Monopoly, Monopsony, and Oligopoly in Book Publishing

Most of  us got into   book publishing because we wanted to make a life  immersed in great ideas and great literature and to share those ideas with others. So how come during the last few weeks all we are hearing about are arcane economic theories explaining restraint of trade?

Several weeks ago the Anti-trust Division of the Department of Justice announced that it had been conducting an investigation into whether the 6 largest US book publishers had combined with Apple to fix prices on e-books. Today the DOJ filed a lawsuit against  Apple,  Macmillan, and Penguin USA alleging that they had made agreements to restrain trade and keep retail prices for e-books higher than they would otherwise be under free competition.   At the same time three other major publishers; Simon and Schuster, Hachette Book Group, and HarperCollins; announced that they were settling with the DOJ to avoid this litigation.

The issues aren’t all that complicated. Several years ago the major publishers changed the way they sold books to retailers. Previously they used a “wholesale” model in which the publisher set a low wholesale price in which books were sold to retailers and the retailer could set its own price, usually higher, so that the retailer made money on each sale. Seems reasonable. However  Amazon.com started  aggressively selling e-books below cost in order to keep other potential competitors from getting into the e-book business. Amazon  used a proprietary format for their Kindle Edition e-books that could only be sold through Amazon. Essentially if you wanted to buy e-books to read on your Kindle Reader, there was only one place you could shop.

Back in 2010 about 90% of all e-books were being sold in the Kindle format and only  by Amazon. Publishers, authors, and other booksellers were understandably  concerned about Amazon’s power in the marketplace and decided to do something about it. The major publishers adopted a new business model where the publisher  would set the retail price and give the retailers a 30% commission but only under an agreement where the retailer couldn’t sell at a  discounted  price.

The DOJ is arguing that this arrangement (called “the agency model”)  keeps prices artificially high for consumers, and they are seeking to end it. The 3 publishers who are settling with the DOJ have agreed to allow retailers to discount e-books below the suggested retail price.

This is a victory for Amazon.  Now they can return to their  practice  of heavily discounting e-books and discouraging competition. Amazon can afford to sell books at or below cost. They know that customers coming to the Amazon site for a cheap e-book are likely to pick up some other more profitable products at the same time.

Everyone else in the book business is alarmed and I think consumers should be too. In the short run, there are going to be some good deals for e-books on Amazon. But  Amazon’s   potential for monopoly power raises some pretty ominous questions. In a word, Amazon has not been shy about removing “buy” buttons from titles by publishers who won’t cave to Amazon’s  terms, terms which are becoming  increasingly unsustainable to publishers as Amazon consolidates its market power. Several weeks ago Independent Publishers Group announced that it could not agree to Amazon’s new and draconian demands for favorable terms. As a result Amazon refused to sell Kindle editions for 6000 IPG titles. As of now, those books are still not available at the  Kindle Store.

A lot of people in our business are throwing around words that are not often used at literary cocktail parties. We say that Amazon.com is gaining monopoly power. A monopoly is a market arrangement where a single company controls all sales and distribution of a particular product. At the moment, Amazon is not a monopoly. It’s market share of e-books is down to about 60%, due to the entry into the market of major players like Apple and Barnes and Noble. To some extent this is a result of  the  the agency  pricing model that the DOJ is seeking to undermine . If   Amazon is successful at cutting out the other competitors by aggressive price competition,  it  will once again have a monopoly on the sale of e-books with the help and support of the Department of Justice.  A most ingenious paradox. Your tax dollars at work.

At the moment, we have an oligopolistic structure in the sale of e-books. An oligopoly is characterized by a small number of producers or distributors. Almost all e-books in the US are being sold by Amazon, Apple,  Barnes and Noble, Google, and Sony. A lot of industries are oligopolistic. And it doesn’t necessarily pose problems for competition as long as the parties are not acting in concert to control prices or limit supplies.

