I’d hardly settled behind my desk when one of my bosses asked if I would join her in the corner office. ‘Please close the door,’ she said as I entered the room. Seldom a good sign. ‘Why don’t you take the comfortable chair?’ Oh dear.
Three hours later I was back at home, jobless. I’d seen it coming, in a let’s-not-dwell-on-that-for-too-long sort of way: I was the most recently hired editor at the imprint, one of its more highly paid staff members, and my list, though filled with erudite, well-written books, was not the most profitable. If anyone was for the chop, it was likely to be me. And the possibility of staff cuts seemed far from remote. The share price of the corporation I worked for had fallen more than 80 per cent in the previous 18 months. The CEO of Barnes and Noble, the largest bookstore chain in the US, had just announced that ‘never in all my years as a bookseller have I seen a retail climate as poor as the one we are in, nothing even close.’
My boss ended our meeting with a reflection on the state of book publishing today. She said that two words sprung to mind: General Motors. She then accompanied me past the newly installed poinsettia display to Human Resources on the 11th floor. When I asked whether he was having a busy morning, the HR director told me that, yes, a number of other people were being ‘impacted’. It subsequently emerged that there were 35 of us. Elsewhere, as the online news daily Publishers Lunch reported, there were extensive layoffs at Houghton Mifflin and Thomas Nelson, as well as a pay freeze at Penguin for anyone earning more than $60,000 a year and deferred pay increases at HarperCollins. Random House announced a major reorganisation following the resignation of the heads of two of its largest groups. All of this happened on 3 December, which soon became known as New York publishing’s Black Wednesday.
There had already been rumblings in the industry. Earlier in the year HarperCollins had put a stop to expense-account lunches. Jonathan Burnham, a senior vice president there, said that things had changed since he started in the business, when he went ‘out for lunch every single day . . . if I didn’t have lunch I’d feel like I was out of the loop.’ Penguin in London subsequently announced that it too was taking some of the grub out of Grub Street by restricting its editors to paying for only one course at lunch with authors. At Houghton it wasn’t lunches that were to be cut, but the number of new manuscripts bought. ‘It’s a symbol of doing things smarter; it’s not an indicator of the end of literature,’ the company’s vice president of communications, Josef Blumenfeld, explained in an attempt to reassure sceptical agents.
Back in London over Christmas, I was surprised by the insouciance with which colleagues on this side of the Atlantic regarded the gathering storm. ‘The financial crisis has affected the City,’ they’d say, ‘but it hasn’t spread to the rest of the economy.’ They’d often add that, because of their low price, books are recession-proof. As a victim of the crash in New York, I’m perhaps inclined to take an excessively pessimistic view of what is about to happen here. But the prevailing breeziness in the UK seems to me ill-founded, and I’m not alone. Peter Olson, until recently the chairman and CEO of Random House, wrote in Publishers Weekly last month: ‘While 2008 ended on a disappointing and even discouraging note for many in the book industry, the outlook for the new year is even bleaker. One-time adjustments by retailers and underlying shifts in the structure of the book industry will make 2009 the worst year for publishing in decades.’
It’s not hard to identify the problems that led to this state of affairs. Books have always been a low-profit item and in recent years margins have been shrinking even further. Publishers now regularly give bookshops a 50 per cent or even a 55 per cent discount on the retail price. The distributor that warehouses and delivers the book will typically take 10 per cent of what remains, or more if you are a small publisher; 15 per cent goes on production (printing, paper, typesetting). Add another 10 per cent for the author’s royalties and the publisher is left with 10 per cent to cover promotion costs, rent and office expenses, wages – and profit. No wonder it’s called the gentleman’s profession.
Things are made worse by the fact that the sale price of books, as opposed to their cover price, has dropped. In 2008, according to Nielsen BookScan, the average price of a book sold in the UK was just £7.49, 1.1 per cent down on the previous year and the lowest since 2001, when average price was first tracked. There are a number of reasons for this decline. The rot started with the abandoning of the Net Book Agreement in the mid-1990s. The NBA mandated that books be sold at the publisher’s recommended retail price. With its disappearance, large retailers were able to discount major titles, taking business away from smaller shops. A 608-page Harry Potter could be bought at Asda for a fiver. As the market share of Waterstone’s, Amazon and the supermarkets grew on the back of three-for-two offers and substantial price-cutting, many independent bookshops went out of business.
