When Barnes & Noble decided not to pursue its bid to buy Ingram more than four years ago, many hailed it as a watershed event. At the time, the move seemed to signal the end of a period of consolidation. Instead, it may have done something very different, by prompting the giant retailer to look in another direction, publishing. Rather than freeze the industry where it was, the decision opened a window on all kinds of new combinations and marked the beginning of an overhaul for a number of companies, and, possibly, for the supply chain itself.
As the reports in these pages show, the number of retailers and distributors trying their hand at publishing is growing. The reverse is true, too: from O'Reilly & Associates to Lonely Planet, an ever-larger number of niche publishers have, by selling buckets of titles through their Web sites, gained more control over the retail variable. Margins are tight, shelf space is limited and the technology is efficient, so companies harness the appeal of the last item to fight the problems caused by the first two.
It's likely that the coming years will bring even more changes. Publishers will think more like retailers, retailers will act more like publishers, traditional roles will become more complicated and the industry's two poles should come closer together.
It's impossible to forecast every change, but the territory is not completely unmarked. Barnes & Noble, AMS and Scholastic have all shimmied up or down the supply chain, often greatly affecting even remote parties. B&N's decision in the early 1990s to get into the illustrated-book market as a publisher, for instance, led directly to some illustrated publishers getting out. A look at this history may not necessarily provide more answers, but it does bring up an array of questions. Possibilities that five years ago were dreamt of only by the off-kilter seem a lot more reasonable today. Might retailers in a few years routinely place their own titles on the Times bestseller list? Might large houses become a significant channel for their own titles?
The extreme scenarios (e.g., Wal-Mart buying Random House) still seem impossible. But a lot of smaller actions don't, as retailers take advantage of their closer proximity to customers to produce books they're more likely to want. Could Staples take a stake in a business publisher? Will the newest diet or health bestseller one day come from a packager hired by Walgreens (à la Entertaining the Costco Way, a title published by the retailer and sold exclusively in its stores)? Can your local independent bookseller serve as distributor for the largest publishers by printing books on the spot?
Going the other way, atrandom.com may never be more popular than Amazon, but in 2007, will Doubleday sell millions of copies of Dan Brown's newest directly through its site (at a fat margin)? Will publishers in a few years be able to release electronic files that customers can inexpensively print out and bind themselves? Or perhaps a consortium of publishers, frustrated by the narrowing shelves at price clubs and by online retailers that may or may not have their interests at heart, will start selling cookbooks off their own inexpensively run site (or wireless-based sales point), and widen their margins? The argument against direct sales, after all, is fundamentally political, not economic. (Anyone wondering if suppliers can get away with competing with their clients need only look at Orbitz, in which major airlines banded together to undersell the travel agents they took pains for years not to anger.) "There are all kinds of new formulas we could be looking at that involve the publisher getting a retail slice. We're only at the beginning. As the technology gets more fertile, the ground will also be fertile for many new economic models," says a senior executive at one of the largest New York houses, who (for political reasons) asked not to be identified.
For all its big business connotations, vertical integration is sometimes best practiced by the smallest fish. Unlike its horizontal cousin, it is an expansion not contingent on size or funding. You need to be pretty big to own a book publisher and a Hollywood studio; you don't need to be big to control your own distribution or to reach readers directly. The three-employee Stroud & Hall, which has a Times bestseller in A National Party No More, avoided the problem of overworked sales reps by distributing the title itself, and avoided shelf-space concerns by selling thousands of copies through its own Web site—by being, in short, vertically integrated.
For all its risks, vertical integration does not pose as clear-cut a cultural danger as conglomeratization. A horizontal acquisition lessens competition and can result in lower quality. A city with one newspaper will generally not be covered as aggressively as a city with two.
Apocalyptic as the idea may sound, controlling both what books are published and how they reach people is an idea not born in a scientist's (or investment banker's) lab. In some ways, it actually takes publishing back to its roots, to the days when Doubleday and Scribner were retailers as well as publishers. With new technologies being developed and proven technologies becoming more popular, many companies will try to stretch beyond their traditional roles. With more options for creativity, the retailer-publisher axis may one day seem less like a verity than a blip; with the changing nature of the Web, the neat order of the business could look less like a supply chain than scattered links from it; with both obstacles and opportunities multiplying, publishing in the future will be a mix of the unknown, some of the past, and little of the present.