There is another relevant economic concept: Monopsony. This is distinguished from monopoly  because it describes  a market with only one buyer that forces sellers to accept lower than socially optimal prices. The decision  by the Department of Justice to litigate against Apple and the book publishers  will help establish  a market for e-books  where Amazon will be the only  seller of e-books (a monopoly) but also the only buyer of e-books from the publishers ( a monopsony).

This  is a truly alarming  situation for an industry that can only thrive in a diverse marketplace. We are, after all, in the business of disseminating ideas. And a monopoly of the marketplace of ideas is an enormously troubling development for those of us who see books as something more than just another consumer product.

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Amazon.com Has Become a Publisher. Don’t Expect to Find Their Books at Your Local Bookstore Any Time Soon

There is some interesting news this week about the ongoing struggle within the book business to define the protean changes that are going on, mostly  having to do with  the exponential growth of the ebook market and of Amazon’s  seemingly inexorable march to  dominate book publishing at all levels.

Larry Kirschbaum

Last spring Amazon announced that it was creating a trade publishing division. They hired publishing insider and veteran, Larry Kirschbaum, to head it up. Larry had been for many years the CEO  of Hachette Book group, one of the “big six publishers.” He retired from that position several years ago and became a literary agent. He is about as much of an old school publisher as you could get. Prior to this, Amazon had been dabbling in publishing but they were more involved in the “self-publishing” end of the business.

This new development puts them in direct competition with the New York trade houses. Not to put too fine a point on it, the big publishers are not happy.  Maybe this is  simply sour grapes, maybe  the publishers just don’t want another competitor to split off their business and to steal their best authors. That is certainly a component of it. But Amazon has never been satisfied being a part of a larger whole. Their stategy has always been to be the whole whole.  And they have the money to do that.  Amazon’s market capitalization is moving north of 80 billion dollars. — Res ipsa loquitur. They also have the infrastructure. They pretty much control the retail end of the ebook business and they have surpassed Barnes and Noble as being the largest retailer of print on paper books as well.

And they don’t believe in open platforms. If you are going to buy a Kindle edition, you must buy it from Amazon. They won’t permit their competitors to sell it. And, of course, you can only read Kindle editions on a — Kindle.  In comparison, the iPad and Barnes and Noble’s Nook accept books in the Epub  open format  edition.

It  is true that Amazon over the past few months has been snagging some big name commercial authors and paying big bucks. Tim Ferris, Deepak Chopra, James Franco, and Penny Marshall are frequently mentioned.  And Amazon has announced that they will be bringing out over 100 titles in the fall. And that is just the beginning. Amazon has downplayed their threat to the publishers saying that for them [commercial publishers], “it’s always the end of the world.”

Well, of course Amazon is always savvy at business and they realize that in order to bring in the big authors and get on the best seller lists, they have to have their books available in all venues and in all editions. Since most  other bookstores loathe Amazon as much as  the publishers, one can assume that there might be some reluctance on the part of these stores to order Amazon titles from Amazon. So in January, 2012  Amazon announced that traditional publisher Houghton Mifflin would be distributing Amazon print on paper titles to the trade.

If Amazon really wants to encourage their erstwhile and ongoing competitors to buy Amazon Publishing titles in hardback and paperback, one might think that they would make nice about the e-book editions as well. No. Amazon will not publish their e-books in the Epub format. This means that Barnes and Noble  and pretty much everyone else selling e-books will not be permitted to sell the e-book edition of the Amazon Publishing titles.

This month  Barnes and Noble announced that they would not be carrying  titles by Amazon Publishing in their physical stores. They said that  any publisher who would not make all their editions available to B&N would not  have their books   represented  in their 700 stores. Today the second largest retailer in America, Books-A-Million announced  that they had made the same decision. One can assume that you will have difficulty finding these books in independent bookstore as well, even if the books are carrying the Houghton Mifflin logo, not Amazon’s.

Although it is always troubling to see fewer outlets for any book, most of us in publishing seem to be feeling a kind of exquisite sense of schadenfreude at what appears to  be  Amazon’s overreach. About 70% of all books are still sold in physical bookstores. I think authors are going to think twice about signing a book contract with Amazon Publishing knowing that their books will not be available at most stores nationwide.

