The gathering of industry professionals in Manhattan earlier this month generated an urgent call for action on several fronts. Since that May 5 meeting, the conversation has continued, and in this article we revisit the major themes and extend an analysis of how publishers can better compete in the current marketplace.
John Marmaduke, president and CEO of Hastings Entertainment, was the first speaker at the daylong Publishing Summit that discussed how publishing might survive the current economic malaise, and how books might better compete for America's entertainment dollar. Marmaduke, who was addressing the view from the retail market, emphasized that books have entertainment competitors whose suppliers are doing a better job at servicing retailers and reaching consumers than book publishers. In addition, high prices relative to other forms of entertainment and a "command" marketing approach by publishers are hurting the sales of books.
Every Friday night, Marmaduke related, a kind of competition takes place in Hastings's 150 stores. "Consumers wanting entertainment gather around the 'hot new wall,' " where new products in a variety of categories are on display. "That's where publishers win or lose the battle with the consumer."
Consumers now occupy some 300 more hours per year with "entertainment" activities, compared to 15 years ago, according to Marmaduke. "It's a full plate of entertainment choices," he said. Not surprisingly, consumers have an attention span of "maybe 10 days," which might explain why big authors aren't selling as well as in past years. The public is "increasingly disenchanted earlier, and then rushes off to the next new thing." Consumers are no longer loyal to products or channels, he asserted.
With increasingly short product lifespans, publishers are losing out because they utilize "a 1950s distribution system. You miss sales and deliver only after the consumer is on to the next thing. The ability to replenish quickly is how your competitors are taking market share from you."
Marmaduke urged the book business to "respect and steal from the competition." For example, movie producers lowered prices, and changed DVD and video rental schemes (these products now have a low initial cost, and producers and retailers share rental revenues for six months). He also challenged publishers to take some risks, saying, "I don't know the answers, but publishers do and should try."
He also maintains that book prices are too high ("I think your customers are telling you this"), particularly compared to other forms of entertainment. For example, he said, music companies promote new artists with prices ranging from $6.99 to $11.99, and many "great" DVD and video movies are offered for as low as $7.99. "And you want consumers to spend $29 on a book?" he asked. Wal-Mart has trained consumers, he said, to "look for value. Price is key."
Concerning trends at Hastings, Marmaduke noted that the Christian market has continued to grow, despite the general stagnation of book sales. Right now, many "future book consumers" are spending lots of money on videogames, which have triple-digit sales growth. Videogames, he speculated, may have as much to do with the decline of the music business as file sharing.
In reconfigured Hastings stores, the book section is in a relatively quiet area of the store, which helps browsing and sales. The company's "bricks-and-clicks operation" is showing the greatest potential for increasing book sales.
Following Marmaduke, Howard Reese, president and COO of Levy Home Entertainment, which supplies books and magazines to many mass merchandisers, groceries and drugstores, said that in the past three years, Levy customers have gotten accustomed to 5%-10% sales growth in books. (In cases where stores "changed the way they present books," he continued, sales were up 25%-30%.) Now, however, many are struggling to do the same amount of business as last year, and some are down as much as 10%.
Hardcover sellthrough is down, Reese said, and the mass market paperback category is also struggling "very significantly," with net returns in the first six months of Levy's fiscal year jumping to 44% from 35% in the same period a year earlier. "By any standards, this is pretty unacceptable," he stated. Reese speculated that the poor economy and "distractions" such as the war in Iraq have more effect on mass market titles than other categories because those titles tend to be a spontaneous purchase and are preferred by lower-income people, for whom "the economy is hitting hard." Mass market prices, quality and authors are not the cause of the current problems, he emphasized.
Reese described the outlook for trade paperbacks as "a little brighter," in part because the category has "gotten past" the effect of Oprah Winfrey's decision to cancel her regular book club. Children's is the strongest category at Levy.
