8 8 THE WILD WEST
Up till now we have been analysing trade publishing in a general way, drawing examples from both the US and the UK. There are good grounds for doing so: if my argument is sound, the field of English-language trade publishing has a certain ‘logic’ or dynamic that applies equally to Britain and the US, as the two main centres of English-language trade publishing. But while the same logic applies to both and many of the same publishing corporations are active in both countries, there are important differences in the ways that trade publishing works in the US and the UK, and it is these differences that I want to examine in this chapter.
The logic of the field
Figure 10 summarizes the logic of the field of English-language trade publishing. As we’ve seen in previous chapters, three key developments – the growth of the retail chains, the rise of literary agents and the consolidation of publishing houses under the umbrellas of large corporations – have shaped the evolution of trade publishing in the English-speaking world since the 1960s. These three developments have created a field which has a certain structure and dynamic or ‘logic’. It has led to the polarization of the field, with four or five large corporate groups occupying dominant positions and a large number of small independent publishing operations on the margins, while relatively few independent medium-sized publishers remain active in the field. It has led to a preoccupation with ‘big books’ which, in the web of collective belief that permeates the field, are regarded as potential bestsellers and, as a result, are able to command high advances in the market for content. Since for many books no one knows at the point of acquisition whether they will actually become bestsellers, those involved in the process of acquisition have to rely on other things in order to attach a value to an asset whose value is, at that stage, strictly unknowable. Typically they rely on four things: the author’s track record, comparable books, the author’s platform and the web of collective belief. The budgetary process of the large corporate publishers obliges them to focus a great deal of time and energy on closing the gap between the ground-up sales forecast based on books in the pipeline, on the one hand, and the corporation’s expectations for growth and profitability, on the other, leading to an annual scramble for new books, and above all big books, which can be put together quickly and published fast – in other words, ‘extreme publishing’. The growth of title output in the context of declining review space and consolidated retail outlets that charge a premium for front-of-store displays has shrunk the window of opportunity for new books, giving each new book less time to be noticed and make an impact and encouraging publishers to put more effort and resources behind those books that show early signs of success while giving up on those that don’t. And the growing role of the big retail chains which order large quantities of new books and require them to turn over quickly, combined with the shrinking window of opportunity for each new book that is published, has helped to produce historically high levels of returns.
To describe this dynamic as the ‘logic of the field’ is not to say that the field is logical – there is much about this dynamic that could be regarded as illogical, irrational and inefficient, not to mention wasteful. The logic of the field is an analytical and explanatory concept, not a normative one. Nor is it to suggest that the ‘logic’ exists like some cold force of nature, a rigid and impersonal structure that determines the actions of individuals and operates independently of their will – this is not the sense that I’m giving to this term. The logic of the field, as I use this term here, is simply a summary way of describing the distinctive set of processes and preoccupations laid out in figure 10, a set of processes and preoccupations that interrelate in definite ways and that, taken together, create the context within which those who work in the field of English-language trade publishing – whether publishers, agents or booksellers – do what they do. It is a set of processes and preoccupations that is specific to this field – it is quite different from the processes that characterize the field of, say, scholarly book publishing, or the field of college textbook publishing. It is also a set of processes and preoccupations that has a certain self-referential, self-reinforcing character, in the sense that the key players in the field are locked together in a system of reciprocal interdependency such that the actions of each, pursuing what they perceive as their own interests (or those of their clients), tend to elicit a certain pattern of action from other players in the field. ‘It’s a system that sort of feeds on itself,’ reflected one agent who, having been in the business for over 50 years, was inclined to take a long-term view. ‘And it’s a form of evolution. Though in this particular instance there is no intelligent design.’
Of course, not every player in the field, whether it is a publisher, an agent or a bookseller, is affected by these processes and preoccupations in the same way and to the same extent. Not every trade publisher works like a large corporation, most independents don’t seek to acquire gap-filling books in the way that publishers in the large corporations do, innumerable ‘small’ books are still published (by corporate publishers as well as independents), some books turn out to be slow burners that languish during the initial six-week window of opportunity but then build more slowly over time, perhaps even becoming a bestseller despite their slow start, and so on. Trade publishing is an extremely diverse industry and there are countless exceptions to every rule. But to understand what has happened in the world of trade publishing we need to delve beneath the surface and bring out the basic structure and dynamic of the field. Grasping the logic will not enable us to explain everything that happens in the field; the world is always messier than our theories of it, and this maxim applies with particular force to the world of trade publishing, where there are many different players interacting with one another in diverse ways to produce a huge number of unique cultural objects, each launched into a marketplace where serendipity rules. But complexity does not mean that this world is without order.
