With its purchase of Perseus’s distribution lines—Publishers Group West, Consortium, Legato, and PDS—expected to close this week, Ingram Content Group is poised to become the largest independent distributor in the U.S. But that’s not the only change that is transforming the distribution landscape.

An uptick in the economy has brought more clients to some distributors, while industry consolidation has led other houses to find new distribution homes. IPG, the nation’s #2 independent distributor, has added 40 clients since the start of 2013 compared to a total of 20 added between 2008 and 2012. Since downsizing three years ago, National Book Network has signed 40 new clients, along with Globe Pequot Press, which Rowman & Littlefield, NBN’s sister company, acquired in May. New players also continue to test the market. Last July, Baker & Taylor dipped its toes into the distribution (and DSR and POD) waters for the first time when its owner, the private equity firm Castle Harlan, purchased Bookmasters and its AtlasBooks imprint.

That distribution, like much of the book business, is in transition is not necessarily a bad thing. According to Steve Black, v-p of Client Publisher Services at Simon & Schuster, “Distribution is more vibrant than it has ever been.” Plus as SCB Distributors president Aaron Silverman, whose Gardena, Calif.–based company is celebrating its 25th anniversary, points out, new independent publishers emerge every day. “There is always going to be a need for distribution,” he notes, “because people don’t start a publishing house because they want to run a warehouse. Independent publishers will always need distribution services in order to remain focused on their publishing goals.”

The Big Five Perspective

Most distributors agree that print is here to stay. “We strongly believe that even as e-books continue to grow in volume and importance, there will always be demand for physical books as the primary format of consumer choice for our business for the foreseeable future,” says Jeff Abraham, president of Penguin Random House Publisher Services. That’s not to say that digital and international sales won’t play a continuing role. “Our international business has consistently contributed to our clients’ sales, and, overall increased by double digits in each of the past four years,” says Abraham. He attributes PRHPS’s record year in 2013 to the success of all three components—print, digital, and international. Clients’ sales grew 19% over the preceding year, and Abrams says sales are on track for double-digit growth again in 2014.

PRHPS is in the midst of investing in both its physical and digital supply chains, a strategy that has already led to fewer returns, according to Abraham, and doubling the size of its team of managers and reps to more than 30. Beginning next February, PRH will close its Kirkwood, N.Y., and Pittston, Pa., facilities, and by June 2015 all of PRH, including the distribution business, will begin operating out of PRH’s expanded Westminster, Md., and Crawfordsville, Ind., warehouses.

The Penguin–Random House merger also added clients to the combined and rebranded PRHPS as Penguin’s third-party clients—Europa Editions, Library of America, Overlook Press, and Kensington—are now being serviced by PRHPS.

Todd McGarity, v-p of distribution sales and services at Hachette Book Group, which bought Hyperion last year and is about to consummate its purchase of Perseus Books Group, predicts that industry consolidation could be the biggest changemaker in distribution. “As industry consolidation continues,” he notes, “the number of publishers willing and able to offer distribution services will decrease. In addition, medium to large publishers who currently self-distribute may move to distributors as they realize that a variable-cost model makes more financial sense, along with an ability to leverage an ever-increasing scale of publishers/distributors.”

At HBG, print continues to represent “the vast majority” of what it distributes. But growth isn’t limited to print. McGarity sees increases in international, particularly on the digital side, as other markets try to catch up to the U.S. in e-book penetration. Nontraditional channels, too, continue to be important. McGarity credits distribution clients, which represent more than 40% of HBG’s total volume (pre-Perseus), with convincing HBG to move more aggressively into channels that were traditionally serviced by wholesalers.

This fall HBG expects to complete its addition of 218,000 sq. ft. to its 1.2 million sq. ft. facility in Lebanon, Ind. The expansion will allow it to accommodate its recent acquisitions. The press has 16 client publishers.

One of the reasons Simon & Schuster’s Steve Black is bullish about distribution services is because of the “dramatic” change he’s seen over the past decade. “Ten years ago, publishers were reluctant to make distribution changes. Today, people are looking at their overall costs, and one of the major factors driving this is e-books. If they have their own warehouse and e-books are 15%–20% of their business, do they really need the fixed costs associated with that warehouse?” asks Black. E-books are also affecting distribution since distributing the format can be time consuming, as it’s not just a matter of putting up a file. Publishers need to make multiple files available and update them every time an e-reading device changes. Simon & Schuster services 40 different e-tailers plus lending libraries.

Black believes publishers that offer distribution services bring extra value to their clients. “Our people have the broad experience of working with our wholly owned published titles, as well as with all our clients. Because we are first and foremost a publisher, we bring a publishing sensitivity to our clients, as we better understand their needs. I think we help publishers publish better,” Black asserts. Many of the things that the S&S sales and marketing teams create for their own publisher divisions, like the author portal, are then extended to clients.