For mass merchandisers, books are one of the most profitable categories and usually account for 1% of store revenues. Books appeal to these kinds of stores because they have a good margin, are fully returnable and involve no markdowns. Some retailers ask for higher discounts and nonreturnable terms, but Reese discourages this because book markdowns don't work well and damage sales of books that would otherwise have been rotated into the space.
The Price Isn't Right
Conversations with other industry members after the Summit showed pricing to be a major concern. One medium-sized publisher said that he recently lowered the list price on two forthcoming titles by $2 in response to market conditions.
Whether or not other publishers will heed the call for lower prices, Mike Shatzkin of Idea Logical Co., said changes in the industry will continue to exert downward pressure on book prices, in large part because of the expansion of used-book sales on the Internet. ("Used copies of the new Harry Potter will appear the day after the day of sale," he predicted.) Already some 20% of Amazon transactions are of used merchandise, and Shatzkin speculated that many of those are for bestselling books, which could put a dent in the market for those titles. In addition, of course, the Internet has made a range of used books easily available to everyone. "All titles that once were dead and buried are there," Shatzkin commented.
Barnes & Noble's purchase of Sterling and the continuing popularity of warehouse clubs, which are "skimming off the top of the book market," are also putting pressure on prices with steep discounts and generally low price points.
At the same time, the number of titles published annually has doubled in the past 10 years, meaning that there are more books than ever competing for consumers' attention. Shatzkin maintained that publishers who say they will publish fewer titles and sell more of each are using a strategy that runs "counter to the physics of what is going on."
Losing Market Share
Booz Allen Hamilton consultants John Frelinghuysen and Henry Hawkes put the issues facing the book industry in the context of the challenges that all media companies are confronting, and agreed with Marmaduke that "books are losing the battle for consumers' time and money" to other entertainment products. Frelinghuysen noted that while reading is the most time-intensive medium, Americans reduced their time spent reading a book between 1996 and 2001, to a mere 2.1 hours per month. Per capita spending per month on books was $7.18 in 2001, a figure that represented a compound annual growth rate of only 1.2% between 1996 and 2001.
Books are not the only entertainment medium struggling for consumers' attention. All traditional media have lost ground to new interactive forms of entertainment , as the use of cable television, home video, videogames and the Internet all rise at rapid rates. And even though books' share of consumers' time and money is comparable to many other entertainment products, unless changes are made, books' market share will continue to erode, Frelinghuysen suggested. There are simply more products competing for consumers' time than ever before--more cable networks, more magazines, more DVDs and more books.
As more and more new products are released, books are losing ground due to developments in the retail market. Although the Internet and book superstores make hundreds of thousands of titles available, for the most part, there are fewer books available in the fastest-growing retail channels, Frelinghuysen said. Wal-Mart and Costco, he noted, carry only a few hundred titles each, offer minimal in-store display opportunities and limited shelf life, and have no specialized salespeople. Given the forces aligned against the book industry, "publishers must build pull for new titles to reach consumers," Frelinghuysen said.
Frelinghuysen outlined seven strategies that could help revitalize book publishing. He believes the top priorities are increasing investment in marketing and doing so with some "science." Other suggestions: segment and understand the reading audience; build the next generation of readers; rethink windowing and launch strategies for new titles; build more franchise brands; and revisit pricing policies.
There is a huge gap between what publishers spend to promote their titles compared to the marketing dollars spent by movie, music and video game companies, Frelinghuysen said. While he acknowledges that publishers don't have the resources to spend heavily on every title, he said that the imbalance in spending now is so great that awareness of books is drowned out by other entertainment promotions. Given the lack of money available to publishers, Frelinghuysen said, companies should do more upfront research, analyzing where they can most effectively promote their titles. One way this can be achieved is to break down the book market into specialized segments. While publishing has begun to move in this direction, the industry must go further, Frelinghuysen said.