The logic of the field is a dynamic in which some players are more fully implicated than others but from which no player is wholly excluded. Its effects are felt throughout the field, regardless of who you are and where you are positioned in the field. Of course, the large corporate publishers are implicated in this dynamic more than others, since their size – both in terms of their financial resources and their output – as well as their reputation places them in the centre of the field. But even a small independent publisher on the margins of the field is not entirely unaffected by this dynamic. The small independent may not be preoccupied with big books in the way that the large corporate publishers are and will not be obliged to ‘mind the gap’ in the way they must, but even the small indie press will feel the effects of these pressures in certain ways – for example, by being excluded from the submission lists of the most powerful agents or treated as a B-list or C-list client, or by losing one of their authors to a large house who is able to pay more. The logic of the field is not a set of rules that every player in the field must follow. It is more like the lines of force that structure a magnetic field: a strong magnet in one part of the field will exert its effects throughout the field. If you’re small piece of metal on the margins it may not affect you very much, but in no part of the field will you be entirely shielded from its effects.
Once we understand the logic of the field it is much easier to make sense of things that happen in the world of trade publishing – things that might otherwise seem puzzling, if not bizarre. Take Randy Pausch’s The Last Lecture: now, once we understand the logic, it all makes much more sense. Why would a publisher be willing to pay $6.75 million for a short book by a man who had never written a trade book before, and to do so on the basis of nothing more than a 15-page proposal and a video of his lecture? Remember that the auction is being held in October 2007, just after the corporate publishers have completed their budgeting process and are searching intensively for big books to plug the gap for 2008. This is a book that will be written very quickly (it has to be: the prognosis is not good), so it can be published in April 2008, early enough to make a big difference to 2008 sales if it does become a bestseller. Pausch is, in effect, a first-time author, so there is no track record to spoil the imagination: liberated from the tyranny of data, the sky is the limit. There is also a very good comparable title which the agent can liken it to: Tuesdays with Morrie, which was a huge bestseller in the late 1990s, selling more than 12 million copies. And it just so happens that the agent handling The Last Lecture is the very same agent who handled Tuesdays with Morrie, which enables him to cite this comp with some authority and gives more credibility to the idea that The Last Lecture will repeat the earlier success. The author, while certainly not a celebrity, has in fact acquired a rather significant platform in the short period since he gave his lecture, since the video of the lecture was posted on YouTube where it was viewed by 6 million people. He also appeared on CBS News, Good Morning America and the Oprah Winfrey Show, which not only gave him a high degree of visibility but also endowed him with the kind of trusted recognition that only Oprah can bestow, giving further credence to the view that this is a man who could write the kind of inspirational book that would have mass appeal, reaching people who are not regular book buyers, the kind of book that would lead Oprah and others to say, ‘This is a book that changed my life.’ Just as importantly, there was a great deal of buzz about this book, everyone in the know, scouts included, was talking about it and the words were being backed up by money, hype translated into buzz, as several of the big houses were willing to bid in the millions, thus creating an extensive and self-reaffirming web of collective belief that this book will become a bestseller and repeatedly raising the stakes for the parties who were willing to stay in the game.
The five publishers who were still in the bidding by the time it reached $5 million were all publishers owned by large corporations, since only they could afford to take risks at this level. The fact that Hyperion was willing to stay in the game and outbid the others in the end is not surprising: they are a frontlist-driven house, backed by the Disney Corporation and hugely dependent on publishing a small number of frontlist bestsellers in order to make their budget. They had also published two very successful books by Mitch Albom and they were taking his books, both Tuesdays with Morrie and The Five People You Meet in Heaven, as their model. It was a big bet, but the senior managers at Hyperion felt very sure about it and were determined to do everything they could to get it. ‘We probably even would’ve gone higher,’ said one, reflecting on the confidence they felt at the time.
When the auction took place in October 2007, paying $6.75 million for a short book by an unknown author seemed excessive to many observers, including many publishers who had bid for the book at one stage but either pulled out or lost out. It was a high-risk strategy that could easily have backfired on Hyperion. What if the author didn’t live long enough to finish the book, let alone see it published? What if the book didn’t live up to the publisher’s expectations, and tens of thousands of the copies shipped out eventually came back as returns? Either was quite possible – at the time of the auction, no one really knew. It was a classic big-book gamble.
As it happens, things panned out well for Hyperion. Their marketing campaign was carefully tied into the media that had made Randy Pausch a public phenomenon in the first place. Since the video of ‘The Last Lecture’ had been viewed by many millions online, Hyperion created a dedicated website that would reach out to and link interested parties, including the pancreatic cancer groups. They also sent a crew to film Randy Pausch and his family and they supplied Amazon, b&n.com and others with an exclusive video. They used their connections at Disney to get an hour-long special about the book on ABC News. Since so much about this book was linked to the internet and the media more generally, they self-consciously chose to design the book as an old-fashioned book, with a cover and thick, rough-edged paper that emphasized the traditional, physical nature of the book and the timelessness of its message.
Everything fell into place. The book was published in April 2008 and went straight to number one in the ‘hardcover advice’ section of The New York Times bestseller list. The major accounts took half a million copies in cloth, the following day an additional 400,000 copies went out and the day after that the numbers had swollen to 900,000. The book remained at the top of the bestseller list throughout the summer and autumn. By October 2008 it had sold through more than 3.6 million copies in hardcover and was still selling around 50,000 a week. Moreover, thanks to the buzz that was generated when this book was being auctioned and that was relayed to overseas publishers by the scouts whose job it was to report on what was hot in New York, Hyperion was able to recover a substantial part of their advance through the sale of foreign rights. They had earned back around $2 million in foreign rights even before the book was published, and by October 2008 they had sold rights in 37 languages; Korean rights alone sold for $300,000. Betting on big books by authors with no track record is a very risky business, but in the case of The Last Lecture, the bet paid off handsomely.
