UK economy set for worst year since 1931 as output collapses,” read last week's headline in the Independent. Another article quotes Dominique Strauss-Kahn, managing director of the IMF: “I think that we can now say that we have entered the 'Great Recession'.” For the big picture, things are as dire in Europe as they are in the U.S. But from the publishing sector, reports are rather mixed, not unlike the current climate in the States. At Penguin, managing director Helen Fraser tells PW: “We had a better finish to 2008 than had been expected.... The period between Christmas and New Year [most Brits enjoy an extended holiday] was particularly encouraging.... January has been good, February pretty good. Perhaps we will prove the old cliché about books being recession-proof.”

At Random House, CEO Gail Rebuck also reports a strong close to 2008: “January was good, but February has been really tough—it just stopped.” At HarperCollins (HCUK), CEO Victoria Barnsley tells a similar story: “Everything held up just till Christmas. Since then, sales have been much more sluggish. Fiction is tough, self-purchasing {as opposed to gift buying} is down. Children's is holding up. We're learning as we go—none of us has experienced anything like this before.”

Into the Unknown

Indeed, Donald Rumsfeld put it so well: “There are known knowns... there are known unknowns... but there are also unknown unknowns, the ones we don't know we don't know.”

The known knowns are scary enough: they include the effects of the collapse of one of the recession's first casualties, Woolworths. The 807 stores did well enough with its particular range of titles, but the real problem was Woolworths Group's ownership of a distributor, EUK, and a wholesaler, Bertrams. The group went into administration (akin to Chapter 11), but the timing of the collapse in the runup to Christmas created havoc. The supermarkets and other High Street retailers reliant on EUK for the merchandising of a range of bestsellers tried as best they could to make new arrangements, but sales were inevitably lost at a time when, as one sales director puts it, “Christmas was only happening in the supermarkets.” And, of course, publishers lost money: HarperCollins has reportedly written off some £4 million, and Hachette and Random are rumored to be in for around £3 million apiece. EUK is beyond rescue, and supermarkets and other nontraditional outlets, which relied on EUK for supply, are still struggling to make new arrangements.

Bertrams, which was fundamentally sound and did not go into administration, continued to trade throughout, though not without problems, some of them traditional supply chain issues, but many to do with confidence as the company sought a buyer. Negotiations to find a new owner are continuing. The only other U.K. book wholesaler is Gardners, so there's no question of an approach from that quarter. A supply chain provider from a complementary sector is a possibility. But the most likely outcome is purchase by a Continental operator, with Germany's Lingenbrink, Libri, and Koch, Neff and Holland's Centraal Boekhuis among the names mentioned. Ingram could be a contender; it has a presence in the U.K. via Lightning Source, which is doing brisk business as publishers recognize the savings of print-on-demand.

Among the known unknowns is the length and depth of the recession itself. Tim Hely Hutchinson, CEO of Hachette UK, Britain's largest publishing group, believes he sees light at the end of the tunnel: “The government wants to get re-elected and it will do everything it can to ensure that it does. The money pumped into the economy is huge—£150 billion, the equivalent of £5,000 for every taxpayer. At some point people will start buying.”

But some of his colleagues fear the light may belong to an oncoming train, that the recession is not U-shaped, as Hely Hutchinson's comment implies, but L-shaped—as Professor Nuriel Roubini, the “Dr. Doom” who predicted the catastrophe, worries is likely—with no end in sight. Barnsley tends to agree, while Rebuck feels that conditions will improve “by the end of the year.” Fraser won't be drawn into a prediction.

What Are the Damages?

So far, casualties have been lower than those in New York, but there may yet be further horrors. Penguin moved swiftly before Christmas to announce a pay freeze for staff earning more than £30,000, but no redundancies are planned. More recently, HarperCollins announced a similar freeze combined with a 5% reduction in the workforce. Random House, having said there would be no losses, has now also announced a 5% cut in positions. As always, the hope is that some of the pain can be relieved by leaving vacancies unfilled. Additionally, the word has gone out that staff are to practice good housekeeping and must not entertain lavishly.

