From Nathan Bransford:
I should emphasize from the start of this post that as of this writing there are no signs that Barnes & Noble is close to bankruptcy.
And yet in publishing circles, the prospect of Barnes & Noble going the way of Borders is sort of like a doomsday conversation that is impossible to resist. It’s the rare business lunch that does not at least reference this nightmare scenario.
But what would really happen if Barnes & Noble bit the dust?
I turned to publishing sage Mike Shatzkin, who has been involved in the book business for decades and has advised some of the biggest players in the publishing industry.
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Nathan: Barnes & Noble has an uncertain future as a print bookseller, as its revenues decline and it transitions toward diversifying its products toward games and toys. It didn’t take long for B&N to go from being the bad guy in You’ve Got Mail to the equivalent of the little shop on the corner everyone is rooting for. What impact is this going to have on publishers?
Mike: These three sentences open up a world of things for publishers to be thinking about.
There are two big shifts taking place in the book business that are not favorable for Barnes & Noble.
1. More and more printed books are being purchased online and fewer and fewer are being purchased in stores. The takeaway: sales of books in stores in total are likely going down.
2. More and more book titles are being delivered to the market with motivations other than pure commercial intent and fewer and fewer are being delivered by publishers trying to make a profit from publishing books. The takeaway: sales of books issued by those not overtly trying to profit will steal markets and mindshare and reduce margins for the publishers trying to run businesses.
. . . .
What would the landscape look like if B&N exited the book business entirely or, god forbid, went bankrupt?
Without Barnes & Noble, the business models of most of the publishers we know are severely challenged.
Although publishers would almost certainly have some warning about either a bankruptcy or an exit from the book business — neither would happen “suddenly” without at least a bit more “gradually” than we’ve yet seen — the absence of B&N would be a painful blow to the core business model of trade publishing. For about 100 years, the core proposition for mainstream publishers doing fiction and non-fiction for consumers has been “we put books on shelves”. That’s the proposition to the authors, as well as the service to consumers.
. . . .
So were it to happen that the chain that supplies probably about ⅔ of the available shelf space for most titles were to disappear, the business model itself would be broken. The incentive for authors to shift to a self-publishing model, where they get a lot more per copy for ebooks and specially ordered POD books, would strengthen. And it would be pretty compelling in any case where the author brand was powerful or the author did most of the marketing of the book.
So publishers would be hurt at the revenue end and the IP supply end of their chain, which is the entry and the exit.
. . . .
Were a bankruptcy to occur, the stock in B&N, even the books that were not yet paid for, would be owned by the company in receivership and the the amounts owed to the publishers would be in a queue for payment along with what is owed to other creditors.
. . . .
B&N’s share of the business keeps declining. They are losing share to Amazon and to independent general bookstores consistently. And bankruptcy for them is certainly not imminent. So the chances are that when the day comes that they go bankrupt, they’ll be 10% or less of most publishers’ business.
Link to the rest at Nathan Bransford
PG says not all bankruptcies are the same. Some are “successful,” at least from the standpoint of many of the stakeholders and some are “unsuccessful” and almost everybody except bankruptcy counsel and business liquidators gets a bad deal.
Managing a business organization through a bankruptcy requires real skill and if inept management lead to the bankruptcy, inept management will likely screw up the bankruptcy if it tries to remain in charge through the often lengthy business bankruptcy proceedings.
Barnes & Noble has hosted a rapidly-revolving door for top managers during the past few years and PG doubts that talented managers will be more attracted to a BN that is in bankruptcy. Any managers who can bail out of BN for other jobs are quite likely to do so.
If BN stores develop a bankruptcy vibe (see half-empty Sears stores), a great many of BN’s best customers will stop shopping there. Who’s going to bring children into a creepy-feeling bookstore when they have an Amazon app on their phone?
A lot of the knick-knack manufacturers whose products fill up the front of a Barnes & Noble store are small companies who haven’t any experience with a bankrupt customer and don’t want to spend a lot of money on their own bankruptcy lawyers. Many are likely to cut off sales completely. Others will demand payment up front and refuse to ship without it. Overnight, Barnes & Noble will transition from their biggest customer to their biggest headache.
As far as major publishers are concerned, PG predicts that the big conglomerates that own those publishers will quickly exert greater control. Bertelsmann doesn’t want losses from Penguin Random House screwing up the quarterly results any more than absolutely necessary. Verlagsgruppe Georg von Holtzbrinck will clamp down hard on Macmillan. Ditto Hachette Livre. The US managers at the Big Five will experience intense micromanagement from different time zones.
One proven cost-reduction method that these conglomerates understand is to reduce personnel costs. A few senior management types may hang on, but employees with high salaries provide the most bang for the firing buck, so decades of experience, relationships, etc., will walk out the door at the Big Five.
To be clear, PG doesn’t wish business failure on any organization and, especially, those individuals who rely on that organization for their livelihood. He doesn’t make these gloomy prognostications with any joy.