Bertelsmann’s Direct Group Hits a Few Big Bumps on the Road to Worldwide Synergy


You can’t blame Thomas Middelhoff for trying. The chief executive of German media behemoth Bertelsmann — doted on in the business pages as a Visor-toting visionary dragging an ossified corporate empire out of the Westphalian mist — has upped the ante for global synergizing in one of his company’s most sweeping reorganizations to date.

Following the lead of arch-rival AOL Time Warner, last fall Bertelsmann lumped its entire content portfolio — including Random House, BMG and Gruner + Jahr — into what’s been grandly dubbed the Bertelsmann Content Network. The idea was simple: foster cross-media synergies by sharing corporate turf. Remaining global operations were then stratified into two other divisions: Arvato AG took on printing and IT units, while the Direct Group comprised all of the company’s direct-to-customer activities.

The most motley division is this last one, officially known as DirectGroup Bertelsmann, now home to book clubs, music clubs and e-tailers including BOL and CDNow. The group also oversees Bertelsmann’s 40 percent stake in As Middelhoff struggles to turn the company’s cherished book-centric culture toward a hot-wired future, the Direct Group may be the spot where his vision proves most likely to founder.

By all accounts, the dream is a glorious one. ”Our book and music clubs,” the company proclaimed last fall, ”are in the midst of a dynamic global transformation process by which they are becoming more customer-oriented community businesses.” The Direct Group, headed by Klaus Eierhoff, would use the Internet as the ideal means of distribution; jazz up traditional clubs and direct marketing channels with e-commerce outlets; modernize hoary marketing tools; and ”exploit the potential for synergies between e-commerce and the clubs on an international scale.”

Reality isn’t so rosy. The Direct Group currently shows losses, insiders say. Clubs are suffering ”mounting competitive pressures” in all English-language markets, according to company statements, ”especially from fast-growing Internet book retailers.” The group’s e-commerce units have lost hundreds of millions of dollars in the past year alone. And at bottom, ancient rivalries among direct-to-customer divisions are making for uneasy synergies: a potential family feud between Bertelsmann’s e-commerce chief, Andreas Schmidt, and Eierhoff has raised further questions about the division’s future.

Details about the Direct Group’s conundrums are hard to come by, and few executives are in a position to speak on the record. But Middelhoff, known to be a big-picture man and not a whiz at operational nitty gritty, has acknowledged that among the gravest quandaries facing Bertelsmann is the question of what to do with its worldwide book and music clubs.

They are a potentially formidable force. As of last year, before the realignment, the book clubs had counted 28 million members worldwide, contributing 52 percent of the book division’s revenues. (Book publishers accounted for 44 percent.) Music clubs in the U.S. had another 12 million members. Though the Direct Group did not exist as such during the last accounting cycle, Bertelsmann estimates its turnover for the current fiscal year to clock in at more than $3.3 billion.

Those are big numbers, but whether they add up to a wham-bam direct-to-customer strategy is the question dogging the European book clubs — once the company’s most stable cash cow — and their English-language counterparts. ”Nearly all book clubs face profit pressure because of lower margins,” according to a Bertelsmann statement. ”The risk of increased costs to acquire rights and the possible end in the mid-term of mandatory retail book pricing systems in Germany and Spain may have an impact on profits.” Indeed, according to company financial statements, operating income in the book division last year was $26.6 million, down drastically from $120 million the year before.

Falling income was attributed to investments in Internet distribution operations, as well as expenses related to BookSpan, the joint venture with AOL Time Warner‘s Book-of-the-Month-Club, which, along with Bertelsmann’s Canadian holdings, operates some 45 book clubs. A Bertelsmann spokesman acknowledged that the clubs ”have been facing a challenging situation recently,” but added that ”we are on a very good path now to achieve our goals.” (BOMC showed an operating loss of $18 million in 1999, before it became part of BookSpan, on revenues of $321 million.) Officials envision over a hundred clubs in the coming years, on the order of the new fly-fishing club, called On the Rise, which has targeted the 6.5-million adult American angler market. Member perks for the clubs are slated to include Web-based conveniences such as customized delivery options and online chats with fellow readers.

Still, BOL and seem somewhat synergy-deprived. Though now deployed in some 16 countries, BOL is eating loads of cash — expenses are high in part because the e-tailer is operated on a country by country basis — and the results are debatable. A Direct Group spokesman insisted that BOL has achieved ”leading market positions in the countries where it is operating,” and is working on expanding its position as a media retailer, including the addition of videos, DVDs, games and software. However, the Bertelsmann spokesman said, ”There are no plans to make BOL into a comprehensive portal site, as the DirectGroup’s businesses focus exclusively on media commerce.” As the corporate parent gears up to invest a reported $3.1 billion over the next three years in online activities, industry watchers suspect that BOL may be left behind, especially if Bertelsmann eCommerce Group chief Schmidt can devise a way to parachute out of the mess while saving face for all parties involved.

BOL’s future does look brighter in Asia. In December, it launched its shop in China, created in close cooperation with that nation’s Bertelsmann Book Club, itself a joint venture that’s now up to 1.5 million members. BOL China opened with access to 110,000 Chinese-language titles, and fired up Bertelsmann brass, as well. ”BOL China is leading the way for the direct business at Bertelsmann,” Direct Group chief Eierhoff said in a statement, adding that ”the close cooperation between the Club business and BOL illustrates the multi-channel strategy of the DirectGroup.”

Meanwhile, a Direct Group spokesman pointed to active cooperation between Bertelsmann’s British BCA book club and BOL’s U.K. site. The arrangement includes links between the two organizations’ Web sites, a collaborative sci-fi promotion coming up this month and even a ”bounty per customer” paid when members from one group visit or make purchases at the other’s site (club members get a 10 percent discount at BOL, shown as a credit on their club bill). In Germany, PC terminals have been installed in club shops, with access to the BOL site. And on a larger scale, costs are being cut through a centralized purchasing unit for European clubs, especially in the areas of paper and merchandising; a common IT platform for club businesses; and a move toward compatible back-end machinery in both club and e-commerce units.

