Who Should Rescue Borders? How About a Publisher?

When Galley Cat invited me to make some predictions for the coming decade, I conjectured that sometime in the near future we would see the merger of a major retailer and a major publisher. Here was my reasoning: "A combined publisher/retailer solves many problems for both.The retailer owns the content and doesn't have to pay a premium for it. The publisher does not have to pay a premium to distribute its books. There would be huge efficiencies of manufacturing and distribution."

I've had about a month to think about what I said, and I want to revise it. The efficiencies of a retailer/publisher combine would not merely be huge. They would be decisive. If you don't believe it, ask Barnes & Noble and Amazon.

In 2003 Barnes & Noble acquired Sterling Publishing, described at the time as "one of the top 25 publishers in America and the industry's leading publisher of how-to books." Publishers were gravely concerned, and they had every reason to be. Barnes & Noble's own titles were like a supermarket's house brand, often undercutting the prices of outside purveyors.

And now Amazon is a publisher too. It started with its Encore program aimed at identifying overlooked books and authors. That was followed by the creation of a service called CreateSpace aimed at self-published authors. And now Amazon has begun publishing mainstream authors like Stephen King and recently acquired Stephen (The 7 Habits of Highly Effective People®) Covey for the Kindle.

The potential for mischief created by such combines was cogently articulated a few years ago by Morris Rosenthal and I urge you to read it. In essence, the savings generated by dissolving the barrier between seller and buyer enable the combine to lower prices below - sometimes far below - those charged by publishers that do not own their own retail branch. To state the case as simply as possible: Barnes & Noble and Amazon.com, the two most powerful retailers in the book business, have become competitors of the very publishers they serve.

Though these retailers have no qualms about becoming publishers, publishers on the other hand are terrified of becoming retailers for fear of provoking the wrath of their key accounts - B&N and Amazon! When publishers do dip a timid toe in the water and try to sell their books direct to the consumer, they offer them at full list price, which cannot possibly compete with the deeply discounted prices charged by B&N and Amazon. Yet, if they wanted to, publishers could sell their books directly to the public at 40% discount or higher and thus level the playing field.

The solution? To survive, to remain competitive, publishers may have no choice: they must either become retailers or end up being acquired by them.

At this moment Borders, one of the best and most popular bookstore chains in the business, is in a life and death struggle to remain viable. If a publisher were smart it would rescue Borders and go into the retail business.

Retailers, I said a while ago (see Direct Sales: Publishing’s Last Stand), are intermediaries in a world that is rapidly disintermediating. As big as they are, retailers like Barnes & Noble and Amazon are vulnerable to market forces bent on eliminating middlemen, and that's precisely why they have begun publishing books. The digital revolution demands a direct relationship between content provider and consumer. Merging a publisher and a bookstore like Borders would bring both struggling enterprises a little closer to that direct relationship, to profitability and to competitiveness.

Do I hear any bids?

Richard Curtis

Google Editions Will Unchain Content from DRM

Sometime in the first half of this year Google will open the doors to its bookstore, called Google Editions. Ian Paul, in PC World, writes: "Unlike Google's biggest competitors, Amazon and Barnes & Noble, which rely heavily on restrictive DRM, Google's store will not be device-specific - allowing for e-books purchased through Google Editions to be read on the far greater number of e-book readers that will flood the market in 2010"

That spells good news for the makers of all those new e-reading gadgets that may be well engineered and loaded with fun features but are hard-up for content. Amazon has its Kindle, but because its system is closed (that's what DRM means) you can't easily get Kindle content on a non-Kindle device. Same goes for B&N and its Nook.

Now you'll be able to download Google's vast (half a million at launch) library on just about any device available. Since most publishers have not given their content exclusively to Amazon or B&N, you'll be able to find and buy it from Google editions and read it on your Que, Skiff, Cool-Er, Flepia, or any other device. Just try not to be embarrassed when someone asks you the name of that e-book reader you're holding in your hand.

The deal Google offers publishers is 63 % of gross sales. This compares favorable with the 50% offered by most e-retailers. But Google is also offering to partner with retailers. If you decide you'd like to open an e-book retail store but don't know how and where to acquire the content, Google will furnish it. Your company would get 55 percent of revenues less a commission for Google.

"Google's e-books would reportedly be indexed and searchable like many books are now through Google's Book Search," says Paul. "Unlike titles offered through e-readers, Google Editions books would not have to be accessed through a dedicated reader or special application.Instead, any device with a Web browser will be able to access a Google Editions book. After you purchase and access your online book for the first time, it will be cached in your browser making the book available when you're offline."

Details in Google Editions Embraces Universal E-book Format

Richard Curtis

Nooks Up, Books Down for Holidays at B&N

An official Barnes & Noble, Inc. press release reports that the bookseller suffered its second holiday season decline in a row, with sales - $1.1 billion - down 5% over 2008 for the the period from November 1 2009 through January 2 2010. Michael Cader of Publisher's Lunch reminds us that the firm's holiday sales a year ago were off 7% over 2007, so the compounded declines were sufficient cause for concern to trigger a reduction in earnings projections.