I noted earlier that cultural fields have linguistic and spatial boundaries: the logic of the field that I’ve analysed here applies to English-language trade publishing but not necessarily to trade publishing in France or Germany or Spain or other countries where the languages, institutions and developmental trends have been different. The structures and dynamics of trade publishing in these countries will be shaped by developments that are specific to them. Some developments will be similar – many countries have experienced consolidation both in the sphere of publishing houses and in the retail sector – while others will be different. For example, while literary agents certainly exist in continental European countries, they are nowhere near as prevalent and they don’t have anything like the power that agents in New York and London have, and this in turn makes a big difference to the logic of the field.
However, my focus here is on English-language trade publishing. I’ve said that the logic of the field is broadly similar in the US and the UK – New York and London are the two metropolitan centres of English-language trade publishing and the field stretches across the Atlantic, embracing both countries (and, indeed, Canada, which, in terms of most forms of publishing and other creative industries, is inextricably interwoven with the US). As we’ve seen, most of the largest publishing corporations are both active and dominant on both sides of the Atlantic, agents are powerful players in both countries (a few have offices in both), retail chains have grown at the expense of independent booksellers in both the US and Britain, and the vast majority of books that are published in English will be either published or at least distributed on both sides of the Atlantic. The logic of the field, as summarized in figure 10, applies to Britain just as much as it applies to the US. And yet this doesn’t quite capture everything. There are important differences between Britain and the US in terms of the structure and dynamic of the fields. What are these differences and how can we analyse them?
Of course, there is a big difference in terms of scale. The US market is at least five times the size of the UK market: you can sell a lot more books in the US, and this has big implications in terms of the revenues that can be generated and the expectations of authors and agents. The scale is also very different in terms of geography: the US is effectively a continent (literally so when you add Canada), and this creates a whole range of problems and opportunities in terms of sales and marketing – let alone the logistics of the supply chain – which simply don’t exist, or exist on a much smaller scale, in the UK. But is there anything more than this?
The discount wars
It’s just before 9:00 a.m. and my breakfast meeting with the sales director of a large New York publishing corporation is drawing to a close. We’ve been talking for over an hour in the private dining room at the corporate headquarters in Manhattan; I have time for one last question before she rushes off to her first proper meeting of the day. ‘I know you’ve spent some time in the UK and you’re familiar with the marketplace there,’ I begin; ‘What would you say the biggest difference is between the UK and the US?’ She looks across the table at me with a wry smile on her face. ‘Terms of trade,’ she replies. ‘We call it the Wild West.’
The Wild West she was referring to was of course Britain, not the US. We commonly think of the United States as the land of unbridled capitalism where the free market reigns supreme and government regulation is minimal, whereas Britain is often thought of as a more regulated society where the harsh realities of the marketplace are softened by government intervention and a more beneficent welfare state. Of course, there is some truth in this common view – the National Health Service in Britain provides a much more comprehensive health care system than the largely private, insurance-based system in the US, for example. But in the world of books it is exactly the opposite. Why? How can we explain this?
In the US the discounting practices of publishers are governed by the Robinson-Patman Act, which, as explained earlier, makes it illegal for suppliers (including publishers) to offer different discounts to retailers who occupy a similar market position. Following the legal battles between retailers and publishers in the 1990s, the American book trade has settled on a relatively open and transparent system for discounting and co-op advertising, and American publishers are acutely sensitive to the risks involved in tampering with this system. Publishers devise a discount schedule which they use with all their customers, who receive the same discounts on individual titles as other customers in the same class. Wholesalers may receive higher discounts than retailers but all wholesalers will receive the same discount because they are in the same customer class. Trade publishers will typically offer a full trade discount of, say, 46 or 48 per cent on most or all of their books. Some publishers may offer a lower discount (or ‘short discount’, as it is commonly called) of 32–34 per cent on books that are regarded as more specialized in character, such as professional or academic books. All retailers are offered similar terms; the large retail chains are not given higher discounts than the small independent booksellers simply by virtue of the fact that the chains are big and have more market muscle – to do so would open the publisher to legal action under the Robinson-Patman Act.
While the Robinson-Patman Act tends to level the playing field in terms of discounts, in practice there are numerous subtle ways in which the large chains can leverage their size to exact better terms from publishers. For instance, the big retail chains might be given more favourable credit terms – 90 days rather than 30 or 60 days – and this can make a real difference to a retailer’s cash flow, especially in a business where much of the stock is slow-moving. Moreover, the big retail chains are able to invest much more in infrastructure than the small independents, and this can reduce the time and expense involved in processing orders. ‘So, for example, when Barnes & Noble gets a box of books in from any major publisher there’s a sticker on the outside that has to be scanned and it immediately reconciles with the invoice which has been electronically sent to their computer system and spews out the stickers for sticking and it’s done,’ explained the manager of a small independent bookseller in New York City. ‘We still have to open every box and take out every book – it costs us much more in man hours to get books out than it ever would for a chain.’
