From the archive: Publishing Power Lines
The Author 2004
A little over a year ago a hapless key account manager at a leading publishing house had their presentation to the books buyer at one of the biggest supermarkets unceremoniously halted before they had presented all but one title. Their crime? They had refused to give extra discount on the lead title, which was expected to race to the top of the charts.
For the publisher it was a disaster: not only was the chart position of the lea title in jeopardy, but also the rest of the list was at risk without supermarket exposure. For the supermarket buyer it was an exercise in power. Because in the book trade supermarkets are top of the food chain, followed closely by the large chain booksellers, the direct sales companies such as The Book People and low down independent booksellers.
Supermarkets are more than aware of the power they hold over publishers. Shameless in their demands for extra discount, they also flex their muscles for extraordinary co-merchandising payments (so-called bungs) for in store promotions.
In 2003 Asda introduced a range of merchandising payments for its Five Star launch that would make hardened trade veterans’ jaws drop. At rate card value the highest was said to be between £25,000 and £40,000 for prime display, including the till-point hot spot, and print or broadcast advertising. The lowest payment for a high quality insert in the Asda magazine was £2,000 for adult titles and £1,000 for children’s titles.
The reason supermarkets can make such demands is because they sell a lot of books. Their say so can make or break a title’s chances of reaching the number one spot. According to Nielsen BookScan, Asda, Tesco, Sainsbury and Waitrose sold more than £71m worth of books in the three months to 6th September 2003. These outlets account for 6% of all sales through the Total Consumer Market from which BookScan compiles the charts. That may not sound like a lot, but it is supermarkets’ share of individual titles – as high as 80% in some genres – that give them power.
No wonder one of the most powerful buyers in the business, Caroline Ridding, books buying manager at Tesco, crowed to The Bookseller: “We have 14 million customers coming into our stores every week. Do little independent booksellers sell Daniel Steel of Margaret Atwood? We don’t sell Atwood, but we sell shed loads of Steel.”
If publishers’ are under pressure to reach the number one spot from author and agent, it is almost difficult to refuse the more outrageous demands for extra discount and bungs, says the managing director of one of one large publishing house. “Supermarkets are big players in the BookScan universe, so you have to weigh that up as well as the cost of the extra margin demanded, because you risk losing a place in the bestseller charts if you refuse to play ball.”
Supermarkets hold over some large publishers extends beyond the book charts.. As much as 20% of some commercial publishers’ turnover is made up of supermarket sales
But supermarkets should not be completely demonised. Their presence in the book business has expanded the market. Supermarkets do provide publishers with access to new customers. According to research by Taylor Nelson Sofres in 2002, nine out of 10 people in the UK never go into a bookshop, and more than half the UK population did not buy even one book in 2001. That represents 30 million people who did not buy a book. In contrast, both Asda and Tesco claim to have 14 million customers a week, 2% of which buy books.
James Heneage, managing director of Ottakar’s. comments: “My feeling in general about supermarkets is that it is a good thing, because anything that expands the market is beneficial to the trade as a whole,” he says. “Supermarkets have the facility to introduce new people to the books that we don’t. That is a great thing.
Supermarkets have also given the traditional players a textbook lesson in how to make a splash in store for titles. “They have shown W H Smith how to promote a book in store,” says one publisher. “When supermarkets decide to get behind a book, the level of energy they give it makes Smith’s offer look very traditional.”
High street power
The ascendance of supermarkets does not mean that the power of high street book chains has been eclipsed. Far from it. Whatever the shenanigans in the W H Smith boardroom, the chain still dominates high street book sales, and along with Waterstone’s Ottakar’s and Borders/Books Etc accounts for more than 50% of the UK book market.
These outlets have steadily increased their demands for higher discounts to fuel a bloody battle for market share. Since the Net Book Agreement went in 1995 publishers, rarely the most robust of opponents, have surrendered an estimated eight percentage points of average discount. What that means in real terms is about 15% off publishers’ bottom line in a static market.
Though base terms have remained level– about 49% for chains- the increased reliance of chains upon front of store special offers fuelled by extra discount and co-merchandising payments means that few books on display are on base terms. Simply put, if publishers want their books to sell they have to pay. If they don’t, a rival will. “Publishers are such bastards,” one agent observes robustly. “They are all at each others throat and if one doesn’t provide high discount, another will.”