Yet synergies of any sort seem missing-in-action from Bertelsmann’s stake in There, Bertelsmann’s long tradition of going into a country and partnering with the strongest player has run afoul of the Riggio brothers, who seem intent on keeping close to the vest. The site, which last month announced layoffs of 350 employees and closed two distribution centers, reported a net loss of $275.7 million for the year, up from $102.4 million the year before. Knowledgeable sources suggest that the river of recent bad news might be calculated to drive the dot-com’s price down, all the better for the Riggios to grab it back and fully exploit some clicks-and-bricks synergies of their own.

The apparent Riggio brush-off has had peculiar effects, namely that the words ”Bertelsmann” and ”” are being increasingly uttered in the same sentence, with ”acquisition” never far behind. Amazon’s possible alliance with Wal-Mart notwithstanding, the e-tailer would of course make a prime piece of online turf for Bertelsmann’s Direct Group portfolio, particularly since Amazon’s stock price — now trading around $12 and change, off almost 90 percent from a December 1999 high that topped $106 — is approaching rock-bottom. Whispers to that effect have been heard in the halls at Random House, a source says, though Bertelsmann is certainly just one of many global conglomerates savoring the moment Amazon chief Jeff Bezos comes begging.

Complicating the acquisition scenario is Bertelsmann’s recent deal for control of the RTL broadcast group, which has paved the way for the floating of Bertelsmann shares on the stock market in three years, something analysts say will finally bring to fruition Middelhoff’s dream of taking the media giant public. The prospect of IPO-financed acquisitions, combined with the broadcast deal, points well beyond mere Web synergies. Bertelsmann already owns the biggest television company in Germany, and holds stakes in some 22 TV broadcasters in nine countries. Observers note that a studio purchase would make a smart next move. Convergence, anyone?

Back in the Direct Group, however, rivalries are causing some Middelhoff-oiled gears to gnash. Last holiday season, for example, BMG Direct chief George McMillan admitted to strategizing against competitor — and corporate confrere — CDNow. Such talk belied McMillan’s real objective, however, which was figuring out how to get CDNow under his own wing, something he has now managed to do. (In a quiet move, CDNow’s chief now reports to McMillan.) Book-vs.-music tensions must flare at times, too. ”All the backbone and infrastructure is in the hands of the music business,” says one publishing veteran. Fulfillment operations are run by music club execs, relegating books clubs to the status, in effect, of a third-party client.

A few kinks in the Direct Group reporting chain can also be seen. While music clubs and the online units report to e-commerce chief Schmidt, BookSpan president and CEO Markus Wilhelm reports to Direct Group chief Eierhoff. Hence book clubs and music clubs aren’t clicking together as much as they might. And while Schmidt reports to Eierhoff on paper, he’s lately been relishing the role of being Middelhoff’s sidekick for the Napster follies, and parlaying his knack for publicity into an enlarged e-commerce fiefdom. Trouble for BOL and questions about the stricken Napster have only exacerbated the power struggle between Schmidt and his titular boss Eierhoff. So much for synergy.

Chalk it all up to the usual reshuffling aches and pains; Bertelsmann’s e-commerce investments may pay off in good time. Yet the Direct Group’s woes seem to run deep, and signal a chink in Middelhoff’s big-picture strategy. The entire direct-to-customer gambit can be reduced to one premise: the value chain is changing, so we’re going to own every piece of it. Whatever happens, we’re covered: content, distribution and customer relationship. As the company suffers what it frankly calls ”unbelievable competitive pressure,” however, it’s clear that owning the whole value chain comes at a steep price. Even with Bertelsmann’s fabled billions, yoking those links may be more costly than anyone dared imagine.

Destiny Awaits at AIBF

The Asia International Book Fair may be the new kid on the block of Asian fairs. But as it wrapped up its second consecutive year during the week of April 24, it was clear that the annual trade book show has already given the region some much-needed exposure, sparking a broad conversation about emerging trends in the Pacific Rim.

This year the fair brought together over 360 participating companies from 24 countries. The AIBF and International Library Expo were also held in conjunction with the Publishing and Library Asia Conference (PAL Asia) and the Emerging Trends in Library and Archival Services (e-tlas) show. The key focus this year was on — you guessed it — emerging technologies and the opportunities and challenges of the knowledge-based economy. The schedule included tech gurus such as Pearson advisor Carlos Alcazar, speaking on the travails of international distribution and reviewing a partnership model that Pearson Broadband hopes to roll out for its international expansion using local partners. Other events on the roster included a primer on the formidable retailing concept known as the “modern lifestyle bookstore” from Kenny Chan, merchandising division manager for Kinokuniya. Of course, in a printed statement on “DBooks and Libraries,” Dean Mason, business development manager for Australia’s Common Ground Publishing, minced no words about the cosmic fate awaiting us all: “The mass market of book production and distribution, as we have seen it evolve since the 1950s, is collapsing in on itself, facing its entropic destiny.” To stave off impending doom, he promoted the concept of libraries as “centres of publishing excellence” that combine online, multilingual publishing tools and print-on-demand technologies, all funneled through a library’s localized physical and digital resources.

The fair also launched an online rights center and appointment scheduler, while another highlight was the International Board on Books for Young People gallery, where IBBY Honor List books were displayed to encourage international understanding through children’s literature. All in all, AIBF seems to have made the leap from a library-oriented event to global coverage of a wide variety of media and markets. Stay tuned as the event keeps reinventing itself as the reference show for Asia.

We thank Shirley Hew and Leona Oh, both of Times Media Pte Ltd., for their contribution to this report.

Osho, Guru Extraordinaire, Is Long Gone — But His Books Live On


Nearly two decades after he captivated the world with escapades of gonzo spirituality as the Bhagwan Shree Rajneesh — he with the fleet of 93 Rolls-Royces and a controversial 64,000-acre commune in Oregon — the guru today known as Osho has been reincarnated as a mind-body-spirit book phenom.

Indeed, 11 years after his death from heart disease at age 58, the artist formerly known as Zorba the Buddha is pumping out more books than Vishnu has avatars. His latest, Love, Freedom and Aloneness, is due out this summer, following the paperback release this month of the Autobiography of a Spiritually Incorrect Mystic. Some 80 titles are in print in Italy, 2 of them bestsellers last year. Osho’s a bestselling author in India, with 200 titles in print there, and about 45 titles are on sale in Germany, including picks for Heyne, Econ-Ullstein-List and Bertelsmann.

