The
Proprietary Pinch
Just How
Big Is The 'Off-The-Books' Book Business?
FROM PUBLISHING
TRENDS (MARCH 2002)
Sashay
into any Barnes & Noble superstore, and there
they are. Past the Barnes & Noble Café–branded 3-piece
tea sets (“Great Curves. Excellent Style.”), past the
Barnes & Noble–branded laser stationery, the velvet
CD wallets, and the handy personal cash boxes, are,
of course, the Barnes & Noble–branded books: whole
shelf-fuls of Italian cookbooks, racks of Bread Machine
Baking and The Complete Illustrated Guide to
Shiatsu, not to mention barrels stuffed with cut-rate
B&N Modern Classics (“Buy 2, Get One Free!”).
The retailer sells as much as $140 million of these
profitable titles every year, accounting for perhaps
4% of its book business. And as any book packager will
tell you — preferably off the record — that’s just the
tip of an industry-wide iceberg.
When Alan Kahn was installed at the helm of B&N’s
publishing group last month, a brash new chapter flopped
open in the annals of proprietary publishing — that
is, as we’ve defined it here, books produced chiefly
for wholesalers or retailers that bypass conventional
publishing houses. Call it the off-the-books book biz.
“We’re going to grow this business to as much as 10%
of our revenue within five or six years,” Kahn told
the Wall Street Journal last month. “We’ve always
sold books from all publishers, and this doesn’t preclude
us from that. But there is a lot of opportunity here.”
Indeed, Len Riggio’s made no secret about his
contempt for publishers’ high list prices, nor is anyone
unaware of his crusade to beef up profit margins by
publishing books under the B&N brand. “While the
prices of these [proprietary] books represent significant
value to the customers,” the company boasts to its shareholders,
“they also generate substantially higher gross profit
margins than those realized on sales of non-proprietary
books.”
Riggio’s damn-the-torpedoes routine has a familiar ring
to it. Eight years ago John Kelly, who was at
the time Publisher of B&N Books, told the press
he was ramping the proprietary program up to 10% of
corporate sales “within four or five years.” At that
point proprietary sales were at $40 million and growing
with the addition of 200 new titles per year. Since
many of these books are bargain-priced volumes with
relatively low margins anyway, publishers have tended
to shrug off such rhetoric. But with increasingly visible
titles coming down the pike — such as Kim Cattrall’s
Satisfaction: The Art of the Female Orgasm, packaged
by B&N’s Friedman/Fairfax for Warner,
which sold 10,000 copies at B&N last week — and
a number of other wholesalers and retailers aggressively
eyeing the proprietary marketplace, it seems publishers
are feeling the pinch from their business partners-turned-rivals.
As one promotional publisher marvels, “Our largest customer
is now our biggest competitor.”
Boosting
the Bottom Line
Mum’s
the word from book packagers when they’re put on the
spot about proprietary dealings with booksellers, making
the total size of this market difficult to estimate.
Of the dozen packagers queried for this article, few
were willing to go on record about the size or nature
of their proprietary sales. But some of the largest
retail and wholesale players — B&N and Advanced
Marketing Services, for example — have been far
from coy about the bottom-line boost that these sales
are giving to their financial statements. B&N buys
upwards of 400 packaged books each year and is now publishing
3,000 titles, spanning an array of proprietary strategies:
licensing titles directly from domestic and international
publishers as well as from literary agents; commissioning
books directly from authors; reprinting classic titles
in the public domain; and creating compilations using
in-house editors. These projects are in part handled
by the B&N-owned Michael Friedman Publishing
Group, which publishes under the Friedman/Fairfax
and Metrobooks lines (distributed by Sterling
to other retailers). And let’s not forget other proprietary
forays, such as SparkNotes, an online competitor
to CliffsNotes that B&N acquired for $3.6
million last March. The first 50 SparkNotes titles have
just been rolled out in print format, available — where
else? — at your local B&N.
