Value Your Assets

Publishing executives must have skipped the lesson on valuation of product in Economics 101, or maybe they were binge drinking instead of cramming the night before exams. Either way, they are endangering the industry, and my store, with a publishing house race to the bottom through their direct and indirect support of the devaluation of books. By making some changes and following some basic economic rules, there is still time to stop turning valuable works of literature into nothing more than commodities.

Rule #1: Give everyone a level playing field; support all trading partners equally.

Several years ago, when the Harry Potter series was first published, I ran out of stock and couldn't get inventory from the publisher. I went to my local warehouse club store and bought 500 copies for $1 less per book than I paid the publisher. (The club store sold it for two cents over its cost.) It was at that moment, standing in the club store with a pallet jack in my hand, that I realized how dysfunctional the book industry had become. By selling to club stores at lower, unsustainable prices, publishers are making the market less competitive. And they're driving customers away from bookstores that sell and support their backlist.

Rule #2: Don't sell your books next to the condom machine at the turnpike gasstation. It's not good for your image.

The next Potter release was worse. The publisher flooded the market and put books everywhere, including supermarkets, gas stations, and any location with an ID magazine account.

Rule #3: Don't undercut your retailers.

More and more publishers are building Web sites with shopping carts to sell direct to consumers. Instead of using their sites to promote their books and the retailers that carry them, publishers are opting to steal customers from their own accounts. This move to end-run bookstores breaks all the rules of an honest supply chain and has seeded distrust and cynicism among booksellers.

Rule #4: Don't let the marketplace devalue your product.

The problem with pricing lies with publishers, not retailers. In other industries, manufacturers place minimum pricing rules on their products so retailers cannot deflate their value. Booksellers sign agreements like this every year with sideline vendors. Selling a hardcover book for $9 devalues all books as well as bookstores not playing the price-war game. Publishers made an even bigger mistake allowing digital books to be sold at $9.99. It doesn't take long for consumers to get hooked on a price and consider it the real value of a product. It also won't be long before giant e-tailers come to publishers with a new set of cost of goods demands.

Rule #5: Protect your artists. They deserve better than what you are giving them.

The e-book craze appears to be another area left unmanaged by publishers. The current pricing structure of $9.99—even Apple may charge $9.99 for bestsellers—doesn't reflect the true value of the product. Publishers are encouraging consumers to expect to pay this price for books. Did any publishers see what has happened to CD sales over the past 10 years? Did they notice the enormous amount of music and video file sharing, all of which result in lost sales and royalties for musicians? I looked at a book on Google recently, which was written by a local children's author. The book is shown in its entirety, and I read it for free. I then called the author and asked if she was getting royalties whenever someone clicks onto the Google listing. She had no idea. Is this the publisher's idea of protecting the author?

Rule #6: Run your industry so your artists can make a living. Otherwise your business will have no artists.

Publishers are walking the same path as the music companies, converting their products into digital files that can be shared and stolen. The big difference lies in the artist's ability to make a living. Musicians make most of their money from touring. When is the last time authors paid their mortgage from a book tour? The recent windowing move to withhold the release of digital books to a later date is another toothless backtracking move by publishers. People who have invested in e-readers will get used to waiting a few months for new releases, further degrading hardcover sales.

Rule #7: Use co-op to promote well-written, interesting books, the kind we all need.

Two Christmases ago, a local author went to the chain store at the mall to see how his book was doing. It was nowhere to be found. What he saw displayed, he said, were “obviously crappy co-op books.” It was clear to him the displays were all about earning co-op, not selling good books. He had intended to do some shopping, but was so disgusted he left. He came to our store, saw his book featured prominently, and was thrilled with the hand selections we were promoting at the front of the store alongside bestsellers. He bought 10 books. What was most disturbing was his comment that because of the way the chains and publishers use co-op, people buy bad books, and then think nothing good is being published. Stop using co-op to promote books that tarnish our industry and frustrate readers. Spend money on rising midlist authors; they are tomorrow's future.

Rule #8: Support your most profitable products. They will help bring up the overall value of your business.

Publishers seem hooked on the crack cocaine of bestseller cash flow. Print a million books, get a lot of quick cash, and then deal with the 200,000 to 400,000 copies that come back in returns. And that's for the books that sell. Most don't even do that well. Way too much money goes into advances for marginal media stars, press hype, and promotional funds for flash-in-the-pan titles, while great backlist sits on publishers' warehouse shelves. Why? A decent backlist title may sell only few copies a year, yet payment terms are net 30. Bookstores cannot afford to stock backlist, because the cash flow doesn't meet sales velocity. Despite that, publishers won't give extended terms on a regular basis for pure backlist purchases, even though these are their most profitable titles.

Rule #9: When things get bad, take care of your customer. Don't pull back and start treating customers like they're the problem.

This year we started several new discounting and marketing programs to give our customers more incentives to shop at our stores. When things get bad, businesses try harder and the consumer wins. However, what new strategy has the publishing industry brought to the market this year, what new innovations, what new incentives to make me as their consumer buy more books? The answer is almost nothing. In fact, most publishers have gone in the other direction: they cut their sales force, decreased co-op, and tightened credit policies. They also want to put their catalogues online so I have to spend endless hours in front of a computer screen.

The value of a book used to mean something, not only to writers but to publishers, booksellers, and readers. The devaluating actions and inactions of the big publishing houses have to change if they want to create a sustainable business model. The banking industry just went through a decade of devaluing its products in order to make a quick buck. Everyone lost out except for the executives, who raked in huge salaries at the expense of their investors and trading partners. The parallels to the publishing industry could not be clearer.

The point is, there are a lot of people invested in my business; our staff, our customers, our bank, our community, vendors, and the many authors we promote. All these parties need to be supported and respected with fair, far thinking and economically sustainable policies from publishers.

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