RETHINKING COMPETITIVE STRATEGIES IN THE AMERICAN TRADE-BOOK INDUSTRY.

Introduction

The American trade-book industry offers a rather unique challenge for the application of theories and principles of competitive strategy. Despite the mergers with and acquisitions by publishing and entertainment conglomerates: (a)

publishing housing (and their imprints, or divisions) continue to be small; (b) profit margins are low; (c) the synergy that was expected by the mergers into multimedia and entertainment companies has not been achieved; and, (d) the trade-book industry continues to defy the predictions that electronic and other media will totally absorb and eclipse physical books.

Some of the problems in defining competitive strategy for the trade-book industry may be categorized as: (a) unique, atypical features of the industry; (b) the persistence of certain "archaic" practices; and (c) the inappropriateness of the application of current management trends. What seems apparent here is that there is a need for a "rethinking" of competitive strategies for the American-trade-book industry.

The Trade-Book Industry

The trade-book industry is a sizable sector of the entire book industry, and accounts for a little more than 2/3, or 68.6%, of total book production. It publishes books for the general consumer and sells them primarily through general bookstores, mail order, and mass-market channels. Its marketing strategies are different from those of the professional, technical, reference, and textbook publishers, which have more clear-cut, specific markets. They have different marketing channels, and their operations have more built-in certainties than those of tradebook publishers. By contrast, the market for trade books is the general public--a very amorphous market, fraught with ambiguities and uncertainties.

Trade books include: (a) adult and juvenile hardcover and quality paperbound books; (b) books produced for distribution through book clubs; (c) mail-order books specifically created for the general readership; and (d) rack-sized, mass-market paperback books sold primarily through newsstands, drugstores and supermarkets (Book Industry Study Group (BISG), 1997).

Sources of Data

Sources of data for this paper come from published compilations by the book industry and other independent sources (e.g., Fortune magazine). Opinions and perspectives on various issues come from published statements of publishing practitioners (publishers, editors, writers), economists, and other industry watchers. Current events in the book industry are taken from news reports.

There is a lack of research discipline in the book publishing field (Altbach, 1995); and there is little systematic criteria applied to the collection and classification of data. For example, it is difficult to determine the approximate number of publishers in the U.S. due to variations in methods and criteria used for listing publishers. In addition, there are difficulties in identifying trade-book publishers, in particular as a sub-set of all book publishers, because of the practice of book publishers of publishing across different book categories. Specific techniques will be used here to overcome some of these difficulties, and they will be described in detail throughout this paper, at the point at which relevant publishing issues and problems are discussed.

At times, it will be informative to discuss certain issues for the entire book industry, which clearly have implications for the trade-book sector.

Characteristics of the American Trade-Book Industry

What follows is a description of some of the factors that seem to challenge conventional strategic thinking for the tradebook industry. These factors include some of the unusual or atypical characteristics of the industry itself.

Size

The entire American book industry is relatively small. This smallness in size is surprising when one considers that the industry's products--books--are consumed (i.e., read) by virtually every member of the American society. Books are consumed by school children, college students, professionals, and by adults for a vast variety of interests--religion, crafts, health, business, leisure, information, etc. It is estimated that the book industry supplies 80% of American society with books within the more active or productive age groups (ages 6-64 years) (U.S. Bureau of Census, 1996). By 1996, the book industry maintained production of a staggering 1,265,891 titles (Books In Print 1996-97), which included 62,039 new titles produced in the year 1995 (The Bowker Annual 1997). Despite this high number of products (titles), the book industry continues to be small, which appears to be a persistent feature of the book publishing industry (Dessauer, 1989).

How small?

If the book industry is described in terms of revenues, it can be compared with other industries on Fortune's list of the 500 largest U.S. corporations. Compaine (1978) did this in 1976 and found that "the total combined value of publishers' receipts ... would place it only 41st on Fortune's list of individual industrial firms" (p. 2). This means that the entire book publishing industry had revenues equal to that of the individual firm that placed No. 41 on the Fortune 500 (F500) list.

A comparison of the revenues of the entire book industry with those of individual corporations on the F500 list for the years 1992 through 1996 (see Table 1) shows that the industry as a whole improved in its standing by moving to higher comparable positions on the F500 list, as compared with the year 1976. However, after 1993, the comparable position of the entire book industry began to fall lower on the F500 list, despite annual increases in revenues. Apparently the revenues of the book industry did not keep pace with the individual F500 companies.

