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The Media Equation: Why Barnes & Noble Is Good for Amazon

July 14, 2013 by Leave a Comment

In one aisle, a father and daughter were having a spirited generational discussion over the side-by-side covers of “The Great Gatsby,” one of which bore an image of Leonardo DiCaprio. For reasons I wasn’t quite clear about but nonetheless found charming, an older couple used a book on vegetarian cooking to cover up a copy of “The Art of Seduction” on the shelf. Nearby, two apparent siblings, one sporting pink hair and the other purple, traded loud opinions over the True Crime display.

Watching the readers lounge in chairs with a view of Route 3, it was hard to reconcile the pageantry of retailing with the brutal recent headlines about the book business.

At the beginning of the July, the Big Six publishers became the Big Five with the blending of Penguin and Random House. At the beginning of last week, the chief executive of Barnes Noble left the company after a grim earnings report that highlighted a failed strategy to have the company’s Nook device compete in the crowded tablet space.

Then on Thursday, Judge Denise L. Cote of United States District Court in Manhattan issued a withering decision against Apple, writing that the company had conspired with the major publishers to fix the price of e-books in an effort to thwart Amazon’s momentum.

So far, what has been bad for the industry has not yet hit consumers directly. If they are among the many millions of people enthralled by CBS’s “Under the Dome,” and decide to read the giant Stephen King novel that inspired it, they can hop on Amazon and buy it with a click for $13.99. Or they could avoid its door-stopping heft and spend just $7.99 for the Kindle version.

No wonder that last year e-book sales boomed, including a 42 percent rise in sales of fiction. Net revenue for publishers also climbed more than $1 billion in 2012, to $15 billion, according to BookStats, an annual survey of the book business.

But while publishers revel in the robust margins provided by e-books — no manufacturing, no shipping and no remaindering — the growth of Amazon leaves them as secondary characters in a business they used to control.

Apple may be the one that was found guilty of setting prices, but Amazon has the kind of market power that allows it to set prices unilaterally. The company is already pulling back on discounts on scholarly and small-press books.

Barnes Noble tried to keep up with the technological shift, but the company’s earnings were perforated by a $177 million loss from its Nook division, and that news took out William Lynch Jr., the chief executive, and threw a deep scare into publishers.

In my view, Barnes Noble is a company that did the right thing, and got clobbered anyway. When most media companies get into the device business, what pops out is clunky and useless, but the Nook is an excellent reading device that drew critical praise and, initially, buyers. At a time when legacy media companies are derided for letting the future overtake them, Barnes Noble aggressively innovated.

Amazon, however, not only had the Kindle, but consumer relationships, inventory and technical know-how that could not be overcome. And as consumers moved from e-readers to tablets to take advantage of multiple functions like video, the Nook ended up in a corner. During last Christmas season, Nook sales were down 12.6 percent compared with the period a year earlier.

But the current spate of bad news may mask underlying strengths. As Bloomberg News pointed out on Thursday, Leonard Riggio, the 72-year-old architect of Barnes Noble’s national buildup, is still considering buying the physical stores and taking them private, in part because the fundamentals of that business are still solid, if not spectacular. In the fiscal year that ended in April, the retail stores and Web site generated earnings of $374.2 million before interest, taxes, depreciation and amortization, a 16 percent increase, even as sales declined almost 6 percent.

One of the parties that might want to root for Barnes Noble is Amazon. Sales of e-books fell immediately after Borders went under, leading some to suggest that reduced opportunity to browse the physical artifact resulted in less online buying.

Having a bookstore in your neighborhood, as opposed to one that is bookmarked on your browser, is an invitation. Not long ago, I was walking by an airport bookstore and thought, “What if this was the only place to buy books?” Similar to Hollywood, only the blockbusters would get shelf space.

After Borders called it quits two years ago this week, Barnes Noble became the last big chain where publishers could get the exposure for their books that allows readers to discover them, and to sell all manner of books big and small that are still part of the foundation of the industry.

Morgan Entrekin, publisher at Grove/Atlantic, says everyone has skin in the retail game.

“We need to have a diversity of distribution channels to be healthy, and Amazon may want it all, but they are smart enough to know that,” he said. “People can’t live online all the time.”