That's the bad news. The good is that BN.Com saw a 17% jump in sales from $114 million to $134 million. The hike was probably due to Nook sales which analysts place at at $10-20 million.

“We’re pleased we were able to ship all holiday orders for nook in time,” said Steve Riggio, CEO of Barnes & Noble. “Orders for nook remained strong throughout the holiday season, and, in fact, accelerated after we announced that we had sold out our initial supply. Demand remains strong in the New Year and greater than our supply, however, we expect production to catch-up with demand and be fully stocked in our stores in the next few months."

Pictured here is our kind of book nook.

RC

Major Publisher Will Be Acquired by Major Retailer. Richard Curtis's Eight Predictions for Next Decade

"At least one major publishing company will be acquired by a retailer," predicts Richard Curtis in Galley Cat. "For instance (and this is NOT a prediction, just a for-instance), Amazon could acquire Random House or Apple could buy Simon & Schuster."

That is one of eight prognostications offered by Curtis in a response to an invitation by Jeff Rivera to share his vision for the publishing business in the next ten years.

"A combined publisher/retailer solves many problems for both." Curtis amplified on his prediction of a publisher/retailer hybrid. "The retailer owns the content and doesn't have to pay a premium for it. The publisher does not have to pay a premium to distribute its books. There would be huge efficiencies of manufacturing and distribution."

You can read all eight here.

You Know E-Books Have Made It When Anna Wintour Features One in Vogue

The "Last Look" feature on the last page of Vogue is usually reserved for the most chic and preposterously priced items like $20,000 handbags, megastylish shoes and ragingly expensive bling. The last item you'd expect to see on that page is an e-book. But there, on the "Last Look" page of Vogue's January 2010 issue, opened to Chapter 2 of Pride and Prejudice, is Barnes & Noble's entry into the e-book sweepstakes, The Nook, advertised for a modest $259.00.

It shares the page with a deliciously buttery-looking calfskin case called the "Electronic Porta Libro," manufactured by Tod's, in which you can, um, show your Nook off at the Venice Biennale or the casino at Monte Carlo. At $525.00 it's a little closer to the opulence and elegance one expects on that page of the magazine. If that's too rich for your blood you can pick up a leather Kindle jacket with one of three New Yorker cover images from Conde Nast for $49.99.

RC

In E-Print Delay Controversy Shatzkin Sees Deadly Power Struggle, Publs vs. Amazon

Ruminating about the current controversy about whether publishers should delay e-book reprints of hardcover books, Mike Shatzkin had an epiphany. And when Mike Shatzkin has an epiphany it usually ends up kicking the paradigm shift a hundred yards up the road.

"This is really about the agents and publishers trying to take control of ebook pricing, and value perception, back from Amazon," says Shatzkin. One proof of his contention is that Barnes & Noble, a retailer that few consider to be a friend of publishers, actually agrees with the publishers' position. B&N Chairman Len Riggio says holding off e-book reprints is “in keeping with the long-held practice of issuing paperback editions after the initial hardcover.”

"If the other biggest bookseller, which also has a dedicated e-reader and an aggressive attitude toward consumer pricing, seems okay with this idea, it strengthens my belief that it is about controlling Amazon, not about controlling ebook pricing," says Shatzkin. "The desirability of restraining Amazon is certainly something the big publishers and Barnes & Noble can agree on."

Shatzkin then touches on the essence of the power struggle: "If the big houses can do this, they can do much more than this. They can sell ebooks direct off their own web sites."

Direct Sales of Books and E-Books by Publishers

Almost two years ago, in an article entitled Direct Sales: Publishing's Last Stand, we surmised that a war between publishers and booksellers was inevitable, and the only effective weapon publishers have in their arsenal is direct sale of their books to consumers. "Publishers have awoken to the horrible realization that by allowing themselves to " we said. "As their profit margins wear down to transparent thinness, they understand they must recapture the advantage or risk being marginalized even more than they are now.

"There is only one way for publishers to recover the initiative," we concluded, "and that is to sell books directly to the consumer."

War to the death? "It is hard to imagine this battle ending peacefully anytime soon," asserts Shatzkin. Read about his epiphany at length on his blog: The ebook windowing controversy has subtext.

Richard Curtis

Times's Pogue Rips BN a New One Over Nook, Calling it "A Mess."

Saying Barnes & Noble clearly rushed the Nook out prematurely "in hopes of stealing some of the Kindle’s holiday cheer," tech columnist David Pogue issued a sharp critique of the device in the New York Times.

Here's an abstract of Pogue's analysis:

• "That 'color touch screen,' for example, is actually just a horizontal strip beneath the regular Kindle-style gray screen...Worse, the touch screen is balky and nonresponsive...It takes nearly three seconds to turn a page — three times longer than the Kindle — which is really disruptive if you’re in midsentence."
• "It takes four seconds for the Settings panel to open, 18 seconds for the bookstore to appear (over Wi-Fi), and 8 to 15 seconds to open a book or newspaper for the first time, during which you stare at a message that says 'Formatting'.”
• “'Over one million titles?'” Yes, but well over half of those are junky Google scans of free, obscure, pre-1923 out-of-copyright books, filled with typos."
• "Fact is, Amazon’s e-book store is still much better. Of the current 175 New York Times best sellers, 12 of them aren’t available for Kindle; 21 are unavailable for the Nook."
• "Kindle books are less expensive."
• "What about the Nook’s built-in Wi-Fi? It’s there, but you get no notification when you’re in a hot spot. And if the hot spot requires a login or welcome screen, you can’t get onto it."
• "And the 'loan e-books to friends?' part? You can’t lend a book unless its publisher has O.K.’ed this feature...Furthermore, the book is gone from your own Nook during the loan period (a maximum of two weeks). And each book can be lent only once, ever."
• "It’s buggy. In four days, my Nook locked up twice and displayed an 'Android operating system has crashed' message twice."
  

