Break them Up

Before we get to our main topic, one of the things that surprised me about the book business when we launched Sutherland House is the nature of its seasonality.

The simple fact is that one in four print books is sold in the holiday season, covering November and December.

That’s American data. Canada is much the same. For the first eight months of the year, book sales in non-Amazon outlets seldom top a million copies a week here. That number can swell by five or ten per cent in September and October before lifting off in November towards a December peak of more than 2.5 million copies. The fun ends as fast as it started. The first weeks of January tend to be dismal.

I noticed the holiday bump around the time we launched Sutherland House. I’d been researching sales patterns to get a sense of the optimal time to launch our books. It occurred to me we should make them available when people are in the stores and in a buying mood.

I also knew that most books only get a couple of months of shelf time in bookstores, especially at the chains (Chapters/Indigo, Waterstones, Barnes & Noble) which turn over their inventory at a frantic pace. There’s a harsh reality to the turnover: there are far more good books available than any store can hope to carry, so why stick with a title that’s not moving? Send it back and give the space to something else.

And another consideration: book media. You are incredibly lucky if your book, out of the half-million published every year (between the US, the UK, and Canada), is considered relevant by newsletter reviewers or podcast hosts or newspaper columnists. Bask in that glory as long as it lasts, which, for the vast majority of books is a week or two. If you’re blessed, you’ll get a couple of months. If you’re a genuine blockbuster, and there’s a Netflix series to follow, you might hold the media’s attention for years — Big Little Lies, for instance, or John Carreyrou’s Bad Blood — but you can almost count on your hands the number of books that get that treatment.

Given the high retail traffic of the holidays, and the relatively short lifespan of a book, it seemed crazy to me that other publishers were launching their books fairly steadily throughout the year rather than waiting until people were ready to buy. For about five minutes, I was convinced that Sutherland House should release every title in its catalog in mid-October so that each would be in stock and receiving media attention in November and December.

Of course, it’s never that easy.

While the big firms do produce their books fairly steadily throughout the year (avoiding the deeps of winter and summer), a lot of their biggest bets are placed in September and October with an eye to the high season. That crowds out the little guy.

Also, those big bets tend to suck up all the media oxygen in the fall, making it still harder for everyone else to get attention.

And another thing: the seasonal buyer is different than the year-round buyer.

The seasonal buyer isn’t scanning the whole spectrum of available books. He or she is honing in on blockbusters. Look again at the seasonal chart above. This holiday, pretty much every millimeter of each blue line that extends above the average weekly sale for the year will belong to one Obama or the other.

The seasonal bump goes to a ridiculously small number of books. Small press offerings, no matter how worthy, seldom appear under Christmas trees.

As a practical matter, it makes no sense for the vast majority of books to compete for the holiday market. That market is for someone else.

It’s unfortunate to be more-or-less shut out of prime bookselling season but the brighter side is that you’re left with the whole year to play with. Dedicated readers, as opposed to gift-givers, are pretty much always in the market for a good book.

It’s shocking to me how little attention the proposed merger of Penguin Random House and Simon & Schuster is getting from Canadian media. Neither the business nor the arts desks seem interested. Maybe it’s a lack of reporting resources, which these days is usually the culprit in uncovered stories, or maybe it’s a lack of insight into what we’d be left with if the Canadian branches of those firms combine.

The Association of Canadian Publishers (ACP), representing the little guys in our book publishing field (Sutherland House is not a member), took a stab at defining the issue last week not long after the $2 billion (USD) sale was announced: the merger of Penguin Random House and Simon & Schuster would create a monster in Canada, hampering the efforts of Canadian-owned publishers to compete in their own market.

Said ACP executive director Kate Edwards, “Canadian authors will have fewer houses to present their manuscripts to, jobs will inevitably be lost as operations are combined, and S&S/PRH will have greater ability to demand even better terms of trade with retailers and suppliers. A culture of ‘blockbuster’ publishing will become more entrenched. All of this will increase pressure on independent presses who already struggle to compete in a concentrated market dominated by large global companies.”

The ACP dragged out the Revised Foreign Investment Policy on Book Publishing, Retail and Distribution (1992) which supposedly requires the minister of the Department of Canadian Heritage to review indirect foreign acquisitions resulting from larger international transactions to ensure they provide net benefits to Canada and a supposedly Canadian-controlled book sector. As a practical matter, our federal government has ignored this policy and winked at previous mergers and acquisitions (like the one that combined Penguin and Random House in the first place).

The ACP also wonders if the deal doesn’t violate the Competition Act by severely diminishing competition in the Canadian book market.

All due respect to the ACP, some of its arguments are red herrings. Simon & Schuster Canada (S&SC) wasn’t publishing a lot of books in Canada (as opposed to distributing its American parent’s titles here) and it will likely continue to publish roughly the same number as part of Penguin Random House Canada (PRHC). As we discussed last week in our larger review of the proposed merger, The blockbuster mentality of the big houses already pertains to both S&SC and PRHC; it won’t be much different when they merge. Nor will the ability of independent Canadian publishers to compete with global players be seriously affected. One could argue their ability to compete might be enhanced if the combination of PRHC and S&SC results in the big guys competing less with each other and paying lower advances for books in Canada.

