What Hugh Howey Won't Talk About (but Should). The Book Channel Part V of Several Parts. The Resellers

The Resellers (the Second Tier)

We finally come to the most exciting part of this series, the resellers, in particular Amazon.

Resellers are the customer facing side of the book distribution channel. When I was a kid, resellers primarily consisted of independent stores and small regional chains (Bookmasters, for example,  in NYC). Over time, national chains such as Crown, Waldenbook and and others spread across the country, usually opening stores in strip and enclosed malls. (Paperbacks were also widely available in drug stores, toy shops, supermarkets and similar outlets.)

In the 1970s, Barnes and Noble pioneered the concept of the big box bookstore and was joined by Borders. These mega stores were usually built in large strip and some indoor malls and provided special in-store sitting areas, served light food, premium coffee, and sold music, gifts, games, magazines and newspapers in addition to books. Over time, the big box stores, in conjunction with Amazon (remember, the company went into business in 1995 as online book reseller), steadily ate away at the mid-sized chains and independent stores and drove many of them out of business. 

In the early 2000s, senior executives at both B&N and Borders were positive the future lay in building as many large stores in as many economically viable locations as possible. In their view, independents and regional chains would survive only in areas that were demographically unable to support a big box. In that event, many in the industry predicted that Amazon would pick up most of the independents' business (a prediction that has turned out to be true in many markets).

Then, in 2007 Amazon introduced the Kindle and began to disrupt the sales and business model of the last great analog technology, one whose existence began in the West with Gutenberg.

(As a quick historical note, you should be aware Amazon did not pioneer the concept of the inexpensive E-reader. From 1999 to 2001, several technology companies, including Adobe, Sony, Panasonic and perhaps a dozen others who are gone and buried attempted to kick start the E-pub market to life. They failed because the technology of the time provided a reading experience that was far inferior to that of the book. To read more about the effort, I suggest you pick up a copy of my immortal tome In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters, available in Kindle on Amazon, B&N and other fine retailers everywhere (print too, though if you're in technology, you won't buy a piece of a dead tree).

The impact of the Kindle was profound, comparable in many ways to the introduction of the Apple iPod. The Kindle's reading experience matched that of the printed page in the "eyes" of most of the market and offered portability and flexibility options not possible with printed material. Growth in the print market came to a quick halt, then began to contract. The contraction is continuing and cannot be halted.

By 2011, Borders had liquidated operations and B&N was battling for its life. The company attempted to claim its share of the digital future with the Nook reader, but lacked the infrastructure content, financial pockets, and patient shareholders, to compete with Amazon. B&N backed out of the Nook and sold the rights to Samsung. I don't think the timing was particularly fortuitous for the Korean giant. Dedicated E-readers are being subsumed by smartphones and tablets in the same fashion as the smartphone subsumed the iPod. Amazon's Kindle reader is available on every major hardware platform and works fine on all of them (especially on Amazon's own Fire line of tablets). I suspect Amazon will be happy to vacate the dedicated E-reader market ASAP as at its best, the units were sold on a break-even basis and many more at loss leader prices.

The Reseller Channel Today

The book reseller channel today is broken into two primary components, print and digital. If you are an indie author, you will almost never have any reason to interact with print resellers. Please note that if you as an indie or a publisher sell your books online or perhaps at shows, you are not considered a channel. You are a direct seller. More on this later in the series.

Print resellers can be categorized into:

• Independent booksellers. There are about 2K independent stores in the US and they account for perhaps 10% of the print market.

• The B&N big box chain. Perhaps 50% of the US trade book print market.

• College bookstores.

• Airport, bus, and train bookstores. (Often overlooked, they account for about 10% of the paper books sold in the US, though like all such resellers, they are coming under increasing pressure from Amazon and its counterparts.)
• All other venues such as drugstores, supermarkets, sometimes gift shops, local lunch shops, etc. When I was a kid, "pulp" paperbacks were available in toy stores, "dime" stores, candy stores, etc. Most of these placements have vanished.
• Online booksellers (including Amazon, the online arm of B&N, and any print reseller that offers an online catalog). Amazon owns 65% of online print book sales.

If you are an indie author, you will almost always be required to interact with online digital resellers based on your book's price point. The digital reseller channel consists of:

• Amazon (which is presently estimated to control about 65% to 80% of the digital book reseller market).
  

• Apple (perhaps 15%).
• B&N (perhaps 15%).
• Smashwords.
• Oyster.

And a score of smaller online firms, many of which address niche or genre markets.

What is the Future of Print Reselling?

It has none. Within 10 years, the market will have shifted to digital delivery. The environmental arguments against print alone make the demise of the technology inevitable. (I've worked in print shops and it's a pretty dirty business.) Throw in cost, form factor, flexibility, potential tie-ins to multimedia and games and production issues and the future is clear. Print will survive as a niche technology and occasionally see micro rebounds in the same way that vinyl records enjoyed a small resurgence about six or seven years ago (good for me, as I collect turntables) among some millennials. But that will be it.

What is the Future of Digital Reselling?

Digital publishing will be the dominant means of producing and selling books within 10 years. Within 20, print will be a curiosity within the market.

How Do Resellers Make Money?

Resellers make money by selling books via three primary models.

• The wholesale purchase and markup of books.
  

• The agency  purchase of books.
  
• The collection of marketing and development funds (MDF) from both publishers and indies. This is currently a minor issue with indies, but will change in the future. We'll discuss this in greater detail in the next release in this series.

The battle between the books publishers and Amazon that has captured so much press attention focuses on the desire of larger publishers to price some (not all) of their books via the agency model while Amazon wants to buy and price books via the wholesale model. The best interests of authors are not the primary or secondary concern of either party. The battle is over control of the industry's balance of power.

In the next article, we'll dig into the two models and analyze why the publishers are fighting for agency and Amazon for wholesale and the likely impact on authors depending on who prevails. We'll also be digging further into MDF, an acronym that indies will come to know very well, but perhaps not love very much.