EBook Sales Are (no surprise) Up. Internet Book Sales Are (no surprise) Up.

New Statistics have been released by Bowker Pubtrak showing shifts in book sales by Channel and by format. The report compares  the second quarter of 2011  to the same period 2010. Not surprisingly Internet book sales are forging ahead. A lot of it was due to the closing of Borders. But  book sales have been shifting online for some time. And similarly unit sales of ebooks are continuing to increase exponentially.

First let’s take a look at the channels. That’s a fancy word for where books are being sold. As you can see by the chart, e-commerce has increased from 27.6% to 37%. Borders’ closing certainly has a lot to do with this. Even with Borders open,  last year Amazon barely beat out Barnes and Noble for the first time as the largest bookseller. We don’t know whether BN will come roaring back this year. After all, they stand to pick up the most from Borders’ closing. But Amazon, being the largest purveyor of e-books, may very well increase its market share as the largest bookstore.

Looking at some of the other channels, book clubs are becoming more marginal.  When I first entered the book business in the 1970s, book clubs were a huge presence. Now they are insignificant. At that time one of the largest venues for selling books was department stores. As you can see in the graph, department stores have pretty much discontinued selling books, replaced by ladys’ handbags and designer beauty products.

Chain store sales have declined from 30.6% to 27.3%. That is a lot less than I would have predicted, given the fact that Border’s disappeared. The only significant chains that are left are Barnes and Noble and Books-a-Million. I would have to assume that a lot of the Borders’ business has been picked up by these two companies.

Moving down to the independent stores, some nice news here. Market share has increased from 4.5% to 5%. It is still distressingly low. But indies are also benefiting from Borders’ closing.

Mass merchants and warehouse clubs have declined slightly. That would be stores like Costco, Wal-Mart, and Target. There was a time back in the 90s when Wal-Mart bragged that it would soon be the largest purveyor of books. They expected to sell 25% of all books. It doesn’t look like it will happen.

Ok, now let’s look at how  sales of book formats have been changing. Again these figures are for the 2nd quarter 2011 compared to the same period in 2010. The largest format is still paperbacks, both trade and mass market. But it has declined from 58.3% to 51%. Hardbacks too have declined significantly from 33.3% to 28.6%.  And as expected ebooks are continuing to increase exponentially  growing from 3.2% to 13.7%.

Will Apple Buy Barnes and Noble

There is a bizarre rumor floating around financial circles that Apple Computer may be interested in buying Barnes and Noble. Actually this may not be quite as farfetched as it sounds at first hearing. Check out the story on Investor Place.  The cost of acquiring BN is estimated at between $1 and $1.5 billion. This is pocket change for Apple. They are sitting on $76 billion in cash. In purchasing BN, Apple would have access to the huge selection of  BN electronic books and Nook customers   and enhance the Apple iBookstore that is struggling against mighty Amazon. Additionally Apple could use many of BN’s 800+ physical bookstores as locations for their own Apple retail stores. And, not insignificantly, Barnes and Noble is the largest owner of university book stores in America. Control of this would be very valuable to Apple for whom the college market is important.

What this means for us book lovers down here on the ground is hard to say. As a general rule I always think that any development likely to erode Amazon’s almost monopoly power over e-books is a good thing. Stay tuned for more information.

The Explosion of Self Publishing

A few weeks ago I had lunch with a number of literary agents here in the Bay Area. All the talk was about  self-publishing in general,  e-book self-publishing in particular, and what is the role of the agent in this Brave New World.  Sad to say solutions were not at hand but there was much hand-wringing and talk of the sky falling.

Self-publishing has exploded in the last 10 years as a result of the advent of new technologies and distribution channels  that allow writers to cheaply publish and distribute their own books. Print on Demand publishing (POD) began about 10 years ago. Companies like Lulu, Lightning Source,  and Book Surge offer  a complete publishing package to the aspiring writer/publisher including cover design, formatting, editing, printing, and distributing POD books, all for a very modest price. The quality of the perfect bound paperback POD book is as good or often better than a similar paperback by a trade publisher.