And don’t forget China, where in 1996 alone 16 Osho titles sold a total of 600,000 copies, with Bertelsmann’s book club getting 100,000 copies of Meditation out the door before the Chinese government declared the deceased advocate of ”religionless religion” an enemy of the People’s Republic.

”In a certain sense he’s a dead author, but boy, that doesn’t keep him from writing new books,” says Michael Denneny, senior editor at St. Martin’s Press, which has published Osho in the U.S. since 1995. ”Osho’s basically having a comeback.”

The guru-provocateur is edging back into the literary footlights largely through the work of Osho International, whose three-year-old, New York-based offices manage the author’s rights. The group has signed more publishing contracts in the first quarter of this year than in all of 2000, according to Klaus Steeg, Osho International president. Plus, the door’s opening wider for Osho’s mischievously iconoclastic wisdom. ”St. Martin’s is getting more courageous,” Steeg says. ”They’re willing to look at much more provocative material now.”

Astonishingly, returns on Osho’s books are only 4 percent — a ”fairly good indication we could get a lot more books out there,” Denneny says. St. Martin’s began publishing Osho with the Osho Zen Tarot, which has now sold 150,000 copies in the U.S. and is published in some 18 countries. Due out this fall is The Art of Tea, containing a book of Osho’s meditations on the Zen tea ceremony, two Japanese tea cups and a bamboo mat. Also in the pipeline is India My Love, which will be St. Martin’s first full-color, illustrated Osho work. The idea is to keep moving from the new-age ghetto into the mainstream, a shift that’s been aided, incidentally, by none other than Tom Robbins — an outspoken supporter who once called Osho’s fleet of Rolls-Royces ”the funniest joke ever played on our pathological consumerism” and deemed Osho ”the greatest spiritual teacher of the 20th century.”

Osho, whose name comes from a Japanese word for master (but was also intended to riff on the philosopher William James’s use of word ”oceanic”) telegraphs his tomes from the next dimension via a strikingly efficient system. Under the editorial direction of Sarito Neiman, Osho International editors plunder vast archives of recorded talks — drawn from some 15,000 hours of original audio recordings, now transcribed in a searchable electronic database — and package up thematically related material. Though searching for discourses on ”courage,” for example, is a snap, putting the compilations together can be tricky. ”In the early days the tendency was to make an anthology that was almost anti-Osho, because the texts boxed in the original flow of his talks,” says Neiman. ”The challenge is to create the feeling of how he unfolds a subject, so that reading the book gives a flavor of listening to a complete talk.”

The challenges of publishing Osho certainly don’t end there.

As the infamous Bhagwan Shree Rajneesh, he presided over what became known as the Oregon town of Rajneeshpuram for four years in the early 1980s. Free love and flowing cash were widely perceived to be the principal commandments — at least by the surrounding rural community — until reports surfaced that the Rajneeshee security force had bought 47 assault rifles and hatched a plot to take over Wasco County. Other activities — including the poisoning of county officials — were generally ascribed to Osho’s personal secretary, Ma Anand Sheela, who later pleaded guilty to charges of attempted murder, arson, electronic eavesdropping and conspiracy, among other crimes. Osho was eventually kicked out of the country on charges of immigration fraud — moving to India permanently in 1986 — but only after the National Guard was mobilized and he was forced to take a six-day trip around the nation in a prisoner transport plane.

This wasn’t the kind of book tour publishers had in mind. Numerous houses dropped Osho ”like a hot potato,” says Steeg, who still marvels as he reads notes they sent him at the time, along with voided contracts. In Germany, Goldman published Osho’s childhood autobiography just as the Oregon debacle blew up. ”They pulled the book and pulped it,” Steeg says. ”Osho was really crucified in public.”

But as publishers look to consolidate their spiritual lists — ditching the whole guru-of-the-month trend — they’re seeking long-selling backlists. A decade under the bridge doesn’t hurt matters, either, Neiman adds: ”Once the messenger is gone, people have a little more space to look at the message.”

And they seem to like what they’re seeing, according to Denneny, who says he reluctantly took on Osho from a previous editor, but soon grew fond of the guru. ”He’s essentially a philosopher, and his central preoccupation is meditation,” Denneny explains, tagging Osho as a sort of Deepak Chopra minus the Ayurvedic medicine. And when talk turns to publicity, those Rolls-Royces are priceless. ”Absolutely everybody of a certain age knows who Osho was,” Denneny says.

And so, too, will a whole new generation, now that about 200 titles will be released as e-books, mostly in Microsoft Reader format and sold through Early May also saw the launch of the Osho Audiobook Club, which offers MP3 digital audio downloads of 154 titles, each lasting some 90 minutes and costing $3.50 a pop for subscribers (see Meanwhile, access to a full-text, searchable, online database of 227 Osho titles is now available for subscription fees ranging from $6.95 for a one-day pass to $49.95 for a year.

Still, Osho can get a cool reception in the U.S. ”It pretty much vanished,” says Steven Finlay of East West Books in Manhattan, referring to the guru’s publishing program. ”Sales are not what they used to be when he was alive. He used to have 30, 40, or 50 books out. Now it’s down to just a few.” And according to Sydney Hannan, a buyer at Stacey’s Bookstore in San Francisco, ”They don’t blow out. We have quite a few titles and they seem to sell steadily, but not in large amounts.”

Maybe he’s still ahead of his time. The Italian publisher Mondadori, which publishes many Osho titles, refuses to print titles it thinks will boggle readers. ”We gave them The Zen Manifesto,” Steeg recalls, ”and they said come back in 30 years. Maybe then people will understand this.”

International Fiction Bestsellers

Wine Dark Seas
Aegean Fables, France Between the Sheets, and Sweden Says ‘Pippi, Move Over’

A veritable odyssey of titles appears this month on the bestseller list from Greece, at the top of which is The Three Widows by Dora Yiannakopoulou, which traces the lives and friendships of three women who become friends after the death of their husbands, a bond which is sorely tested by the awkward realization that all three have fallen in love with the same man. The women are trapped in a web of guilt over crimes committed and secrets kept, and can only release themselves from one another with the price of a life. The Three Widows is Yiannakopoulou’s fourth novel, the three previous works being Trying on the Wedding Dress, The Great Stage, and With the ‘Yes’ of Love. All were bestsellers, and all have been made into Greek feature films. Kastaniotis controls foreign sales; contact Maria Fakinou (tel. 30-1-33-01-208, fax 30-1-38-22-530).

