Subscribing to PND

Subscribers to PND continue to grow every week which is gratifying. I hope that all readers will consider referencing the site and also referring new subscribers to the blog so that readership continues to grow. I am prepared to offer the bribe of a PND T shirt to those that refer the most new subscribers. Over the past few months, the articles that current subscribers may want to forward or reference to colleagues include my posts on Amazon the Monopoly, the Borders situation and my Five Questions series.

I also have a standing invitation to anyone wishing to step on the soap box with me and offer their thoughts on the publishing industry.

Someone emailed me this week asking how to subscribe to personanondata. Other than visiting the web page directly (presumably using a bookmark), there are two subscription methods. An email subscription will deliver an update to your designated email address once per day and the message will contain any posts made since the previous email was sent. Approximately 25% of my subscribers use this method.

The second method is to use RSS. Using the PND RSS feed enables you to get updates when they are made on the site (rather than see them only in the next email message). RSS is simple to use and very functional. The RSS link is here.

Let me know if you have any problems (to do with this blog) and I hope you continue to enjoy my commentary.

michael.cairns @ infomediapartners.com

The Sell Out Of Borders

Ever get your mortgage banker to knock 25% off your interest rate? Me either. Not so those intrepid financiers at Borders. In announcing the loan rescue on their conference call, they professed due diligence seeking the best terms "under the circumstances" (what those are remain a mystery); they have now managed, no more than ten days later, to reduce their interest rate from usury 12% to a 9% rate beloved of Shylock: "Three thousand ducats for three months."

Pershing Square, the largest shareholder in Borders and the provider of this financial rescue package still retain all the advantages they had before they lowered the rate. They wouldn't have done this unless someone else offered up a better rate but even so as an insider they always had the advantage. What is troubling is that the 'due diligence' that should have occurred upfront to get the best rate clearly never happened. And remember, it is still not clear that this financial lifeboat was even necessary. The financial 'crisis' was news to every analyst that follows the company on behalf of their investors.

Great news however for all the managers at Borders since they have been able to provide a safety net for themselves. Stay bonus's galore: "For positions at the executive vice president level and above, the threshold, target and maximum bonus opportunities under the Bonus Plan as currently in effect are established at 20%, 80% and 160% of salary, respectively." This enhancement to their existing bonus plan only applies to four executives. Two of which - Jones and Wilheim (CFO) aren't going anywhere and one of the remaining is head of HR and with all due respect what is important about his contribution to the financial health of the company? And that leaves aside the question why no one lower than EVP has a package. Jones also got more options and is already in the money. There are many more insider transactions noted from last week and there was a lot of volume at the open on Monday. The stock closed at $6.54 up 6% on the day.

The company also indicated they would hold off filing their 10K.

SEC filings on Monday also saw a new strategic investor enter the fray. Gerald Catenacci who owns Highway Partners equity fund has acquired 5% of the company. Reuters also reported the news and notes no reason has been given for the investment. He evidently has something with roads: Highway, motorway, expressway, freeway are all names of investment vehicles (oopps). There doesn't appear to be any relationship between Highway and Pershing.

No Advance No Return

Type 'no-returns' and 'Harpercollins' into Google search and you get over 1600 results. Replace Harpercollins with 'no advance' and Google returns 500+ results. All of this since last Thursday when it was announced that Harpercollins would establish a new imprint managed by ex-Hyperion President Bob Miller. Such is the dearth of new thinking in publishing that this constitutes real excitement.

Bookstores will always return unsold books if they don't sell and they won't sell if no one wants them. Authors will never earn out their advances if their books are uninteresting. The potential of the new imprint at Harpercollins under Bob Miller is interesting but the focus on returns and advances is misguided. Both these aspects of our industry are easy targets for people who either don't understand the business or who are looking for easy solutions. And spare a thought for Bob who will have gotten off to just the start he wanted with all those authors! Aggressively managing returns and advances is nothing new even at the larger publishers and there have been many smaller & medium sized publishers that have established themselves while minimizing (and eliminating) advances paid to authors. The much harder discussion is the one about publishing books readers care about and are willing to buy.

The whole focus on 'no returns' and 'no advances' was probably started by the WSJ which chose to focus on this aspect of the announcement. Publishers as diverse as Public Affairs and Sourcebooks have built strong businesses and publishing programs by focusing on fairly narrow segments and limiting advances (Public Affairs) or treating books like consumer goods which has been the case at Sourcebooks. Disallowing returns and not paying advances is not going to produce a successful publishing program but producing content readers will buy will eliminate a need for returns and advances. So the solution is simple: Publish what buyers will pay for and read, and this is where Bob Miller (and all others) have their challenge. Bob's job at Harpercollins is really not that much different that the one he left at Hyperion and the focus on returns and advances continues to miss the point.

An interesting analysis (where I saw it I don't recall) was thrown up to me recently related to library book purchasing. An analysis of books owned by readers on librarything.com (I think) matched against titles held in library collections seemed to show that readers are buying (and presumably reading) more obscure titles than are being purchased by libraries. Libraries tend to buy what they are told either by B&T or by the larger publishers. The context of this analysis was to show that libraries are in danger of building generic collections while also reducing their appeal to their patrons. If there is a lesson here for Bob Miller and all the other publishers it is that they like libraries need to work harder to fill the consumers needs. The need (in marketing terms) is real but increasingly it remains unfilled by the larger publishers. Fill the need and eliminate returns: Simple really.