Distribution is mostly done through Internet booksellers like Amazon and Barnes and Noble. Most bookstores have been reluctant to stock POD titles. And, of course, the author/publisher is responsible for marketing and promoting her own book(s). The term that is often used for this new model is “disintermediation.” It’s an impressive word that you should learn and throw it around at the next cocktail party. It means getting rid of the middle man, in this case commercial trade publishers. The good thing about that is that it is a democratizing force in the world of ideas. The bad thing is that there are no filters to separate wheat from chaff. And, gentle reader,   make no mistake about it. There is plenty of chaff out there, a veritable ocean of mediocrity.  In this respect it is consistent with the new culture  of information on the Internet where everyone is an expert.

  This easy entry into book publishing is reflected in the numbers.  In 2009 the number of books published by traditional commercial publishers was 302,000, a number that had been holding steady for many years. In 2010 there was a modest 5% growth to 316,000 titles. POD titles, which didn’t even exist 10 years ago, shot up from 1,033,000 titles in 2009 to 2,776,000 in 2010. Wow! It seems like almost everyone is a published author now. (These figures are compiled by W. W. Bowker, the publisher of Books in Print.)

Of course, e-books are now the talk, even the obsession, of everyone in the book business. E-books are still an emerging technology. Things seem to be changing almost every day. I just came back from meeting with publishers in New York. E-book sales are continuing their exponential growth. In the last few months a number of genres have had e-books sales surpassing print sales for the first time. Amazon.com reported last month that Kindle Editions sold more copies than all print on paper editions combined (at Amazon, at least). Surely the second coming is at hand.

Self-publishing e-books has become the new enthusiasm. It barely existed a year ago. Now  it  has emerged. It is even easier and cheaper than POD. It can be created and distributed virtually for free.  We’ll talk about that some more later.

Bookselling in the Eighties 2

In 1980  most books were still being sold in independent stores. The big chains were B. Dalton Booksellers  (later purchased by Barnes and Noble) and Waldenbooks (now owned by Borders and facing extinction). Almost all of these stores were in malls. They were small, about 2-3000 square feet. They sold commercial bestsellers by the bucket load. In the late 80s the big chains changed their strategy and started building 40,000 square feet megastores. And the little  mall stores have been declining in number and languishing  in sales since then.

These  chain stores were a lot different from  independents, and I don’t think they really were formidable competitors. They focused on highly commercial books, hardback and paperback bestsellers, genre fiction, how-to and self-help books, and  coffee table scrap books of Hollywood celebrities.  . Unlike many independents, the stores  were extremely well lit (in a sort of cold fluorescent sort of way) and they put a premium on dramatic displays of  a limited range of titles. Typical independent stores of the time were more crowded, darker, and less glitzy. Displays were pretty modest. Independents  were more concerned with their dignity and seriousness of purpose. (Although my dignity could be tested, when struggling to deal with the overused public restrooms on Telegraph Avenue).  I think that the chains had a better sense of the trends in modern design than we did. They really focused on being inviting to the average consumer. But it wasn’t clear whether they served the function of bringing culture to the masses  or  debasing culture  to the lowest common denominator.  The debate continues to this day.

 The chains pioneered the use of “dumps” (I love that word), large cardboard displays provided by publishers with 4 to 8 pockets of a single title placed face out, usually in the front of the store. When Simon and Schuster published their book on the  transcripts of the Nixon Tapes in 1997, I suggested that they create a dump with a life size cutout of Nixon looking jowly and with five o’clock shadow, pointing down to the books and saying in his inimitable style: “Buy this book, you cock shucker!” Simon and Schuster was neither impressed nor amused.

 People’s opinions of these stores varied. Some media pundits saw them as a democratizing force bringing books to a wider audience. Others saw them as an ominous sign that the barbarians were at the gates and foreshadowed  the end of civilization as we knew it. These stores were never popular in intellectually snooty Berkeley.

