Archive for December, 2009

McNally Robinson in receivership is more proof of broken business model

Wednesday, December 30th, 2009

Bookseller McNally Robinson is in the news today for entering bankruptcy protection, with plans to close two of its stores (Toronto and Winnipeg-Polo Park) while maintaining its Winnipeg-Grant Park and Saskatoon stores. Book publishers will likely lose millions in the receivership settlement. Newspaper columnists are citing ebook and internet sales as major factors in MR’s problems.

Overlooked by most analysts is the systemic problem haunting the bookselling sector: retailers pay too much for the product. Retailers in other sectors generally buy at 50% of retail. Yet most booksellers buy at 60% of retail. Hard to be profitable when you leave that much margin on the table. It is a broken business model that was bound to catch up when times got tougher. (Some of the big box stores, Indigo-Chapters and Amazon do pay less than the independent retailers — that explains in part why they can sell at discounts.)

Why do booksellers pay so much? The rationale within the publishing world is because the books are bought by the retailer on a “returnable basis” (i.e. unsold copies can be shipped back to a distributor for an exchange credit or refund). In essence, books are sold to retailers on consignment, even though most titles have a clear ‘shelf-life’ when they can be sold at full-price.

Overall, this practice of selling on consignment and at poor margins is costing the Canadian book industry (publishers and retailers) over $300 MILLION every year in inefficiency. [This is also an environmental nightmare with about half of all the books printed ending up unsold.] By comparison, eBook sales likely haven’t amounted to $3 million this year in Canada. Inefficiency within the industry is 100 times more important than ebooks.

It is so sad that McNally Robinson is closing stores instead of demanding a better and more sane arrangement with publishers. And very sad that Canadian publishers will be stuck with unpaid invoices, when they could have improved their own profitability by ending consignment sales. And sad too for the Canadian taxpayers who will likely be coughing up millions to prop up Canadian publishers (again) when those publishers and retailers really need a slap up the side of the head to fix their basic business practices.

- Bruce Batchelor, publisher
Agio Publishing House, Victoria, BC, Canada

Hooray! More signs of a royalty-collecting agency for writings on the Internet

Monday, December 7th, 2009

Musicians, composers and music producers (“content providers” or “rights holders”) have long enjoyed a huge benefit over creative folks who are writers and illustrators. This advantage is the existence of strong rights agencies who levy performance and usage fees – even a restaurant owner who plays the radio must pay an annual fee – and then divvy up the money to musicians. Some of the money can be attributed to a specific song, while other money is apportioned out to all musicians.

According to a NY Times article today, “GEMA, the main collecting society for German music copyright owners, raises more than €850 million, or $1.3 billion, a year.” The cool thing is the scale of this: perhaps $100 BILLION are being collected worldwide by the national rights agencies.

So far, the rights agencies for written content have been comparatively anemic – my ballpark figure would be 10% as effective in terms of dollars raised and disbursed. In the USA, my writings are included in Copyright.com (the US Copyright Clearance Centre). In Canada, our authors register with AccessCopyright.ca. Through reciprocal agreements, AccessCopyright receives money from (and collects money on behalf of) copyright licensing bodies in the UK, Australia and dozens of other countries.

This all sounds good, but what’s needed is more robust enforcement, especially across the Internet. There are reasons to be optimistic about this happening:

  • Germany (according to the same NY Times article (Publisher Lays Out Plan to Save Newspapers) will be enacting new legislation to set up a rights monitoring and collection agency for newspaper content used on the web; this sets a good example for other (non-newspaper) written content,
  • as part of the Google Books settlement, a rights agency will be established for book content, and for the first time, nearly all authors will be represented by an agency, and
  • micropayments (fractions of a cent in some cases) are feasible because computer processing has become so inexpensive – we could envision, for example, someone happily paying a dollar to browse through 300 book pages while doing research, or Google paying a portion of its ad revenues generated from searches of book pages. Micropayments would enable easy legal usage by consumers, and make the alternatives (piracy, not using the material, etc.) less attractive.

Meanwhile we can be happy and thankful about receiving our annual cheques from AccessCopyright, and dream of more and larger payments.

Environmental madness from Sarah Palin – but David Suzuki, too?

Friday, December 4th, 2009

Sarah Palin and David Suzuki. Both bestselling authors. One can expect shoddy environmental practices from a US politician/celebrity who can’t figure out how dinosaurs existed before Adam & Eve, but did anyone think superstar Canadian environmentalist David Suzuki would also be contributing to wanton waste of natural resources and the release of megatonnes of greenhouse gases?

The common link – and alleged indiscretion – is both celebrities’ books are being published by companies who sell books to retailers on a consignment basis. Within the book trade the practice is called “selling on a returnable basis.” Unlike electronics, groceries, clothing and most other consumer goods, unsold books can be returned to the manufacturer for refund or a credit. Despite sounding environmentally friendly as if it were one of the good Rs, ‘returnable’ selling has been linked to massive overprinting of books and the associated extra warehousing, transport and other costs. Across the industry over 40% of all copies printed are never sold, and subsequently discarded. In some mass market genres, the waste is in the range of 80% to 85%.

Dr. Suzuki’s books are published through Greystone Books of Vancouver, an imprint of Douglas & McIntyre. On the surface all seems gloriously green: Greystone makes this environmental statement on its website: “Reflecting its commitment to protecting the environment, Greystone uses ancient-forest-free, chlorine-free, 100% post-consumer paper in the majority of its books.”

Ex-governor Palin’s publisher is the giant HarperCollins, which recently increased the number of copies in print of her book “Going Rogue” to 2.5 million on the strength of early sales of 300,00 copies. Although sales have now purportedly broken the 1 million mark, Palin’s book could have 1.5 million copies headed for the pulping bin.

The website www.BookIndustryBailout.ca pegs industry waste at over $300 million annually for Canadian publishers, and over $3 billion annually in the USA. Analyst Bruce Batchelor believes the book industry is, “shooting itself in the foot, losing about 20% of gross revenues to this wasteful and totally unnecessary inefficiency. No wonder publishers and booksellers are going broke left, right and center.”

Jeffrey Trachtenberg of THE WALL STREET JOURNAL wrote, “Returns are the dark side of the book world, marking not only failed expectations, but the crippling inefficiencies of an antiquated business. It’s a problem that’s only getting worse.”

Consignment selling of books in Canada is blamed for over 50,000 metric tonnes of carbon dioxide, although the real figure might be “as high as 200,000 tonnes,” according to Batchelor, who says he is a big fan of Suzuki. “But on this issue, he’s definitely on the wrong track and losing credibility fast. Using recycled paper is good, but selling on consignment is so wrong.”