Friday, April 4, 2008

Ask not for whom the bell tolls, it tolls for Chapters-Indigo

For about 10 years the music industry has been going downhill. Part of the problem relates to the product being produced. On the whole, it sucks. And when you produce a product that sucks and try to get about $30 a CD for it from the public you will have a problem.

The second blow to the industry is the impact of Internet technology which allows the free downloading of music. Industry revenues have plummeted and the music producers have fought back through the courts in the United States by suing individuals who have downloaded a lot of music. There have been a few successful suits but the downloading and swapping practice continues, the courts are too slow and expensive, and there are just too many people engaged in file sharing of music to make this an effective enforcement vehicle. Meanwhile, retail record stores are beginning to close down. Industry observers are now calling for a halt to the unsuccessful litigation strategy and are urging music companies to develop a new business model.

Music used to be a big part of my life in my younger days, but I have become sort of indifferent to it. So the music industry’s problems are only of academic interest to me.

Not so the publishing industry which looks like the next one about to succumb to the commercial impact of the Internet. I am a book addict and regularly weed out my personal library and replenish it with newer titles. I care about this industry.

Twenty years or so ago, giant bookseller chains built superstores that had cozy reading areas and in-house coffee shops for book browsers. Great for people like me, but they drove all the little “mom and pop” book retailers out of business. The only small bookstores to survive were specialty ones that featured art books or some other arcane category that would not find itself much shelf space in the superstores. Even these can no longer make it (margins are very thin throughout the publishing/retailing industry and getting smaller). A small bookstore in Toronto specializing in books related to architecture just closed its doors after a valiant attempt to stay alive.

Now the superstores are vulnerable. It is considerably cheaper to order a book on-line than to buy it in the store. With the rise of, the big on-line retailer, the superstore chains have been forced to provide their own on-line ordering services, and sell the books cheaper than you can get them in the store. I have ordered books in this manner, but mainly when they were unavailable in the store after checking there first. I used to go to the store order desk and be prepared to wait a week for the book to come in. Then I discovered that I could get the books through the store’s on-line service faster and cheaper than using the order desk in the store.

The problem is that the retailer is competing against itself: the more the Internet sales, the less cost-effective (revenue/cost per unit sold) the retail stores become. With this self-defeating business model there will eventually be a cross-over point where management will decide to go out of the store business and sell only on-line.

The wonderful day of browsing the book aisles and admiring the covers and reading the dust jackets may soon become a mere nostalgic memory. My grandchildren may one day ask me, “What was a bookstore? Did you ever go in one?”

The oldest bookstore in Canada closed in Halifax last week. It had been in continuous operation for 169 years. The owner said he knew the writing was on the wall when a book was delivered by mail to him accidentally. It was a book ordered on-line from Amazon by a tenant in the upstairs apartment over the store. The book was available on the shelf in the store and would have taken the tenant two minutes to come downstairs and buy it.

Today, publisher Harper-Collins announced a new business model. It will no longer pay stores money to place its books on the favourable racks, it will no longer pay authors advances, and, most importantly, it will no longer accept returns from stores.

If you are not familiar with the publishing industry, it is unique. It is the only industry where the manufacturer will accept returns of products unsold in stores after a period of time. The retailer obtains a refund from the publisher for the unsold product. It is one step away from a consignment method of selling.

Harper-Collins intends to concentrate on selling its books on-line. I predict that other publishers will fall in step and the 500-year history of bookstores will come to an abrupt end.

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