Also on the Greek list is The Pencil Factory by Soti Triantafillou, a weighty historical novel that opens in Cairo in the 1860s and concludes in Athens on the eve of World War II. It traces the friendship between Stefanos Assimakis, a genius engineer on the Suez Canal project, and Nicos Vangelis, a heavy-smoking, hard-living political revolutionary. In the expansive tradition of the European novel of ideas, this work wanders from exchanges of social thought on the Left Bank in Paris to revolution in Cairo, along the way taking in sexual intrigue in the Congo and political freedom in Zurich. Originally published in February 2000, The Pencil Factory has sold over 40,000 copies, with rights sold thus far only in Germany. The author’s new novel, Poor Margo, was written in English, and its Greek translation will be published in October. Triantafyllou has also published three collections of short stories, four bestselling novels, and a children’s book. See Nikos Trantis at Patakis for rights (fax 30-1-362-8950).

Political intrigue continues in Greece with Nikos Themelis, a writer whose day job is Counselor for Foreign Affairs to the Prime Minister. Initially, publishers were wary of touching so politically connected an author, but he’s struck it rich with his first novel The Subversion, which sold a total of 42,000 copies in 21 reprints. His current book, The Search, is set in 19th-century Greece, and tells the story of protagonist Nikolas in six different voices. Originally published in 1998, it’s turning into a secure long-term bestseller with sales now up to 52,000 copies and a 26th printing. Rights have been sold in Germany, Italy, and Turkey, and are handled by Maria Zampara at Kedros (fax 30-1-33-02-655).

Lastly in Greece, I, Martha Freud at #9 is the first-person narrative of Freud’s wife, Martha, and an imaginative dip into the psyche of a woman about whom little is known. As the publicists ask: Who was Martha Freud? What did it mean to be married to the man whose work refuted everything we had taken for granted about our psychological existence? In this novel Mrs. F lives a dual life: the public veneer of a devoted wife and mother of six, and a private life chock full of forbidden thoughts, dark desires, and shameless actions. Author Fotini Tsalikoglou was born in Athens and is professor of psychology at the Panteion University of Athens. Rights are handled by Maria Fakinou at Kastaniotis (see above).

While we’re on the subject of dark desires, France has been heating up between the sheets with the sensational release of The Sex Life of Catherine M. Author Catherine Millet is editor of ArtPress, a contemporary art magazine in France, and is a well-known personality on the nation’s art scene. What the publisher is calling “our hip book of the moment” is said to be a frank voyage through the author’s own sexual history, told with “bewildering bluntness and clarity” — and comes straight out of the great French erotic tradition of Colette and Nin. Immediately hailed as a classic by culture vulture Bernard Pivot of TV’s closely watched weekly French arts round-up Bouillon de Culture, the book sold through its initial print run of 10,000 by the end of the first day on the shelves in early April, and Seuil is now frantically printing some 10,000 copies per day. The total print run is up to 90,000, and translation deals have been made in Italy (Mondadori), Spain (Anagrama), and Portugal (Asa). German, Catalan, and English language rights are under discussion; see Jennie Dorny at Seuil.

Meanwhile in France, it seems Harry Potter now has a Francophone little sister. Plon’s new bestseller, also published in early April, is the first in a series of young adult fantasy books called Peggy-Sue and the Ghosts, boasting a sassy, crime-solving teenage heroine in magic glasses. Things have been going badly ever since the appearance of a blue sun in the skies over the city. The dogs are playing chess, and the cats have become mind readers. And as for the shoes, they’re prowling through the streets with the firm intention to kick the behinds of their former wearers. Set in a world whose boundaries only exist at the limits of the imagination, the first volume in the series, The Day of the Blue Dog, sets Peggy-Sue off to save the world from the invisible beings coming through the walls to play often deadly pranks on unsuspecting mortals. The author, Serge Brussolo, is a prolific sci-fi, fantasy, and thriller novelist considered by many critics to be France’s Stephen King. The first print run of 60,000 copies sold out on the day of the publication, and there are now 90,000 copies in circulation. Rights are sold so far in Korea, Greece, Hungary, and Portugal. US rights are handled by Kathryn Nanovic-Morlet at the French Publishers Agency.

A last quick mention for Ned’s Head by Soren Olsson and Anders Jacobsson, which is finally to be published stateside by S&S. It is being translated and “culturally adapted” for the American reader by the authors and translator Kevin Read. Originally published as Bert’s Diary in 1987 and a bestseller in Sweden, the book has now been translated into more than fourteen languages and has combined sales topping five million. Ned has now become a household name, outselling every book in every literary category in Sweden since 1990, including the Pippi Longstocking series, previously Sweden’s foremost literary export. There are now 14 books in the Ned series, all of which have debuted as Swedish bestsellers. Ned has also been adapted for TV in a 12-episode series, and the franchise continues as feature-length motion pictures in Sweden, Germany, Holland, and Finland.

No Pain, No E-Gain?

Despite lackluster sales and the death of all things ‘e’, there is continued interest from publishers in ebooks, epublishing, and elearning. So the seventh annual seminar hosted by University of Virginia and the Library of Congress on “Publishing in the 21st Century” was very much web-focused. The keynote was given by Hungry Minds’ CEO John Kilcullen (before his company was put on the market, though he made many self-deprecating remarks about its precarious state), and the panels were focused on “the new breed” of publishers, as one panel was indeed called.

One of the liveliest panels was devoted to “The Promise of Distance Learning.” The market of college-aged students is estimated to reach 160 million by 2010, with 60% of those in Asia. Singapore alone has 400,000 users on its university site, while a robust online university is flourishing in Istanbul, because it cannot afford to build schools to educate all of its youth. Michael Moh, a principal with ThinkEquity, an investor in educational companies, said that if the Internet is in the 21st century what the railroad was to the industrial revolution, then “distance learning is its tracks.” Most participants felt that a combination of on-site participation with distance learning was most successful.

There was much discussion of the future of textbook publishing, with Bob Christie, CEO of Thomson Learning Group, admitting that 52% of college students do not buy new textbooks; they either buy used, or they share with friends. But textbooks sales went up when there was also a web component. His company is looking at site-licensing online book content through participating universities. (At present, though all Thomson books are digitized as PDF files, the cost of adding tagging for all but a few is prohibitive.) Becoming ever more competitive on the p-book front, Thomson is testing a program that charges bookstores for returns, and offers the used book price to students whose professors require that they buy the textbook.