Macmillan has a smaller distribution presence than some of its competitors, but remains interested in selective expansion, says Alison Lazarus, president of the sales division. The company has eight clients and added Guinness World Records at the beginning of the year. "We are looking for lines that complement our own programs," Lazarus says.

Of the Big Five, HarperCollins is the only one to move out of distribution since it decided to outsource some of its warehousing and fulfillment functions.

Riches in Niches

The distribution arms of New York publishers aren’t the only ones benefiting from the current book climate. Specialty distributors with distinct niches are also positive about the future, despite or because of consolidation. “Ingram’s purchase [of Perseus] has no direct impact on Diamond,” says Kuo-Yu Liang, v-p of sales and marketing at Diamond Book Distributors, “because we are the market leader in our field. Ingram is one of our most important partners, so if this makes Ingram stronger, that’s good news for Diamond’s clients.” For him, industry consolidation is “an opportunity.” The disruptions that accompany consolidation—layoffs and warehouse closures—highlight the advantages Diamond has to offer publishers as a stable, long-term player, Liang believes.

The current market for print and digital abounds with opportunities, a word that comes up frequently when Liang talks about distribution, particularly overseas. “I see the two formats working with each other to drive consumer discoverability,” says Liang. He adds that international has been a key market, not just for books, but for other items Diamond handles: toys, merchandise, apparel, and games.

Like other large players, Diamond is doing so well that it’s looking to expand with an additional warehouse in the near future. Its primary warehouse, located in Olive Branch, Miss., is 600,000 sq. ft., and it has numerous regional warehouses in the U.S. and Canada. Diamond’s overseas hub is in Runcorn, U.K., near Manchester.

With the trend toward consolidation, distributors need to be more focused on reaching niche markets, delivering strong customer service, and providing value-added services to meet each client’s unique needs and sales and profitability goals, says David Wexler, executive v-p of sales at Lerner Publishing Group in Minneapolis, Minn.

Over the past 10 years LPG has grown its Lerner Publishers Services division, while keeping its client list small; it currently has 11 clients. For Wexler, the Ingram purchase “changes the scale of services available. Children’s publishers can choose large distributors or a specialist like Lerner, which is exclusively focused on children’s publishing distribution and production services.” He, too, sees opportunity in the ongoing industry consolidation. But in Lerner’s case, consolidation enables it “to highlight our distinct niche as a specialized distributor with a unique focus on both trade and k–12 titles, rather than being all things to all people,” says Wexler.

There’s no avoiding consolidation as a big driver in publishing and distribution. “The Ingrams and Random Houses are only going to get bigger,” says Mike Hansen, senior sales and marketing manager for the book trade and e-books at Hal Leonard Corporation, which specializes in music and the performing arts. “There are going to be fewer traditional publishers.” But that doesn’t mean a distributor has to consolidate in order to grow—or take on only book clients. Hal Leonard began positioning itself for growth in 2008, when it built a 360,000-sq.-ft. state-of-the-art warehouse and distribution facility in Winona, Minn., that could easily be expanded. That’s a good thing, because, according to Hansen, the company is planning to add space as new opportunities arise.

Hal Leonard has already begun filling its warehouse with new products that complement its book selection: digital audio software, percussion equipment, music stands, and other gift and accessory products. What attracts nontraditional clients is that “we’re so entrenched in the music side,” explains Hansen. “The Guitar Centers and Sam Ash stores and independent music retailers are the stores we talk to every day.” Leonard’s distribution efforts have also drawn publishing partners, including PRH, who want to place a big music title outside of bookstores. Hal Leonard in turn partners with Diamond to get books like Doctor Who FAQ in comics shops.

Indies and Wholesalers

By the end of July, Ingram will add approximately 350 new publisher clients, ranging from Grove Atlantic to DreamWorks Press, Harvard Business Review Press, and City Lights, to the more than 100 publishers it already has. “By adding Perseus’s distribution business’s strengths in client service, sales, and reach, we are enhancing and growing our service offering and value to our clients and customers,” says Mark Ouimet, v-p and general manager of Ingram Publisher Services.

“We believe,” he continues, “that the key to publishing distribution is reach, and through the planned acquisition, clients of both Perseus and IPS will have expanded resources, including best-in-class physical distribution, POD, and digital services, and an extensive global distribution network. We’re excited about what the future holds.”

