If Ursula Nordstrom were to make a return visit, she'd be delighted to see a children's industry that is healthy and thriving (due in no small part to her own pioneering efforts). But if she were to crunch the numbers, she might find a few surprises and some concerns. Hardcover frontlist fiction—never an easy sell—is now booming; fantasy has become a gargantuan enterprise since Harry Potter blazed the way. But Nordstrom's eyes might narrow a bit at signs indicating that picture books—long the backbone of children's sales—are struggling. And completely new to Nordstrom would be the presense of the chains and the impact of proprietary publishing. No doubt, a visionary publisher would discern opportunities among these challenges—whether of the technological, commercial or cultural kind. With a new season of titles now upon us, we decided to take the temperature of the industry, by asking heads of some of the largest children's houses how they view the present landscape.
It is demonstrably true that today, children's publishers are riding high. For many large children's divisions, sales were up appreciably in 2004 (at S&S Children's, growth was 20%; at Candlewick, 40%; HarperCollins, "the high teens"; Little, Brown, 35%, to name a few). And many of those divisions have mega hits (Harper has Lemony Snicket and Princess Diaries, Random has Sisterhood of the Traveling Pants, S&S has Dora the Explorer and Spiderwick Chronicles, Little, Brown has Gossip Girl, Candlewick has Dragonology and Egyptology).
Right now, the star category in children's is hardcover fiction—most notably fantasy. Many publishers call this trend one of the more gratifying developments in their careers, because of the traditional difficulty of selling fiction in this format, particularly in retail channels.
"It's extremely exhilarating," says Rick Richter, president and publisher of Simon & Schuster Children's Publishing. "And the economics surrounding it are very good. It's not full-color, the books are cheaper to produce. It's a business that has some of the good dynamics of the adult division."
The fantasy genre is still going strong, fueled by but no longer dependent on just Harry Potter. "I think the strength of the fantasy novel is amazing," says Barbara Marcus, president of children's books at Scholastic. "Every season great fantasy is coming out, selling hundreds of thousands of copies, which is really engaging readers. When are we going to see the turn in the market? It hasn't turned yet."
Many believe it's not a question of if, but when, the downturn will occur. Already the white-hot auctions of late, the "fantasy trilogy of the week," as Chip Gibson, president of Random House Children's Books, called it, have died down. "A year ago auctions were the bane of my existence," says Lori Benton, v-p and publisher of the children's book division of Harcourt Trade Publishers. "A lot of that has gone away. The chickens are coming home to roost with some of the things that are out there now."
David Ford, v-p and publisher, Little, Brown Books for Young Readers, admits that the many auctions for fantasy projects "have been a temptation," saying that he's been vigilant in not allowing over-bidding to happen on his end. "Some companies will be awash in unearned advances in the coming year or two," he says, "and I'm determined not to be one of them."
Doug Whiteman, president of the Penguin Young Readers Group, whose division paid heavily for G.P. Taylor's Shadowmancer novels and Michael Hoeye's Time Waits for No Mouse books, says his division is now casting a much more critical eye on the market. "We've certainly gotten choosier," he says. "Our pain threshold has definitely been lowered. We've all had auctions we wish we could redo. Everyone has come to the realization that fantasy can't support those numbers."
The trend toward overheated auctions is just one of the ways that children's publishing has become a lot more like adult publishing. Advances for big projects and big names are up, high-profile agents from the world of adult books are wheeling and dealing children's books, and there's greater importance than ever on the roles of marketing and publicity. As Richter says, "All the marketing plans have to take on the depth and details of adult marketing plans. The money paid out is not that different. The stakes have gotten higher across the board."
In a trend that confounds tradition, sales of picture books have been soft over the last three or so years. Susan Katz, president and publisher of HarperCollins Children's Books, explains, "The blockbuster picture books are doing as well as ever. In fact, it seems we can sell more of their next book. The big issue is the midlist. If we have a book at 100,000 copies we can push it higher, but what about books at 10,000 or 15,000 copies? That's a tough market right now."
Bookstore chains are being much more selective in the picture book area these days. As Katz puts it, "They're adjusting their buys based on where they're getting a better sell-through. If it's a strongly promoted book, or one with a theme like back-to-school or holiday, our numbers are still good."
In addition to stocking fewer picture book titles, the larger retailers have also stopped discounting most of them, according to the publishers we spoke with, which has adversely affected sales. Other factors for the decline of the picture book category include lower birth rates, cuts in institutional funding, and the price clubs stocking fewer picture books as well. And it's also a category that was arguably overpublished, with books signed under market assumptions that no longer existed when they came out a few years later.
Commenting on the tough market for picture books, Benton is quick to point out the cyclical nature of children's publishing. "We're on a continuum," she says, "and it always corrects. But picture book publishing is not a racecar, you can't turn it on a dime. It's an ocean liner, it's a big slow turn. How do you build a new talent who comes on the scene at this point in time? That makes me worried."