Meanwhile, wholesaler AMS, which was deemed “one of
the most influential companies in the book industry”
upon its purchase of Publishers Group West in
January for $38 million, sold about $50 million worth
of proprietary titles in fiscal 2001 — or 7% of AMS’s
overall business — according to the company’s annual
report. The Advantage Publishing Group, the publishing
arm of AMS, services this market via four imprints:
Laurel Glen (adult trade); Silver Dolphin
(juvenile); Thunder Bay Press (gift and promotional);
and Portable Press (“info-tainment” books) —
the latter home to the bestselling Uncle John’s Bathroom
Reader series, which AMS bought in 2000 for $2.5
million and is now rolling out in the Australian and
UK markets. Company officials say they are “aggressively
growing our higher-margin businesses — which include
both publishing and an exciting new distribution division.”
(Not to mention possibilities for bolstered trade distribution
for their original titles via PGW. Currently, though,
sales to Costco and Sam’s Club account
for 75% of AMS’s revenue.) Most of these titles are
created in conjunction with publishers, refining or
reformatting material that has already been created.
Mexico and the United Kingdom are also brought into
the loop on certain titles, and these nations also develop
their own products. In Canada, AMS has a 25% stake in
distributor Raincoast, which happens to be the
sole publisher of Harry Potter in Canada and
originates its own proprietary books. In early 2000,
Raincoast bumped up its publishing activity through
the purchase of Polestar Press. (And speaking
of Canada, two years ago the Chapters retail
chain extended its proprietary business with Prospero
Books, a bargain-book imprint that had hundreds
of titles in print and hundreds more on the way, making
the retailer “one of the more prolific publishers in
Canada.”)
Of course, no proprietary publisher wants to be painted
as an opportunist. As AMS gingerly explained to shareholders,
for example, “it is a fact of the industry that occasions
arise when a certain type of book is not available at
a certain time of the year for one or more of our customers.
The AMS answer in this situation is to create the book.”
Nonetheless, company filings assert, these titles “have
been so compelling that much of what is sold by AMS
today is to retailers who do not necessarily use any
of AMS’s other wholesaling, distribution, or direct-to-consumer
services. A large measure of the growth of publishing
in the United States has come from increased sales to
this market segment.” To be fair, we’re told the AMS
program involves a good deal of repackaging and bargain-pricing
of publishers’ slow-moving or out-of-print backlist
titles — which may not be worthwhile for publishers
to reissue as a trade reprint — a service AMS argues
is valuable for their publisher clients. On the other
hand, AMS’s own imprints are obviously a highly lucrative
segment. The company’s gross profit last year was up
26%.
Then there’s Borders, another question mark when
it comes to the proprietary game. “Borders Group does
very little proprietary publishing,” says spokesperson
Anne Roman. “The little we do is focused on filling
niches such as hardcover classics at value prices. Currently,
our strategy is to focus on improving the customer experience
in our superstores through initiatives such as category
management.” A packager with knowledge of the proprietary
industry, however, suggests that Borders easily does
$50 million in packaged editions. Though these titles
may include reprints licensed from publishers rather
than exclusively packaged content, the latter segment
is said to make up by far the larger share of the company’s
proprietary business.
‘Quite
a Big Business’
Indeed,
there are many fine lines to be negotiated when charting
this quietly booming part of the book business, where
packaging, co-editions, promotional, and reprint publishing
all combine to create a roster of possible deal structures.
“It’s quite a big business,” says an observer. “People
like Hugh Levin will co-publish a title with
AMS, then AMS will have it and the packager will get
the rights back a year later. That’s been very successful.”
Others add that much of the modern proprietary business
was born when retailers began reprinting promotional
editions that they licensed from publishers, taking
the publisher’s film and dumping reprints on the racks
for half the list price. “It’s virtually impossible
to separate promotional or reprint figures from the
true original publishing,” says Mel Shapiro of
Book Sales, the remainder and promotional house
owned by Laurence Orbach at Quarto. B&N’s
$100 million-plus figure likely includes reprints licensed
from publishers, he reckons. Incidentally, the influx
of titles from British packagers such as Quarto’s International
Co-Edition Publishing division is said to account for
a sizable chunk of the proprietary pipeline. And all
of this isn’t even taking into account other proprietary
juggernauts such as the Reader’s Digest unit
Books Are Fun, which purchases in quantities
as high as 300,000 per title and sells directly to consumers
at display marketing events. While many titles are “off-the-shelf”
products available elsewhere, BAF president Joel
Feigenbaum has told publishers he’s also looking
for proprietary books “created by BAF in conjunction
with the publisher or packager.” The pinch, it’s clear,
is only going to keep smarting.
©2002
Publishing Trends