Reaching children and teenagers is crucial if publishing is to build a new audience, and Frelinghuysen believes the most effective way to do so is through nontraditional media. "You need to reach kids on their own terms," he said. Among the ingredients for a youth-focused campaign are one that is integrated across media platforms, can cut through advertising clutter and is associated with the right brands (some favorite brands of 14-28-year-olds include Levi's, Polo, Yahoo! and Wal-Mart).
Frelinghuysen told Summit attendees that brands and franchises are generating more and more of media companies' revenue. Franchises accounted for $2.9 billion in box office receipts in 2002, while new concepts brought in $3.2 billion. Book publishers need to build more franchise brands, Frelinghuysen said, not just author brands.
Echoing comments heard throughout the day, Frelinghuysen said publishers must also compete more effectively on pricing, especially since prices on some other entertainment products are going down. He gave examples of some pricing promotions that have worked well in the music business, including lower prices for new artists to help build an audience, rebate programs and expanded mid-line pricing, such as Sony's Hit Savers, a program that offers 600 titles that had only recently been frontlist titles at $13.98 each.
The Marketing Reality
That the publishing industry spends less on marketing and advertising its products than its competitors is fact readily acknowledged by everyone in publishing. But in discussions with industry members after the Summit, some are worried that the lack of spending, by both retailers and publishers may be catching up to the industry. The head of a mid-sized publishing company wondered why, during the past holiday season, when the major chains were complaining about the lack of consumer traffic in malls, they didn't do more advertising themselves to build business. "Where were their [chain] ads?" this publishing executive wondered. A top executive with one of the nation's largest wholesalers recalled that when Robert Haft, the former CEO of the now-defunct Crown Books, took out full-page ads in newspapers in cities where the chain's stores were located, the books featured in those ads sold very well the following week.
A look at the Securities and Exchange Commission filings of Borders Group and Books-A-Million shows that both chains decreased their marketing and advertising spending in 2002 (B&N did not break out those expenditures). Borders's spending fell to $36.1 million from $38.5 million, and BAM's spending declined to $4.2 million from $7.2 million. The Borders and BAM figures include money spent not only on advertising aimed at getting consumers into stores, but funds for in-store marketing as well. That lends credence to one industry insider's lament that "too much of advertising in the industry is for in-store promotions." Another publishing executive made a similar point by noting that more and more co-op money is being used by booksellers for in-store placement, rather than on advertising campaigns.
There is a growing recognition among publishers, however, that they do need to increase the exposure of books if they are to compete with other entertainment offerings, said Bethany Chamberlain, president of Spier New York, the advertising agency that specializes in publishing marketing. Chamberlain said that while there has been some reduction in advertising in this sluggish economy, "marketing has not been gutted. Publishers know that books need attention." The weak sales environment has reinforced a long-running trend of publishers putting more money behind fewer titles. "Ten or 15 years ago, more books got at least some money," Chamberlain says.
With limited funds, publishers are becoming more creative about how they spend their dollars, Chamberlain noted. Integrated marketing, especially programs that utilize the Internet, has increased and has proved to be increasingly effective. "Small budgets and doing creative things are not mutually exclusive," she emphasized.
Matty Goldberg, marketing director at Perseus Books, agreed that the best book promotions combine marketing and advertising. "Print advertising by itself doesn't spike sales," he said. Perseus recently ran an ad for Our Final Hour only after a review appeared in the New York Times. "We did it to keep the momentum going," Goldberg said. According to Goldberg, Perseus generally puts some marketing money behind its titles; once a book begins to show promise, spending is increased. But Goldberg, like many others in the industry, rejected assertions that what works for promoting music and movies can work in book publishing. "The business models and products are too different," he said. "I'd be very happy to think up creative ways to spend money--if we had more."
Happy Kids
The children's area is providing a bright spot in an otherwise gloomy retail picture these days. For several of the largest houses, children's divisions are contributing quite substantially to the bottom line, often helping to offset weaker results from adult divisions. Linda Jones, children's sales and marketing v-p at Borders, who spoke on the children's panel at the Summit, called her company's children's department a "traffic-driver" for its stores.