Does Pogue have anything good to say? Well..."Now, the Nook may have some hardware advantages — a removable battery, a memory-card slot and (because of narrower plastic margins) a slightly trimmer shape — but the Kindle is still a better machine. It’s faster, thinner, lighter and much easier to figure out. Its battery lasts more than three times as long (seven days versus two)."

The bottom line for Pogue? "Those missing features are symptoms of B&N’s bad case of Ship-at-All-Costs-itis."

Read the full review here.

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by The New York Times.

Kim Harrison's Dead Witch Walking Named Best Paranormal Fantasy of Last Decade

Paul Goat Allen has posted a list of the Best Paranormal Fantasy Novels of theLast Decade (2000-2009) and #1 is Dead Witch Walking by Richard Curtis Associates author Kim Harrison. It's the first novel in what has gone on to become the bestselling "Hollows" series featuring white witch Rachel Morgan. Here's what Allen has to say:

"1. Dead Witch Walking (2004) by Kim Harrison - Kim's debut novel and first installment of her wildly entertaining Rachel Morgan saga, a series that – like its witchy protagonist – has developed and matured with every new installment. Unlike most series, every new novel in Kim's Rachel Morgan series is better than the last.... This is the beginning of a classic saga."

Allen's challenge was formidable, particularly given the great competition:

A few weeks ago, I was asked to complete an impossible task – to compile a list of the top paranormal fantasy lists of the last decade, a decade that has seen phenomenal growth in the paranormal fantasy genre. In the last ten years, authors like Laurell K. Hamilton, Kim Harrison, Jim Butcher and Charlaine Harris have become literary superstars and characters like Anita Blake, Sookie Stackhouse and Harry Blackstone Copperfield Dresden have become enmeshed in the pop culture landscape.

We extend our heartiest congratulations to Kim Harrison and to the wonderful and supportive team at Morrow/Avon Eos.

RC

You Got That Right, Ecclesiastes!

"All is vanity."
Ecclesiastes
**********************
The uproar over Harlequin Enterprises' launch of a self-publishing venture reminded me of something my father used to say. He was an honest businessman, but every once in a while, when he saw an unscrupulous competitor getting stinking rich, he would shake his head and say, "I'm in the wrong racket."

I sometimes wonder if I'm in the wrong racket too. Maybe I should have gone into vanity publishing. I'm sure I'd have made a fortune. Everyone who's gone into it has made one, so I can't blame anyone for succumbing to its allure.

And now mainstream publishing has jumped on the bandwagon, with respectable firms like religious publisher Thomas Nelson and, most recently, Harlequin Enterprises picking up the banner. The line that once sharply separated traditional publishing ("We pay you") and vanity publishing ("You pay us") has all but dissolved in this corrosive environment of fabulous riches.

My early exposure to the power of vanity occurred when I joined Scott Meredith's literary agency after graduating college. Meredith had a fee-reading operation that ran like a turbine engine. Using his agency's track record as bait - his brochure was a collage of six- and seven-digit checks paid to professional clients - Meredith attracted countless would-be authors prepared to shell out hundreds of dollars for a manuscript reading they hoped might lead to acceptance for representation and an eventual professional career. I don't believe I ever saw a book accepted for representation out of the fee-reading program in all the years I worked there. Meredith's operation made tons of money and he died a wealthy man.

Around 2000 a number of enterprising business people recognized the profit potential in self-published books utilizing digital media. (For purposes of this piece I draw no distinction between self-publication, subsidized publication and vanity publication.) Until then the most famous name in subsidy publishing was Vantage Press (which, significantly, is still going strong). But companies like iUniverse, Xlibris and an outfit called Fatbrain offered a variety of self-publication services. How well did they do?

Well, Fatbrain with its subsidiary Mighty-Words, which published technical and professional material online (someone described it as Amazon for geeks), was sold to Barnes & Noble for $64 million. Xlibris? Acquired by Random House for an undisclosed sum, then sold to Author Solutions, the vast self-publishing empire which embraces iUniverse, Author House, Wordclay, Inkubook and Canadian vanity publisher Trafford Press. Kevin Weiss, CEO of Author Solutions, projects $100 million in revenue in 2009. Last year, Author Solutions released more than 21,000 new titles, according to Mediabistro, "including one out of every 20 new titles put into distribution in the U.S. Overall, ASI's catalog now includes more than 120,000 titles from more than 85,000 authors." Author Solutions is partnering with Harlequin in its soon-to-be-renamed Horizons self-publication program.