TABLE 1
Comparisons of the American Book Industry with F500 Corporations

       %Change in        The Entire Book Industry
Year   Revenues     Revenues    % Change in   Comparable
       F500 Corps   ($mil.)       Revenues    F500 Standing

1992     4.4        16,469.50        4.9        No. 24
1993     0.2        17,541.20        6.5        Nos. 21/22
1994     8.2        18,405.80        4.9        No. 38
1995     9.9        19,471.00        5.8        No. 40
1996     8.3        20,256.90        4.0        Nos. 43/44

            Trade Trade Book Industry

Year   Revenues    %Change in       Comparable
        ($mil.)     Revenues     F500 Standing

1992   7,297.90          4.6        No. 73
1993   7,789.00          6.7        No. 71
1994   8,364.20          7.4        No. 139
1995   8,596.00          2.8        No. 152
1996   8,830.60          2.7        No. 166

Sources: BISG, 1997; Fortune Magazine (1993-1997).

When the revenues of trade books only (as defined above) are considered, it is observed from Table 1 that although the comparable F500 positions are lower than that for the entire book industry, the trade-book sector shows the same pattern as the entire book industry--some improvement in comparable F500 position through 1993, then consistently declining position after 1993.

Revenues from the trade-book sector average about 44% of the total revenues of the book industry. However, the number of books sold in the trade-book categories accounts for almost 69% of the total for the whole book industry (BISG, 1997). Except for the years 1993 and 1994, the revenues of the trade-book sector increased more slowly than that of the entire book industry. This slower growth in trade-book revenues may be a factor in the recent increased interest of conglomerates in acquiring educational publishing houses rather than trade-book houses (Milliot, 1997b).

Three of the U.S. multimedia and entertainment conglomerates, of which various publishing houses have become part, have attained F500 status--Disney, (Hyperion), Viacom (Simon & Schuster, Scribner, Pocket Books), and Time Warner (Warner, Little Brown). The one F500 company that is noted for book publishing is McGraw-Hill, which publishes primarily professional and technical books. No individual trade-book publishing firm made the F500 list.

On the basis of revenues, Simon & Schuster, which is devoted largely to trade books, did attain a comparable F1000 position (the 1000 largest U.S. corporations) in 1996 as No. 807; but Simon & Schuster is nested within the conglomerate, Viacom, which, instead, is listed on the F500. Seemingly, many trade-book publishers generate revenues too low to be included in the F500, or even in the F1000 lists.

Ratio of Producers to Distributors

Shatzkin (1982) points out that in the book industry, there are a far greater number of producers (publishers) in proportion to distributors (bookstores). This seems to be atypical when compared with other consumer products, Where tens of producers supply tens of thousands of outlets: It is difficult to get the most up-to-date consistent estimate of the ratio of publishers to book-sellers due to the fact that various listings of publishers and booksellers vary widely in their criteria for inclusions and in their methods of collecting data. However, Publishers, Distributors and Wholesalers of the United States 1995-96 offers a rather comprehensive listing of publishers (including small publishers and university publishers), and 4,000 distributers and wholesalers. By eliminating associations, museums, and software producers, the remaining publishers are estimated to be 42,850 in number. The American Book Trade Directory 1997-98 lists 27,691 U.S. book retailers. When this figure is added to the above figure for distributors and wholesalers (for a total over 31,000), it appears that the publishers do outnumber the book outlets.

One significant implication of this situation is that retail space is limited for the large number of new titles produced each year by producers who clearly outnumber the retailers. Therefore, the publisher must expend a great deal of energy in getting books onto the retail shelf. The trade-book industry also has a very complex and costly distribution system. For instance, publishers sell their books indirectly through jobbers, wholesalers, specialty sales agencies, and retail booksellers; and directly to libraries, institutions, and individual customers (Benjamin, 1977). Books that are sold to public libraries are available to the public free of charge; therefore, a certain percentage of the readership (the market) "consumes" the product (book) without providing revenues for the publisher.

Trademark Identification

There is virtually no trademark identification in trade-book publishing. For example, a person who has spent the night reading an exciting novel will not look for another book by the same publisher, although s/he may buy other books by the same author. The absence of trademark identification has increased the willingness of large trade-book firms to pay huge sums in advanced royalties to certain authors and writers to secure the publishing rights for a book that they hope will become a bestseller by reason of the writer's fame. In other words, trade-book publishers "market" their products (the books) by the name of the suppliers.