But probably the most significant areas where the big retail chains benefit more than the small independent retailers are co-op advertising and in-store placement fees. Again, publishers that have co-op advertising schemes will make them available to all retailers, regardless of size, but since the volume of business that the large publishers do with the big retail chains is so much greater than it is with the small independent booksellers, it means that, in practice, the publishers are paying much larger sums to the retail chains, who will as a result have much larger co-op budgets to play with. Moreover, many small independent booksellers simply don’t bother to claim co-op money, or don’t realize that it’s available for them to claim. ‘One of the sales reps told me that the largest hit to the bottom line at the end of the year for publishers is all the money that independents did not take for co-op, because all that money was set aside under co-op rules and they didn’t know how to cash it in, and so they didn’t get it,’ said one independent bookseller. Many large publishers will also increase their co-op budgets with particular accounts by making incremental supplements to the pool in order to take advantage of special promotions – ‘You can always supplement the pool and add to it on a book-by-book basis,’ explained a marketing manager at one of the large houses. These incremental supplements to the co-op pool are additional cash injections from which the big retail chains with their special promotions – buy two get one free, buy one get one-half off, and so on – tend to benefit most. Large publishers may also have special partnership programmes with the big retail chains that create a degree of flexibility in their arrangements and enable them to get more than they pay for, such as more titles in a promotion, etc.
There is another way in which a major retailer with a growing market share can try to leverage their position to increase the payments they receive from publishers under co-op advertising schemes: they can argue that their percentage should be calculated not on the previous year’s sales but rather on the likely sales for the current year – a figure which, given the retailer’s growing market share, is likely to be higher than the previous year, thus generating a higher co-op pool for the year. At least one major retailer has taken this line. ‘They would say to a publisher, “Look, we’re growing much faster than the rest of the industry and you have this co-op policy that says that we earn a pool of money based on last year’s sales. Don’t you see that that’s unfavourable to us because of the way we’re growing? Why should we be held to the same standards that other people are held to? You know, we’re already in the hole as far as co-op,”’ explained one sales director who found himself faced with this argument from the retailer. Given the size and strategic importance of the retailer, it wasn’t easy to resist. He could stall, he could try to shift the discussion to other issues, but he knew that, in the end, he would have to give some ground – ‘It’s an ongoing conversation. You might have to lose some battles to win the war.’
So while in principle the Robinson-Patman Act creates a level playing field among retailers in the US, in practice there are many ways in which this playing field can be turned into rough and uneven ground that gives the large retailers certain advantages either because they are able to leverage their size and strategic importance to exact better terms and conditions or because the small independent booksellers are less efficient, less well-equipped in terms of their IT infrastructure or simply less well-organized. But all of this pales into insignificance when compared to the market conditions that exist in the UK, where the demise of the Net Book Agreement coupled with the absence of any legislation comparable to the Robinson-Patman Act has led to tremendous pressure on publishers to increase the discounts they give to the largest and most powerful retailers.
The British publishers who sought to break up the Net Book Agreement in the 1990s were clear in their minds about why they wanted to do this, and they had their own views about what a post-NBA world would look like. ‘It was about taking books to the people,’ recalled David, the managing director of a large publishing house in the UK who was a sales director at the time. ‘It sounds very grand and it’s still true now. It was about opening up books as a sexier entertainment code and that’s still very much our mantra today as a publisher. So we knew full well that if we could manipulate margin, shave our margins in reality, we could help books enter areas of retail where they currently did not show – supermarkets in the main but other places as well. Busting open the high street if you like.’ Behind the challenge to the NBA in the early 1990s was a straightforward economic calculation: it was assumed that the increase in the volume of sales that would be generated by discounting books would more than compensate for the cost of the price cut and the erosion of margin that would ensue. And the increase in the volume of sales would result both from the discounting itself and from the fact that, by allowing books to be discounted, publishers would be able to get books into a whole new array of retail outlets – the supermarkets above all, but also other retail outlets for which price was a key factor in their competitive offer. ‘We wanted to have books where the people are rather than simply trying to persuade the people to go to where the books are.’
While the principal motive behind the assault on the NBA was economic and commercial, it was also inseparably linked to a particular cultural outlook. The publishers who opposed the NBA were in many cases critical of what they saw as the elitism and snobbery of traditional publishing. In their view, the traditional publishing business was a rather closed and self-referring world which prided itself on its own judgements of taste and quality and looked down upon books that were more popular in style and intent. By contrast, they viewed books as firmly and unashamedly part of the entertainment industries. ‘Publishing is about entertainment; it’s about good quality writing at a reasonable price,’ continued David. ‘We deliver the promise of entertainment, whatever that might be. And the great frustration we felt is that this is an industry riddled with elitism and snobbery, and it still is to a degree. There is still a battle going on. But we felt very strongly that there were more people to be tapped into on an entertainment basis and that a good book could be a book that sells a million copies, not necessarily one that sells 15,000 copies after winning the Booker. So our vision was that the business can work on a very, very commercial basis. It doesn’t have to be wrapped up and tied down in a kind of literary yoke, if you like. I mean the books have to have a very high quality and it’s not a case of publishing rubbish, but it doesn’t need to be constrained in that way.’