But there's more. Publishers Marketplace publisher Michael Cader recently reported that "Ebook distributor and online self-publishing platform Smashwords announced late Friday that BarnesandNoble.com will sell titles from the company as part of its new 'premium feed.' Smashwords, which says they publish about 2,600 titles electronically, will sell to BN.com at a traditional discount... Founder Mark Coker says that 'additional distribution relationships are forthcoming.' He says that 'until today, it was difficult if not impossible for independent authors and publishers to gain such mainstream digital distibution.'"

Yet another company, Scribd, calls itself "the largest social publishing company in the world, the website where tens of millions of people each month publish and discover original writings and documents." Scribd boasts "10 million documents published" and "5 million Scribd document reader embeds." Last spring it was reported that Scribd was partnering "with a number of major publishers, including Random House, Simon & Schuster, Workman Publishing Co., Berrett-Koehler, Thomas Nelson, and Manning Publications, to legally offer some of their content to Scribd’s community free of charge. Publishers have begun to add an array of content to Scribd’s library, including full-length novels as well as briefer teaser excerpts."

With so much money being thrown at subsidy publishers, and with the blessing of mainstream publishing, the evolution of vanity from the margins to the center of the publishing universe is complete. The erosion of traditional gatekeepers like reviewers, critics, newspaper book editors, and other refined literary tastemakers makes it clear why even a conservative publisher might lose its head over the prospect of all that money - and be tempted to go into another racket.

Richard Curtis

Sneak Peek at B&N E-Reader, Gizmodo Says Gadget Name "Freaking Terrible!"

Maybe B&N and Plastic Logic really should call it "Teasle" as we have been urging for months. Gizmodo's reviewer, having gotten a sneak peek including photos, says the e-book reader's name is "freaking terrible," adding "I hope they change it before it ships." But he or she wouldn't reveal it. We'll have to wait 'til 4:15 PM next Tuesday to learn, and we'll post a bulletin. Until then, as far as we're concerned it's a Teasle.

On a brighter note there is some color (a kind of hybrid of color for cover images and b&w for text, to conserve energy), and a wireless link. The price will allegedly be cheaper than the Kindle.

The photos may be protected and confidential, so we're just posting whatever image comes to hand to call attention to what is essentially a non-story.

RC

B&N Pitches E-Book Initiative on Morning Joe

Today William Lynch, president of BN.Com, went on Morning Joe, the popular MSNBC television show, to discuss the new BN.com e-book initiative. He also demonstrated on his iPhone how fast anyone can access the site, seek and select a title, order and download it. He did it in front of a camera in about 30 seconds. And what was the book? Lynch cannily chose Morning Joe host Joe Scarborough's own recently published book Last Best Hope. When Scarborough asked if he should buy a Kindle, Lynch replied that the BN store can be accessed by most other devices and especially the forthcoming Plastic Logic (No-Name) reader. However, the one device they don't seem to support is Amazon's Kindle.

You can watch William Lynch's interview here at MSNBC.

Despite his praise for Plastic Logic, Lynch seemed to make a glaring factual error unless he knows something no one else does: he described the new Plastic Logic display arriving in Q1 2010 as "plastic roll-up," which according to Plastic Logic is not going to be the case (Plastic Logic announces upcoming reader device - July 22, NY Times). The yet unnamed device will be larger than the Kindle DX, to attract more business users for professional documents, and have integrated 3G and Wi-Fi compatibility thanks to an agreement with AT&T.

Is BN.com going to win customers back from Amazon? They'll have a fighting chance now that they are looking to streamline the purchasing steps standing between readers and new e-books.

The new BN.com's "Buy Now (read in seconds)" button in their e-book section is suspiciously like Amazon's "One-Click Buy It Now" button, which is a notoriously protected feature that Jeff Bezos sought to patent and license. Currently, Kindle customers only need to press one button at Amazon's website to have the book purchased and immediately accessible to their Kindle or iPhone. Now BN.com customers will have a similar option. But one big difference between the two retailers is that the new BN.com "Buy Now" button is presently only for ebooks, not print books. If the book is going to be delivered by mail, you'd think an extra click or two won't make a difference, but this is where Amazon innovated their impressive market share by making things easier for the customer. It's good to see BN.com making a real effort to catch up in more ways than one.

RC and MG

Welcome Back, BN.COM

The last big news we heard about BN.com was in the fall of 2003:

"In a surprise move, Barnesandnoble.com (Nasdaq: BNBN) has stopped selling eBooks. The online retailer is in the process of e-mailing its affiliates to let them know of the program's demise this week."

That was written by a blogger, Rick Aristotle Munarriz, who like so many e-pioneers was sent reeling by B&N's pullout from a nascent e-book industry.

"With Barnes & Noble (NYSE: BKS) as BN.com's majority stakeholder," Munarriz continued, "one has to wonder if the company is missing the high-margin potential of the medium or if the sales just aren't there. Or, for the budding conspiracy theorists out there, is BN.com simply refusing to promote a niche where its parent company can't partake or one that promotes a level playing field in an arena where publishing house suppliers are used to the advantages of size? eBook fans would like some answers. Unlike its warehouse-shipped forefathers, an immediate answer would be welcome."