There are rumours that the power of chains over publishers has reached such heights that certain buyers have been invited into publisher’s cover meetings. If so, a line has been crossed. Jonny Geller, joint m.d of Curtis Brown’s books department, says that the ascendance of chain buyers’ power is epitomised by some buyers’ claims for credit when books work and refusal to listen to publishers’ informed advice. “What is happening time and time again is that one or two individuals in retail head offices are saying, ‘I know better and I want to be responsible for discovering a book’.”
Publishers will bend over backwards to suit the whims of chain buyers, as will testify any author who has been forced to take a cover they hate under pressure from sales reps mindful of advice from Smith’s or Waterstone’s. In the debate over the retention or removal of cover prices all eyes are on Smith’s and Waterstone’s because publishers will capitulate if either demands removal. “If Smith’s demand cover prices go, because they have more centralised clout because of their distribution, then the whole trade will follow suit,” says the managing director of one leading book chain.
In part publishers have been hoist on their own petard. Over publishing has created a buyers market. Waterstone’s or Ottakar’s will be looking for about 500 titles a year to fill their promotional slots, W H Smith travel will be looking for about 250 titles a month. But up to 1,200 titles are submitted a month for promotions. No wonder retailers feel in a strong position.
Divide and rule
It is not in the interest of publishers to let any retail sector become too powerful. Diversity is their chief weapon against the demands of individual retailers. While there are alternative routes to market, they have some means of resistance.
This is why many publishers support direct sales companies such as The Book People and Book Club Associates. These sales outlets have an added bonus in the eyes of publishers: they operate on firm sale, so publishers are not faced with huge numbers of returns if a buyer gets their sums wrong.
Firm sale also underpins the economics of direct sale. The deep discount offered to direct sales outlets reflects a complex accounting equation that can mean life of death to a book. Marginal costing means that the price to a high street bookseller is calculated by factoring in the publisher’s initial production costs and over overheads, including promotional budgets and authors’ standard royalty.
Once these costs are met,, say after sales through the high street of the first 5,000 copies in a print run, any run on can be sold at a higher discount because all overheads have been met. If firm sale and royalties paid on net receipts are factored into this, then publishers are able to make a comfortable profit on books sold at a very high discount.
This is where a large part of direct sales outlets’ power lies. I have sat in acquisition meetings in which publishers have decided to take on a book based on an expected order from Ted Smart’s the Book People that will make the publication financially viable – for the publisher. Their power also lies in controversial claims that they reach untapped markets.
Bertelsman-owned BCA has makes much of its annual £35m advertising spend. In context that is the same amount of money as The Bookseller estimated was lost to the trade in the deep discounting of Harry Potter V in its first two days of sale. This money is spent mainly on national press and magazine ads featuring teaser offers of very cheap lead titles aimed at drawing in potential members.
Each ad aims to attract 70 new members, a surprisingly low number. BCA claims that the ads provide extra visibility for titles even among those who choose not to respond to the book club offers. According to its own research, two million book buyers in the UK belong to its book clubs, The largest, Worldbooks, has 500,000 members who must buy at least four titles a year – that is a minimum of two million book sales a year from one of 22 clubs.
In contrast to BCA, customers of The Book People do not have to buy a set number of titles in order to benefit from its offers. Historically, the main focus of its business has been its “distributors”, commission-based sales agents operating in 150 territories who visit up to 30,000 workplaces a week with displays of up to 14 titles. TBP claims these do not follow the bestseller lists, but reflect its market of predominantly female customers in suburban and rural locations – a similar profile to BCA customers. As a result children’s, recipe and romance figure highly in both BCA and TBP sales.
TBP also has a growing catalogue business, which competes directly with BCA thanks to national newspaper distribution and a wider range – typically 140 titles. It is these that caused uproar over Christmas 2002, when high street retailers found themselves competing on the same offer against TBP’s heavily discounted offers.
Publishers’ response to that furore says much about the politics of the book trade. Fearful of losing more lucrative high street sales, they rushed to reassure traditional retailers that it would not happen again. For once it appeared that authors too had some power, even if it was only the power to embarrass. Adverse comment in national newspapers and trade press appeared to result in a charm offensive towards the whole trade, especially agents and authors, by both BCA and TBP.
Publishers are in an unenviable position when it comes to negotiating with the power brokers in the book trade. In order to maintain any vestige of power they must play off the competing parts of the market against each other. But they are constantly undermined by the simple rules of supply and demand. They need retailers more than retailers, faced with a glut of product, need them.