Profitability

The persistence of small size in terms of revenues and low profitability may be the motive, at present, for some of the conglomerates that are divesting their trade-book publishing operations, which apparently do not have the capability of generating profit levels of 12-15%. The low level of revenues is attributed in part to the fact that the content, or intellectual ideas, is free. Neither ideas nor facts are eligible for copyright protection--only the expression of ideas and facts (Baumgarten & Meyer, 1995). The publisher pays the author for the rights to publish the manuscript (in terms of royalties). Table 2 lists some of the exorbitant advances paid to veteran and celebrity authors. Ross and Ross (1996) report that the percentage of books that earn enough revenues to recoup their advances is about 10%. The publisher also pays for the editorial processing of the manuscript, the physical printing and binding of the book, marketing and sales expenses. Traditionally, the finished product, the book, does not have a high markup. The revenues from consumption are quite low. People can either get the book for free (from the public library, as a loan from a friend), or pay a modest sum for the book.

TABLE 2
Examples of Advances Paid to Authors

Publisher             Author                $Advance

Bantam           Gen'l Norman Schwarzkopf   5 million
Ballantine       Johnnie Cochran            3 million
HarperCollins    Jay Leno                   4 million
Little Brown     Paul Barbieri              3 million
Little Brown     O.J. Simpson               1.4 million
Random House     Gen'l Colin Powell         6.5 million
Random House     Dick Morris                2.5 million
Viking Penguin   Marcia Clark               4 million
Weisbach         Paul Reiser                5 million
Weisbach         Whoopi Goldberg            6 million

Publisher             Title

Bantam           It Doesn't Take A Hero
Ballantine       The Journey to Justice
HarperCollins    Leading With My Chin
Little Brown     The Other Woman
Little Brown     I Want To Tell You
Random House     My American Journey
Random House     Behind the Oval Office
Viking Penguin   Without A Doubt
Weisbach         Babyhood
Weisbach         (Autobiography)

Sources: Marks (1998); Ross & Ross (1996).

Technology

Trade-book publishing is a low-tech industry. The writing of a manuscript and the editorial tasks of acquisition, copy-editing, book design, etc. are intellectually intensive and do not require high technology (material technology, that is), except for the use of desktop computers to facilitate the editorial tasks. Book publishing does not require a high level of physical capital--only office space for the editorial and marketing staff. The physical printing and binding are done by firms outside the publishing industry. Physical assets tend to be lower than in other media firms that require specialized camera equipment, physical sets, geographical locations, film, satellites, etc. (as in TV, film, cable, radio industries). Even in the newspaper industry, on-site printing presses constitute a heavy investment in physical capital.

Consumption in the book industry is also low-tech, perhaps even no-tech, and therefore does not give rise to a related consumer industry that the book publishing industry could invest in, or integrate with. The reader need not invest in any technology to read a book; the reader uses his natural eyes and fingers (for turning pages). For the other media, the consumer must invest in electronic equipment--TV, cable, box, VCR, radio.

The Dual Nature of Publishing

There is tension between conducting book publishing as a business and as profession. This kind of tension may be unique to the book publishing industry, as few industries have had to "straddle the opposing interests of art and business" ("The Diseconomies of Scale," 1990). Benjamin (1977) highlights the ambiguity, vagueness, and relativity of the definition of book publishing by asking: "Is it a profession? Or a trade? Or, in a broader sense, an industry?" He answers by saying it all depends on who is doing the defining. He goes on to say that the publisher is the true "occupational hybrid." To make a good publisher is to add the dollar sign to a good editor; or to add editorial knowledge and perception to a specialist from the business side.

The mergers that attempted to transform a small, unprofitable industry into "big business" in the recent decades intensified the pressure to produce profits. Some believe that the ascendancy of the "bottom-line" thinking in the publishing industry has been at the expense of quality and diversity of books (Doctorow, 1981; Karp, 1981; Lillienstein, 1981).

One of the negative effects of the mergers is some loss of managerial independence in decision making, and a sense of a "hovering presence" of the accountants of the acquiring company. There tends to be a polarization of managers and editors into two groups--corporate entrepreneurs and "litterateur". Whiteside (1981) describes the "entrepreneurs" as unabashed advocates of the new departures in publishing, who use modern techniques of merchandising, publicity, and multimedia market saturation to bring "books to the people on a previously undreamed-of scale."

The litterateurs, on the other hand, tend to see their work as increasingly subjected to harassments of cost-accounting and cost-benefit calculations and the emphasis on the development, promotion, and sale of the "big book" (i.e., bestseller). They feel that the publishing companies should be more concerned with "the discovery and nurturing of perhaps the less profitable but artistically more meritorious works" (Whiteside, pp. 93-94).