Bookstores offer discoverability, not just the latest Dan Brown or Carl Hiaasen book on the front table, but sometimes treasures deep in the stacks, a long tail of midlist authors and specialty books. Even as the book business consolidates, the physical object displayed in an actual place will continue to be an important part of the ecosystem.

Let’s hope it survives. From the balcony of the Barnes Noble, what looked like the buzz of literary commerce was less impressive on closer inspection. The checkout line was busy because there were only two people working the registers. And the coffee shop was not so much an amenity for consumers-on-the-go than a spot where people camped out and pawed over magazines they had not bought and probably never would.

On the way out of the store, I saw the father and daughter who were arguing over the “Gatsby” cover. They had bought neither, but they probably settled on which one they were going to buy on Amazon.

Article source: http://www.nytimes.com/2013/07/15/business/media/why-barnes-noble-is-good-for-amazon.html?partner=rss&emc=rss

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Media Decoder Blog: Judge Backs U.S. Settlement on E-Book Pricing

September 7, 2012 by Leave a Comment

Judge Denise Cote in 2005.Fred R. Conrad/The New York TimesJudge Denise Cote, whose opinion expressed support for the government’s position.

8:35 p.m. | Updated In a decision that could start an e-book price war in the publishing industry, a federal judge on Thursday approved a settlement between the Justice Department and three major publishers in a civil antitrust case that accused the companies of collusion in the pricing of digital books.

The long-expected approval soundly rejected criticisms of the deal that had accumulated throughout the summer from hundreds of parties, including Barnes Noble, the Authors Guild and the American Booksellers Association.

And the ruling promised to empower Amazon, the e-retailing giant, to drop the price of many e-books back to $9.99 or even lower in the coming months, a move that could pressure competing retailers to do the same.

Publishers and authors direly predicted that in the long run, the settlement could allow the e-book marketplace to return to its state several years ago, when Amazon had close to 90 percent of the market and other retailers struggled to get a foothold.

“I think that everybody competing with Amazon in the e-book market had better fasten their seat belts,” Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a consultant to publishers, said in an interview. “I would expect Amazon to be leading the charge to cut prices on the most high-profile e-books as soon as the decision allows them to do so. As soon as that starts to happen, all the books that are competing with them will have to reconsider their prices.”

The Justice Department cited a lack of price competition when it filed the suit in April against five major publishers and Apple, accusing them of conspiring to raise the cost of e-books and causing consumers to pay tens of millions more than they otherwise would have.

Gina Talamona, a spokeswoman for the Justice Department, praised the ruling on Thursday, saying that “consumers will start to benefit from the restored competition in this important industry.”

Denise L. Cote, the federal district judge in Manhattan overseeing the case, expressed support for the government’s position in her opinion, particularly in regard to a “cooling off” period during which the publishers cannot restrict the ability of retailers to set their own prices for e-books. This period, she wrote, would allow the industry “to return to a competitive state free from the impact of defendants’ collusive behavior.”

The government’s case stemmed from a policy that the publishers adopted in 2010 that effectively coordinated the price of many newly released e-books to $12.99 to $14.99, a change encouraged by Steven P. Jobs, then Apple’s chief executive. After striking a deal with Apple, the publishers then renegotiated contracts with Amazon and other retailers, allowing the publishers, and not the retailers, to set prices on e-books.

Three publishers — the Hachette Book Group, Simon Schuster and HarperCollins — denied wrongdoing but agreed in April to settle with the government, while the Penguin Group USA, Macmillan and Apple declined to settle. They face a trial next summer.

In her 45-page opinion issued Thursday, Judge Cote said the Justice Department had claimed a “straightforward, horizontal price-fixing conspiracy.” She rejected arguments against the settlement, saying they were “insufficient” to deny its approval, and dismissed requests to hold an evidentiary hearing as an unnecessary delay.

The settlement calls for the three publishers to end their contracts with Apple within one week. The publishers must also terminate contracts with e-book retailers that contain restrictions on the retailer’s ability to set the price of an e-book or contain a so-called “most-favored nation” clause, which says that no other retailer is allowed to sell e-books for a lower price.

For the next two years, the settling publishers may not agree to contracts with e-book retailers that restrict the retailer’s “discretion over e-book pricing,” the court said. For five years, the publishers are not allowed to make contracts with retailers that include a most-favored nation clause. “The time limits on these provisions suggest that they will not unduly dictate the ultimate contours of competition within the e-books industry as it develops over time,” Judge Cote wrote.