Under the direction of its charismatic founder, Tim Hely Hutchinson, Headline – which by the mid-1990s had become Hodder Headline – was one of the first major houses to de-net. They did a deal with John Menzies, the Scottish stationer and tobacconist, to give them extra discount on selective hardbacks, on the understanding that they would pass the extra discount on to the consumer and add some of their own. At the time, the normal trade discount to high-street stationers like Menzies and WH Smith was 45 per cent on hardbacks and 50 per cent on paperbacks. Hodder Headline gave Menzies 55 per cent on selected hardbacks. ‘They would, in theory, pass 10 per cent on, and the book would be 25 per cent off, so we’d share the discount. Menzies as a retailer would make a big song and dance about the fact that this would be cheaper than anyone else on the high street, they could do big displays and it just gave a marketing message – that was the idea,’ explained David, who had been directly involved as a sales manager in the negotiations with Menzies. Other retailers and some publishers protested vehemently, and there was a period in the mid-1990s when the situation remained very unclear. ‘But the whole thing then tumbled quite quickly and suddenly it was like, OK, we’ve embraced it, the industry de-netted, and it was a free for all.’
While the initial de-net deals were done with stationers like Menzies, the collapse of the NBA opened the doors for general retailers and supermarkets like Tesco and Asda to become involved in frontlist bookselling. ‘Asda was the biggest,’ continued David. ‘We had fantastic deals with Asda who would buy what we called at the time “megabins”, pallets of books that they would wheel onto the middle of the floor to sell them. I think the first one I did was Stephen King. The Stephen King novel came out and there were 300,000 copies in cardboard boxes. They just wheel them into the foyer, £3.99 – I think the cover price was £5.99, £2 off, £3.99 – and they alone would sell 300,000.’ Books were attractive for the supermarkets because they were seen as aspirational and educational: ‘It’s a non-food product that’s seen as good. We were natural bedfellows because the supermarkets trade a lot on being family friendly and what they like about books is that they give them a facade of respectability.’ At the same time, for the publisher the traffic through the supermarkets was of a different order of magnitude from what they’d been accustomed to: ‘We knew that the big four supermarkets were getting near to 50 million people a week through their stores. That’s something that Smith’s couldn’t do in a year.’ Not only was there a lot of traffic through the supermarkets, it was repeat traffic. ‘And repeat means: “Here’s the latest John Grisham, we know you love John Grisham, so here’s the new one.” And, “You were here last week, you finished that book, here’s another like it.”’
As we saw earlier, the collapse of the NBA was followed by a dramatic shift in the market shares of the different retail channels for trade publishers in the UK, and the shift was particularly marked for those publishers whose list was skewed towards commercial fiction and non-fiction – that is, towards the kinds of books that could be sold in large numbers through the supermarkets and other non-traditional outlets. Prior to 1994, the high-street chains like WH Smith and the bookselling chains like Waterstone’s dominated the retail sector in the UK – ‘Together they would’ve had around 90 per cent of the market,’ David explained. But by 2007, ‘chain bookshops, and within that they count Smith’s, Waterstone’s, Borders, Sussex Stationers and other bits and bobs’, he continued, shuffling through a small pile of printouts which he retrieved from a corner of his desk, ‘is now approximately 30 per cent of the market for adult consumer books.’ He proceeded to fill out the picture:
So 30 per cent in overall terms, of which Waterstone’s have 12 per cent, Smith’s have 10 per cent and the rest falls down below it. Independents still maintain a 10 per cent share, which is interesting. Supermarkets will be 17 per cent, of which Tesco’s has nearly 9 per cent share on its own, and Asda has around 6 per cent. And then it tumbles down, Sainsbury’s and all the rest. So as a sector, the supermarkets have 17 per cent against what you would call our traditional channels which are still 30 per cent, but that would’ve been 90:10, not even that, in the early 1990s. And the other crucial change is online. Amazon have 8 per cent of the market and online in total is 11 per cent, and that’s all new, I mean it’s nicked from elsewhere, within the last five years.
Not only do the supermarkets and online retailers now represent large retail channels for books, they are also the channels that are growing, unlike the traditional channels which are either static or declining, that is, losing market share to the new non-traditional channels. The growth of the supermarkets has slowed down somewhat – the rapid expansion of their market share in the early 2000s was partly a matter of catching up. The channel is now more mature and it is unlikely to continue to grow at the same rate but it is growing nonetheless, which is more than one can say about the traditional retail channels.
The expansion of the non-traditional retail channels is seen by many trade publishers in the UK as an opportunity. If this is where the market is growing, then it makes good sense, many publishers say, to supply more product into this channel. ‘We understand what’s going on in the mass market and we’re not above making sure that we are feeding it,’ commented the managing director of one large UK publishing house. This is particularly true for commercial fiction and for those areas of commercial non-fiction like celebrity publishing and the so-called ‘misery memoir’. This managing director explained how they had set up a new commercial fiction imprint that was aimed explicitly at acquiring, developing and supplying books to the supermarkets. ‘We’ve got to seize back the agenda with retailers, seize back the agenda with talent, and say, “We understand the market, we understand the consumers. If you come and join our team, it will be the best team to be on.” That is my strategic imperative at the moment.’