A lot of books were also sold in department stores and through book clubs, but these channels  were already in decline. They had always been the venues of choice for  certain types of rich old ladies with blue hair.  The giant big box retailers: Costco, Wal-mart, and Target, all of which are huge sellers of  books today, were not even on the futurists’ radars.

But big changes were afoot that would dramatically transform bookselling in the decade ahead.  In 1971 Leonard Riggio, a young recent graduate of NYU, purchased  Barnes and Noble, a  moribund New York retail book store, that had been around since the late nineteenth century.  At the time Barnes and Noble had what was probably the largest bookstore in America on Nineteenth Street in New York.  Riggio went about expanding the company regionally. He focused on opening smaller stores around Manhattan. He also began what was then a very novel marketing strategy of heavily discounting best sellers, as much as 40%. The discounted books were placed in the back of the store, a little like milk in supermarkets. In order to get to the cheap titles, the customer had to snake his way through long aisles. During the trek, one hoped,  he would be seduced by the full price titles along the way.

Further down the eastern seaboard, in Washington D. C., Robert Haft, another brash and aggressive young man with some family money behind him, was inspired by the Barnes and Noble discounting strategy and started opening his own discount stores called Crown Books. Haft’s family had built up a huge regional discount drug chain called Dart Drugs and had some experience in aggressive price cutting. The typical Crown store was a pretty shabby affair, smaller even than the mall-based chains.  Haft  liked to say that every book in the store was discounted every day. He filled the store with a very limited amount of discounted hardback and paperback bestsellers along with lots of off-price remainders. In 1979  Crown started opening stores in other cities, first in Chicago, then San Francisco and LA, and expanded from there. He never opened in New York to avoid going head to head with the only other discounter of the time, Barnes and Noble.

Haft,  developed extremely annoying ads that saturated the media to announce his openings in new markets. He would stand around stacks of best sellers and say in a grating voice that sounded like the Godfather, only two octaves higher: “Books cost too much in [name of city], so I started Crown Books. Now you’ll never have to pay full price again.”

A Crown opened less than a block from Cody’s on Telegraph Avenue. It never did very well and closed a few years later. There was also  a Waldenbooks a block north of Cody’s. It didn’t do so well either and closed in the early 90s.

Book Publishing by the Numbers III Bookstores

R. R. Bowker  announced its annual  market share analysis  of outlets for trade book sales. Here is the break down by percentages.

Outlet                          2009                2010

Barnes and Noble       22.5%              23%

Amazon.com               12.5%              15.1%

Borders                           14%                 13.1%

Wal-Mart                        7.0%                5.8%   

Warehouse Clubs        3.6%                4.0%

Independents              3.4%                3.5%

Books-a-Million          2.8%                2.7%

Target                             2.0%                1.9%

Supermarkets              2.0%                1.7%

Other                                                      29.2%

There are some interesting and surprising numbers here.  First of all there are quite a few venues that presumably  aren’t broken out. These include but are not limited to: airport stores, libraries, school stores, book fairs, gift stores, other Internet outlets, Christian book stores, book clubs, mail order outlets, special and premium sales and of course self-published titles. That ‘s a lot. I’m sorry they didn’t break these down. It would leave me to question some of these statistics.

Before you ask, I will tell you that these numbers don’t include e-books, which in 2010  became a significant component of  trade book sales.  Some publishers have reported that e-book unit sales in 2010 account for about 10% of their total trade sales.

The most surprising number above is that Barnes and Noble (retail and on-line) continues to be the largest outlet for trade sales in America, far surpassing Amazon.com. On the other hand, these figures indicate that most of the growth in retail is coming from Amazon. I would imagine that given Amazon’s dominance in e-book sales, if e-books had been included, Amazon would show a larger percentage of market share. Of course, Amazon has chosen not to break out their e-book sales. They don’t even break out their book sales. It is treated as part of  sales for their media division. Another reason to question the robustness of these statistics.

