03/18/2010 05:12 am ET | Updated May 25, 2011

The Publishers Run into Sharp Elbows

This is Part Two of a multi-part series on publishing. Part One of this article can be found at No one warned the Dinosaurs. Will Anyone Warn the Publishers?

The major publishers have gone from being the dominant players in the book business to a point where they can now be buffeted around by Walmart, Target, Costco,, Barnes & Noble, Borders, and other mass merchandisers. The wounds they have suffered are largely self-inflicted, but that doesn't ease the pain. Publishing weakness is bad news for writers, readers, and everyone else.

Publishers are the only major players in the book business that have a tradition of developing and promoting a broad range of literature and new authors. Without strong publishers, the book business could quickly degenerate into a type of anarchy -- a cacophony of voices in which the highly-ideological, the celebrity-driven, or the wealthy would be the only ones heard.

Instability in book publishing worries many people. But you have to wonder what a collapse of a major book publisher would look like. The biggest U.S. publishers are subsidiaries of much larger, international media conglomerates: i.e. Viacom (U.S.), Bertelsmann (Germany), Pearson (UK), Hachette (France), and Rupert Murdoch's News Corporation (Australia). None of these mega-corporations is likely to buckle under setbacks in the U.S. book publishing business, because their interests are far too diversified.

The threat is more subtle than a publisher shut-down. If publishing becomes unprofitable, you are more likely to see one or more of these companies simply downgrade their publishing component, lay people off, re-allocate resources, and -- in short -- do all of the things that very large companies do when they want to stop putting money into an unprofitable business component without saying much about it. Given that publishing has become hidden within the portfolio of some very large businesses, any shrinking of that business might happen in small bites - a slow, non-dramatic degrading of the publishing tradition until there is very little left of it.

U.S. publishing was once very entrepreneurial, and as late as forty years ago it was still dominated by family-owned firms. There were no large mass-merchandisers imposing their will on publishers during that period. The problems now besetting major publishers largely began at the time they were being absorbed into larger, multi-media companies. Is there a cause and effect relationship between these two things?

One-to-one correlations are always a bit simplistic, but there can be little doubt that the loss of entrepreneurial discipline within the publishers has had a damaging effect. The major publishers are much less inclined than they were in the past to nurture a new author's career over a series of books, and they are often unwilling to keep an author's books in print for any significant period of time. Publishers in the last few decades have even engaged in the shameful practice of pre-screening certain books with their big-box and chain store customers -- giving them, in effect, a veto power over what the rest of us get to read.

If you are close enough to the publishing business, you get the sense that book-lovers within the major publishers are constantly fighting the bean-counters -- and losing all the significant battles. The big publishers seem only to be looking at their quarterly profits, searching for familiar formulas they can follow or fads that they can grab onto ("Vampires are hot! Do we have a vampire book? Let's get a vampire book!"). At the same time many of these mega-companies are giving bloated advances to certain political or media personalities in situations that might have more to do with the company's other agendas rather than the quality of those books. Despite the good effort by some dedicated people at the publishing level, the biggest publishers seem to have lost their sense of mission as well as their sense of confidence.

But it has been the response of the major publishers to demands by the big-box retailers for deeper discounts that they've been the most shortsighted. By giving in to such demands, they enabled the big box retailers to gain control of the business and -- as is apparent now -- achieve enough power to impose their will on the publishers.

The Robinson-Patman Act, part of the U.S. anti-trust laws, requires that a manufacturer avoid favoritism by selling to competing retailers at the same price. This law, adopted in the 1930s, was designed to prevent chain stores from squeezing independent stores out of business. But despite the law, the major publishers in the 1970s began giving secret, lower prices to the two dominant chains of the period: B. Dalton (now Barnes & Noble) and Waldenbooks (now Borders). Those two chains were, at first, content to use the extra money to improve their competitive position by doing such things as obtaining favorable locations in shopping malls.

Then Crown Books with its president Robert Haft entered the picture (Remember him with the squeaky voice? "If you paid full price, you didn't buy it at Crown Books!"). He demanded and got the same secret, lower pricing that the other chains were enjoying. But Haft did something different with the extra money: he weaponized it. Crown began a highly-publicized marketing campaign of discounting best-selling books. It wasn't long before the other two chains -- newly energized with Wall Street money -- began doing the same thing. By the late 1980s the practice of discounting bestsellers -- linked at the time to the N.Y. Times bestseller list -- became the norm within the book business.

The independent bookstores sued to stop the secret pricing deals that were fueling these discount wars and that were threatening to run them out of business. (I have to confess here that I was intimately involved in those legal actions). Despite an occasional success, however, the favored pricing and the discount wars continued without interruption.

There was one question that the major publishers could never answer: Why did they do it? Why would you give favored treatment to one set of retailers who were using that price difference to drive another set of retailers out of business? The answer was usually a mumbled statement about the chains "expanding the business." But that made no sense. During the 1990s the chain store expansion virtually doubled the amount of bookselling space in America, but there was no significant increase in book business sales as a result of that expansion. Unit sales of books hardly kept pace with the growth in population. The only tangible result of that expansion was the closure of many independent stores while the growth of the chains marched on. There was no market expansion - retail sales simply shifted into the hands of a few big-box retailers who were by then in a position to impose their will on the publishers.

It didn't stop there. appeared on the scene in the 90's and began its own demands for favored treatment. But there were still bigger hands stretched out, others who were looking for -- and receiving -- favors. The mass merchandisers -- Walmart, Target, and the others - demanded and got from the publishers the lowest prices of all based on the fiction that they were somehow wholesalers and not retailers.

Now the publishers are faced with a problem. Many familiar independent booksellers are gone, and they've been replaced by big-box retailers with far sharper elbows. At the moment, they -- not the publishers -- appear to be controlling the book business.

What can publishers do to regain their footing?

This is part two of a multi-part series.
Next time: What's next for publishing?