The teen market in particular is booming these days, according to the children's panelists. Jones described Borders's teen business as "very strong, though we haven't done anything to market to them." And branding was a big topic of discussion as well, with many publishers believing that on the children's side they are already doing exactly what Frelinghuysen had recommended in his earlier presentation--building more franchise brands. "We've gotten better as an industry at building brands," said S&S Children's president Rick Richter. "Branding is an area where we can teach adult publishers."
Branding is happening more for older readers than ever before, said Barbara Marcus, president of the Scholastic's children's book publishing group. In fact, branding is much more ubiquitous than ever in children's books. Publishers are looking past the traditional material for branded lines (media tie-ins and licensed characters) and are mining their backlists for properties that can support line extensions, sometimes creating new material when both the author and illustrator are long gone. Also, certain children's authors have become brand names, as have some literary properties (e.g., Lemony Snicket, Princess Diaries, Captain Underpants).
Branding Solid
A few publishers PW touched base with after the Summit talked about why branding has become so important. As one editor explained, "Everyone's trying to develop a brand. More and more of our books are now being sold into two accounts. Since those accounts can't provide the experienced help you find in an independent bookstore, parents tend to go for either names that they recognize or something that has a stamp of approval."
In this climate, it becomes more difficult to sell an original product in bookstores, the editor continued. "Books are now being merchandised like soda pop and washing powder. In the retail environment these days, it's all about real estate."
And those PW spoke with after the Summit confirmed that teen books are hot. As one publisher commented, "Given the demographics, the young adult market has exploded in a way we haven't seen for years and years. All of the kids we sold board books to years ago are now looking for books to read."
In the panel discussion, Jones of Borders cited the "edgier, racier" YA novels that are being published as a "growth area." Readers in their 20s and older are discovering some of these books, and publishers are taking note (for instance, this fall Warner Books will publish a rack-size edition of Gossip Girl by Cecily von Ziegesar, which has been a bestseller for Little, Brown Children's Books). "As more and more edgy fiction is being published," a YA editor noted, "the books are dealing with issues that hadn't been dealt with before: oral sex, male rape, incest. There seem to be no boundaries any more."
More hardcovers aimed at teen readers are selling well at retail, as opposed to the norms of years past, in which YA hardcovers sold almost exclusively in the institutional market. It seems that the book chains, too, are "finally waking up," in one editor's words, "to the fact that teens are not likely to go to the children's section of a bookstore. They want to be able to find books for themselves without suffering the embarrassment of having to go into the children's section."
Underhill Looks at Stores
Retail expert Paco Underhill amused the audience at the Summit with video clips of shoppers in various states of confusion. In one, a woman instructs her husband to "sit, stay and guard" the door of a clothing store while she goes shopping. Funny? Yes--but instructive as well. Underhill is the author of the seminal shopping treatise, Why We Buy: The Science of Shopping, which first posited his now-famous "butt brush theory," which says that any woman shopper who is even inadvertently touched on the backside while shopping is likely to leave a store. Accordingly, Underhill has been a big advocate of wide, easily navigable aisles in stores. Underhill urged booksellers to consider the country's changing demographics and pursue customers equally, young and old, but to cater to them differently. He believes that practical booksellers will court older customers simply because they "have more money" and are more likely to buy books than are youngsters raised on videogames and television. Publishers should also consider "reader-friendly type" to aid older readers, Underhill added.
Underhill also said that bookstores need to be updated. He called the long and narrow "bowling alley" layout stale, and pointed out that at cutting-edge, high-end retailers, everything on the shop floor is available for sale, but this is not so at bookstores. He floated the idea that stores might be able to boost sales by altering the ambience of the store from morning to afternoon to night, including changing lighting and music, and rotating displays on moveable store fixtures.
Too many people leave bookstores without buying anything, Underhill said. Part of the problem, he believes, is unattractive packaging, including poorly designed covers. Customers have difficulty finding the books they want, and so Underhill urged retailers "to put good people on the floor." He also sees sales opportunities for books at places where people must wait in line, such as at the movies and the bank.