The Returns Problem

The "returns" problem is an archaic and troublesome practice within the book industry. Booksellers can buy books from the publishers with the option to return unsold copies. This practice originated during the Great Depression. In recent years, the returns problems have reached significant proportions (BISG, 1997). Publishers bear the cost of handling books that are re-turned unsold, when bookstores order far more books than then can sell. Miller (1997) calls this a "titantic ripoff" that has distorted the whole trade. The smaller publishers cannot easily absorb the returns. The giant publishers, "with their bad dailies, cable TV, talk-radio, etc.... have sufficient capital to take the hit" (Miller, p. 15).

One American publisher reportedly was forced to sell out, because in one year returns exceeded sales (Owen, 1988). A very disappointing deal for HarperCollins was the publication of the book, Leading With My Chin, by a celebrity writer, Jay Leno, who received an advance of $4 million: 600,000 copies of the book were shipped, but 400,000 were returned (Marks, 1998). The year 1996 saw especially high rates of returns, averaging from 18.7% of juvenile hardcover to 43.5% for mass-market paperbacks; and the year 1997 saw very little change from this pattern (BISG, 1998).

Globalization

According to the criteria of Levitt (1983), the book is truly global product in the sense that the book can be distributed and sold in major regions of the world, to meet the needs, demands, or interests that people in various parts of the world have in common. The only accommodation that is needed is translation of the content for certain national markets; but the content remains the same.

Despite the "global nature" of the book, American publishers as a whole do not operate as global companies, and only a few operate as multinational companies (MNCs). Levitt distinguishes the global company from the MCN. The global company operates "as. if the entire world (or major regions of it) were a single entity; it sells the same things in the same way everywhere" and at low relative cost. The MNC, on the other hand, "operates in a number of countries, and adjusts its products and practices in each--at high relative costs"(pp. 92-93).

A few American publishers operate foreign subsidiaries, but these publishers tend to be reference and technical book companies. Most American trade-book finns are clearly domestic--operating only within the U.S. Export sales of the entire book industry averages about 8.5% of total sales. Using data from the BISG (1997) and Lofquist (1996, 1997), the estimates of export sales for trade books are a little higher--9.3% and 9.1% for the years 1995 and 1996, respectively.

While American trade-book publishers are largely domestic, and not international, global or multinational, foreign publishers are acquiring American publishers. The reasons for the acquisitive-ness of foreign companies are that: (a) European publishers have outgrown their own boundaries, and (b) the United States is the largest market in the world for books (Carvajal, 1977b; Lofquist, 1996). But when one compares the U.S. subsidiaries of the foreign companies with their non-U.S, holdings, one observes that the European publishers tend to have publishing operations in those countries with a common language (English, for example). The foreign finns are going international by acquiring publishing operations in foreign lands (e.g., the U.S.), and becoming MNCs, as opposed to publishing and distributing their book as global products.

Rethinking Strategies

What follows are some observed industry trends, and suggestions for strategies that are more consistent with the nature of the trade-book industry, and that might enhance the economic survival of the industry.

Size vs. Performance

It has already been stated that efforts at merging trade-book publishing finns with larger companies and conglomerates have not generally succeeded in bringing the size of revenues and profits in line with other industries. Since small size appears to be an inherent quality of the trade-book industry, it would be inappropriate to assess its performance in terms of revenues.

Despite its small size, its low physical capitalization (and often low financial capitalization), and its low technology, the book industry is capable of producing and maintaining in print a large number of titles--an impressive output. Szenberg (1984, p.1) suggests that economic aspects may not be the only way of judging size. He says that "in terms of employment and value of output ... book publishing does not rank among the major industries of the U.S.; however, in terms of social significance, it would certainly rank at the top of the scale." In the book publishing industry, survival may be more dependent on good management and talent than size ("The Diseconomies of Scale," 1990).

Perhaps a more useful way of assessing the performance of trade-book publishers is in terms of market impact: that is, in terms of the total number of books and the total number of weeks that books are listed on the bestsellers list for a given period of time. Table 3 shows 39 trade-book publishers (with their parent companies in parenthesis) who had at least one book on The New York Times (NYT) bestsellers list during a 25-week period. The publishers are ranked according to the average number of weeks per book on the bestsellers list. Simon & Schuster shows up as the top performer (and, incidentally, did generate enough revenues to be placed on the first F1000 list in 1996).