Well, maybe not immediately, exactly, but six years later Mr. Munarriz has his answer. BN.com is being resurrected, and this time we think it will be here to stay. Four months ago the world's largest print-book chain acquired Fictionwise, the world's largest e-book retailer in a $15.7 million deal we declared to be a game-changer. "With this single stroke," we wrote, "B&N comes roaring back into a business it abandoned in 2003.

"Of far greater significance is that B&N is now catapulted back onto a competitive footing with amazon.com in the all-important e-book arena. Though Barnes & Noble doesn’t boast a Kindle or any other proprietary e-book reader, there is a host of devices now available or soon to come on stream capable of carrying the immense body of e-book content that Fictionwise has aggregated."

Barnes & Noble is already billing itself as twice as big as Amazon (700,000 titles vs. 330,000). Of course, most of BN.com's title list will consist of public domain books. Motoko Rich, reporting on the deal in the New York Times, points out that "More than 500,000 of the books now offered electronically on BN.com can be downloaded free, through an agreement with Google to provide electronic versions of public domain books that Google has scanned from university libraries... Currently, Google’s public domain books cannot be read on a Kindle."

So most of BN.com's books will be public domain - big deal! 700,000 books is the kind of scaled-up inventory that industry old-timers (circa 1998) said had to be achieved before the chain reaction became self-sustaining. And don't forget that public domain is the very kind of inducement that Freemongers have been advocating to stimulate e-books over the tipping point. The interaction of all those downloadables with the 1.2 million hard copies offered by Barnes & Noble's website is as tipping-pointy as you can get. (By the way, right now if you click on bn.com you get flipped to barnesandnoble.com, but in time BN.com will be a discrete e-book website.)

There are lots of issues to be worked out before launch such as pricing and compatibility with various devices. As to the latter, right now the company is trying to be device-agnostic but there's lots of talk about it teaming up with the as-yet unnamed (will it EVER be named?) Plastic Logic reading device scheduled for release in 2010. Whether that gadget would become B&N's Kindle, we don't know, but we're not sure why anyone would want to close out any e-readers, especially Sony and Apple. Publishers Lunch pundit Michael Cader says "BN said they have made 'a strategic commerce and content partnership with Plastic Logic' and 'will power the eBookstore for the Plastic Logic eReader device.'" Cader adds that "In further explanations BN said they will be the exclusive vendor of ebooks for Plastic Logic."

E-book aggregators are weaving garlands to strew on BN.com when it opens for business.

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by the New York Times.

First Half of '09: Borders Up 820%. No Typo. No Decimal Point. No Kidding.

In one of the most astounding turnarounds in recent memory, Publishers Weekly's Stock Index soared 23.9% in the first six months of 2009 according to Reed Business Information. The Dow Jones Average for the same period dropped 3.7%.

Leading the recovery from the Death Valley Days of '08's holiday season was Borders. Had you been shrewd enough, or crazy enough, to buy Borders stock at the end of last year when it lay moribund at 40 cents, you'd have been sitting pretty on June 30th with shares valued at $3.68, a bounce of 820%. Other retailers prospered too. Books-A-Million shares rose 178.8% and Barnes & Noble 37.5%. The latter is ironic, given B&N Chairman Len Riggio's lament in November that the holiday season was the worst he'd seen in three decades, and he saw little light in the tunnel for 2009.

It's hard to say what accounts for the rebound. Obviously, financial pundits underestimated the staying power of printed books. That's an understandable error in view of activity in the high-flying e-book sector, which may have instilled Print Is Dead pessimism in investors. Or it may simply be that retailer stocks were simply way underpriced and primed for a correction.

Whatever the explanation, the numbers are encouraging if not inspiring, and we're particularly happy to welcome Borders back to the land of the living. Hey publishers, you can start shipping to Borders again!

Check out the stats in Retailers Enjoy Big Bounce.

RC

Every blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by Reed Business Information and Publishers Weekly.

Should Bookstores Be Publishers Too?

Lev Grossman and Andrea Sachs write in Time magazine about our love-hate relationship with Amazon. Their conclusion? It depends on who's doing the loving and who's doing the hating. Defining Amazon is about as easy for us as defining the elephant was for the blind monks of Chinese legend. Time succinctly states the case:

"Amazon has diversified itself so comprehensively over the past five years that it's hard to say exactly what it is anymore. Amazon has a presence in almost every niche of the book industry. It runs a print-on-demand service (BookSurge) and a self-publishing service (CreateSpace). It sells e-books and an e-device to read them on (the Kindle, a new version of which, the DX, went on sale June 10). In 2008 alone, Amazon acquired Audible.com a leading audiobooks company; AbeBooks, a major online used-book retailer; and Shelfari, a Facebook-like social network for readers. In April of this year, it snapped up Lexcycle, which makes an e-reading app for the iPhone called Stanza."

As if all that were not enough, Amazon has now become a publisher, too. First, there's its Encore program "whereby Amazon will use information such as customer reviews on Amazon.com to identify exceptional, overlooked books and authors with more potential than their sales may indicate. Amazon will then partner with the authors to re-introduce their books to readers through marketing support and distribution into multiple channels and formats, such as the Amazon.com Books Store, Amazon Kindle Store, Audible.com, and national and independent bookstores via third-party wholesalers."