Whiteman calls the softness in the picture book market "definitely a factor" in his division's slowing rate of growth. He is not optimistic that the picture book category will make a comeback in 2005, but has high hopes for 2006. "The demographics are starting to look better," Whiteman says. "There's a resurgence in birth rates, and [institutional] funding is slowly coming back."
Whither the Libraries?
Institutional sales, traditionally a bedrock for children's publishers, continue to be problematic, as funding in state budgets for schools and libraries has been cut back over the last several years. But there is hope that some funding is slowly being restored.
"Have cuts in institutional funding hurt our paperback program?" Richter queries. "Without a doubt. It makes it harder to grow an author in paperback. But our list was already fairly retail-oriented. If your list was institutionally oriented, [because of funding cutbacks] you took it in the shorts."
Karen Lotz, president and publisher of Candlewick Press, calls the library market "stable." Four years ago Candlewick made a push into hardcover fiction; the paperback reprints of those titles are sellling strongly into libraries, Lotz says. "It's a new area of growth. We're getting into schools, and they're taking sets."
From what Benton at Harcourt is hearing anecdotally, problems with library funding are not as dire as in the recent past. "Sales through library suppliers are up in spots," she says. "By no means is it coming back to huge levels, but it's definitely not as bad as you'd expect from a country at war."
Not to Mention B&N…
On the subject of Barnes & Noble, which for many houses is their largest customer, interviewees opted to go off the record. "This time last year," a children's publisher says, "B&N was giving gloom-and-doom predictions, saying 'flat is the new up.' But that was a year ago. They told us they finished the year 8% up in their children's business." (Barnes & Noble would not confirm this figure.)
That increase is clearly in the fiction category, because publishers say that picture book sales for this account are down. One division head notes that the growth in children's fiction at B&N "dovetails nicely with our own growth," but reports "shrinking sales" for picture books. "They're applying more of an adult model, and they're passing on a larger number of picture books. The bigger numbers of the ones they do take do not counterbalance the titles they're not taking." As another publisher points out, "If you hit it right, the market is there for you. It's the middle of the list where the chains are being more selective."
Though B&N spokesperson Mary Ellen Keating says that the company is not stocking fewer picture books than in the past, anecdotally publishers say they are experiencing this, and express a determination to "make a book work" even if the chains pass (but acknowledge that makes life a lot tougher). One interviewee says, "If I know B&N isn't coming in, I have to adjust my expectations. I haven't not published something because they turned it down, but I'm one of the few who hasn't."
This issue isn't limited to B&N but to all the major chains. "They may say 'we'll do this and this and this' with a book," a publisher says, "but when it's time to commit they may have changed their mind. Particularly if you are a small publisher and you've based your print run on an anticipated buy, if that doesn't come through you're up the creek."
Many houses involve the chains early in the process for their major projects, often running covers by them for suggestions; a few told of having changed their in-house process for generating covers, to be able to adjust to B&N's suggestions quicker. "It can mean the difference between their taking 400 copies of a book and their taking 4,000 copies," one publisher says.
The perception that B&N is stocking fewer picture book disturbs publishers.
If true, is this creating a problem or the reflection of one? One division head believes the latter: "If they could sell more picture books, they'd carry more. They're merchants; it isn't like they set out to sell fewer books. On the positive side, they can take a position on an unknown author and make a book. And they have a lot of opinions about covers. If they're going to take an inventory risk on it they want a say in what it looks like."
The chain's increasing business in proprietary publishing is beginning to be a concern for children's publishers. "Without a doubt the crossroads is arriving," one says. "This one account we all listen to a lot, and make changes for a lot, is now doing everything they can to compete with us, and is devoting more and more of their real estate for their proprietary product. And for the first time it makes you question the validity of the feedback you're getting from them."
The subject of Borders, another large chain account, elicited a different group of responses from publishers. "It's an important account with its own set of issues," one says. Another spoke of what she termed "ever-shifting management priorities," calling Borders "a continually moving target. We spend our time with them in terms of managing their buys, which tend to come in really high. They have come up with some really good programs, like Original Voices. We manage them as closely as possible, and we look for new ways to partner with them."
To the publishers we spoke with, category management, the ballyhooed Borders program that launched in 2001, seems much less active than when it started up. "We were one of the early houses involved in that," one interviewee says. "In the first year we saw a major uptick in sales. In the last six to nine months we're hearing virtually nothing from them. It certainly seems to have taken a back seat—we're no longer being lobbied actively."
Beyond the retail channel, online is not currently viewed as a big category for growth. "I've always thought that the online business was a great business for bestsellers," Marcus says. "It's a buying channel, not a shopping channel. For children's books, if you are buying an illustrated book, you want to see the illustrations, the type size, what level it is." However, a few publishers that are starting to sell direct through their own Web sites are reporting growth there, especially for large backlist series. "It's not for discovery but continuity," Whiteman says.
In the price clubs, publishers have noticed a shift in recent years. "I can't quite figure out the right strategy on warehouse clubs," Marcus said. "They're clearly going through some changes." One publisher observed that "their direction is much more proprietary and true bestsellers. They're doing a lot more self-publishing. They're dealing directly with packagers, for things with high perceived value." According to Whiteman, "The issue is not that they are taking fewer books, but that they are demanding specific formats that work for their customers. We're seeing that in all channels."
