Will the Last Book Publisher Please Turn Out the Lights?

Last Updated Sep 20, 2010 1:29 PM EDT

We're reaching the end of the party for print -- it's going to go out with a whimper. We might just have even seen the last flickers of fun go out in three relatively small stories in the New York Times late last week and today. Here's the list: the announcement that Newsweek's Howard Fineman is moving to the Huffington Post; a brief profile of a near outsider's hiring for a plum job in the book business; and the ever-sillier spectacle of the Barnes & Noble (BKS) proxy fight. Taken together, they suggest there's no turning back.

The most important of the three stories is actually the Barnes & Noble takeover fight. Chairman Len Riggio's intransigence in the face of forces that want to reform and re-energize the company -- even as physical book sales continue to evaporate -- make it clear that he is incapable of put the best interest of the company ahead of his own and his family's interests. Here's Riggio complaining to the New York Times as his company's stock has dropped nearly 30%:

"I find it almost repulsive I have to be put in a position to defend myself," Mr. Riggio said last week in Barnes & Noble's corporate offices, leaning forward to press his point. [...] Barnes & Noble's new chief executive, William Lynch, is paid $900,000 in salary, while his predecessor, Stephen Riggio, who was also vice chairman, was paid $800,000. Stephen, Mr. Riggio's younger brother, remains vice chairman and now earns $400,000.

Mr. Riggio -- who reduced his salary this year to $100,000 from $300,000 -- made no apologies for what he said were necessary costs for hiring good executives. "I'm significantly undercompensated," he said. "Steve is undercompensated."

When a controlling shareholder in a company suggests he has to be paid a lot to stay with the firm, you know there's conceptual disconnect. Riggio's tortured logic, however, is the least of Barnes & Noble's problems as a company.

B&N has an interesting history. It transformed the marketplace for books in the era of big box retailing. In the process, B&N added scale and efficiency to the modern publishing industry which in turn allowed publishers to achieve bigger and bigger sales. From the early 1990s, when B&N took the Superstore concept wide -- other stores had invented it -- until just recently, the sales of the top hardcover titles have increased geometrically.

Where books selling millions of copies was once a generational phenomenon, today it is the norm. Success breeds transformation and the rise of the mega-book attracted new retail outlets like Walmart (WMT), Costco (COST) and Amazon (AMZN) to the book business. These sales channels proved even more efficient -- and offered greater discounts -- than B&N. They did to the book chains exactly what the chains did to independent stores. Already weakened on that front, and further imperiled by the financial crisis and the damage it has done to all retailing, B&N faced a second front fighting off digital distribution of books.

Riggio has bet his pride, even more than the company, on trying to follow Amazon into the digital book business. But where the Kindle amplifies the advantages of Amazon's business model, transitioning B&N to the Nook only cannibalizes the retail chain's cost structure. Diverting physical sales to the Kindle reduces Amazon's costs for shipping and fulfillment; diverting physical sales to the Nook reduces B&N's revenue without much of a cost advantage.

Barnes & Noble, as currently structured, can't survive this dynamic. Enter Ron Burkle, the investor putting pressure on B&N's hand-picked board. Burkle has ideas about improving the retail side of the business. Riggio can't split the two businesses because the Nook isn't big enough to stand on its own. So a rational owner, at the end of his career, would think seriously about selling out and letting someone else deal with the headache. After all, Riggio's had almost all the juice from this lemon.

Besides, there are big changes taking place that make it clear the physical retail business for books is going to get a lot smaller. Fineman's decision to abandon the wounded Newsweek for The Huffington Post is only significant in the fact that he follows so many other Newsweek writers to electronic outlets. Dan Gross, Newsweek's business writer, has taken a spot at Yahoo! Finance; and though it was announced that Fareed Zakaria will now write a column for Time magazine, that move was more about integrating the foreign affairs commentator's voice into the rest of the CNN empire. Indeed, the print edition of Zakaria's column will trail his work's exposure online and be promoted by both his television show and, most significantly, on CNN.com where Time's huge traffic flow begins. CNN.com is Quantcast's 42nd most trafficked site, just 8 spots below the Huffington Post which holds the top spot for "print."

Now that the tip of the spear for writers is online, the flow of book sales will accelerate toward digital distribution. The bottleneck here isn't in reading habits but in getting enough devices into the hands of readers. This is where Amazon has been invaluable and Apple has seriously aided the cause. Nonetheless, there's a long way to go before books -- or whatever we end up calling the electronic containers that contain book-length writing -- are primarily electronic items. (Though not as long as many people think.)

With that dynamic changing so rapidly, it's no wonder that book publishers are having trouble re-orienting themselves toward the new ecosystem of reading. Witness Hachette's replacement for the publisher of Twelve, an imprint started by Jonathan Karp to address the blockbuster-ization of books. Twelve dramatically reduced the number of books published by the normal imprint without losing the usual bestseller count.

Since Hachette outshines the rest of this publishing industry with its much-higher-than-average number of bestsellers to number of books published (as well as marketshare to number of titles published,) the replacement for Karp, who is now re-making Simon & Schuster in his own image, should have been a signal appointment in the industry.

Instead, publisher Jamie Raab's choice to run the operation is Susan Lehman, who was the first to tell the New York Times that she had been a dark horse candidate:

"Clearly I don't have the institutional publishing experience that many people in town do," Ms. Lehman said in an interview on Wednesday. [...] "I actually said to someone, 'This is the most unusual résumé,' " Ms. Raab said. "I really wanted someone who wasn't predictable."
She certainly got what she wanted which only confirms that book publishers recognize that nothing going forward is going to be predictable.

Book Image by SamJJordan via Flickr
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