But the publishers have paid a price for the growing role of supermarkets and other non-traditional outlets in their retail mix, and there is one aspect of this price that stands out above all: they have been subjected to pressure for higher and higher discounts. The ‘discount drift’, as Jane, a publisher at a large UK house, described it, began around 1997, ‘when we were getting squeezed by the supermarket sector’. Publishers started giving discounts of 57.5 per cent – a huge increase on the discounts of 45 per cent for hardcovers and 50 per cent for paperbacks that were standard in the early 1990s. The situation was complicated by the fact that the supermarkets were being supplied by wholesalers who were taking a slice of the pie. ‘So the industry thought, OK, we give them more, they have to have a slice and we don’t have to do anything, we don’t have to go and put books on shelves and we don’t have to send reps in – fine, cost of service is small, in we go.’ But gradually the discounts drifted up still further – ‘We drifted up to 60, and then for some deals we drifted over 60 to 62.5. We were starting to get worried,’ explained Jane.
When the wholesaler servicing Tesco went bankrupt in the early 2000s, the large publishers seized the opportunity to try to regain the initiative. ‘So we said, “This is our moment to draw the line in the sand.”’ Some managed to claw back a couple of percentage points in the transition from the old wholesaler to the new one. ‘Where things might have been drifting above 60 we really clawed it back to 60 being the top.’ Jane concedes, however, that this line has been hard to hold. ‘We had a moment when we drew back. Now I couldn’t put my hand on my heart and say that all of us now have not drifted from that. Because it becomes a bigger and bigger part of our customer base; we are all trying to gain advantage in the supermarkets. The big thing about the supermarkets is that the space is smaller and more finite than everywhere else, so you need to get a slice of that and you need to get a bigger slice.’ So would they ever go above 60 per cent now? ‘Yes.’ Would they occasionally go as high as 65 per cent? ‘Yes.’ Would they go to 70? ‘No.’
So why are British publishers willing to give such high discounts to the supermarkets? Why don’t they just walk away from these high-discount deals which squeeze their own profitability? Sometimes they do. ‘Oh yes, we walk away all the time,’ said one sales director at a large UK house, with a certain chutzpah. ‘It’s quite important. If we have a run of saying yes, then we will sometimes say no just to say no, because it’s important. It’s like slapping a child, you know. We do it with each other. It’s almost ritualistic.’ But Jane’s view probably reflects a more realistic assessment of the publisher’s position in the post-NBA world. ‘Mostly we try and make it work,’ she explains. ‘Because you need them?’ I ask. ‘Yes, yes,’ she replies. ‘So they’re in a very strong position?’ ‘Yes, of course they are. Good God, yes.’
To the outside observer, this might all seem very puzzling. After all, supermarkets still represent only 17 per cent of the market – a sizeable share, to be sure, but still significantly less than the 30 per cent represented by the retail book chains. And Tesco’s share is still less than Waterstone’s. So why are publishers seemingly so submissive in their dealings with the supermarkets?
It’s not easy to get to the bottom of this. ‘It’s quite a sort of complex economics,’ said the CEO of one large UK publishing house. ‘Let’s take a hypothetical book,’ she tries to explain.
A hypothetical channel comes to you and says, ‘I quite like this book and I’m prepared to stock it, but this is what you’re going to have to pay me for it.’ If you say no, that’s fine, they don’t stock it. The next call you get is from the author, you know, when they’re basically saying, ‘Where is my book? You promised that I would get X.’ And you say, ‘Well I’m terribly sorry but we didn’t give this particular channel the discount.’ Does that work? No. You then get the agent on the phone saying, ‘This is outrageous, you know, I should have gone to the publisher up the road who would have given it away,’ and so on. So although the agent community says, ‘The publishers are weak, they keep giving stuff away, why can’t they stand up to so and so,’ that’s all fine until it’s your author on the phone, quite rightly saying, ‘I have worked for two years to produce this and you’ve got some little bloody dispute with that particular channel and it’s ruined my life,’ and the awful thing is, it has ruined their life. Hence the problem.
So the problem, it seems, is that the agents and authors won’t allow the publishers to walk away from high-discount deals with the supermarkets. They would be outraged. They would feel that the publisher, out of narrow self-interest, had refused to deal with a major channel, and therefore had prevented the book from doing as well as it could have done and put the author’s career at risk. In other words, the publishers are being forced into these high-discount deals by the agents and authors – or so this CEO seems to be saying.