Amazon has also put its print on demand division into play in the form of a service called CreateSpace aimed at self-published authors.

Most significantly, Amazon has begun to publish mainstream authors, notably Stephen King, recently engaged to write an original story for the Kindle.

For publishers the thought of Amazon becoming a competitor in their own space is their worst nightmare come true. As Time puts it, "If Amazon is a bookstore, it's supposed to be buying from publishers, not competing with them. Right?"

You got that right, Time! However, before we get out our pitchforks and start baying "Restraint of trade!" at Amazon you need to be reminded that it is not the only book retail behemoth that is also a publisher. Let's look at Barnes & Noble.

At the beginning of 2003 Barnes & Noble acquired Sterling Publishing, described at the time as "one of the top 25 publishers in America and the industry's leading publisher of how-to books." Publishers were gravely concerned and with every reason. Barnes & Noble's own titles were like a supermarket's house brand, often undercutting the prices of outside purveyors. Their anxieties were well founded. On many occasion, when I pitched a nonfiction book at a publisher, the editor would tell me to forget about it, Barnes & Noble already had such a book and the new one could never match the house-brand's low retail price.

The case against bookstores becoming publishers was stated so cogently by Morris Rosenthal that I reproduce it in full below. Though written four years ago as a followup to Barnes & Noble's acquisition of Sterling, it is word-for-word valid for Amazon as well and should serve as a chilling cautionary tale for all book industry watchers:

Monday, July 25, 2005
Sterling Publishing and Barnes & Noble Books

Barnes & Noble bought Sterling Publishing a little over 3 years ago, and publishing has been a rapidly growing segment of Barnes & Noble's strategy ever since. Sterling has over 5,000 titles in print and is adding about 1100 annually, primarily in the How-To area. Barnes & Noble also acquires books from other publishers, such as the "in easy steps" computer series from U.K's Computer Step publishers, and Barnes & Noble also publishes an extensive backlist of out-of-print and out-of-copyright classics. According to their annual 10K filing, Barnes & Noble also "commissions books directly from authors" and "creates collections of fiction and non-fiction using in-house editors." All of this shapes up as good business for Barnes & Noble, but doesn't cheer most self publishers.

The reason has to do with shelf spaces and market saturation. Barnes & Noble is the dominant bookstore chain in the country, and they have a good record of working with small publishers when it comes to in-store events and stocking titles. However, as their annual report points out - "Each Barnes & Noble store stocks from 60,000 to 200,000 titles, of which approximately 50,000 titles are common to all stores." For the true super stores which stock 200,000 titles (though I suspect they may have meant "books" rather than "titles") that leaves a lot of room for regional or independent books, but the smaller stores seem to do an excellent job stocking the Barnes & Noble published books (and they'd be nuts not to), so it's a scary thing for a small nonfiction publisher to find that a Barnes & Noble imprint is publishing a competing title.

Barnes & Noble now has some 10,000 books in print, and they tend to be lower priced than the competing titles, which while great for customers (vertical supply chain) doesn't make publishers very enthusiastic. I seem to recall Steve Riggio saying last year that they were targeting 10% of book sales as self-published by Barnes & Noble. I also seem to remember him saying three or four years ago that they were targeting 5%, so it stands to reason if they reach 10%, they'll up the ante again.

With half their books coming from their Sterling subsidiary which specializes in how-to, and a good chunk of the remaining half also in the how-to segment, it's safe to assume that how-to publishers are at the greatest risk for the time being. The how-to emphasis makes sense, since Barnes & Noble can easily track which titles are doing well throughout their chain, than commission or acquire similar titles. They don't need to be huge sellers, the acquisition cost for a commissioned book is pretty low (lots of hungry writers out there) and the guaranteed shelf space makes a large first print run, which combined with the lack of middlemen, makes the low pricing possible. If I was in the process of setting up a new imprint to publish nonfiction, I would look long and hard at my business model and focus on titles I felt would do especially well on Amazon or independent stores, as opposed to making plans based on the whole market.

Richard Curtis

Barnes & Noble Developing Anti-Kindle?

Call it The Swindle? No, that will never do. The Jindal? Not a front-runner. The Tyndale? Actually that's promising. William Tyndale was a 16th century book guy who translated the Bible from Hebrew and Greek, and -- you ready for this? - was "the first to take advantage of the new medium of print, which allowed for its wide distribution," according to Wikipedia. And yes, his name rhymes with Kindle. The fact that he was burned at the stake - well, in those days that was an occupational hazard for people venturing into new media.

These reflections are triggered by news in TheStreet.com that Barnes & Noble is developing an e-book reader to go head to head -- or thumb to thumb - with Amazon's and its Kindle.

It seems logical, given B&N's recent dramatic leap into the digital world with the acquisition of Fictionwise, the world's leading e-book retailer.

Is B&N starting too late? Not necessarily. It's a business truism that early innovators don't necessarily fare as well as those that come in later and go to school on the mistakes of their predecessors. And popular though the Kindle is, few technologists think it's the last word in e-reading devices. Many more are on the way, as we have frequently reported here.