TABLE 3
The Bestselling Trade-book Publisher

(Based on The New York Times Bestseller Lists for 25 Weeks,
March 9 thru August 24, 1997)

Rank        Major Firm or Imprint             Average     Total Weeks
                                              Wks/Bks      on List(*)

1       Simon & Schuster (Viacom)              200.6         1,003
2       Workman Publishing                      56.0            56
3       Health Communications                   41.6           208
4       Warner (Time-Warner)                    38.7           348
5       Random House (Advance Publ.)            36.6           366
6       Vintage (Advance Publ.)                 35.8           143
7       Longstreet (Cox Newspapers)             31.0            31
8       Avon (Hearst Corp.)                     30.0            60
9       Delacorte (Bertelsmann)                 28.0            28
10      Doubleday (Bertelsmann)                 26.8           134
11      HarperCollins (News Corp.)              26.3           289
12      Scribner (Viacom)                       25.7            77
13.5    Fawcett (Advance Publ.)                 25.0            75
13.5    Wildcat Canyon (Circulus)               25.0            25
15      Penguin (Pearson PLC)                   23.5            94
16      Ballantine (Advance Publ.)              23.0           207
17      Bantam (Bertelsmann)                    22.3           201
18      Riverhead Pearson PLC)                  21.0            42
19      Loyola Press                            15.0            15
20      Hampton Roads                           14.0            14
21      Knopf(Advance Publ.)                    13.0            78
22.5    Crown (Advance Publ.)                   12.0            12
22.5    Hyperion (Disney)                       12.0            48
24      Dell (Bertelsmann)                      11.3            45
25      Norton                                  11.0            11
26.5    Putnam (Pearson PLC)                    10.1            81
26.5    Pocket (Viacom)                         10.1           111
28      Regnery (Eagle Publishers)              10.0            10
29      HarperBusiness (News Corp.)              9.5            19
30      Villard (Advance Publ.)                  9.0            18
31      St. Martin's (Holtzbrinck)               8.5            17
32      Little, Brown (Time Warner)              8.0            24
33      Signet (Pearson PLC)                     7.2            36
34.5    Atlantic Monthly (Grove/Atlantic)        7.0             7
34.5    Holt (Holtzbrinck)                       7.0             7
36      Morrow (Hearst Corp.)                    6.5            13
37      Berkley (Pearson PLC)                    6.4            32
38      Viking (Pearson PLC)                     5.7            17
39      Jove (Pearson PLC)                       5.0            15

Rank          Major Firm or Imprint         Total Number
                                              of Books

1       Simon & Schuster (Viacom)                 5
2       Workman Publishing                        1
3       Health Communications                     5
4       Warner (Time-Warner)                      9
5       Random House (Advance Publ.)             10
6       Vintage (Advance Publ.)                   4
7       Longstreet (Cox Newspapers)               1
8       Avon (Hearst Corp.)                       2
9       Delacorte (Bertelsmann)                   1
10      Doubleday (Bertelsmann)                   5
11      HarperCollins (News Corp.)               11
12      Scribner (Viacom)                         3
13.5    Fawcett (Advance Publ.)                   3
13.5    Wildcat Canyon (Circulus)                 1
15      Penguin (Pearson PLC)                     4
16      Ballantine (Advance Publ.)                9
17      Bantam (Bertelsmann)                      9
18      Riverhead Pearson PLC)                    2
19      Loyola Press                              1
20      Hampton Roads                             1
21      Knopf(Advance Publ.)                      6
22.5    Crown (Advance Publ.)                     1
22.5    Hyperion (Disney)                         4
24      Dell (Bertelsmann)                        4
25      Norton                                    1
26.5    Putnam (Pearson PLC)                      8
26.5    Pocket (Viacom)                          11
28      Regnery (Eagle Publishers)                1
29      HarperBusiness (News Corp.)               2
30      Villard (Advance Publ.)                   2
31      St. Martin's (Holtzbrinck)                2
32      Little, Brown (Time Warner)               3
33      Signet (Pearson PLC)                      5
34.5    Atlantic Monthly (Grove/Atlantic)         1
34.5    Holt (Holtzbrinck)                        1
36      Morrow (Hearst Corp.)                     2
37      Berkley (Pearson PLC)                     5
38      Viking (Pearson PLC)                      3
39      Jove (Pearson PLC)                        3

(*) Total number of weeks are cumulative.

Sources of corporate affiliation: Directory of corporate affiliations
1997; Publishers directory 1997; Literary marketplace 1997.

Profitability

Smallest in size may not mean that trade-book publishing cannot be a profitable enterprise. It might be possible to generate greater profits while remaining small (in terms of revenues, assets, number of employees). Smaller and independent publishers, who produce only a few titles, perform as well as, and sometimes even better than, their larger conglomerate counterparts; for example, Workman, Loyola, Hampton Roads (see Table 3).

