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Accountants Look At Publishers' Money, Web Issues
Jim Milliot -- 10/27/97
The recent publishing and multimedia conference held by the New York State Society of CPAs focused mainly on two issues that have been in the headlines recently -- the Internet and publishers' accounting practices. Although he mentioned no companies by name, Rudy Santoro of Deloitte &Touche noted that recent events in the book industry "give rise to a need to evaluate" risk assessment for financial managers and auditors of publishers. Against the backdrop of large write-offs by several companies as well as the Penguin discount scheme, Santoro urged publishers to examine the internal controls they have in place to see if they are adequate to deal with changes in the industry.
Jan Nagel of KPMG Peat Marwick ech d Santoro's remarks by telling both internal and external auditors not to overlook the "nuts and bolts" of accounting, and to make sure that they are "getting the basics right." Nagle also said that publishing needs better industry statistics, especially when it comes to looking at the changing distribution channels.

One of the these new distribution channels, mass market discounters, may prompt accountants to change the way they record sales of books, Nagel suggested. He noted that discounters, such as Wal-Mart, use scanning systems and will not pay for books until they are sold. As scanning becomes more widespread, and with the recent accounting developments at many publishers, Nagel said that it is possible auditors may push the publishing industry to classify book sales as consignment sales, rather than the current practice of recording books as sold as soon as they are shipped and then creating a reserve for returns. While many attendees said this change would create a nightmare the first year it was instituted, Santoro noted that "if this was any other industry, book sales would be considered consignment sales."

Nagel also created a buzz among the attendees by estimating that with the amount of consolidation that has taken place in the industry, the old rule for publishing of "80/20 [80% of sales coming from 20% of customers] has moved to 90/10."

Craig Forman, v-p of worldwide development for Time New Media, said that while there was "too much hype in the early days" of the Internet, he feels that we are "now in the end-of-the-beginning of the Internet" and that certain lessons can be drawn. He noted that traffic on Time's Pathfinder site is growing 100% annually and now has 20 million page views a week, and that the pace of change for Internet use is "unexpectedly rapid."

Attendees also heard about changes taking place within publishing from Alison Lazarus, president of sales at St. Martin's, who covered a multitude of issues and trends. On the subject of bookstores, Lazarus said that while independent bookstores still face "trials and tribulations," she thinks they will remain an important distribution channel. Lazarus said her experiences with superstores have been "pretty positive," although she said they still need to become more efficient. Lazarus further predicted that the chains will maintain their mall stores "as long as the leases remain favorable." Lazarus also thinks stores are "preaching about just-in-time delivery more than they are practicing it."

Looking at some other distribution channels, Lazarus said she views discount stores as a "mixed blessing," observing that while the stores can sell large numbers of certain books, it is extremely difficult for publishers to determine what books are selling in them. Because of the requirement of warehouse clubs that a product sell $15,000 to $20,000 per week, St. Martin's limits its business to bestsellers and "commodity" books, Lazarus said. Regarding Internet booksellers, Lazarus said she was "baffled" why they got themselves into a discounting war when they offer a unique service that provides 24-hour access to thousands of books.

Lazarus also said she is finding the returns situation to be "significantly better" in 1997 than last year, and has heard from other publishers that their returns are down as well.

Commenting on some ongoing publishing issues, Lazarus said that while publishers continued to be pressured to give better terms to retailers, "there is no more to give." She also talked of marketplace "blind spots" such as Best Buy, which has entered the bookselling field, but from which publishers can obtain little information about what is selling. Lazarus also predicted that on-demand printing "will be here sooner rather than later."
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