One thing we guarantee: E-Reads will definitely distribute its e-books on the Tyndale.

RC

After Fictionwise Buy, B&N Pledges $50 Mil to Get up to 21st Century Digital Speed

Publishers Lunch reports that Barnes & Noble CEO Steve Riggio "is allocating $50 million of its $125 million capital budget this year to retail, IT, the Internet, digital initiatives and other items." This comes on the heels of its recent acquisition of Fictionwise, the world's leading deliverer of e-book content. Riggio said his customers are eager to expand their choices beyond "the four walls of our stores."

RC

Barnes & Noble Levels the E-Book Playing Field with Acquisition of Fictionwise

Back in December, after it moved a key executive into the position of Director of Digital Content, we speculated that Barnes & Noble might be contemplating a second assault on the ramparts of the e-book industry. Today the ramparts fell with the news that the retail giant has acquired Fictionwise, the world’s leading e-book retailer for $15.7 million.

With this single stroke, B&N comes roaring back into a business it abandoned in 2003. Of far greater significance is that B&N is now catapulted back onto a competitive footing with amazon.com in the all-important e-book arena. Though Barnes & Noble doesn’t boast a Kindle or any other proprietary e-book reader, there is a host of devices now available or soon to come on stream capable of carrying the immense body of e-book content that Fictionwise has aggregated.

Fictionwise’s multiformat feature enables subscribers to download books in such platforms as Adobe, Palm, Sony, iPhone and even Kindle itself. In January 2008, Fictionwise acquired eReader, the principal Palm-format etailer and reinforced the widely held view that it is the team to beat in the digital book major leagues.

Fictionwise was created in 2000 as a partnership between Steve Pendergrast and his brother Scott's Mindwise Media, LLC. They subsequently spun Fictionwise off. Starting modestly with digital reprints of science fiction short stories, it was not long before its cutting edge e-book delivery system, brilliant metrics, and author- and fan-friendly business model attracted authors, publishers and other content providers. Today it sells thousands of e-book titles for nearly five hundred publishers including E-Reads. The Pendergasts will continue operating the website for the parent company.

Asked what he thought of the B&N/Fictionwise marriage, one executive pronounced it "Electrifying! It changes everything."

Richard Curtis

B&N Follies, Act II, Scene 2 - A Fund Buys 7 Million Shares of Book Chain Behemoth

A couple of months ago we expressed confusion about Barnes & Noble's financial maneuvers. After the book chain's czar Leonard Riggio announced the company had suffered the worst holiday season in memory, media mogul Ron Burkle bought an 8.3% stake in it. A short while later, Pershing Square Capital Management dumped its entire holdings of B&N, amount to nearly 12%. I wondered, "If things are so terrible, why is someone buying in? And if things are so wonderful, why is someone cashing out?"

We now learn that First Eagle Global Fund has declared in an SEC filing that it controls 11.7 percent of the B&N's shares. Publishers Lunch points out that "with additional interests on behalf of clients their stake of more than 7 million shares comprises 12.77 percent of BN shares." That makes First Eagle Global the largest institutional holder of the company's stock.

After Riggio's heartwrenching cri de coeur during the holiday season it's comforting to know that some investors still believe there's value in B&N.

RC

B&N Follies Take a Dark Turn: Almost 100 Execs Let Go

The drama began in November when Leonard Riggio, Chairman of Barnes & Noble, Inc., announced that holiday sales were shaping up to be the worst in memory. In the subsequent installment, we wondered why, if things are so terrible, is someone (media mogul Ron Burkle) buying a big stake in the bookstore chain? Then we wondered why, if things are so wonderful, is someone (William Ackerman of Pershing Square Capital Management) dumping an even bigger stake?

The story now takes a dark turn with the announcement. reported in Crain's New York Business.com that B&N is eliminating close to 100 corporate positions. CEO Steve Riggio (Leonard's brother) notes in the release that, "The business climate in which we are operating is unprecedented." The company's holiday sales were down more than 5% over the previous year.

Refreshments will be served in the lobby while we wait for a scenery change.

RC

Curtain Rises on Act II of B&N Follies

Just when we thought the financial status of Barnes & Noble could not be more perplexing - it got more perplexing. B&N-watchers will recall that in November B&N czar Len Riggio announced the worst holiday season in memory and predicted the affliction would continue well into 2009. Why then did media mogul Ron Burkle buy an 8.3% stake in Riggio's company, as announced last week?

But wait, it gets even more mystifying: according to Publishers Weekly, "Pershing Square Capital Management has dumped its entire stake of Barnes & Noble stock." That comes to 11.8%.

In short, if things are so terrible, why is someone buying in? And if things are so wonderful, why is someone cashing out?

To add to the intrigue, PW speculates that this move now puts William Ackerman, Pershing's head, in a position to put his "entire focus on Borders" and possibly take the chain private. Yet for some time Borders' pulse has barely been fluttering.

Where is Lewis Carroll when you need him?

La commedia di B&N non e finita, so watch this space for Act II, Scene 2.

RC

Pulse Detected at Borders

Borders has a new CEO, Ron Marshall, and he's been putting in a lot of time on the horn assuring publishers that though his bookstore chain has been taking a lickin' it keeps on tickin'.