BookScan figures for 2008 were not so alarming. Volume sales were down by 0.4%, to 236.8 million units, pound sales down 1.5%, taking the Total Consumer Market to £1.77 billion. But stripping out the final 2007 Harry Potter, there is both volume and value growth of 1.3% and 0.5%, respectively. Average prices in 2008 were down compared to 2007, £7.63 against £8.03, and it is estimated that discounting in 2008 cost the trade £500 million, much of it given away on “must-have” titles. Simon Juden, CEO of the Publishers Association, has declared it “crazy. ”Booksellers whine that selling titles for as little as half price makes them no money, yet there seems no prospect of restraint and certainly no return to fixed pricing.

Waterstone's managing director Gerry Johnson, addressing the recent Independent Publishers Guild Conference, says: “Value matters, price matters..., but our challenge is to create value in areas other than price.” The reality is that booksellers are competing not just with the likes of Amazon but with the supermarkets, which have driven much of the sales growth since the Net Book Agreement was abolished in 1995.

What's Ahead?

Hely Hutchinson, whose Hodder Headline Group was for a few years owned by the WHSmith retail chain, may not like discounting, but having sat on the WHS board, he understands the need for it, particularly outside London. However, he points to research showing that a £3.99 paperback is perceived as good value and that cutting the price below that doesn't increase sales; it merely erodes margin. Agent Sheila Crowley, of Curtis Brown, is sympathetic to that argument, but suggests that recommended retail prices need to go up. “Price is a good marketing tool, but it shouldn't be the only one.”

So discounting—from publisher to retailer, from retailer to customer—won't change, but advances most certainly will. Indeed, have. On that, everyone is agreed. Publishers' love affair with famous-for-15-minutes TV celebrities has come to an expensive end. True A-list celebrities with a genuine story to tell, such as Julie Walters, Dawn French and Paul O'Grady, the three star turns of Christmas, will still command a price. Fraser has noticed that in recent auctions in which Penguin has competed, the last round of “best bids” was very close: “No one had said, 'let's go the extra £50,000.' ” Midlist authors will be squeezed again, perhaps dropped, while advances for new authors will be altogether less speculative. “You really have to think: will this book sell? We have to take on new authors and we have to build them,” says Rebuck.

At the moment, readers are less interested in spending money on the new than on the tried and tested. “Classics sales are up 15%,” says Fraser. “People want a guaranteed good read. They want either brand authors, such as Cussler or Keyes, or they want Austen or Thackeray.” They also want books that explain how we got into this predicament, so Niall Ferguson's The Ascent of Money, at 75,000 copies, is Penguin Press's bestselling hardback ever, while The Black Swan by Nassim Nicholas Taleb has sold 250,000 in paperback. At Random House, sales of Dale Carnegie's 1930s classic, How to Make Friends and Influence People, is 55% up on this time last year.

Lists will be cut, which is a good thing; more than 120,000 new books last year is simply too many, three times the number a decade ago. Beyond that, the recession ought to provide a pause for thought, an opportunity for a rethink, “a time for recalibrating relationships,” as Rebuck puts it. Digital publishing isn't the answer to the recession (e-readers are still pricey), but publishers will continue to invest in a future that's getting ever closer and may make up 5% of U.K. sales within five years. (In education, the changes are already quite marked: 13% of Hodder's secondary school publishing was in digital format last year, almost double that of 2007.)

Yet it is also an opportunity to attend to the trade's overarching problems. Returns, for example, which are costly and ungreen. But firm sale proposals from both Penguin and Hachette have been put on the back burner. The other issue is contracts, which are still based on a model 20 years out of date and thus take no account of current levels of discounting. Sales of content on e-platforms are calculated on net receipts, so, too, HCUK's supermarket-led Avon list. “There was some resistance at first, but it's actually more transparent and you get the same amount of money,” insists Barnsley, though most agents would take issue with that. Crowley, of Curtis, Brown, who appears more open-minded, believes “people balk at [net receipts] because they haven't done the sums.... They key thing is the starting royalty.” Authors want to be published and published well, and they may now be more open to discussion on such matters.