Is that a plausible explanation? I put it to an agent who has been in the game for a long time. ‘That’s a good one,’ he says, in a tone of amused disbelief. ‘That’s simply not the case.’ He concedes that if a publisher decided not to agree terms with a major retailer like Waterstone’s so that a particular author’s book was not stocked by them, then that would be a source of great concern and ‘there would have to be a conversation between the agent and the author about it.’ But he pours scorn on the idea that what drives publishers to do high-discount deals with supermarkets is the fear of backlash from agents and authors. ‘A few years ago Hodder Headline tried standing up to Tesco on James Patterson. They did not agree terms on one of James Patterson’s many books and that book was not stocked by Tesco – and Patterson personally was consulted about this decision and endorsed it – but that’s the last time they did it. The next book that came along Hodder Headline made a deal with Tesco once again. They’d learned from that experience. They couldn’t lose the hundred/hundred and fifty thousand copy sale to Tesco that they had lost last time around. So there we are,’ he says. Point made.
The CEO was not necessarily wrong, but she was, at best, telling only part of the story. Some publishers are reluctant to admit that their own interests are served by doing deals that put their margins under tremendous pressure. To understand why this is so, you have to see that the role of supermarkets in the sales of the bestselling titles is disproportionate to their overall market share. While supermarkets represent 17 per cent of total adult trade sales in the UK overall, for the more commercial books their share can be 30–40 per cent or even more. And this means that the supermarkets have become a crucial gatekeeper in determining which books end up on the UK bestseller lists – not the only gatekeeper, of course, and there are plenty of books that make it onto the bestseller lists even though the supermarkets’ share is small. It depends on the book. For paperback fiction the supermarkets are crucial – it’s difficult to get into the top ten without the supermarkets. They’re also increasingly important for paperback non-fiction and for hardcovers, though in these cases the situation is more complex. ‘With non-fiction hardcover you can certainly get into the bestseller lists for six months of the year without the supermarkets,’ explains Jane. ‘They are the key in fiction paperback, and in non-fiction paperback probably – hence the rise of misery. But in hardcover they are not always the only answer, though they are obviously very important. Tesco’s proudest achievement last year was to have 40 per cent of the Alan Bennett sale – that’s quite a lot.’
Publishers need the supermarkets because they need to get their books into the bestseller lists, and while the supermarkets may only have 17 per cent of the overall market share, their market share for the bestselling titles is far greater than this, and hence their power to put books on the bestseller lists is far greater than that of other retail channels. This is the hidden truth that explains why publishers find it so difficult to walk away from supermarket deals even though the discount terms are punishing. It also goes some way to explaining why the UK bestseller lists have such a different character than the US bestseller lists, although a full explanation of this difference would no doubt have to take account of other things. ‘The whole industry is buggered by this,’ explains Jane.
We need to get into the bestseller list because we pay such high tickets – I’m talking now in the commercial fiction and non-fiction area. We pay huge tickets for most of those properties you see in the bestseller list, and you’re driven to pay that because you’re up against everybody else. And therefore, as a result of that high ticket, you have to sell lots of copies, you have to show to this incredibly rapacious industry and to all the authors that you’re making them as successful as possible. So if you don’t make them number one, then (a) you’ve paid the high ticket and you’re losing and (b) they’ll move off to someone else. So therefore you obviously have to be in the supermarkets to do that. So we’ve got this ghastly scenario, a sort of negative vicious circle.
Dancing with the devil
There are some who suggest that, by doing these high-discount deals with the supermarkets, publishers are pursuing their short-term interests in a way that will damage the industry in the long term. They are, as one bookseller put it, ‘dancing with the devil’. Why might one say this? Two reasons.
In the first place, the supermarkets are selling books at very low prices. Famously, Asda sold the final volume of the Harry Potter series for just £5, far below the publisher’s recommended retail price of £17.99. The prices at Asda and other supermarkets were so low that some independent booksellers found themselves in the somewhat absurd position of buying their stock from supermarkets, since they could get it cheaper from them than they could through the normal book supply chain. Tesco and Asda sell many of their paperback books at a standard price of £3.86, and some sell for £3.49 or less. Because these books are selling at low prices in places where they will be seen by a substantial proportion of the population, the supermarkets’ pricing policies are changing the public’s perception of the value of books. ‘If you asked the public four years ago how much a paperback costs, they’d probably say £5.99, £6.99,’ the bookseller continued. ‘Now they’re more likely to say, “I don’t know, £4.” That’s a massive value change.’ And it’s a change that can affect people’s purchasing decisions. ‘At Christmas people will say, “Well, I didn’t come in and buy the hardback of ‘X’, Planet Earth or whatever the book of Christmas is, because it’s half price everywhere so everyone would know I hadn’t paid full whack for it and therefore it was deemed to be a cheap present, and you go, “What?! That’s crazy.”’
The second reason why publishers might be damaging their own long-term interests by doing high-discount deals with the supermarkets is that, while the supermarkets can shift a lot of copies of the books they stock, they will only ever stock a very limited range of titles, and they will stock them only so long as they are selling at high rates of turnover. Publishers need specialist booksellers and a healthy retail sector in order to break out new titles, to make available the full range of their output and to stock books that are selling more slowly: booksellers, both the high-street chains and the independents, are their shop windows. But by supplying the supermarkets with the bestselling titles at high discounts, publishers are – or so one might argue – making life more difficult for the very booksellers on whom their own long-term vitality as an industry depends. ‘It doesn’t take a lot for the levers to move only a little bit, in terms of margin, rent, rates, utilities costs, to suddenly drive you from being a £10 million profit-maker to bust,’ the bookseller explained, ‘and I don’t think the publishers necessarily understand that.’
