Corporate Consolidation in Book
Publishing and Selling
and the Decline of Diversity
by William Petrocelli
Multinational Monitor, May 1999
Here is the disheartening news in the
* Chain-store expansion in the last decade
has doubled the amount of retail book-selling space in the United
* The decade has also witnessed a decline
in the number of books sold per year to adults in the United States.
* Book sales are starting to shift from
mid-list, quality books to a limited number of bestsellers.
More stores and less books? More celebrity
bestsellers and fewer quality books? How can this happen?
Some industry observers are inclined to
blame the reader. The New York Times recently cited a study showing
a drop in young adult reading habits, pointing to the computer
as the culprit.
But this explanation is too easy. Reading
grew in the United States during the heyday of radio, movies and
television. Why should the computer have a worse impact on book
Those in the book industry who blame declining
book sales on readers should look closer to home. The problem
can be more easily explained by the monopolistic forces in the
book business-forces that are shrinking the choices available
to readers while working overtime to manipulate public taste.
More book-selling space -- fewer books
The contrast between the expansion of
book-selling space and the contraction of book sales is startling.
In 1985, before the chain-store expansion
began in earnest, the United States led all nations in book title
production. From 1986 to 1990, publishers' revenues grew at a
12.1 percent compound annual rate. Shipments of adult trade books-the
key book category for bookstores- advanced by 14.6 percent. Publishers'
pre-tax operating income grew at a rate of 10 percent, operating
cash flow at 13.3 percent, and assets at 9.4 percent.
In the early 1990s, however, Barnes &
Noble and Borders embarked upon a major superstore expansion.
From 1991 to 1993, the amount of square footage in the United
States devoted to the retail sale of books doubled. The major
U.S. publishers went all-out in support of this chain-store expansion,
giving the chains special terms and lavish promotion (leading
to independent bookstore charges of antitrust violations and ongoing
litigation). The major publishers cranked up their print runs
and title production to meet the business expansion that they
all believed would accompany this chain-store growth.
That market expansion never occurred.
By 1995, publishers' growth rate was down to 2.1 percent, the
lowest growth in 10 years. The increase in outgoing book shipments
to the chains simply resulted in an unprecedented level of books
returned to the publishers. People in the book industry still
talk about the day-perhaps apocryphal, but it has the ring of
truth-when more than 60 Barnes & Noble 18-wheelers pulled
up to the Random House warehouse loaded with books to be returned.
Within a few years, the market had become
saturated and could not nearly fulfill the promise of the superstores'
selling capacity. Publishers saw margins fall sharply in 1996,
dropping to five-year lows. Operating income margin and operating
cash-flow margin each decreased 2.5 percentage points. Compared
with 1992, 1996 operating income and operating cash flow margins
declined 4.7 percent and 4.4 percent-this in an industry already
famous for slim margins. From 1994 to 1997, trade book unit shipments
decreased at a 2.1 percent annual rate. By 1997, the sluggish
growth of 1995 and 1996 deteriorated to an actual market contraction,
as sales of consumer books fell 2.7 percent. Over 1995 and 1996,
net shipments of adult trade books dropped 10 percent. Perhaps
the most astonishing part of this contraction is that it occurred
during an economic expansion.
The ill effects were not limited just
to sickly financial reports. By the time the chain-store madness
had taken its toll in 1995 and 1996, the United States had dropped
from first to fourth in the number of books produced each year.
Worse, perhaps, than the decline in the
number of titles published was a dramatic shift in sales among
the books that were published. The book business has begun shifting
even more heavily towards celebrity-driven bestsellers. The number
of bestsellers (books that sold 100,000 or more copies) grew substantially
in the 1990s. When that fact is juxtaposed against an the overall
decline in book sales, it is clear that mid-list books are falling
off the edge. Good fiction, investigative reporting and other
quality books are simply being squeezed out of the market.
The fruits of monopoly
The shrinkage in book sales is happening
at the same time as concentration is increasing at all levels
of the book business, and the two phenomena appear intertwined.
Concentration of power is occurring in
a major way at the retail level. While the chain-store expansion
hasn't led to an overall increase in book sales, the chains have
grabbed a bigger piece of the pie. Between 1991 and 1997, trade
book sales of the major chains rose 58.5 percent, while the sales
of independents dropped by 27.3 percent. The market share of independents
has dropped from about 32 percent to 18 percent or less, reversing
the relative market position of the two groups.