The legitimate points are three:

  • Jobs will be lost. This was the demonstrable result of the previous merger of Penguin and Random House, as discussed last week. It is reasonable to expect half the current Simon & Schuster Canada payroll to disappear within a few years of the deal’s consummation.

  • Canada will be down to two big publishers: HarperCollins and the combined PRHC+S&SC. (The US will still have a big four, including Macmillan and Hachette). PRHC+S&SC indeed will be a monster with “greater ability to demand even better terms of trade with retailers and suppliers,” to say nothing of shaping Canada’s literary culture.

  • The deal subverts the government’s stated policy of fostering a competitive, Canadian-owned publishing sector operated primarily to the benefit of Canadians.

The employment angle requires no elaboration. It’s bad for Canada. The monstrosity issue is more involved.

To an extent, Canada needs well-capitalized publishers that can place big bets on good books and market them throughout the world. Book publishing is a global enterprise and scale matters. Penguin Random House Canada, at the moment, is large but with two multinational competitors (HarperCollins Canada and S&SC) and hundreds of independent houses in the field, I don’t believe it is too large. But I worry about a combined PRHC+S&SC.

There’s not a lot of current and publicly available material on the precise size and market share of the big firms in Canada, which I suppose explains why the ACP is vague on this point and running off in other directions.

From what I’ve been able to dig up, Penguin Random House Canada, Simon & Schuster Canada, and HarperCollins Canada together represent about 80% of multinational sales of trade books in Canada (trade books being ones you see in a bookstore as opposed to technical books, textbooks, and religious books). A handful of firms, including Wiley, McGraw Hill, Hachette, and Scholastic make up the other 20%. The latter firms sell their American and British titles in Canada but don’t publish original books here.

In addition to the multinational or foreign-owned firms are Canada’s independent publishers, the likes of ECW, House of Anansi, Dundurn, and Sutherland House. They reduce the market share of the big three to 65% to 70% of the total Canadian trade book market.

Most of the people I’ve spoken with this week believe that Penguin Random House Canada is twice the size of either Simon & Schuster Canada or HarperCollins. Thus the combination of Penguin Random House and Simon & Schuster would give it somewhere between 50% and 52% market share, leaving one competitor, HarperCollins, with a roughly 17% share, and a couple of hundred small fry fighting over the remainder.

There’s a largish margin-of-error on those numbers but it doesn’t matter. Any way you look at it, we’re left with a single foreign-owned firm in a dominant position in Canadian publishing. PRHC+S&SC will be powerful enough to set its own terms. That spells trouble for agents, printers, booksellers, librarians, authors, and everyone else in the publishing ecosystem. Consumers will become overly reliant on one firm for their literary needs.

Let’s compare the publishing landscape to telecom. Canada has long had three big providers of internet, cable, and cellular services: two heavyweights, Rogers and Bell, and a middleweight, Telus. These three firms combined to produce 90% of the revenue in the telecom space. Our federal government deemed the relatively fair fight between these large and well-capitalized companies to be an uncompetitive situation. Over the last decade, and especially in the Harper years, it spent billions in the form of spectrum allocations and other measures to force more competition into the sector. We now have the original three plus a new lightweight, Shaw, and the government is still not convinced that the telecom sector is competitive.

Of course, every industry is different, and what applies in telecom does not necessarily apply in book publishing, but the telecom guys look dog-eat-dog competitive compared to the emerging literary environment.

Another point of comparison is the newspaper industry where Postmedia, after swallowing the Sun chain, enjoyed a dominant position in its market, similar to and perhaps stronger than what PRHC+S&SC would have in books. The difference there is that newspapering is a business in rapid decline. Regulators don’t mind consolidation among failing businesses (although they should have minded in this case because allowing a heavily-indebted and effectively foreign-owned Postmedia gain ownership of the Sun chain accelerated rather than forestalled the decline of Canadian newspapers). The book sector, still showing modest year-over-year growth, is not the newspaper industry.

It will be hard for a Canadian regulator to argue that our book sector will be competitive after this deal, or that Canadians are well served by a firm so dominant as PRHC+S&SC.

Strictly as a commercial proposition, the combination of Penguin Random House Canada and Simon & Schuster Canada should be blocked, and S&SC sold to someone else.

As for the ACP’s third point, that the deal subverts the government’s stated policy of fostering a competitive, Canadian-owned publishing sector, I don’t know where to start.

The Canadian book sector, except at the margins, is neither competitive nor Canadian-owned. Now less so than ever. After a half-century of efforts, the policy is a colossal failure.

By proposing to acquire Simon & Schuster Canada, the owners of Penguin Random House Canada are pissing all over the federal officials who claim to be managing our cultural sector in Canadian interests. But then those officials pissed all over themselves seven years ago when they allowed Simon & Schuster, contrary to existing policy, to set up shop as a publisher in Canada.

We’re now looking at a situation where one big multinational and its HarperCollins sidekick own Canadian publishing lock-stock-and-barrel while the Canada Council and the Department of Heritage, propping up a couple of hundred insignificant firms in a tiny corner of the domestic market, insist they’re the standard-bearers of Canadian literature.

Good Godfrey.

In addition to blocking the deal for commercial reasons, the federal government needs to go back to the drawing board and devise a workable and beneficial publishing policy.