“The recession will be a watershed,” believes Barnsley. “Any disruptive event in an industry means change will happen more quickly. There is now more openness and talk about change. There are opportunities,” she continues, allowing that such talk sounds cruel to those whose jobs are in jeopardy, “but the publishing world that emerges will look different.”

Liz Thomson is a founding editor of www.bookbrunch.co.uk.

LBF Weathers the Economic Headwinds
Despite economic problems plaguing many parts of the world, executives with the London Book Fair are optimistic the show, set for April 20-22 at Earls Court, will come close to reaching last year's attendance levels. “Pre-registration is looking most pleasing at the moment,” says Alistair Burtenshaw, group exhibition director for the LBF. With six weeks to go before the conference starts, Burtenshaw says that while “registration is strong at the moment, we cannot say just yet if attendance will be up to last year's levels.”

Burtenshaw notes that it appears as though the final number of U.S. exhibitors will be only slightly off from last year, a trend that interviews with some U.S. companies confirmed. A Simon & Schuster spokesperson says the company will be sending fewer people this year, while a HarperCollins spokesperson says they will be scaling back; HC is also canceling its pre-fair Sunday night party as part of its companywide cost-cutting initiatives. Random House will be sending fewer people from its U.S. subsidiary, but there are no changes in the numbers attending from its U.K. subsidiary. Penguin Group (USA) will be participating at about the same level as in the past, but the company will also have a special young readers presence, with Penguin Young Readers Group president Don Weisberg attending. St. Martin's publisher Sally Richardson will be heading to London, along with sub rights head Kerry Nordling and executive editor Charles Spicer. “The London Book Fair is very important to St. Martin's,” says spokesperson John Murphy. “We do a lot of buying and selling there.”

Jon Malinowski, head of the American Collective Stand, says his space is slightly smaller this year, only because show organizers had asked him to reconfigure his area, the largest among American exhibitors. Malinowski expects about the same number of ACS exhibitors to attend LBF as last year. Burtenshaw says he is not aware of any major U.S. exhibitor who has opted not to exhibit this year, although some may have changed the amount of space they are taking. More than 20% of the exhibitors in the main hall are for 2009 are new, he says, or did not exhibit on their own in 2008.

Malinowski says he had expected attendance to be down for all international shows this year, but so far “there has been a little pullback, but nothing like I thought there might be.” At least for London, he attributes that in part to most booking for booth space being done before the worst of the meltdown began. The impact of the recession may be more visible in 2010, Malinowski speculates.

LBF organizers had moved early to try to help lower the show's cost to Americans, who have complained for years about how the strong pound against the dollar makes attending extremely expensive. LBF put together the LBF International Value Package and special U.S. travel packages to try to control costs, and with the pound weakening since the packages were first put together, the show is becoming more affordable for Americans.

One of American publishing's best-known women among international publishers will be honored at this year's fair. Houghton Mifflin Harcourt senior editor Drenka Willen, who has had a hand in bringing hundreds of foreign authors to American readers, will receive the Lifetime Achievement Award in International Publishing. Willen joined Harcourt in the 1960s as a translator and freelance editor and took over the Helen & Kurt Wolff imprint in 1981. The authors and translators she has worked with (Gunter Gras, Octavio Paz, Jose Saramago, Umberto Eco) have won numerous international awards, including the Nobel Prize, the Pulitzer Prize and the National Book Award.

Overall, Burtenshaw is encouraged that interest in the fair is holding up even during the deep economic slide. “[Exhibitor attendance] demonstrates that many companies are seeing this as a time to speculate rather than cut costs or marketing opportunities,” Burtenshaw says. —Jim Milliot