Independent stores argue that this concentration
of power in the hands of chains was not inevitable, but was rather
the result of illegal price and promotional concessions given
to the chains by publishers over a period of many years. Courts
that have considered the issue have agreed with the independents,
and several publishers have been forced to accept consent decrees
designed to curb further abuses. None of this has solved the problem,
however, and the issue is once again before a U.S. District Court
in San Francisco in an action filed by the American Booksellers
Association and several independent stores against Barnes &
Noble and Borders.
Increasing concentration at the publishing
level is just as troubling. Merger mania has gripped publishing
executives in recent decades, and each wave has left the publishing
business with fewer major players. Despite many rounds of consolidation,
there were still 10 major publishers in the United States five
years ago: Random House, Bantam-Doubleday-Dell, Viking-Penguin,
Putnam, Simon & Schuster, Scribner, Harper-Collins, Time-Warner,
Hearst Publishing and the Holtzbrinck Group. These 10 publishers
have now been reduced to six, and in all likelihood it will soon
shrink to five.
The biggest merger occurred in March 1998,
when German publishing giant Bertelsmann, which already owned
Bantam-Doubleday-Dell, purchased the largest U.S. trade book publisher,
Random House. At the time of the acquisition, Bertelsmann was
already the third largest U.S. publisher, and the newly combined
company-which uses the name Random House-is now the dominant U.S.
publisher. Bertelsmann went into that deal owning the Bantam,
Doubleday, Dell and other well-known imprints, and it came out
with the names of Random House, Knopf, Crown, Ballantine, Fodor's,
Del Rey, Fawcett, Times and Pantheon added to its list. All of
these were once independent publishers.
Bertelsmann is not alone in acquiring
formerly independent publishers. UK publishing leader Pearson,
Ltd., owner of Viking-Penguin, acquired Putnam and now operates
the two companies under the name Penguin-Putnam. Rupert Murdoch's
News Corporation, which owns Harper-Collins, has recently announced
plans to acquire Avon, Morrow, and the rest of the publishing
imprints from the Hearst Corporation. Viacom, owner of Simon &
Schuster, which acquired Scribner a few years back, now appears
to be headed for an operational merger with Time-Warner and its
two imprints Warner Books and Little Brown. The Holtzbrinck Group
is the only company not involved in recent mergers, but it had
previously acquired St. Martin's, Farrar, Strauss & Giroux,
and Henry Holt. This ownership consolidation has, incidentally,
left most U.S. publishing in foreign hands. Only Viacom and Time-Warner-now
rumored merger partners- are under U.S. ownership.
Merger mania has taken on a vertical dimension
as well. In 1998 Bertelsmann acquired a 50 percent interest in
Barnes & Noble's Barnesandnoble.com. Thus, the world's largest
publisher became the partner of the world's largest book retailer.
Within a month, Barnes & Noble announced that it was purchasing
the book wholesaler Ingram Books. This acquisition would have
united under one series of agreements the world's largest publisher,
the world's largest book retailer and the world's largest book
wholesaler. This latter move raised a firestorm of protest among
independent booksellers, authors and readers - more than 100,000
wrote in protest to the Federal Trade Commission about the merger.
In a rare step, the FTC staff recommended that the Commission
block the move, and B&N withdrew the proposed merger.
Despite their acquisition of power within
the book business, most of the major players seem wary of the
prospects for books. Only two major corporate parents, Bertelsmann
and Pearson, have been bullish enough to make books a central
part of their business. The other major publishers are owned by
larger conglomerates, and the portion of the overall business
represented by book sales is relatively small. Simon & Schuster,
for example, represents less than 7 percent of the revenues of
Viacom, its corporate parent. Likewise, Harper-Collins accounts
for about 6 percent of Rupert Murdoch's News Corporation. At the
retail level, Barnesandnoble.com has recently announced that it
would be giving a major push to CD and music sales on its website,
mirroring Borders, which has always given equal prominence to
music. The king of product diversity, however, is Amazon.com,
which seemingly adds a new line of products every month. At Amazon,
books are starting to look more and more like a loss leader.
The threat to diversity in literature
The monopolist's handbook has a couple
of simple rules: To gain a monopoly, flood the market with goods
and cut prices; to exploit a monopoly, restrict the amount of
goods and raise prices.
Concentration of power in the book business
goes hand in hand with the bestseller syndrome. Any corporate
bean counter looking at the book business would immediately conclude
that a publisher or retailer can make more money on a small number
of bestsellers and that it should downplay the larger merchandise
base of slower selling titles. In a competitive environment-where
lots of publishers and lots of stores are competing for the same
customers-this scenario is unlikely to unfold. Customers can go
elsewhere and get better service. But as publishing falls into
fewer hands and bookstore chains become more and more dominant,
the temptation to cut back drastically on the number of titles
is too great to resist.