While pondering other “New Ways to Value Information,” Jon Winder, senior vp of Harvard Business School Publishing, confirmed that — yes — the “pay-for-content model” is on the ascendancy, as ad-driven schemes litter the dot-com wasteland and publishers scramble for alternate revenue streams. He noted that subscription or pay-per-use models were gaining favor, and examined some early successes such as the online edition of the Wall Street Journal (citing its financial relevancy) and the boom in X-rated content (it’s based on a “core passion”).

Moving on to passions of a different sort, David Sidman, CEO of Content Directions, plunged into the world of “recombinant publishing,” arguing that publishers must work to offer information at the right level of “granularity.” For example, online travel guides could sell just the “hotel” or “sights” sections, while business information publishers might consider selling pieces of analyst reports instead of a full subscription. The tricky part will be tagging all this content so that it can be identified at the granular level — the individual chapter, encyclopedia entry, recipe, etc. — and publishers must then create a “metadata database” so that the content can actually be looked up. Probably the cutest message from Sidman’s talk on digital object identifiers, however, was the heartwarming tagline: “A DOI is Forever.” Elsewhere, HarperCollinsLarry Bryant shared a few e-publishing tips. Most problems aren’t technical, but are process-related, he noted, before chanting the new corporate mantra, “Standards are GOOD.”

Few at the seminar, however, reported unalloyed success online, though Tim O’Reilly of O’Reilly Associates, with 21 million pages views per month, was closest to crowing. Laura Fillmore of Open Book Systems probably summed it up best when, referring back to John Kilcullen’s advice to “follow the money,” added, referring to the complexity and cost of co-ordinating technology and content, “I say, follow the pain.”

Easing Into the Ether

Last month Publishing Trends reported the results of its questionnaire on ebooks (see PT April, 2001). This month Vista International (with the Bookseller, Book Marketing Ltd., and Rightscom) gives us a peek at their survey of publisher attitudes toward technology, due out in June:

Surveying 80 “senior publishing executives” in trade, educational, professional, and academic publishing in the US and UK, the survey found that there was remarkable similarity between the US and UK markets, though there were differences within market sectors. Few publishers, the initial results show, have clearly defined strategies: “Many publishers are professing ‘wait and see’ strategies in their review of evolving technologies.” Not surprisingly, journal publishers are furthest ahead in technology strategies, while trade is the least developed. Most believe that the printed book will continue to dominate for the “the foreseeable future,” though this seems less clear in the academic market [see above story]. In the US, 50% of publishers thought that online delivery could potentially increase sales, with 80% of academic and 56% of trade publishers seeing this as a “significant” part of their market in five years. Most believed the change would primarily be in how content is delivered, not in terms of revenues.

Perceptions about the future of ebooks vary greatly. While some believed that ebooks may have some impact in the next few years, several more projected that the real impact may not be felt for more than a decade. The initial impact will be most relevant and evident in the academic and STM markets.

PoD is seen as the most established technology. [This contrasts with PT’s findings, which were skewed toward trade. Most respondents still felt that PoD was five years away as a routine option for book buyers.]

Consumer and education markets believed that the role of the publisher would not be greatly affected due to the importance of branding and publicity to the trade, and the difficulties in producing and organizing educational content. Academic and professional publishers were less clear, expressing that self-publishing is now a more viable option. However, this method creates problems with quality control, branding, and credibility.

Rack ‘Em Up

Publishers Scrimmage Amid Dwindling Mass Market Suppliers

The idiom of mass market book sales pops with so much merchandisers’ slang you could almost mistake it for a new extreme sport. You got your “lane blockers,” your “waterfalls,” your “power wings” and “gravity sleeves.” There are “clip strips” dangling product ready-to-hand, and “candyless checkouts” cheered by moms and category managers alike as kids grab for a high-margin book instead of a twenty-cent sugar buzz. The adrenaline gets pumping just thinking about all that prime, retail real-estate where books and bon-bons go head-to-head for the holy grail of shoppers’ “mindshare.”

In fact, the business of getting books to supermarkets, drug stores, variety retailers, and the like — traditionally known as the independent distributor channel — has evolved into a brutally combative game of dwindling suppliers, choked-off margins, and a mercenary retail playbook. While publishers generally agree that opportunities abound for books in the Krogers and the Overwaiteas of the world, breaking through to those impulse moments has become as grueling as ever — thanks largely to the consolidation that has raked the field over the last five years, leaving four major magazine and book wholesalers standing: Anderson News, The News Group, Charles Levy, and Hudson County News. Anderson, for example, zoomed from 6% of the market in 1995 to upwards of 40% last year. Meanwhile, News Group, headed by Jimmy Pattison, scooped up 27% of US magazine distribution in North America, rising from only 3% in 1995. As any magazine executive will confirm, consolidation has radically changed the economics of their business — for the worse.

Wagged By the Dog

“The most important thing you need to understand about this channel of distribution,” says Tom Stanley, former executive vp for distribution at Simon & Schuster, “is the difference between the tail and the dog. The dog is the magazine business, and the tail is the book business.” And that dog’s been in the doghouse since around 1995, when the 1,650-store Safeway supermarket chain declared it would use only a select number of major wholesalers. Other large retailers quickly followed suit, and in a blink hundreds of mom-and-pop wholesalers effectively went kaput. Supermarkets demanded larger discounts, as high as 30%, which squeezed wholesaler margins. Meanwhile, as Anderson News chairman Joel R. Anderson told the New York Times last fall, an estimated 1.2 billion magazine copies every year go to the shredder, never even leaving wholesalers’ warehouses (industry reports put magazines at a woeful 32% sell-through rate). Passing the buck, wholesalers have called for publishers to sell 40% of their magazines loaded at newsstands, or else face unpleasant service charges. News Group even hiked magazine discounts as high as 44%, brushing aside the industry standard of 40%.