This according to the Wall Street Journal. "Publishers and other suppliers said that Borders is currently paying its bills," says WSJ. "But the retailer has been aggressively selling assets, slashing costs, laying off employees, and reducing debt to stave off the kind of financial crisis that could result in a Chapter 11 bankruptcy filing."

Borders is in a classic bind because some publishers have been supplying books in cautious quantities, and others may not have supplied any at all until they see if the chain survives. But standing on the umbilical could only accelerate the chain's demise. Which puts publishers in a classic bind of their own: if Borders fails, publishers that withheld product will bear responsibility; if it survives, those same publishers will lament lost sales opportunities.

In any event, at least, as of 5 AM on Friday, January 9, 2009, Borders can sing, "I'm still here." Just bear in mind that the name of the Sondheim show that tune appears in is "Follies."

Meanwhile, Borders' rival Barnes & Noble got an infusion of optimism when it was announced that Yucaipa, a private equity outfit owned by billionaire investor Ron Burkle, had bought 8.3% of the company's stock for about $67.3 million. Does anybody find this odd? A month ago B&N czar Len Riggio was lamenting that the 2008 holiday season was shaping up the be the worst he'd seen in three decades, nor did he see much light on the 2009 horizon.

What does Ron Burkle know that the rest of us don't?

Don't leave the theatre. Act II of Follies is about to begin...

RC

BN.Com Climbing Back on the Digital Books Horse?

Publishers Lunch, the book industry's leading online trade report, speculates that Barnes & Noble may be contemplating a move back into digibooks. No smoking gun to speak of, but transfer of B&N's Mike Ferrari from one executive position to "director, digital content" was enough to send some tongues wagging about a second assault on the ramparts of the e-book industry.

B&N jumped into e-books with both feet at the turn of the new century, but both feet got cold by 2003 and the company abruptly discontinued its involvement. It can be argued (by me at any rate) that their abandonment of e-books set the industry's progress back by a couple of years. In any event, Lunch's ruminations sent me back down memory lane to the genesis of the e-book industry early in the new century, and I found an article on PC World which I've excerpted below:

Electronic books are about to get a serious boost from Barnes & Noble.com.

The company has launched a new electronic publishing division, aimed at encouraging writers to write eBooks and at encouraging readers to buy them. Barnes & Noble Digital will offer writers editorial support, online sales monitoring, and publicity while linking them with readers.

The company will develop original eBook titles from well-known authors, such as best-selling novelist Koontz. He has been tapped as the first author to create an original eBook, The Book of Counted Sorrows, for Barnes & Noble Digital. The first eBook titles are expected out in the first half of this year...

Using eBook devices, readers can take notes while reading, bookmark a page, highlight text, search for particular words and phrases, create drawings, and use a dictionary to look up meanings of words as they read. They also have the option of downloading eBooks onto portable devices. Barnes & Noble Digital hopes to create eBooks that include images and audio, as well as links to other sites...

Barnes & Noble Digital will also give authors a larger share of income from their work, and sell eBooks at lower retail prices. Authors will receive a 35 percent royalty of the retail price of books sold either directly through Barnes & Noble.com's eBookStore or any one of its affiliate network of more than 400,000 Web sites...

EBooks will be available in all existing formats, including Microsoft Reader, the RCA REB 1100 portable device, and Glassbook Reader from Glassbook.

The Glassbook Reader - that's the answer to an e-book trivia question. Give up? Click here.

RC

B&N Chair Foresees Xmas Gloom But Not Doom

Publishers Weekly's online bulletin reports that Len Riggio, chairman of Barnes & Noble, says the 2008 holiday season, traditionally the most brisk and profitable on the book trade's calendar, is shaping up to be a terrible one. In fact, it's the worst he's seen in three decades. This came in a memo circulated to employees. No pink slips were attached but Riggio vowed to rigidly control spending including curtailing openings of new stores.

Nor does he see much light on the 2009 horizon, though the company will nevertheless report a profit for 2008.

RC

Publisher is Civilian Casualty in Proxy War Between Barnes & Noble and Amazon

Barnes & Noble has canceled a 10,000 copy order to punish a publisher for giving Amazon.com a short exclusive window on a soon-to-be-published book about Barack Obama.

According to Associated Press's Hillel Italie, Chelsea Green, a small Vermont publisher, gave Amazon and its wholly owned on-demand print division BookSurge, an exclusive window to distribute Robert Kuttner's "Obama's Challenge" at the Democratic Convention next week in Denver. Chelsea Green's action put B&N's nose so far out of joint that it canceled a very big order. Smaller bookstores were reported to be equally ticked off, but none has the clout to hurt a small press the way B&N does, and B&N wielded its battle ax with a will.

This is just the latest skirmish in the escalating warfare between bookstores - in particular the behemoth B&N chain - and Amazon, and this time the publisher couldn't - or wouldn't - get out of the line of fire.

Chelsea Green President Margo Baldwin was defiant about Barnes & Noble's action: "They are not going to bully us and the book will be a huge success in spite of their boycott."

Read the whole story.

- Richard Curtis