The publishers' lists. Profitability can be enhanced by increasing "intellectual", or symbolic capital--the backlist of books (Gilkes, 1981). If publishers would choose the strategy of searching for "high quality" manuscripts, that would meet readers' needs over the long mn, the publishers could build up a sizable asset (the backlist) that would continue to produce revenues for years at much reduced costs. This is analogous to the firm which produces products with physical assets that are fully depreciated, thereby increasing its profit margins. This strategy of establishing and maintaining a backlist is a long-term strategy that should enhance the profitability of trade-book publishers.

A midlist (Bodian, 1988) can also contribute to the profitability of book publishers. These are titles of a general nature that have limited sales potential. The "how -to" books, and non-fiction books on current topics might fall into this category. They may not be bestsellers (frontlist books) or candidates for the backlist; but they are good" sellers for a period of time--at least for more than one year.

Books for the frontlist, or bestsellers list, are selected for their potential to sell in very high volume within the first year of publication. These books are perceived to be real money-makers in the short mn. How-ever, one of the factors that can erode the profits of a frontlist book is high advanced royalties paid to a celebrity author, or an author with a "frontlist" track record.

In current practice, large trade-book houses operate with a "blockbuster complex" --the effort to produce a "big book", a book that will sell hundreds of thousands of copies and make the bestsellers list. While the number of books on the NYT bestsellers list and the length of rime the books stay on the list indicate probable high revenue generation, these high revenues may not necessarily translate into profits for the publishers. High advances, high returns, and losses on many other titles can eliminate profits. A case in point is HarperCollins, which recently reported a quarterly loss of $7 million (Carvajal, 1977a), despite the fact that the company had 11 books on the NYT bestsellers list at the same (Table 3); and in 1989, Simon & Schuster wrote off $140 million, part of which was for unearned royalties ("The Diseconomies of Scale," 1990). The exorbitantly high advances paid to celebrity authors may be the trade-book publishers' response to the pressure from their parent companies, or stockholders, to yield high returns of 12-15%.

Just-in-time procedures. The "returns" problem also erodes a trade-book publisher's profits. Some publishers are now making an attempt to deal with this problem. They are beginning to use just-in-time (JIT) inventory procedures, which have already resulted in lower initial orders from book retailers, and reduced initial print runs. HarperCollins Canada is now refusing to ship books to stores whose return rates exceed 40% (Milliot & Baker, 1997).

Downsizing titles. Another way in which some publishers are attempting to improve their profit margins is by reducing the number of titles produced each year. There is some concern that title production is inflated;that far more titles are produced than the general public could possibly read. This is considered to be a form of information overload (Carvajal, 1977c). Title over-production is partly due to the high ratio of publishers to retailers, which results in titles not getting sufficient shelf-rime or exposure in bookstores. As a result, many rifles do not sell, and are returned to the publishers, exacerbating the returns problem. Harper-Collins/San Francisco has decided to cut its number of new titles from 200 per year to 80; Collins in New York is reducing its title output from 70 to 15-20 books per year (Milliot, 1997a). The downsizing of its title production will result in a reduction of expenses for printing, production, and marketing. However, HarperCollins will continue to promote authors "who because of their track records, stature or celebrity can generate the kind of pervasive publicity that sells books" (Carvajal, 1997a, p. D3).

One of the reactions to the cutback in title output is that smaller publishers are picking up some of the slack. Some previously published authors are now turn-ing to smaller, independent presses to have their books published when they are turned down by the larger houses (Nathan, 1997).

The Market

One reason often cited for the low profitability of the trade-book industry is that the market has been fully penetrated; that any increases in readership will be tied to population increases. Yet the market, the general readership, might be thought of as a gigantic human entity, ever changing, constantly evolving, giving rise to new and emerging needs. Trade-book publishers have the opportunity to supply different and multiple needs, at different times for the same market. Books are very flexible products; the content can change to meet changing needs within changing markets.

The Publishing Mission

Various book publishing practitioners and industry observers offer differing ideas about what book publishing is all about. There are those who believe that it is the publisher's mission to publish "serious" books, variously defined as: (a) poetry, fiction, translations of foreign literature, which are an art form and not throwaway consumer goods (Poutney, 1988); (b) literature that will endure, that will be remembered later and remarked upon (Mayer, 1979); (c) titles whose value are cultural, intellectual, philanthropic, without which "society would be seriously impoverished and its values dangerously weakened" (Poutney); (d) better books of literary quality and not "trash" like: detective stories; shoddy romance or sexy novels; sensational biographies; gossipy, tattletale memoirs (Benjamin, 1977).