Proprietary Concerns
Proprietary publishing, in many forms, is clearly on the rise. Accounts across various channels are demanding more customization, and several publishers are responding by growing that part of their business; S&S, Random and Harper are developing lines to service corporate clients, and it's likely more companies will follow.
But a growth in proprietary lines (AMS and Silver Dolphin in the price club channel, B&N publishing its own titles in the bookstore channel, Andersen and Dalmatian Press in the mass market, among others) means that there is less room in those channels for a trade publisher's wares—new realities that must be adjusted to. As Marcus puts it, "If I was a retailer, I'd be thinking, 'How do I differentiate my store from my competitors?' As a publisher it's our job to publish original, special books, but if our retailers perceive this as a need, we have to recognize it and embrace it. How am I going to partner with them appropriately? What is the opportunity? Because we think there is an opportunity."
One publisher points out a bit testily, "Because of AMS's unusual relationship with Sam's and Costco [AMS is the main supplier to warehouse clubs, and they own Silver Dolphin], they can now foist Silver Dolphin books on them. They've conditioned their customers to expect low-margin, high-volume bulk. At one point, seven or eight years ago, it was a pretty exciting channel. But now you see so much Cheez Whiz."
According to Lotz, there is still some desire on the part of AMS to have material from the publishers to put into their own brand format. "But because of what's being generated in-house," she notes, "the price points don't work. They say, 'We want your best properties but we want it on the cheap.' "
Speaking about Dalmatian Press, Andersen's proprietary coloring book line, another publisher points out, "We depend on [Andersen News] for distribution, especially to Walmart, but they're competing with us. There's an internal contradiction when they have their own indigenous program. It's hard when they are coming in with a low-cost operation. We pay a lot for the best licenses, but if you're not controlling placement, you're paying for a value that isn't fully realized."
Looking Ahead
Though times are relatively good and sales are strong at many houses, what opportunities lie ahead? All of the publishers we spoke with say they spend a lot of time thinking about the future, not just for their own business but for the industry and the nation's readers as well.
Since the fantasy craze will eventually slow down, the challenge for publishers is coming up with the next new thing. As Richter says, "There's very little room for mediocrity, because it's gotten very competitive. The bar has been raised. Being good at what you did five years ago isn't necessarily cutting it right now."
Gibson at Random House wonders about how to transcend the "self-imposed categorization" of children's books, saying that to the average person, a children's book means Scuffy the Tugboat, not The Curious Incident of the Dog in the Night-Time or How I Live Now. "How do we get those books up front in the store?" he muses. "A lot of accounts are doing well with YA, but YA is still frequently adjacent to the children's book section. If I bought The Catcher in the Rye today, I'd probably make a huge bid for it and hook up with the adult side to cross-sell it. Maybe it would have gone into teen. Would it have been able to brim those walls?"
Publishers are keeping their eyes open for any and all new opportunities. Benton comments, "B&N is putting in a picture book nonfiction section, and we have some nonfiction backlist; there may be a way to reformat it for a younger age. We're also closely watching the Spanish market. We're poised to see that hit the YA market—just look at the circulation figures on Teen People in Spanish. Walmart is starting a Spanish-language program for family literacy, looking at the very young emergent reader, and we're looking into that too."
One direction many are looking is graphic novels. Scholastic, Penguin, Roaring Brook and Hyperion have all announced interest in pursuing this avenue of publishing, either with single titles or with a dedicated imprint. "We see it as a bridge, a way to garner readers who are not coming naturally to our books," Whiteman says, "and also a way to increase revenue."
Publishers are also searching for ways that new technologies could be applicable to their business. Several mentioned Random House's very successful recent text-messaging campaign for Girls in Pants. The challenge, of course, is to figure out how to deliver content using new technology, while that technology is evolving so quickly. "We have to go to what interests [kids]," Whiteman says; "we can't count on them to come to us."
There's some thought that the e-book was perhaps before its time, and it may return in some form. And Whiteman predicts that a new yet unknown platform will emerge in the next five to seven years. "We're closing our minds if we don't believe it will come," he says. "Publishing hasn't changed since Gutenberg, and I think we're on the verge."
Last year's NEA survey was cause for further concern. "The biggest thing that keeps me up at night," Whiteman says, "is a dramatically reduced readership. There's a question of how much [the NEA study] is real, but a side of me does believe elements of it, and I've suspected pieces of it for a long time. I worry about the future and if we as a community are doing all we can be doing to bring children to trade books. We can no longer count on the consumer to find us."
One very heartening note: finding readers won't be a problem when customers start flocking to bookstores by the millions on July 16 to purchase Harry Potter and the Half-Blood Prince, a day that Richter calls "the Super Bowl of children's publishing." He regards Harry's pub date as a call to arms for the entire children's book community. "Even the biggest adult book can't hold a candle to this event," he says. "The question I have for all of us: what are we doing to maximize, to make sure we have our commercial in the Super Bowl? I see it as an opportunity for all of us, not just individually."