The US didn’t have a Net Book Agreement, but smaller stores were protected to some extent by the Robinson Patman Act of 1936, an anti-trust law that prevents producers selling at higher discounts to bigger customers. Under this legislation a book must be sold at the same price no matter how many are bought. With the rise of the chains, however, the legislation came under increasing pressure. Barnes and Noble and Borders were, unsurprisingly, keen to get an edge on price in return for buying in bulk. They did it by niftily stepping round the law, requiring publishers to pay ‘co-op’ money in return for large purchases. Though independent booksellers argue that it amounts to the same thing, ‘co-op’ is not legally the same as a discount; it is, rather, payment for a book’s being given an advantageous placement in the store. As a consequence, the entrances of today’s large bookstores are effectively tranches of real estate, with publishers renting 8x6 inch plots on which to place their books for a few weeks in the hope that they will find a buyer.
Often they don’t. In such cases the books will be returned to the publisher for a full refund. This arrangement, of enormous advantage to the retailer, is unique to the book publishing industry. It was introduced in the United States in the 1920s, when Simon and Schuster, in an effort to get ahead of its competitors, offered to take back unsold copies of its crossword books. Soon everyone adopted the system. Today returns are ubiquitous and running at higher levels than ever before. In the US, they represent nearly 40 per cent of all new hardbacks shipped. The practice is open to abuse: publishers regularly complain that bookstores are returning books and then reordering them in order to extend their credit periods, a practice that can only become more common now that finance is no longer available from banks. That old adage of the industry, ‘Gone today, here tomorrow’, has never been more pertinent.
Yet despite massive discounts and extended credit terms, booksellers are far from financially robust. Theirs is a business with high fixed costs in wages and rent, which falling prices make ever harder to meet. In the US, Borders is hovering near bankruptcy, having invested heavily in the music sections of its stores, a business badly affected by the collapse of the CD market. The chain also took a big hit on the recent sale of its UK operation, posting an after-tax loss on the deal of $126 million. Barnes and Noble, though healthier, has seen its stock price fall by more than half in the last 18 months. Having announced a sharp drop in sales over the holiday period, the company cut jobs for the first time ever, laying off 100 staff from its New York offices in January. In the UK, HMV, the owner of Waterstone’s, has been unable to offload the ailing chain. It’s significant that, since short-selling was reintroduced in the middle of January, HMV’s shares are among the most heavily borrowed.
A visit to a chain bookstore these days is often depressing. The deep stock and intelligent service of just a few years ago are increasingly giving way to display areas that look more like ‘Books and Mags’ emporia, with dump bins of assorted bargains and jarring juxtapositions of titles. Promoting books overwhelmingly on the basis of reduced price is never going to bolster their perceived value. I’m reminded of an old Tom Tomorrow cartoon in which the customer tells the assistant: ‘I’m looking for a book in the $10 range.’ In order to cope with their frail position, the chains are reducing stock levels and ‘passing’ on – i.e. failing to order – an ever widening range of new titles, even from large publishing houses. This will accentuate an already marked feature of the business, the so-called ‘crisis of the mid-list’, with the paring away to practically nothing of promotion expenditure on all books except the lead titles.
As if all this weren’t bad enough, a further challenge has emerged: the unstoppable rise of electronic publishing. The difficulty of making money out of the internet is well catalogued. Music companies and newspapers have been reeling for some time from the incursion of electronic alternatives into their markets. The problems presented for the book trade by the internet come in a variety of forms. Reference books have been badly hit by the availability of free versions on the web; it isn’t hard to imagine what Wikipedia is doing to encyclopedia sales. (Wikipedia, meanwhile, is planning to produce a print edition of its most popular entries, with the aim, it says, of proving wrong those ‘who say that printed encyclopedias are a thing of the past in the internet age’.) Electronic selling has also made second-hand books much easier to find, as huge numbers of students could testify.