This list may be too narrow in its focus and too rigid in its publishing mission, when one considers the changing and expanding needs of society, and the increasing literacy and sophistication of the reader-ship. Dessauer (1989) and Shatzkin (1982) add that the publisher's mission is to provide the reader with solace, entertainment and relaxation, information, and guidance. Books that meet these requirements would fall somewhat outside the realm of "serious" books (but not necessarily in the realm of "shoddy", "trashy", or "gossipy"). Trade book publishers may need to become sensitized to the human condition, in order to identify those manuscripts that can: (a) inspire and ennoble (as in "serious" literature); (b) enhance one's understanding and knowledge on specific topics; (c) provide expertise on a wide variety of activities and problems; and (d) offer entertainment and relaxation.

A repository. Another mission of trade-book publishing is to establish, maintain, and become custodian of a repository of the cultural heritage of society (Dystal, cited in Karp, 1981); to establish a repository of humankind's wisdom (Szenberg, 1984)--in other words, to become a curator of knowledge. To establish and maintain a repository of culture, the publisher must maintain a viable backlist. The term "back list" not only refers to intellectual capital which is used to generate long-term revenues, but it is also synonymous with the term "repository." If a publisher has been successful in acquiring books of high quality, as defined above, s/he will end up with a list of books that will continue to sell and sell years into the future, primarily be-cause these books have stood the test of time and continue to fulfill the needs of people for knowledge, inspiration, entertainment, etc.

The Dual Nature of Trade-book Publishing

The tension between publishing as a profession or as a business or trade might be an artificial dichotomy, and not a real dilemma in trade-book publishing. While the two terms litterateur and entrepreneur may refer to two different types of activities, they need not be mutually exclusive in book publishing.

A useful way of thinking about entrepreneurs, for example, is: people who introduce novel or new products or services that meet some unmet need in the public, that fill a gap in consumer needs that are not being met by current products or services (Phillips, 1992).

Any publisher who can detect emerging needs in society, that can be addressed via books on topics that speak to those needs, has an entrepreneurial opportunity to acquire and publish the appropriate manuscripts. This does not require merging, revamping operations, or making bottom-line thinking a top priority. A successful entrepreneur can reap profits as the result of serving unmet needs in the general public; by producing books on subjects that address current needs and interests.

Proaction. Even greater success can be achieved if the publisher can identify readership needs before the readership itself becomes aware of them. The publisher can then produce books that will "create" market demand by raising customer awareness; and the publisher will achieve leadership in specific segments of the industry by being able to predict and anticipate emerging and changing needs in society. This is a kind of proactive strategy that D'Aveni (1995) sees as the real key to achieving a competitive advantage in what he calls the "hypercompetitive environment" of today.

Globalization.

The costs for foreign language rights, and for translation, are barriers that presently keep the book from being a truly global product; and, the focus on books by or about celebrities that have only national or regional interest also tends to minimize global demand. At present, it appears that the American trade-book industry is well-suited for the domestic market--the U.S., which is the largest market in the world. While "globalization" is a trendy management idea, it may not be a viable strategy for all companies (Hout, Porter & Rudden, 1991), and perhaps not for the American trade book industry at this time.

Industry Structure

The largest trade-book publishing firms have been absorbed into the multimedia companies and entertainment complexes. This leaves a few not-so-large or medium size, independent trade-book houses (e.g., Andrews & McMeel, W.W. Norton, Workman Publishing), and many small and very small publishing houses. The current estimates of the number of small presses (publishers) range from 25,000 to 100,000, growing at an annual rate of 11,000 (Barbato, 1997). Therefore, the absorption of the large publishers into other industries has not really brought about the demise of the trade-book industry, or even its diminution. Their legal or corporate structure may have changed, but they continue to function as they always have. So, one can look at the overall structure of the trade-book industry through "functional" lenses.

Multimedia mergers. The con-tinued quest today for book publishing acquisitions on the part of multimedia conglomerates may no longer be for synergy between the various media, or for leveraging content among the various media. The quest is for the perceived investment value of the intellectual capital, "twenty-first century's most valuable commodity." Viacom, for example, has amassed a huge copyright collection, and makes money on its "content" (Jaquet, 1997).

