HarperCollins’ Quixotic Quest

To change an industry model, you must close the loop

April 2008 By Denny Hatch

multipage

* The industry return rate is 36.3 percent for hardcover and 25 percent for paperback.

* Superstores like Barnes & Noble sell around 70 to 80 percent of what they order, discounters like Wal-Mart and Sam’s Club only 60 percent.

* 37 percent of all books sent to stores in 2002 were returned.

* HarperCollins lost $250 million in 2002 on returns alone.

* Between 65 and 95 percent of returned books are destroyed once they come back from a bookseller (that’s a lot of time, energy and money to be turned back into pulp).

I once heard that the entire Cleveland waterfront is made up of pulped mass-market paperbacks from World Publishing and its acquisitors—Times Mirror and William Collins and Sons—before it disbanded in 1980.

Origins of the HarperCollins Test
According to Hillel Italie of the Associated Press’, Hyperion founder and publisher Robert S. Miller met HarperCollins’ powerhouse CEO Jane Friedman for a drink on Feb. 29. Just as publishers have for 70 years, they had a bitch session about everything wrong with the business.

Two specific issues are particularly nettlesome: returns, and the vast advances paid to authors against future royalties. According to the Jenkins Group, 70% of books published do not earn out their advance, and 70% of all books published do not make a profit.

Unlike every previous conversation, Friedman and Miller decided to take action. Friedman hired Miller to “develop and launch a new global publishing program based on a nontraditional business model.”

Nontraditional indeed: no returns and no advances.

“Let’s take all the things that we think are wrong with this business and try to change them,” is how Miller described the plan. “It really seemed to require a startup from scratch because it will be very experimental.”

Friedman calls the division a studio—one that will publish 25 or so short, punchy titles in the $20 price area in hardcover and digital editions.

Will the new business model work?

The odds against Friedman and Miller are daunting.

Will Authors Settle for Low—or No—Advances?
Two kinds of authors exist: big-book authors (politicians, entertainers, sports stars, celebrities) and everybody else (thee and me).

A publisher that wants best-sellerdom will bid against other publishers in an auction staged by the celebrity author’s agent. The prize: a seven-figure advance. That’s not going to change.

For the rest of us who have a book in our gut (or in the computer), it is important to remember that, right now, 6 million book manuscripts are making the rounds. It is very much a buyer’s market, and any of us should be thrilled to have someone publish our book, rather than paying to have it published. Look at it this way:

* Fiction: Your novel is a platform for other media—film and DVD, television special, paperback edition, foreign sales, etc.

* Non-Fiction: It burnishes your résumé and lends credence to your career.

Our chances of being able live entirely off book royalties are slim to none.

Will Booksellers Go for No Returns?
“Back in 1980, Harcourt Brace Jovanovich, Inc., announced it would provide retailers with larger discounts and end returns,” wrote Jeffrey Trachtenberg in The Wall Street Journal. “When orders diminished, the publisher reversed itself.”

This rings a bell. I seem to remember this attempt to end the returns. The argument was that if booksellers bought books for 60% off rather than 40% to 50%, they would enter the world of mainstream retailing whereby each store could have a giant half-off sale and still make a little instant money, rather than going through all the trouble of returning books and waiting for the credit. This is how retailers deal with overstock of soft and hard goods.

As Trachtenberg said, Harcourt’s idea bombed.

“I’m going to talk to booksellers and try to find a way to break out of this bind booksellers and publishers are in with this incredibly high return rate (around 40 percent),” Miller told the AP’s Italie.

In the press, I found no mention of the possibility of Miller’s new firm offering higher discounts as the quid pro quo for no returns.

A Personal Digression
The idea of Robert Miller traveling the country with a message of no more returns to bookstore owners, who are being beaten bloody by Amazon and Barnes & Noble, dredged up a story I heard many years ago.

It was told by Claire Booth Luce, ambassador to Italy, luncheon speaker at a meeting of the American International Club of Rome in 1954.

A well-to-do Jewish couple in London wanted very much to find a wife for their schlubbish, 30-year-old, unmarried son. So they hired a marriage broker—a schadchen. He took one look at the young man and said to the parents, “I have just the girl for him!”

“Wonderful! Who is she?”

“Princess Margaret Rose, unmarried sister of the Queen of England and a member of one of the richest families in Europe.”

“What!?” shrieked the father. “She’d never marry our son. First of all she’s goyish! Secondly, she’d never marry him!”

The schadchen told them to calm down and think it through, whereupon he delivered a passionate and eloquent argument in favor of the marriage: A union that would electrify all the nations of the world for its joining of two great faiths ... immense wealth ... entrée into the select circle of royalty ... castles and villas around the globe ... incredible contacts that would enable them to meet—and do business with—anybody on all seven continents ... and the unique opportunity to make history.

The parents were suddenly dazzled and gave their immediate assent. The schadchen produced a contract. and the father signed it.

The schadchen left and started whistling a happy tune.

He passed beneath the Admiralty Arch and started walking up the Mall toward Buckingham Palace.

“Well,” he said to himself, “that’s half the job.”

How the Scheme Could Work
Printing and shipping books is a logistical nightmare. For the bookstore owner, opening cartons and displaying books is grunt work. Worse grunt work is packing up unsold books, labeling cartons, sending them back to the publisher’s warehouse and keeping track of the money.

The publishing industry could avoid the returns problem once and for all by financing the installation of a print-on-demand (POD) machine in every bookstore in America, and in box stores such as Wal-Mart, Target, Costco and Sam’s Club.

Several models exist—the Xerox DocuTech 6100 or the Espresso Book Machine pioneered by publishing legend Jason Epstein. Quite simply, they print books “While-U-Wait!”

The new business model works this way: The publisher sends a half-dozen finished book samples for display purposes and a slew of book jackets to wrap around dummy books for the store window. A customer looks through a display copy, goes to the register, gives a credit card and orders the book. With the receipt, the clerk hands over a voucher for free coffee at the store refreshment bar. The book order is instantaneously flashed to the publisher, who electronically sends the printing instructions to the store’s POD machine.

The customer has coffee—or wanders around the store or the local shopping mall—returning later to pick up the book.

Or the customer can order the book by phone—or online—giving a credit card account number and pick up the book later in the day.

With a book printing machine in the back room, even the tiniest bookstore has inventory of every book in print and can deliver any of 3 million titles to a customer within a few minutes. This system blows Amazon.com out of the water, because the best Amazon can do is pick, pack and ship a book for delivery the following business day (three days if the title is ordered on the Saturday prior to a Monday holiday). For this snail service, you pay an additional $12.99 shipping charge, while the tiny bookstore offers instant gratification seven days a week and no shipping charges.

Goodbye Amazon.com stranglehold on the book industry.

Goodbye returns problem.

Hello profits.