Baker & Taylor went through a transition of its own during the past year as it tried to find the best way to integrate its reach into 10 market channels with sister company Bookmasters’ print and distribution capabilities. “Both organizations have gained from the relationship,” says David Cully, president of retail markets and executive v-p of merchandising at Baker & Taylor, who is looking to grow Bookmasters’ fulfillment and DSR/POD side with a sales function for small and mid-sized specialty, academic, and scholarly publishers. In addition, Bookmasters will continue to maintain the AtlasBooks imprint, which supports several thousand active author-publishers at any given time. “I am very optimistic that the best is yet to come,” says Cully, who acknowledges that integrating the services “is not a cakewalk.” He adds, “We’re in the final negotiation stages with several major publishers for new POD and digital short-run printing opportunities and just won the U.S. sales and distribution business of a publisher of coffee-table books.”

Although Cully sees one big potential positive in the Ingram and Perseus merger—the ability to wring costs out of the supply chain for publishers, retailers, and wholesalers—others are not so sure that’s enough. IPG COO Joe Matthews worries about conflicts of interest now that the megawholesaler is also a megadistributor. The seeds of conflict of interest, he believes, lie in “cooperatition,” a business term combining both “cooperation” and competition.” On the other hand, as Matthews points out, there is now one fewer major distributor. And IPG has benefited from the announcement of Ingram’s pending purchase of Perseus, with an increased number of publishers asking about its services.

But long before the Perseus announcement, IPG, which has 200 trade clients (800, including academic, professional, and small press units), began repositioning itself during the down economy. Starting in 2008, the company embarked on a five-year, $3 million project to upgrade its systems. “It seemed like the sky was falling with e-books. The only possible way to keep us alive was by leveraging technology,” says Matthews. The investment in technological infrastructure has paid off with more robust inventory and reporting capabilities, he says. In addition, although print is still 80% of IPG’s distribution business, it Matthews expects sales of e-books to increase. “We have the technology in place to distribute them very efficiently,” says Matthews, “which allows us to work with 162 different e-book resellers.”

SCB’s Silverman is “quite pleased” that Ingram is moving deeper into distribution. “Ingram has consistently demonstrated their respect for books and for vendors,” he says. “In practice, they have many attributes of a family-run company.” SCB, too, is a family business, where employees have stayed a decade and in a few instances more than two decades. Still, Silverman acknowledges, having fewer accounts control such a large percentage of sales is “concerning.”

That Ingram is trying to achieve economies of size and scale is no surprise to Jed Lyons, president and CEO of NBN. “Distribution is a tough business,” he says. “It’s hard to make money.” That’s one reason why he’s been focusing on Rowman & Littlefield and the publishing side of the business in recent years. “We had a record year last year, and we expect the same thing this year,” he says. As of August 1, NBN will begin shipping Globe Pequot and its former clients from its 450,000-sq.-ft. facility in Blue Ridge Summit, Pa. All together it now has 130 clients.

Midpoint president and CEO Eric Kampmann has a different take on Ingram, which he calls “the leader” in the services sector of the business. That’s why in April Midpoint began partnering with Ingram Third Party Logistics (3PL) for logistics, fulfillment, and POD. “It’s increased our control over our fate,” says Kampmann, whose team continues to focus on sales and marketing, product consulting, accounts receivable management, and customer service. As a result, Midpoint has expanded its Kansas City office, which handles its backend operations. “The initial investment for Midpoint is significant,” he adds. “But the long-term benefits keep us competitive.”

As NBN’s Lyons notes, distribution is a tough business, but the companies that have firmly established themselves are seeing more opportunities as the book business changes. “There are so many publishers out there for us to service,” says Simon & Schuster’s Black, “and we’re all looking for different things.”

IngramSpark Fires Up

Over the past decade a number of distributors have struggled to find a cost-effective way to represent micro- and self-publishers, and many exited the business. Recent advances in technology, however, have opened up new possibilities. In July 2013, the Ingram Content Group jumped back into the micro-press business with the launch of IngramSpark, a program that offers an inexpensive platform for small publishers to distribute print and digital titles. At the time of the launch, Mark Ouimet, v-p and general manager at Ingram Publisher Services, said the company “wanted to make it easy for publishers to create an account and start uploading their content in just a few minutes.”

In the year since it began, thousands of independent publishers have registered to use IngramSpark, which integrates print book and e-book distribution. According to Ingram, hundreds of thousands of books have been printed through IngramSpark, which has also distributed tens of thousands of e-books for its publishers. In some instances, Ingram works with bookstore publishers like Village Books in Bellingham, Wash., and RiverRun Bookstore in Portsmouth, N.H., who want to be able to serve their author-customers. “We are tremendously pleased with the results,” Ouimet says.

Ingram has continued to tweak the platform. Since the launch it has offered additional discount options, including a short discount option, and marketing services. This month it expanded metadata functionality to improve title discoverability online, and it worked out an agreement with Bowker so that publishers can buy ISBNs on the platform. Formatting and file conversion tools are expected in the fourth quarter.