The other surprising statistic that should be alarming to all book lovers is that the market share of independent stores is only 3.5%. It’s nice to see that  their share is increasing though. If you ask anyone in publishing, they will tell you that independent stores continue to be the heart and soul of bookselling. But sadly, their role has declined to a small niche. Books that might otherwise have been invisible to book buyers found their audience through the passionate advocacy of independent booksellers. I  would ask: who is replacing them?  Who is providing the passion in this business? I think I know the answer to that question.  And I think that answer is pretty sad.

Borders Books declined slightly. This statistic also leads me to question the robustness of this analysis. Borders is the sick man of the book business. They have been pushed into bankruptcy this year and have already closed several hundred stores. There is a big question whether they will ever emerge from bankruptcy. Publishers seem unwilling to extend credit to them. There is a good chance that they won’t show up on next year’s list at all.

For awhile, Wal-mart was the fastest growing segment of the retail book business. There were a lot of people saying that they expected Wal-mart to be selling 25% of all books in the near future. This didn’t come to pass. Wal-mart’s market share declined substantially, more than any other market segment, more even than Borders.

The Borders Collapse: What Does It Mean?

 

There is a lot of new information about the Borders bankruptcy. Check out this story in Publishers Lunch. Here are some highlights:

• Borders CFO Scott Henry reiterated that ” Borders aims to stay viable by enhancing its customer rewards program, strengthening its e-book business and expanding more into non-book products.” (Borders has been intoning this for several years in order to explain their strategy for a turn-around. At this point, no one in the industry is buying it. It was a failed strategy before and is no more likely to succeed today.)

 

• Most publishers aren’t talking, but rumor is that most of the majors won’t be shipping books  to Borders even on a cash with order basis. Borders has been buying books from the distributor, Ingram Book Company, but one can only guess at the stringent credit requirements that Ingram is imposing.

 

• In their filings, Borders has claimed an option to close an additional 76 – 136 stores on top of the 200 that were announced (and posted on Scribd) this morning.

 

There are still a lot of questions worth considering as Borders’ bankruptcy progresses. To what extent will Borders’ sales migrate to online booksellers, to Barnes and Noble, to big box merchants,  and to independent stores. I have spoken to several independent booksellers  located near Borders. They seem to think that this will give them a new lease on life.

Probably the more important question is whether Borders’ Chapter 11 filing for reorganization will fail  and cause the company to file a Chapter 7 bankruptcy that will govern the liquidation of the remainder of the company.  Bankruptcy lawyers will tell you that many  of these efforts to reorganize fail, because suppliers are unwilling to risk working with the reorganized company. This certainly seems to be the case with book publishers at this time.

And finally one must ask how many book sales lost by Borders will simply disappear? As the Publishers Lunch article says, conventional wisdom is that 50% of sales will migrate to other venues, while 50% will be lost. However a back-of–the-envelope analysis of book sales since the beginning of the year would indicate that the impact of Borders’ closings will be less dramatic.

There already is a lot of Monday morning quarterbacking trying to explain the Borders collapse. In my opinion, the answer is pretty simple. Borders was the victim of changing buying habits by book customers. The growth of online bookselling has been hurting brick and mortar store sales for years now. E-book sales  have increased exponentially this year to the point where they constitute about 10% of trade book sales. Borders has failed to adopt to this new environment and was not in a position to exploit the e-book phenomenon. Their web presence is weak. For some time, they had even allowed Amazon.com to manage their website! Finally the economy has hit all retailers including booksellers very hard. Borders was already in a weak position going into the Great Recession. And the downturn for them has been devastating.

All of this added to a long list  of foolish management decisions over the years  has made Borders the sick man of the book business.  It is too bad. When Borders first began expanding 20 years ago, they were considered a class act, a company much more attuned to the culture of books than Barnes and Noble.  Ultimately this changed, and has not been the case for a long time.

