A few years ago, a publishing sales executive of our acquaintance made this observation.
“If you ask the publishers what their biggest concern is about the current marketplace, they all say ‘consolidation of the retail base.’ And if you ask the big bookstore chains what is their biggest concern about the marketplace, they say ‘consolidation among the big publishers.’
This little informal survey accurately depicted the dominant trend across publishing of the last quarter of the 20th century. In the U.S., we now have the Big Six in consumer publishing: Random House, Pearson, von Holtzbrinck, Time-Warner, HarperCollins and Simon & Schuster. All of those companies contain the bones, and part of the backlists, of companies that were thriving independently 25 years ago.
There has been equivalent consolidation in college and school publishing and in professional publishing. There has been consolidation among college bookstores and among wholesalers serving the trade, libraries and special segments of the marketplace.
And, of course, there are now two dominant retail chains, Borders and Barnes & Noble. A few smaller chains, notably Crown Books, Books-a-Million and Hastings, compete with the giants at the margins. But far more chains of the past have died, and throughout the 1990s, so have independents.
All the consolidation that has occurred has a common cause: the huge capital requirements for being a big player in this industry. Almost all the consolidation stemmed from companies seeing an advantage in driving more business through relatively fixed overheads.
Now, however, a growing school of thought believes that the Internet will reverse this trend of consolidation in publishing and that the trend of the next quarter-century will be atomization. That is true, but it takes a close look at the past and future publishing value chains to see that it is true.
Patterns of the Past
The print-then-distribute publishing model that we are accustomed to not only requires extensive capital to support inventory and infrastructure; it requires bundling different elements of the value chain into what we have always known as publishers and into what we have always known as booksellers.
Publishers have needed to find the publishable material, put it into publishable form (both editorially and physically), make an investment in manufacturing copies, and then provide distribution for copies it could successfully sell through its marketing efforts. Those are several different functions; the Internet allows them to be delivered differently, and not necessarily by the same party.
Similarly, booksellers have needed to attract customers to a physical location at which they offer books, make an investment in putting copies of books into that location to sell, succeed in selecting the right books in which to invest at any time, and handle all the logistics of ordering, receiving, shelving and returning. Those are also several different functions that the Internet can unbundle.
Paradoxically, book publishing on a small scale has a fairly low threshold of required capital. That is part of why publishing throughout the 20th century in America has been so chaotic. Even 25, 50 or 75 years ago, the dollar cost of creating an inventory of one book, or even two or three, was fairly low, as compared to the cost of creating an inventory of most other products. At the sacrifice of margin, sales and distribution service companies have been available to handle the logistics.
In the past 25 years, as the biggest publishing companies have relentlessly gobbled up compatible lists and consolidated sales volume across segments, upstart publishers have still proliferated. That is because the cost of entry per title keeps dropping as the personal computer makes it cheaper and cheaper to convert a manuscript to printable form. And that has been true for a while, even before the time, rapidly coming up on us, when the pre-sale investment in inventory will no longer be required.
For the first 25 years after World War II, bookselling also required relatively little starting capital. But its low margins discouraged entry except for those, not insignificant in number, who would sell books because they loved books. Until the 1960s, an individual going into bookselling at least had minimal competition. There just weren’t very many good bookstores in the United States outside of department stores.
But at the same time that explosive shopping center construction created book chains (along with specialty chains for many other products from shoes to records to consumer electronics), it happened that the wholesaler Ingram Book Company began distributing accurate inventory information on a microfiche reader to its accounts. That innovation suddenly increased the inventory efficiency of the independents so that in the first explosion of chain growth, independents grew right along with them.
However, in the 1990s, a new flow of investment capital went into the chains through Wall Street, and the big superstores moved from the malls to downtowns and free-standing destination locations. These developments, along with the migration of sales to Internet booksellers, primarily upstart Amazon.com and the online operations of the two largest chains, put independent bookselling into a deep spiral as the trend to consolidation in bookselling accelerated.
In school publishing, consolidation has been driven by the huge development costs of programs that meet vetting requirements of big state bureaucracies. In college publishing, consolidation is a natural by-product of needing to “cover” the campuses and the disciplines, as well as to finance a long and expensive development process for the most high-revenue textbooks. And in the knowledge industries revolving around professional publishing — sci/tech, law, accounting, computers — consolidation has been driven by the cost of maintaining presence and relationships in the vertical communities of the professionals.
Reversing the Trend
Why does the Internet change the trend of consolidation to one of atomization? Why can we expect an enormous proliferation of players and diffusion of power in a reversal of the dominant direction of the past quarter-century?
For publishers, it is (or will increasingly be) no longer necessary to manufacture books in order to publish them.
For booksellers, it is (or will increasingly be) no longer necessary to carry an inventory of books in order to sell them.
Seeing the truth of these two statements in 2001 requires a little projecting, because they are not true yet.
But some day not too long from now, the digital infrastructure will exist. Two important things will be true then that aren’t true today.
- Most book titles that are available will be available in print-on-demand or e-book form, but not in a press-run inventory.
- Most sales of books will result from referrals from various Web sites and e-mailers who have some sort of affiliate relationship with an Internet bookseller.When those changes are real, it will mean that both publishing and bookselling (in the purest sense of the word: selling the reader on buying the book) without inventory will become the norm. And when that happens, both publishing and bookselling will become ubiquitous by-products of other endeavors that create and capture niche audiences.
Of course, there will be highly consolidated portions of the value chain. The role of Amazon.com and BN.com, as fulfillers for the affiliates, is still very much required, and there size still counts. For quite some time, the very biggest books by the very biggest authors will require old-time inventory creation and distribution, so some (but fewer) big publishers will be required.
It is interesting to debate which segments of publishing will be most quickly affected by the changes. What happens with school and college publishers depends somewhat on what happens with the institutions they serve. School teachers and college professors will have a much wider array of content choices if they use the Internet to provide them. It seems likely that college professors will migrate earlier, because college students will be more likely to have e-book readers than school students and because they have fewer bureaucratic obstacles to creating a customized curriculum. Professional publishers, however, are likely to be the publishing segment that’s most quickly challenged by the changes, unless they themselves change drastically.
For almost every field, we can expect content aggregations to occur on the Web outside the domain of what book and journal publishers have delivered. In the beginning, universities themselves may publish “rejected” journal articles or research compilations considered too raw for journal submission. Going forward, companies that control research and universities that fund it will increasingly look to the Internet as a way to disseminate findings, weakening the grip professional publishers have on both their content and their market.
In fact, every Web site is already a publisher. The directness of the competition with established books, magazines, newspapers and journals may not be obvious now, but it will increasingly become so. We’re still in a world where the format delivered by the publisher makes a real difference; that fact and the fact that the print-then-distribute infrastructure is in place while the distribute-then-print infrastructure is not keep the present forms of publishing, and the appearance that consolidation is still occurring, alive.
But not for very much longer.