Meanwhile, some estimates of online retailers’ current share of the US market are as high as 30 per cent. And, of course, their heavy discounting puts further pressure on publishers’ margins. The head of a major university press in London complained that he had been warned by Amazon against discounting directly to customers. If he did so, he was told, Amazon would simply apply their standard discount to his lower price, seeking better wholesale terms to make this possible.
The introduction by Amazon of the Kindle, a hand-held electronic device that can download and store more than 200 books, indicates another change of direction. Despite stock shortages, some 500,000 Kindles have already been sold, and a new, improved version went on sale in the US earlier this month. Sony claims that more than three million e-books have been downloaded on its e-reader in the last two years while, according to MediaBistro, at least half a million people have downloaded the reader application Stanza to their iPhone. Random House reported that e-book sales increased by 400 per cent in 2008. Victoria Barnsley, the CEO at HarperCollins, speaking last autumn at the LSE, estimated that ‘within ten years more than half our sales will come from digital downloads.’
But there is a wider, if less concrete threat to book publishing from the internet. Electronic communication has generally made life easier for writers and harder for readers. Text is simpler to produce on computers, easier to amend and spell-check, and a breeze to distribute. No one can be more conscious of this than editors, who are now deluged with manuscripts, attached with consummate ease to letters explaining that if this particular book is not of interest, several others, perhaps more appealing, await on the author’s hard drive. But how does this technology serve the reader? For all the claims of their optical friendliness and handiness, e-books still strain the eyes and are challenging to carry around. Worse, the dizzying range of easily accessible material on the internet conspires with a lack of editorial guidance to make web reading a disjointed experience that works against the sustained concentration required for serious reading.
This privileging of the writer at the expense of the reader is borne out by statistics showing the annual output of new titles in the US soaring towards half a million. At the same time a recent survey revealed that one in four Americans didn’t read a single book last year. Books have become detached from meaningful readerships. Writing itself is the victim in this shift. If anyone can publish, and the number of critical readers is diminishing, is it any wonder that non-writers – pop stars, chefs, sports personalities – are increasingly dominating the bestseller lists?
Perhaps the problem has to do with more than just the way in which words are transmitted. People bowl alone, shop online, abandon cinemas for DVDs, and chat to each other electronically rather than go to a bar. In an increasingly self-centred society a premium is placed on being heard rather than listening, being seen rather than watching, and on being read rather than reading.
This is not to say that the book is doomed. But publishers will surely have to change the way they do business. A system that requires the trucking of vast quantities of paper to bookshops and then back to publishers’ warehouses for pulping is environmentally and commercially unsustainable. An industry that spends all its money on bookseller discounts and very little on finding an audience is getting things the wrong way round. Following the strictures of their accountants, the large houses will intensify their concentration on blockbusters. High street bookshops will abandon deep stockholding, becoming mere showrooms for bestsellers and prize-winners. Ever more people will read the same few books. The future of much of the industry will be dominated by electronic distribution, internet marketing to niche audiences, and reading by print-on-demand or hand-held electronic devices. There is opportunity as well as challenge in this model. The roles of editor and publicist, people who can guide the potential reader through the cacophony of background noise to words they’ll want to read, will become ever more important.
The day after my dismissal I went back to say a final goodbye. A large man was sitting at my desk. He turned out to be from IT and was there to take copies of my email account – one for me, one for the company – before it was closed. That was chastening and so was the stack of cardboard boxes that had arrived for my personal belongings. These had been delivered flat and came with pre-cut slots to facilitate correct assembly. I got to work straightaway. After five minutes of folding this way and that, the cardboard remained infuriatingly flat. It felt as if I were being forced to take a fiendish aptitude test in order to be allowed to leave. The IT guy, unable to listen to any more of my harrumphing, jumped up to help. ‘For God’s sake,’ he said, grasping the cardboard in his big hands, ‘how many editors does it take to fold a cardboard box?’ Another five minutes and he too had failed to make any progress. I wandered off in search of something pre-assembled.