To be sure,  Barnes and Noble is struggling with many of the same stresses as Borders, but they seem to be more successful at adopting to the changes going on in the book business. At least for now. Borders had a reputation of overpaying for leases. (When I was planning my bookstore in the Union Square district, my real estate agent told me that the nearby Borders on Post Street was paying rent in excess of $1,500,000 per year.  That store is scheduled to close). Barnes and Noble has announced that they are going to be reducing the square footage  devoted to books in their stores and selling more sideline items. But they, too, have been closing underperforming stores. B&N early on has focused much more on Internet sales, believing that this was the future of bookselling. Barnesandnoble.com is second to Amazon in online book sales, but it is a distant second. Unlike Borders, Barnes and Noble has embraced e-books. Their e-book reader, The Nook, has gotten excellent reviews and accounted for the fact that this December Barnes and Noble had its best sales ever. However if you discount the sales of the Nook, the picture is not so rosy.

Ultimately the fall of Borders is linked to the seismic changes that are going on in book publishing now. How this will sort itself out in the future is unclear. But one thing that seems certain is that people are continuing to read books even if they exist in new formats and new packages. I guess this is the good news.

What’s The Matter With Borders

There has been a lot of talk in the publishing trade and in the financial pages of the major media about the future of Borders Books and Music. Borders is the second largest bricks and mortar bookseller (after Barnes & Noble). There is a very good article by Pete Osnos, publisher of Public Affairs Books, in the January Atlantic Monthly.

It looks like Borders is very close to filing for bankruptcy. Their sales have been declining in double digits for several years. Their stores are down to 674 from 877 last year and many more scheduled to close in the next few months.

After Christmas, Borders announced that it was “temporarily” suspending payment to publishers on the $455,000,000 that they currently owe. This is a staggering amount of money that is at risk to publishers who are suffering their own financial problems in a weak economy.  Borders has been meeting with the publishers in New York promising financial “restructuring” and making rosy predictions that they have made many times before. They have asked the publishers to convert their Borders receivables into loans to the company. Publishers are obviously reluctant to do this. A loan to a bankrupt company is a worthless asset. Border’s is begging publishers to restore credit to them and to make concessions to help the company stay in business (and presumably to protect the publishers’ receivables). Barnes and Noble, who is understandably less troubled by Border’s financial problems, has stated that any special terms granted to Borders by publishers must also be granted to them and to independent stores as well.

Borders still accounts for 8.5% of all trade books sold. Barnes and Noble and Amazon are both  about  17%.  So the uncertainty of Borders future is becoming a logistical, as well as a financial, nightmare. Publishers are having difficulty scheduling author appearances and planning for in- store promotions without knowing the future of the chain.

The story of Borders has elements of a Greek tragedy but partakes of a fair amount of farce as well. Borders originated as an independent store in Ann Arbor, Michigan. It was a lot like Cody’s. In the 1980s, it developed a sophisticated inventory control system. In 1991, Borders was bought by the mass merchant, K-Mart. They began following the lead of Barnes and Noble opening 40,000 square feet superstores throughout the country.

At that time Borders seemed like the class act. They had a real book culture. Barnes and Noble seemed more like they were treating books like merchandise.  But as the years wore on, things changed. Borders brought in a lot of grocery store executives who brought their (how shall we say) unique vision to the company. As Barnes and Noble became a more robust business, Borders lost its way. They started  going heavily in music cd’s  not long before  music started being downloadable. They treated Internet bookselling as an afterthought. And now their Internet site is run by Amazon, their chief competitor, in what must be one of the most bizarre relationships in the history of modern retailing.

Meanwhile, Borders isn’t paying its bills. Publishers are not shipping books, and the shelves of the giant Borders superstores are starting to look threadbare. It’s a downward spiral difficult to turn around.

If Border’s closes, there will be some opportunities for Barnes and Noble and Amazon to pick up a portion of the business and significant relief from competitive pressure for some independent stores.  But it is going to be a heavy financial hit for publishers of all sizes, and how it will all play out in the world of books is anybody’s guess.