Just How Big Is The ‘Off-The-Books’ Book Business?
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.