No Option

The news as 2008 drew to a close that Borders has agreed to buy titles from HarperStudio on a nonreturnable basis might not strike those outside trade publishing as particularly noteworthy, especially against the backdrop of bailouts for the banking, real estate and auto sectors; a string of bankruptcy filings; and record job losses. But it's a milestone in the book business, and a harbinger of radical change that will be necessary in the new year if our industry is to have a bright future.

Every bookseller in America has a perpetual “put option” (a right, not an obligation, to sell) on every trade publisher in America. Tell that to a commodities broker, and she'll be astonished. Yet for some reason, our industry doesn't regard its peculiar practice of accepting unsold books—forever, for full credit—in such explicit terms. When the national chains, armed with funds from the capital markets, took advantage of this Depression-era holdover to fuel their expansions and drive out the weaker independent competition by wallpapering their superstores with, in effect, consignment inventory, no one said, “Whoa.” Rather, the large houses in particular embraced the opportunity to sell more copies of bestselling titles than ever before, and accepted a higher structural level of returns. But that was the 1990s. Along came the Internet, and the chains couldn't compete with online retailers on the basis of selection.

In recent years, the chains, the stronger independents that survived and online retailers have all worked with publishers toward increasing sell-through and reducing returns. But then came 2008. Retail sales fell off dramatically, credit markets tightened and booksellers returned waves of inventory to be able to get the new books they'd need for the last-gasp holiday season. There was some hope that books, which are relatively cheap, would fare better than general retailing during the gift-giving season. But that didn't happen. An inevitable second wave of post-holiday returns will be expensive to process, and for some publishers may be fatal to absorb.

If publishers are going to continue to extend a perpetual put option, we'll need to have higher cover prices, give booksellers lesser discounts or both. Or we could offer stores deeper discounts and the prospect of greater profit margins by discontinuing or altering the practice of accepting returns for full credit. Happy-medium alternatives include partial credits issued for books that remain unsold after a period of time and/or nonreturnable status after a title's sell-through track record has been established. Booksellers could then focus their energies where they belong: on merchandising and inventory management, not returns processing.

I find predictions of the death of the book laughable. Movies didn't replace live theater. Television didn't replace movies and radio. The Internet won't replace any of them, or books. Certain stories and arguments require extended prose that is composed, edited and delivered in ways distinctly different from what the Internet does best. People will still want their books. The sky will not fall on our industry, unless we bring it upon ourselves through inattention to narrow-minded ways that make it nearly impossible to project, let alone accurately calculate, our actual sales costs and revenues.

We'll soon learn which houses were prepared to cover the put options they extended to booksellers, and which corporate conglomerates that own publishing units have an appetite for staying in the game. Due to the uniqueness of each title and the special care and attention each requires, publishing is, at its heart, a cottage industry. Yet it's also a multibillion-dollar consumer sector.

Publishers have already spent millions to make books available in new formats. It's the first time in the history of our industry that significant research and development has gone into new media. Now, book publishers and booksellers need to make a concerted effort to improve their ways of doing business in order to attract the resources necessary to strike the right balance.

Capital will consistently follow opportunities, and our profit margins and practices need drastic improvement. Book publishers have much going for us; we control a type of content that has proven its enduring value over a period of not years or decades but centuries. The publishing sector employs bright, talented people who are attracted to the field more for their love of books than for the salaries and benefits. But there's nothing inspiring about put options that have not been covered, or going out of business.