Penguin and Macmillan are not subject to the settlement and can continue to set the prices for their e-books while the legal case against them proceeds. The sixth major publishing company, Random House, was not named in the Justice Department’s lawsuit.

Amazon declined to comment on Thursday. But when the settlement was announced in April, Amazon called it “a big win for Kindle owners,” and said it looked forward to eventually lowering its prices on e-books.

Simon Schuster, the Hachette Book Group, HarperCollins and Barnes Noble declined to comment.

Paul Aiken, the executive director of the Authors Guild, which vigorously opposed the settlement, said in an interview that the biggest losers would be traditional independent bookstores. If the cost of a newly released e-book drops further, the bookstores will have more trouble selling hardcover books at their current prices, he said.

Article source: http://mediadecoder.blogs.nytimes.com/2012/09/06/judge-approves-e-book-pricing-settlement-between-government-and-publishers/?partner=rss&emc=rss

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The Media Equation: Now to Sell Advertisers on Tablets

May 9, 2011 by Leave a Comment

What would it be worth to reach the same reader if he or she were on an iPad? More, less or the same?

That is the one very pertinent question after an active week in magazine publishers’ fitful effort to be part of, rather than run over by, the digital revolution. Hearst Magazines struck a deal to sell three of its magazines — Esquire, Popular Mechanics and O, the Oprah Magazine — for the iPad, using Apple’s subscription model, beginning in July. Hearst is the first major publisher to agree to sell multiple magazines in the app store.

The Hearst announcement comes on the heels of word that Time Inc. negotiated an agreement with Apple in which subscribers to Sports Illustrated, Time and Fortune would be able to read their magazines on the iPad free as long as they verified their identity. (Both deals were first reported in The Wall Street Journal.) And there are indications that Condé Nast, the third part of the triumvirate, will actually be the first to market among major publishers with iPad subscriptions to some of its bigger magazines.

The deals represent a significant thaw between the technologists in Cupertino, Calif., and the mandarins of Manhattan publishing. According to the publisher in each of those discussions, Apple, which has a reputation for setting unilateral terms, demonstrated some degree of flexibility around pricing, terms and custody of data.

And that incremental progress is on top of a decision in March from the Audit Bureau of Circulations that each of those digital subscriptions will count toward the all-important rate base — the number of copies used to sell advertising — even if the electronic version is not precisely identical to the print edition.

Anybody in publishing will tell you that the prices they can charge advertisers for print (and now tablet) subscribers are far above the commodity pricing that rules on Web-based content. As more and more magazines end up in people’s laps, backlighted and without a mailing label, it’s a huge win for magazines, right?

Not so fast, said Robin Steinberg, executive vice president and director of publishing investment and activation for MediaVest. She helps giants like Kraft and Wal-Mart make ad-buying decisions. Ms. Steinberg sent a pre-emptive letter to publishers on April 29 suggesting that she and her clients would not simply go along with the assumption that a digital subscriber should count the same as a paper one.

Although she is on the Audit Bureau board and voted in favor of the changes, Ms. Steinberg made it clear that she wanted her clients to have the flexibility to opt in and out of digital editions. In a tart reminder that these are the early days of the process, she wrote that for media buyers, it was “critical that we determine how copies are qualified and counted when served either traditionally or digitally.”

In other words, if her clients want to buy apples, they will buy apples (print subscribers) and if they are in the mood for oranges (digital subscribers) they expect to make a separate and presumably lower-cost purchase. And she stressed that buyers were keeping a close eye on digital subscriptions to make sure that they did not become the electronic equivalent of a New Jersey landfill, a place where unwanted copies were dumped to make the numbers look good.

Ms. Steinberg’s letter was a signal that the Audit Bureau ruling was the beginning of that negotiation, not the end, and publishers had best be transparent about their circulation figures.

“Publishers are most comfortable with traditional metrics because their business models have been structured around these data points for years,” she said. “There is an increasing need to evolve and reinvent archaic practices into modern approaches, delivering and reporting audience- and engagement-based measurement.”

She also suggested that simply replicating the existing print ads and editorial experience in pixels represented a failure of imagination and adaptation. “Delivering the right creative experience is key. Consumers demand and expect something very different from these devices,” she added

E-mail: carr@nytimes.com;
Twitter.com/carr2n

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