The larger houses. Although the large publishing houses are part of multi-media and entertainment complexes, they continue to. produce books for the trade-book industry. The idea was initially expressed that the multimedia companies acquired book publishers because of the need for con-tent for the other media--film, audio, video, TV, theme parks, merchandise. It yet remains to be seen whether or not book publishers have become the primary suppliers of content for the other media. A major problem is that authors (and their agents) do not freely give the book publisher the rights to use the manuscript for film, audio, TV, etc. These rights (subsidiary rights) are usually contracted for each medium, at a price, and authors are under no obligation to sell all their subsidiary rights to the same multimedia company.

Instead of the book publisher being integrated backward into the multimedia company to supply content for the other media, it seems as if the other media--TV, movies--are providing marketing input for books by increasing public interest for certain titles. For example, when Oprah Winfrey announces a book title on her TV show, the sales of that book increases by 1,000% (Miller, 1997); when certain topics are aired on public TV, the sales of the companion books are increased. The book may be the more appropriate and more preferred format for types of content that have long-lasting effects, such as knowledge, how-to, advice on complex issues. Perhaps the large publishers can utilize the other media--TV, radio, movies, stage plays--to promote and sell books, and to get the kind of exposure and display that the limited number of book outlets cannot provide.

Interdependent networking. Large publishers, with their greater access to financial capital, are limited to manuscripts that have the potential of attracting huge audiences. These publishers must focus on celebrity and high-profile authors, and fiction writers with a track record. They are financially able to offer large advances and bigger royalties, and underwrite the huge cost of large print runs, marketing and distribution. However, because of the uncertainties inherent in trade- book publishing, they cannot afford to gamble large sums of money on unknown authors or questionable topics.

The many small and medium-size firms, on the other hand, may be free of the pressure to produce "big books," or to make huge sums of money, especially since they tend to be privately held finns and not subject to Wall Street pressures or takeover threats. They may feel free to subordinate profits to bringing new, fresh work and ideas to the public; to search out specific niches or markets for certain books; to seek out new and first-time authors, and to nurture them.

This suggests a divergence of function in the trade-book industry between the large publishers and the small independent presses. There have been a few events that point to the opportunity for interdependent networking between the small and large publishing firms.

The smallest of small publishers--the self-publisher--may be showing the way toward integrating the twin goals of acquiring high-quality manuscripts from new, un-known authors and generating big books with a high sales volume. For example, two recent bestsellers were initially published and marketed by their authors; but when it became obvious that these books were successful, the larger publishers stepped in and purchased the publishing rights (Barbato, 1997; Mantell, 1995). Marlo Morgan sold 275,000 copies of her Mutant Message Down Under before HarperCollins purchased it for $1.7 million; James Redfield sold 90,000 copies of his The Celestine Prophecy before Warner Books bought the rights for $800,000; Richard Paul Evans sold 700,000 copies of his trade paperback, The Christmas Box, before Simon & Schuster bought the hardcover rights for $4.2 million.

The suggestion here is that the small press can experiment with new ideas, new topics, new authors, and small print runs. The small finns can act as free-standing research and development units, so to speak, for the large firms. When a small firm finds itself with a potential big winner, it can sell its publishing rights to the large firm that has the financial backing and capability to publish and promote the book for a much larger audience. The larger firm can look to the small press for a new or unknown author who is building up an impressive sales record.

The not-so-small firm. When a blockbuster, published by the large firm, begins to fall in sales below some critical point, the large publisher may find that to keep the book in print with small print runs may be too costly. Instead of "remaindering" the book (i.e., selling off surplus inventory at a fraction of its production cost), the large firm could sell its publishing rights to a smaller publisher, for whom it may be more cost-effective to keep the book in print and in circulation. In fact, a not-so-small, or medium-size firm may find it profitable to maintain backlist titles--titles whose print runs are too small for the large firm, and too large for the very small firm. Such not-so-small finns would be-come the "curators" of society's knowledge.

Crossover books. The not-so-small, or medium-size house might also publish "crossover books", defined as serious books for general readers (Gardiner, 1996). These are books written by scholars for the general audience. This type of publishing is being delegated more and more to small presses and university presses, while the large publishers confine themselves to the "big book". The small, or not-so-small press, that engages in this kind of publishing, is likely to build up a backlist, or at least, a profitable midlist; and sometimes, the crossover book becomes a bestseller.

Summary

This paper has described some of the unique and atypical features of the American trade-book industry that have rendered certain conventional management practices somewhat inappropriate. Alternative strategic practices and suggestions have been discussed, which might be more consistent with the nature of the American trade-book industry, and which might increase the competitiveness of the industry.

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Beatrice Phillips

Beatrice K. Phillips is Visiting Assistant Professor in the Division of Business, Management and Economics at Empire State College, State University of New York, at the Metropolitan New York Center.