As magazine publishers put their paws over their heads, views on the book business have been mixed. Rack-size mass market paperback sales — probably the best indicator for this segment, even though all formats are now flowing through independent distributors — are holding steady, according to the BISG, ringing in at more than $1.4 billion last year, a number estimated to rise 4.8% this year. On the other hand, says magazine consultant John Harrington, the share of books passing through independent distributors has dropped from 12–15% in pre-consolidation years to around 10% today. Since books offer higher margins to retailers — averaging 50% for some categories — wholesalers could theoretically sweeten their offers by throwing more profitable books into the mix. If only it were true in practice. “It doesn’t appear to have resulted in an increased book share,” Harrington says. “With the growth of the book superstores, people just don’t look to supermarkets and discount stores for their books. The market may not be appropriate.”

And say goodbye to distribution depth, as wholesalers halt deliveries to smaller retailers and ditch slow-selling titles. Tim de Young, senior vp for sales and marketing at Dorchester Publishing, laments that News Group has cut distribution to just 45–50 new titles per month for its entire book line. News Group’s books are 75% backlist with name-brand authors, de Young says, and there are no category sections — just “New Arrivals,” which aren’t so new given that stock is only rotated every six months. Returns may be down, but customers obviously won’t have much incentive to keep coming back for more. (News Group officials did not respond to requests for comment.) Still, Dorchester’s sell-through is 50%, higher than the industry average, with 40% of that business going through Wal-Mart and Kmart.

Distributor consolidation has its bright side, publishers acknowledge. “It’s easier to manage a smaller group than it is to manage hundreds,” says Stefan Kaiser, vp for sales and marketing at Simon & Schuster. “Certainly that’s a major change. Publishers are actually looking at this as a business.” While sales may not be as strong as they could be, the sector has become more profitable through tighter inventory control. But consolidation may exact the ultimate price by sacrificing authors themselves. “Competition helped the mass market get the midlist out into the marketplace,” Kaiser adds. “Everyone has to play on the Stephen Kings of the world. It’s developing and growing the next big author that consolidation has hurt.”

The Next Blue-Light Special?

Amid the tectonic shifts in the marketplace, many publishers and distributors are singing the old refrain of category management: putting the right books at the right prices into the right stores at the right quantities. “Being the man in the middle makes efficiency a major goal,” says Sharon Hails, senior vp of merchandizing and marketing for Sher Distributing. “We are not in a business to kill trees.” Sher closely watches what sells in every store, she says, and is establishing sales ranks for different categories of books to reflect what sells best where, in some cases maintaining title-by-title planograms for every department she manages. “You can’t run it as a cookie-cutter business,” Hails says. “We’re actually starting to work with space management programs to make sure everything fits on the shelf.”

A life buoy has also floated into view in the form of the specialty market, which has been the sole growth area in the magazine business. According to Folio, Ingram Periodicals shipped to 5,300 locations in 1994, a number that climbed to 10,000 five years later. (Ingram ditched the ID book business years ago because it was so unprofitable.) Likewise, specialty distributor Retail Vision ramped up its load from 150 titles in 1995 to over 600. This sector is booming in part from the small retailers left high and dry as key distributors pulled out. “Retailers are demanding service,” says John Morthanos, vp specialty sales for magazine distributor Curtis Circulation. “Many of the retailers we’re dealing with have lost access to titles that were doing very well in their stores.” Though such sales require effort, they pay handsomely in higher sell-through (Curtis sees 60%).

The book biz would do well to take note, says Tom Fogarty, vp for single copy sales at Retail Vision, which is a unit of Primedia. Fogarty drops magazines into chains such as Blockbuster, Musicland, and Home Depot — and says he would gladly handle books. He’s also been using co-op to drive consumers to stores in a marketing deal with Wal-Mart and Seventeen magazine: Wal-Mart places ads in the magazine, and links are established between websites, so that teens surfing the magazine’s pages can click over to now hip Wal-Mart’s site to buy clothes online. Meanwhile, George Bick, vp director of sales for Avon/Morrow, says he’s had success getting HarperCollins’ Lemony Snicket series into Target stores (via Levy) and the 130-store Fred Meyer chain in the Pacific Northwest (via News Group), no small thing considering the $9.95 price point. He notes that the advantage of small regional distributors was their proximity to the local constituency, which allowed them to select the most appropriate titles for their customers. Though battered by consolidation, smaller distributors such as Gopher News in the midwest are regaining a foothold in underserved markets.

Books, however, are still a long way from the next blue-light special. “It’s a sidelight,” says Rich Maryyanek, senior vp of marketing for Golden Books. “I’m not sure the category is properly utilized in any supermarket.” Golden has tried everything from cross-promotions with diaper companies to coupons for $1 off when buying two Golden Books and a toothbrush. Moreover, a recent cross-promotion for Nickelodeon character SpongeBob SquarePants — who resides in a pineapple under the sea — has put displays in produce aisles that offer a purchase incentive for pineapples. “We’ve had produce managers who called us and said this is working so well, they want three or four of those displays shipped in immediately,” says Maryyanek. Such is the luxury available to Golden, which still captures around a 25% retail unit share for children’s books. Rumors of Golden’s impending demise notwithstanding, Maryyanek says there’s more volume for the taking. “We believe that this market has untapped potential,” he says, adding that his current business “could be doubled” if it was merchandized with more savvy. After all, what have retailers got to lose? “We’re guaranteeing 50% margins, and retailers can return what they don’t sell,” he adds. “It’s a nice value proposition.”

Your Party Primer

It’s nearly BEA — which must mean that party season is on us again. What to do, where to go? While the fashion and film pack are given free nights galore at breathtakingly trendy Park with its planted tree in the middle of the floor and psychedelic fish-tank in the VIP bar upstairs, we publishing types must grit our teeth a little and hope that in a couple of years, once Gwyneth et al have quit it for the last time and we’re finally allowed past the hallowed ropes, the windows will still be cleaned regularly before the reading or book launch.

Actually, that’s a little unfair. Bridget Harrison at Nadine Johnson, superhip PR for all places new and hot (including Park) does do some book events. For instance, the boxy backroom APT (not, fyi, referred to as “apartment” but just by the letters as all people in the know will know), the new cool lounge in the meat-packing district, was launched with a book party for Anna Johnson’s Three Black Skirts. The room was given at cost as the demographic of the attendees seemed right, and it’s a formula that’s worth discussing. If you can prove that your guests are going to be young, groovy, gorgeous, and rich, you’re likely to get a freebie. If, however, the suits on publishing salaries are going to turn up, you may find that somehow, there won’t be an available room for months in advance.