More Gifts, Shorter Books
In the last event of the day, a panel consisting of a trade show executive, a leading agent, a publisher and two notable booksellers gave their recommendations for expanding the book market, in terms of both its presence in the public consciousness and its sales.
Greg Topalian, who runs BookExpo America for Reed Expositions, sees the gift market as one of huge extra potential for the book business. Noting that in the spa business, more than a third of annual revenue derives from gift certificates, he said that BEA is funding an industry-wide research study to identify the best kinds of gift books for the various major holidays throughout the year. When this list is disseminated to the public, he said, it will provide extra publicity for the books, as well as make people feel more comfortable in a bookstore setting by giving them specific titles to look for. (Although Topalian did not refer to it, the Book Token scheme run by the British Booksellers Association, working along the same lines, has enjoyed great success in recent years, with an estimated £30 million (about $50 million) in annual turnover, 40% of that at Christmastime.)
Bookseller Roxanne Coady of RJ Julia chided the industry for wastefulness, asserting, "It's the waste in this industry that will bury us." She said she reads a lot of business books, and finds that many of them are up to 100 pages too long, "just to justify their price." Why not, she asked, publish shorter, less expensive books on subjects people want to know about? That brought up the question of market research, which is virtually nonexistent in the book business. "[Publishers] just try it and see if it sticks to the wall--and if it works once, it will work again, in their thinking. They're not really thinking about the customer's real needs at all." Publishers should ponder, said Coady, what would make books more compelling as entertainment or information, and concentrate only on those aspects, without all the wasted pages.
The other bookseller panelist, Joseph-Beth's Neil Van Uum, asked rhetorically whether publishers were doing enough to "break out" promising new authors. And in answer to a question from the floor about price resistance, he said pricing of new authors' works needs to be more flexible, to encourage buyers willing to experiment.
Hyperion publisher Robert Miller expressed concern over the "shrinkage" of margins. Doing away with returns, often suggested as a panacea for the business, would be no solution, because that would mean booksellers would buy only the sure things, the brand-name authors. Miller's solution is lower advances, so that less liability is loaded onto the books up front. Perhaps, he said, in compensation, authors and agents might agree to take higher royalties, and work on longer-term deals to help new authors break out.
Promoting Stars
Trident Media Group president Robert Gottlieb noted that in some ways, the business has moved ahead in the past 20 years, with sales for bestsellers escalating from 500,000 copies to 3.5 million and up in some cases. But his chief complaint was that even when they had built star names, publishers did nothing with them between books in terms of promotion. Gottlieb elaborated later to PW that "name and brand recognition are an important component to any business having to do with entertainment, and publishers historically only spend money promoting authors when they have a book to sell. They have never developed a culture to promote their star authors throughout the year, so that the readers are always aware of them, as moviegoers are aware of stars between movies. Such people are assets, that should be promoted as such. Paramount, for instance, keeps Tom Cruise's name out there both as a star and as a producer in his own right."
Publishers, declared Gottlieb, have tended not to try to make a market, but have depended on booksellers to do that. "They have to catch up, and become real marketers themselves." At Trident, he said, the constant aim is to work with the authors and their publishers to do innovative things to keep the big sellers in the public eye. Trident client Janet Evanovich is typical in this regard, he said, with her own much-visited Web site and a regular newsletter that goes out to her readers. This helps to support not only her current hit but her backlist as well, Gottlieb noted.
He added that all publishers have properties with strong recognition factors that they fail to build on in a consistent way. "They just lie fallow unless there is a big new revision or new edition that they publicize," he said, observing that a standard cookbook like The Joy of Cooking should be constantly promoted.
By day's end, it was clear that publishers will have to take some action on pricing, and understand the nature of the competition that books continue to face if they want to expand their market. The status quo will no longer do. In a year's time, we will take a measure of how successful the industry has been in adapting to a changing marketplace.
