon has now become a publisher, too. First, there's its Encore program "whereby Amazon will use information such as customer reviews on Amazon.com to identify exceptional, overlooked books and authors with more potential than their sales may indicate. Amazon will then partner with the authors to re-introduce their books to readers through marketing support and distribution into multiple channels and formats, such as the Amazon.com Books Store, Amazon Kindle Store, Audible.com, and national and independent bookstores via third-party wholesalers."

Amazon has also put its print on demand division into play in the form of a service called CreateSpace aimed at self-published authors.

Most significantly, Amazon has begun to publish mainstream authors, notably Stephen King, recently engaged to write an original story for the Kindle.

For publishers the thought of Amazon becoming a competitor in their own space is their worst nightmare come true. As Time puts it, "If Amazon is a bookstore, it's supposed to be buying from publishers, not competing with them. Right?"

You got that right, Time! However, before we get out our pitchforks and start baying "Restraint of trade!" at Amazon you need to be reminded that it is not the only book retail behemoth that is also a publisher. Let's look at Barnes & Noble.

At the beginning of 2003 Barnes & Noble acquired Sterling Publishing, described at the time as "one of the top 25 publishers in America and the industry's leading publisher of how-to books." Publishers were gravely concerned and with every reason. Barnes & Noble's own titles were like a supermarket's house brand, often undercutting the prices of outside purveyors. Their anxieties were well founded. On many occasion, when I pitched a nonfiction book at a publisher, the editor would tell me to forget about it, Barnes & Noble already had such a book and the new one could never match the house-brand's low retail price.

The case against bookstores becoming publishers was stated so cogently by Morris Rosenthal that I reproduce it in full below. Though written four years ago as a followup to Barnes & Noble's acquisition of Sterling, it is word-for-word valid for Amazon as well and should serve as a chilling cautionary tale for all book industry watchers:

Monday, July 25, 2005
Sterling Publishing and Barnes & Noble Books

Barnes & Noble bought Sterling Publishing a little over 3 years ago, and publishing has been a rapidly growing segment of Barnes & Noble's strategy ever since. Sterling has over 5,000 titles in print and is adding about 1100 annually, primarily in the How-To area. Barnes & Noble also acquires books from other publishers, such as the "in easy steps" computer series from U.K's Computer Step publishers, and Barnes & Noble also publishes an extensive backlist of out-of-print and out-of-copyright classics. According to their annual 10K filing, Barnes & Noble also "commissions books directly from authors" and "creates collections of fiction and non-fiction using in-house editors." All of this shapes up as good business for Barnes & Noble, but doesn't cheer most self publishers.

The reason has to do with shelf spaces and market saturation. Barnes & Noble is the dominant bookstore chain in the country, and they have a good record of working with small publishers when it comes to in-store events and stocking titles. However, as their annual report points out - "Each Barnes & Noble store stocks from 60,000 to 200,000 titles, of which approximately 50,000 titles are common to all stores." For the true super stores which stock 200,000 titles (though I suspect they may have meant "books" rather than "titles") that leaves a lot of room for regional or independent books, but the smaller stores seem to do an excellent job stocking the Barnes & Noble published books (and they'd be nuts not to), so it's a scary thing for a small nonfiction publisher to find that a Barnes & Noble imprint is publishing a competing title.

Barnes & Noble now has some 10,000 books in print, and they tend to be lower priced than the competing titles, which while great for customers (vertical supply chain) doesn't make publishers very enthusiastic. I seem to recall Steve Riggio saying last year that they were targeting 10% of book sales as self-published by Barnes & Noble. I also seem to remember him saying three or four years ago that they were targeting 5%, so it stands to reason if they reach 10%, they'll up the ante again.

With half their books coming from their Sterling subsidiary which specializes in how-to, and a good chunk of the remaining half also in the how-to segment, it's safe to assume that how-to publishers are at the greatest risk for the time being. The how-to emphasis makes sense, since Barnes & Noble can easily track which titles are doing well throughout their chain, than commission or acquire similar titles. They don't need to be huge sellers, the acquisition cost for a commissioned book is pretty low (lots of hungry writers out there) and the guaranteed shelf space makes a large first print run, which combined with the lack of middlemen, makes the low pricing possible. If I was in the process of setting up a new imprint to publish nonfiction, I would look long and hard at my business model and focus on titles I felt would do especially well on Amazon or independent stores, as opposed to making plans based on the whole market.

Richard Curtis