Elsewhere, DKNY harbors a few literary enthusiasts looking for good ways to extend the sense of “lifestyle” over “trend” that Donna Karan has always promoted. They launched their own literary series at the flagship store on 60th and Madison last autumn with Candace Bushnell’s Four Blondes party, followed soon after by Brit-lit chick India Knight. The books, says PR chief Patti Cohen, definitely don’t have to be fashion related, though they would of course be looking for appropriate cross-over with the store, focusing on potential customers for them, as well as building the international DKNY brand. Prices are negotiable. By the way, Ralph Lauren is another fashion name open to exploring industry cross-promotion; contact Brooke Livingston at corporate HQ.

Thirty blocks down Madison, on the corner of 41st, with appropriately spectacular views of the Public Library sits the small but elegant Library Hotel. Designed so that each floor corresponds to categories of the Dewey Decimal system, you’ll find that accordingly your room will be filled with anything from science texts to erotica. Some $80,000 was spent at the Strand Bookstore to finish off the décor properly. On the top floor, with a terrace folding out at either end is the writer’s den and poetry garden where parties for up to 135 (as long as the weather is good enough to allow you to spill outside) would be enthusiastically hosted. Contact “honorary librarian” Adele Gutman for more information. All writers will be welcomed, and it’s worth negotiating in case management has a soft spot for the writer in question (writers will also get better rates on rooms there). Check out sister Hotel Giraffe, which also has a great party room.

Way over west at 505 West 23rd is the nearly new Half King. The bar/pub is particularly sensitive to writer’s needs as its founder is Sebastian Junger. Inspired by the wooden simplicity and cosiness of Europe, there’s a long central bar and different rooms at different prices, which can start as low as $300, but you’ll have to buy your own.

Heading on downtown, Housing Works Used Book Café still hosts some of the best parties in town, from the annual New Yorker bash to the irrepressible McSweeney’s open party. The bookstore helps by promoting open events with its own (reasonably extensive) mailing list. If you want to rent the whole space for a private party, rates are $500 per hour after hours, or $750 if you want them to close shop early.

Contacts: Nadine Johnson, 212 228-5555; see Bridget Harrington. The Park 118 10th Avenue bet. 17th & 18th Streets, 212 352-3313; see Nadine Johnson. APT West 13th between 7th & 8th Avenues; contact Nadine Johnson. DKNY HQ 550 7th Avenue, New York, NY 10018, 212 768-5800; see Erin Hawker. Ralph Lauren HQ 650 Madison Avenue, NY 10022, 212 318- 7000; see Brooke Livingston. Library Hotel 299 Madison Ave. at 41st St., 212 938-4500; see Adele Gutman. Hotel Giraffe 365 Park Avenue South at 26th St., 212 685-7700; see Rose Revicki. Half King 505 West 23rd St., 212 462-4300; see Anthony Tousi.

Russian Roulette?

As Russia’s book culture rebounds — witness the White Nights International Book Fair, slated for June 27–30 in St. Petersburg — copyright remains a needling concern. Yulia Borodyanskaya of reports from a recent conference meant to bolster awareness of the nation’s intellectual property laws.

St. Petersburg is slowly but surely emerging as the cultural capital of Russia, and it took a step further during the frigid week of February 5, when it served as ground zero for the Conference on Copyright in Culture Management, Publishing, and Electronic Rights. The relevance of such a conference is hard to underestimate, which partly explains the firepower behind the event, whose hosts included the St. Petersburg V.V. Nabokov Museum, the Soros Foundation, and the US Consulate General. Speaking to an impressive audience of museum workers, book publishers, web designers, and theater producers were a group of Russian and American copyright experts, accompanied by guest of honor Dmitri Nabokov himself.

The gauntlet flung down before this august body was a report from the Gallup St. Petersburg Research Company, which found in no uncertain terms that knowledge of the Russian Copyright Law is limited. After conducting in-depth interviews with leading print and electronic publishers in Russia, researchers found that 97% of respondents agreed with the statement that Russia has a problem adhering to copyright law. Moreover, many did not possess concrete knowledge about the law and the precise fields it regulates. While heads of publishing houses and cultural institutions may harbor general opinions and ideas about copyright protection, they do not possess enough formal knowledge of it, the report concluded.

And that’s a problem. With a total of over 1,635 publishing houses registered in Russia (though this number doesn’t include publishers in other republics of the former Soviet Union, and estimates of active Russian publishers have ranged as high as 4,000) there are at least 1,200 based in Moscow and another 200 in St. Petersburg, all of them heavily engaged in buying literary rights. Among these 1,400, there are at least 100 large publishers, each with an average of 30 rights licenses annually; 500 medium publishers, with at least 3 licenses annually; and 200 small publishers, with at least one license annually. The amount of advances varies from a high of $2,000–$3,000 per license down to $500 per license, depending on the size of the house. In a market still dominated by five foreign sub-agents representing US or UK firms, Russian publishers say, the challenges of complying with copyright laws — searching for authors and their heirs (both Russian and foreign), seeking permission to use intellectual property, and estimating a fee for such use — remain daunting.

Those inside the Russian book industry attribute many shortcomings to the bottleneck created by what some call a monopoly of the five sub-agents, four of which — the Andrew Nurnberg Agency, the Permission and Rights Agency, the E. Van Lear Agency, and the Alexander Korzhenevsky Agency — are said to control almost 66% of all book rights brought into Russia. While dutifully representing a large number of Western proprietors, these sub-agents aren’t able to handle all rights requests they receive from Russian publishers, particularly for properties they do not represent. Some critics charge that the bottleneck leads to financial and ethical improprieties with respect to copyright. Publishers also say it’s “next to impossible” to hire an experienced in-house foreign rights agent in Russia. And some plead with Western agencies and publishers to make direct liaisons with Russian copyright buyers.

As the Gallup research warned, the road to compliance may be a long one. When asked if a legal framework for copyright law in the St. Petersburg region would be feasible, 40% of respondents expressed confidence, but 40% doubted that any such system could be organized. “The avoidance of copyright is based on purely economic relations between the author, publisher, and author-executor,” one respondent candidly observed. “If it is profitable to violate copyright, it will be violated.”