Apologists for economic concentration
in the book business say that no one should worry about the emphasis
on bestsellers by the publishers and chain-stores, because readers
can always buy the other books somewhere else. But that is not
how the book business works.
The way books are sold at retail determines
which books are published. If buyers for the large chain-stores
refuse to buy a particular book, the publisher may decide not
to publish it at all. Publishers frequently pre-screen books with
chain buyers, and if they get a negative reaction they sometimes
decide not to publish. After a while, some publishers don't even
have to ask what the chains want or don't want: They have internalized
the chains' preferences into their own decision-making process.
Even when a book passed over by the chains is nevertheless published,
most publishers will downplay the book, hold back on the promotional
money, give it a small print run-all of which means that it will
go out of print quickly unless it is rescued by some enthusiastic
The effects of monopoly can be seen in
quality as well as in quantity. In a business where each book
is a unique creation-something that cannot be measured in barrels
or bushels-quality is the true test.
While there may be a demand for books
in general, there is no demand for a book by an unknown author
who never gets published. If quality diminishes, society loses
something without really realizing it. The important category
of mid-list fiction-high quality writing that is unlikely to draw
a huge audience-is already being subjected to inordinate pressure.
Writers are getting one chance to score with their first book,
but small sales may doom the publication of future books no matter
how high the quality of the writing.
The main beneficiaries of the bestseller
syndrome are celebrity non-authors who command large advances
and promotional expenditures far out of balance with anything
they might have to say. The most blatant example of the best-seller
syndrome in recent years was the O.J. Simpson case, in which anyone
who had even the most tenuous connection with the matter was paid
handsomely. The best-seller syndrome makes the book business just
another branch of show business, diverting money from the publication
and promotion of books by talented authors.
Both Alex Haley and Louis L'Amour reportedly
received about 200 rejections before they were published. Mary
Higgins Clark was rejected 40 times, and Dr. Seuss was turned
down 24 times before being successful. Nothing like that could
happen today because authors in that situation would run out of
potential publishers before they reached the one that would take
a chance on their work. As publishing becomes more and more concentrated
in a few hands, the odds against authors get even worse. As one
literary agent put it, "Every time I look in my Rolodex,
I see fewer editors I can call."
In theory, an author can submit a manuscript
to different publishing divisions within the same company, but
the real question is whether these divisions will act independently
of each other. Sooner or later most large publishing companies
issue a rule that these divisions cannot compete against each
other for a book.
Authors need diversity at the bookstore
level just as much as at the publishing level. The bookstore buyer
is usually the first reader of the book and the one who can begin
the process of making it a word-of-mouth success.
But there is a big difference between
a buyer who buys for a chain-store with 1,000 outlets and 1,000
buyers each buying for their own stores. Any buyer can overlook
an important book. But when a chain-store buyer makes a mistake,
an important book will be shut out of the entire chain. The mistakes
of buyers for independent stores will usually be canceled out
by other buyers who see the worth in the book. Chain-stores frequently
pass over important books, only to buy them later after the books
have built a word-of-mouth following in the independent stores.
Many authors know that without this word-of-mouth
phenomenon in independent stores their careers would never have
gotten started; authors like Barbara Kingsolver, Amy Tan, Anne
Lamott and Faye Kellerman have publicly acknowledged that fact.
It is the sheer diversity of independent
stores that gives worthy authors a chance to be heard and a chance
to develop a following. No two independent stores look alike,
and the inventory that they carry is likely to reflect the values
and interests of both the owners and the people who shop there.
Stores with different specialties help create a demand for different
kinds of books and encourage authors and publishers to publish
books that meet the needs and interests of their customers.
Bookstores specializing in travel books,
mysteries, children's books, quality fiction, New Age books, feminist
books, environmental books and many other specialties have all
had a pro-active role in encouraging good books. Not content just
with the books handed down to them by the big publishers, they
have worked from the ground up to develop books that were more
responsive to their customers' needs and interests.
Diversity is the key. The book business
can only thrive when there is diversity among authors, publishers,
booksellers and readers. When monopolization starts to choke the
business, the result is what seems now to be taking place; a sad,
painful drop in the number of books that are sold and read.
William Petrocelli is co-owner of Book
Passage, an independent bookstore in Corte Madera, California,
and an attorney.
Propaganda and Media Control