I put these points to Jane, who has no sympathy for this line of argument – ‘No, I completely disagree,’ she replies tersely. In Jane’s view, the supermarkets and Amazon are the two retail channels who know what they’re doing and she’s happy to support them, whereas the specialist retail bookshops ‘wouldn’t know how to entice a reader if they tried’. Their complaints about being given disadvantageous terms relative to the supermarkets are, she says, self-serving and misleading. ‘Looking at discount in isolation is the most ridiculous thing,’ she says. ‘What you have to look at with all your customers is cost to serve. The discount is only part of this. There’s also the marketing money, the servicing from here – i.e. the sales time, the servicing through our distribution centre, the cost of returns, the whole thing. The most expensive cost of serve without question is Waterstone’s, the second most expensive is Smith’s and the third is the supermarkets.’ Waterstone’s is hugely expensive for publishers to serve because ‘you’re dealing with a completely dysfunctional distribution system’, explains Jane, where ‘they want you to deliver two books to every branch and then they want to send them back when they don’t sell, and they don’t sell because they’re not getting the customers in.’ On top of that, the high-street booksellers charge marketing money for front of store placement. Compared with the high-street book chains, ‘the supermarkets are the most straightforward you can imagine, because you go direct from the printer, you drop big wadges and they reorder big wadges, we have one person going to see them and as yet they don’t charge marketing money.’
So Jane dismisses out of hand the suggestion that the high-street bookselling chains are being given disadvantageous terms. ‘The discount argument is absolutely ridiculous and pathetic. We support Waterstone’s way beyond their usefulness to us, way beyond, for some emotional nonsense. Of course, we don’t want our books only to be available in Tesco’s, I’m not saying that at all. I’m saying that there are different ways of engaging consumers for a wider range of books than Waterstone’s are offering. So every time they come and ask us for more discount, we say, “Just give us your vision of how you’re going to engage the readers and we’ll support it.”’
Jane’s views are forcefully expressed – ‘This is fairly radical stuff,’ she warns me in advance – and they reflect her own background in the more commercial side of trade publishing, which has the most to gain from the expansion of the market brought about by the growing involvement of supermarkets in the book trade. But hers is by no means a lone voice. Many publishers express dismay at the state of Waterstone’s and at what they see as their unimaginative retailing strategies, and they regard the supermarkets as a valuable part of the retail mix which has helped to bring books to a wider range of consumers who wouldn’t normally go into a specialized bookstore. At the same time they know that they need a flourishing retail sector and that the supermarkets alone could never provide outlets for the range of books they publish. What is less clear is whether the high-street bookselling chains, facing pressure from the high-discounting supermarkets on the one hand and Amazon and other online retailers on the other, are in a position to sustain their businesses in the medium to long term without something akin to the kind of level playing field that exists in the US and elsewhere.
The margin squeeze
One consequence of the different market conditions that exist in the US and the UK is that, while publishers in both countries face downward pressure on their margins, they do so for structurally different reasons (see figure 11). In the US, the downward pressure on margins stems primarily from escalating advances. Publishers in the US experience pressure on the retail side too, as the most powerful retail organizations seek to increase their share of the pie by negotiating better terms, claiming more co-op money and so on, but the existence of the Robinson-Patman Act greatly reduces the scope for retailers to negotiate special terms, since additional discount given to one retailer would, by law, have to be given to all retailers in the same class. The result is that discounts in the US tend to remain relatively stable and have fluctuated very little over time.
Figure 11 The squeeze on publishers’ margins
In the UK, by contrast, the downward pressure on publishers’ margins stems primarily from the escalating discounts that have followed the demise of the Net Book Agreement. In the absence of anything comparable to the Robinson-Patman Act, the most powerful retailers are able to use their market muscle to extract higher discounts from publishers, and are able to play publishers off against one another for access to the limited number of high-visibility, high-velocity retail spaces they make available for books. The overall impact has been an upward drift in the average discount that publishers offer to the retail sector: roughly 10 per cent of margin has been transferred from publishers to retailers in a period of less than ten years. The pressure for more discount – and higher marketing spend in the case of the high-street bookselling chains – is always there. Publishers resist, they threaten to ‘draw a line in the sand’ and occasionally they walk away from high-discount deals. But only rarely do they have a book like Harry Potter which is such a must-have, non-substitutable item that they can take a hard line and still get their books into the high-velocity space of the supermarkets.
So while the logic of the field applies equally to trade publishers in the US and the UK, the way that this logic works itself out is different because it is shaped by the distinctive commercial and regulatory environments that exist in each country. Trade publishers are situated in the space between agents on the one side and retailers on the other, and pressure from both sides tends to put downward pressure on their margins. In the US this pressure stems primarily from escalating advances, reflecting the power of the agents who handle the rights for the most sought-after content, while in the UK it stems primarily from escalating discounts, reflecting the power of the large retail chains in a post-NBA world. In short, the same logic applied in different contexts results in similar pressures stemming from different sources.