Still, the mere fact that many copyright disputes are nowadays taken to the Russian Civil Courts is an achievement in itself. Local copyright defenders have also cheered the launch of the excellent Russian Copyright Monitoring website, which is now a destination for Russian publishers and other cultural managers involved with the copyright of intellectual property. The site gives step-by-step instructions on how to obtain a permission to reproduce or perform a copyrighted work, and provides a platform for discussion of the complex regulations. Such tools seem a promising start in addressing what most parties agree is the real impediment to copyright in Russia — a dearth of practical information about the laws and their consequences.

International Fiction Bestsellers

The Streets of London
Cumming Goes Undercover, More Fodder for Potter, and Delahunt Reaches for the Orange

With all eyes focusing intently on the latest deals from the London Book Fair, we thought we’d swivel the periscope toward what’s hitting the stores this summer in the UK. For starters, Charles Cumming’s A Spy By Nature (May, Michael Joseph) is a tautly paced, tightly plotted novel about the new face of spying: industrial espionage. The protagonist, Alec Milius, is approached by MI6, and the first quarter of the novel is a detailed and compelling look at the process of reinventing oneself as a British spy. The (extremely promotable — PT has seen a photo) author was himself approached by MI6 upon his university graduation, and the narrative has a convincing insider’s tone. With a blurb from Robert Harris calling him the new le Carré, this one is sure to have legs. See Lucas Alexander Whitley for rights.

There’s certainly nothing covert about Simon Prosser, publisher at Hamish Hamilton, who can do no wrong at the moment. With Zadie Smith under his belt, and having acquired the smoking novel of the fair (Hari Kunzru’s The Impressionist from Jonny Geller at Curtis Brown), he’s currently publishing the brilliant Ali Smith’s new novel, Hotel World. The latest work from the prize-winning Scottish short story writer is set in an English seaside hotel and focuses on the strange circumstances surrounding the death of one of the five characters in the novel, examined through the eyes of the other four characters. The prose is startlingly fresh and original, and the author’s eye for detail makes for a high-impact read. Newly crowned prince of literary fiction Jim Crace declares, “I doubt I shall read a tougher or more affecting novel this year.” All rights are handled by David Godwin.

The Harry Potter boom continues: a quick mention here for Philip Pullman, who has at last gone onto the bestseller list with the third part of the His Dark Materials series, The Amber Spyglass. Pullman now has deals in 21 languages — watch out Joanne Rowling. (Incidentally, Peter Tallick of Weidenfeld & Nicolson has just commissioned a piece of non-fiction about the psychology of Harry Potter — Chicken Soup for the parent’s soul?) In the same sphere, also set in a recognizable but curiously skewed England and written by Jasper Fforde is a series of books that have crossover appeal to an adult/young adult market (sound familiar?). “There is another 1985, somewhere in the could-have-been, where Wales is a Socialist Republic, dodos are available in home-cloning kits, the Crimean war is 131 years old, and the ending to Jane Eyre is less than satisfactory. This is the 1985 of Thursday Next, a literary detective without equal, fear, or boyfriend.” Hodder has commissioned two and will publish the first in June, and Terry Pratchett declares he’s going to be “watching my back.” See Janklow & Nesbit for rights.

Back in the real world, but set a little further afield, two China-related novels are looking like strong contenders for the summer’s big reads. The first, sold by Annette Green at last year’s book fair, is Justin Hill’s The Drink and the Dream Teahouse, which does have a US deal, and second is Sid Smith’s debut Something Like a House, for which the agent, Caroline Dawnay, says she’s never seen such reviews for a first novel. Set against the austere times of the cultural revolution in China, James Stuart Fraser, a private in the British Army, deserts and ends up spending 35 years “among the unshiftable Chinese.” Many of those years are spent in the wretched poverty of a village of the despised Miao people, where life revolves around the solitary buffalo. The tedium of Fraser’s rural subsistence (existence is too strong a term) is evoked in a controlled prose, filled with convincing detail. It’s an extraordinary leap of imagination for the writer, a copy-editor at the (London) Times, who has never been to China. Rights are still available from Peters, Fraser & Dunlop.

Meanwhile, Meaghan Delahunt’s novel In the Blue House (Bloomsbury) lands on the recently announced Orange Prize longlist. The book covers the years that Trotsky spends with Frida Kahlo in Mexico, and flashes back to Trotsky and Stalin’s childhood, building up a portrait of Stalinist rule at the height of the purges. The author, an Australian short story writer, dropped out of college to become a communist recruiter on the factory floor. Rights have been sold only in Greece so far; see Bloomsbury UK.

Sceptre’s Orange hope lies with Fred and Edie by Jill Dawson. The novel is based on a 1922 trial of a woman tried for conspiring with her young lover Frederick Bywaters to murder her husband, Percy. The trial took place in front of heaving crowds at the Old Bailey, who thrilled to a story of an illicit love affair, a back-street abortion, domestic violence, murder, and the prospect of a double execution. Drawing on newspaper reports as well as letters by Edie to Freddy, the author creates an intimate voice for Edie in a story of one woman’s attempts to defy convention. Hodder controls world rights, and a film based on the book, Another Life starring Natasha Little and Ion Gruffedd, will be released (in the UK) next month. We also note that many of the big hitters are returning to the shelves this spring, including Jonathan Coe with The Rotters Club and Pat Barker with Border Crossing. Talk of a hotly contested Booker has already begun.

It’s adieu to a long reign on the Australian list for The Blue Day Book, a small-format, picture-based book containing cute and humorous photos of animals with captions lightheartedly illustrating the misery of human existence. Working off a similar market to the Little Book of Calm series, which scored huge successes for Penguin worldwide, the book was originally turned down by nearly everybody, reports agent Al Zuckerman. Published in the US by Andrews McMeel with a first printing of some 20,000 copies, it was jumped on first by Walden buyer Linda Jones for counter display. The rush began and sales at Walden alone now stand at over 100,000, with over 300,000 in print. Meanwhile, sales are just taking off at Target and look set to be huge. Book two, Dear Mom, published in March, is already over 75,000 copies and September is set for the third, Looking for Mr. Right.

A brief welcome to Greece, where Louis de Bernières continues to reign supreme (in both languages). Thanks to Eleftheroudakis bookstores, Greece’s finest and best-established chain, details of the hottest sellers there will be forthcoming next month.