The Internet may have dealt a severe blow to the book club business, but the Web may provide the key to keeping book clubs a viable distribution channel. Following Bertelsmann's $150-million purchase of Time Inc.'s 50% stake in Bookspan, Ewald Walgenbach, CEO of the company's DirectGroup, said a priority is moving more of the book club's marketing functions to the Internet. He noted that 43% of members belonging to the clubs in BMG Music Service are "paperless," meaning they receive all offers via the Internet and make their selections online.

While Bookspan receives some orders online, it still uses direct mail as its primary promotional vehicle. In announcing a recent award from the U.S. Post Office, Bookspan noted that it ships more than 270 million direct mail pieces annually—costing about $140 million in postage. Walgenbach declined to put a target on what percentage of the business he expects Bookspan to reach in terms of paperless members, but observed that within two years of Bertelsmann acquiring Columbia House, 25% of its members were served exclusively via the Web. "More and more we're getting to be an Internet company," Walgenbach said, observing that the Web accounted for about 20% of the DirectGroup's 2.7 billion euro revenue in 2006.

Before migrating business to the Internet, however, Walgenbach and Stuart Goldfarb, head of BMG Columbia House who will direct the merged Bookspan/ BMG Columbia, will need to integrate the two companies. Bookspan has 1,900 employees and BMG Columbia 1,100. Without discussing specifics, Walgenbach said Bertelsmann expects to find cost savings in uniting the two companies. When Bookspan was formed in 2000, it had revenue of more than $800 million and membership of approximately 8.5 million. Membership is now just over 7.9 million and revenue at $700 million, with an operating margin of 5%. Over the last couple of years, membership and revenue have stabilized, Walgenbach said, although he acknowledged that given the difficulty in boosting sales, profit improvement will need to come from finding operating efficiencies.

Walgenbach maintained that book clubs remain a "good business," and pointed out that the DirectGroup's margins are similar to book retailers—B&N posted an operating margin of 4.8% in 2006. While Bertelsmann has more at stake in the club business than any other company, there are other publishers who are still committed to the channel. F+W Publications has five book clubs with total membership of about 200,000, said club director Peg Sousa. That number has remained flat over the last four years and was aided by the launch of the ScrapBook Club in 2003. "I don't want to say we haven't had our challenges," said Sousa. "Even though it may be a smaller business, we still see it as viable and profitable." F+W depends heavily on finding synergies among its magazines, general book line and clubs to succeed.

Until recently, F+W has done nearly all of its membership prospecting through its own lists, but is now dabbling with using the Net to get new members. The Conservative Book Club, owned by Eagle Publishing and affiliated with Regnery Publishing, finds most of its new members online, said Stuart Richens, v-p of e-business for Eagle. The cost of signing a new member electronically is one-third to one-half the cost of traditional print methods, Richens said. Neither F+W nor the Conservative Book Club has moved to paperless clubs, however. "Mail drives a significant portion of the business," Richens said. F+W does 14 mailings a year for each club, sending out about one million marketing pieces annually, Sousa said.

Membership at the Conservative Book Club peaked at about 60,000 in 2004, fell back to 40,000 last year and now is heading up again as the presidential election campaign heats up. Richens is hoping to get back to the 60,000 level by the 2008 election.

Both Richens and Sousa said their clubs have survived because they have remained focused on niches. "It's a tough business," Richens said, "but if you have the right niche, a good editor and a relationship with your members you can succeed." Sousa said that despite difficult conditions, F+W would add a new club "if we can find that synergy of a magazine and a book line."

Book Club Sales 2001—2006

2001 2002 2003 2004 2005 2006*
Source: Book Industry Study Group *estimated
Hardbound $841.8 $849.4 $865.7 $815.7 $791.3 $779.2
Paperbound $223.8 $225.9 $228.4 $218.2 $211.6 $208.4
Book Clubs Total $1,065.6 $1,075.3 $1,094.1 $1,033.9 $1,002.9 $987.6