Outlook 2004: The Vertical Present--Beyond B&N
by Jim Milliot, John Mutter, Karen Holt and Steven Zeitchik, PW NewsLine -- Publishers Weekly, 12/31/2003
When Barnes & Noble decided not to pursue its bid to buy Ingram four years ago, many hailed it as a watershed event. And it turned out to be just that, though not for the reasons everyone thought. At the time, the move seemed to signal the end of a period of consolidation. Instead, it did something very different--it prompted a giant retailer to expand into the publishing business. Rather than freeze the industry where it was, the decision opened a window on all kinds of new combinations and marked the beginning of an overhaul for a number of companies, and, possibly, for the supply chain itself.B&N, of course, is the most prominent example. But as our survey around the industry--reported in a special six-page Outlook section of next week's PW--shows, increased verticality is not limited to the retailer but extends to players in all of the industry's sectors.
Perhaps the most truly vertical company is Advanced Marketing Services, which generated more than 30% of revenue last year not from its core wholesaling operation but from distribution and publishing. AMS is hardly thought of as a publisher, but it actually brings out about 400 titles annually through its Thunder Bay, Laurel Glen, Silver Dolphin and Portable Press imprints, at a far more agreeable margin.
Going the other way--from publisher to distributor--is how Independent Publishers Group became more vertical. The company existed on a small scale when Chicago Review Press, which was having trouble getting its books distributed in some outlets, entered the picture in 1987. The publisher bought the distributor and began growing it; since the deal, IPG has gone from barely a dozen publisher clients to about 400, with what it says it an annual growth rate of well over 25%.
Nor is vertical integration palatable only to those on the publishing-distributor continuum. Courier, one of the country's largest printers of books, acquired Dover Publications in August 2000 with an eye toward combining Dover's publishing and distribution skills with its own book manufacturing expertise. Its proven to be a savvy move, with margins in the high teens. "We didn't have a plan to become a publisher," says vice-president Peter Tobin. But that hasn't seemed to hinder its success; by owning Dover, Courier has more flexibility about printing times. The company can also print books when space is available, and can do similar-sized titles together and shorter runs.
Perhaps one of the most successful examples of vertical integration--though he's unlikely to call it that--is Lawrence Ferlinghetti's City Lights Publishers, which now brings out between ten and fifteen books per year. "Some years we would have had to cease publishing if it weren't for the bookstore," Ferlinghetti says. "And then, as we got more established as a publisher, we lent money to the bookstore." He adds, "I've never understood why more bookstores don't do this"