Harper Embarks on a Publishing Experiment

Industry veteran (and fellow Hoboken resident) Bob Miller who has headed Hyperion since 1991 is to join Harpercollins as head of a new imprint that hopes to change the traditional publishing model. The key change will be to share profits with authors in a model more akin to self-publishing than the traditional publishing model. He is expected to start his new role at the London BookFair in two weeks. The "publishing studio" division will combine traditional trade book publishing techniques with Internet-based strategies to market and publicize about 25 moderately priced books per year. (What was I saying...)

This news has been widely reported but I thought the news noted on Eoin Purcell's blog today anticipated in significant ways the immediate need for new thinking in Publishing.

Eoin noted a story in The Bookseller that claims Weidenfeld are returning author advances because they (supposedly) don't have the staff to edit the titles. This seems idiotic to me.

My comment:

There is probably more to this but it is hard to believe that if these titles were good on the fundamentals; profitable, message driven, good for the imprint(important titles), that they don't still stand up. Sadly, it probably speaks to the continued lack of focus on business principles that continues to be prevalent in publishing. Rather than cast these books off - assuming they had merit in the first place - seek another model. Take them to POD or a vanity press type model where the publisher and the author share some risk. The announcement that Harpercollins in the US is thinking differently anticipates this announcement from Weidenfeld.

I anticipate we will hear more about Bob's new venture. Good luck to him.

Amazon TextBuyIt

Everyone walks into a store with a mobile phone and virtually every product in a store has some type of barcode identifier. Marrying the these two apparently unrelated technical solutions could actually produce significant value to consumers. A few companies have attempted to produce a barcode reader software on a mobile here and here.

In the book world a number of booksellers using Amazon services have recognised the utility of combining a cell phone look-up service with the Amazon database. Essentially, booksellers looking for second hand titles to add to their stores can improve their selection and make better choices if they are able to tell if a book they see at a swap meet is in demand on the Amazon bookstore.

Amazon today announced a different approach to combining the cell phone with a look-up service. This one relys on SMS and lets customers use text messages to find and buy products sold on Amazon.com. From the press release:

With the addition of TextBuyIt to Amazon's existing mobile offering, including its mobile site and mobile iPhone site, customers can now shop, compare prices, and buy from Amazon.com virtually anywhere they are, with any mobile device, using either text messages or their mobile device's web browser.

"With today's launch of TextBuyIt, any Amazon.com customer can now use any mobile device to shop and buy from Amazon.com, at anytime, anywhere they are," said Howard Gefen, Director of Amazon Mobile Payments. "With TextBuyIt, if you're walking out of a concert and want to buy a CD from the artist you just saw, or if you're at dinner and a friend tells you about a great book you should read, all you have to do is get out your mobile device, send a text message to Amazon, reply to the response, confirm your order, and your item will be on its way. It's incredibly simple and convenient."

In less than a minute and using only text messages, Amazon.com customers can find the product they are looking for and complete a purchase using TextBuyIt. Simply send a text message to "AMAZON" (262966) with the name of the product, search term or a UPC or ISBN code, and, within seconds, Amazon replies with the product or products that match the search, along with prices. To buy an item, customers simply reply to the text message by entering the unique single digit number next to the item they want. Customers will then receive a short phone call from Amazon with the final details of their order and asking them to confirm or cancel the purchase.

So imagine you want the personal experience of visiting a store with the potential advantage of better pricing online. All you need to do is text Amazon to check prices as you walk around a store. If the margin is wide enough you can buy from Amazon rather than the store or if you don't want to carry something home you can have Amazon sent it to you. Aren't we getting closer to the time when every physical retail store is a potential showcase for Amazon products?

SharedBook And BigOven

SharedBook (which I have featured before) has struck a deal with BigOven to use the SharedBook api so that BigOven users can create their own custom cookbooks. Any registered user can both use their own recipes by adding them to the BigOven database and use any of the 160,000+ recipes already in the database. Long time users of BigOven will find this tool immediately useful since they will be able to choose from their favorites list and from lists of items they have searched specifically for in the past.

The recipes in the database range from Aunt Millie's Down Town Meat Loaf (I made that up) to recipes taken from magazines and added by users. The books can also be collaborative so in addition to creating your own best of title, a group of users can create a collaboratively generated cookbook and add their own commentary and dedications.

The finished version will be delivered looking like something you could buy in a store and it comes in two versions: A slipcased version and one that lies flat that is best for use in the kitchen.

More specifically from the press release, SharedBook notes the following:

Simply visit BigOven.com and type in anything you’d like to print a book about. Then, look on the right hand side of the search results for a “Print a Cookbook with these Recipes!” link, and that will take you right to the bridge page with the recipes queued up. You can then select which ones you would like to include and change the order.

Recipes Contributed by Any Member – visit a chef’s page and click on the “Recipes I’ve Posted” link to generate a search of all recipes that member has posted. Now, look on the search results page, right hand side, about halfway down the page. Click on the link “Print a Cookbook with these Recipes!”

Any Cooking Group – The BigOven Cookbook is an easy way for groups of friends and family to create cookbooks. Groups are free to create on BigOven.com. You can simply create a group on BigOven and join for free, post recipes to the site (at not charge), and add them to your cooking group and then, anyone can print a group cookbook at any time.

There is no question we will see more of these types of collaborative software tools enabling consumers to create their own personalized products using publishers (and others) content and adding their own material whether it be editorial, photos and probably embedded video and audio. SharedBook looks like they are making all the right moves and this deal comes on the heels of a recently announced deal with Random House.

Amazon: What Do We Do Next?

Someone emailed me today and asked what publishers should do in light of Amazon throwing their weight around and others posing threats to the industry.

My response,

Indeed, I agree that publishers don’t seem to be taking the threat seriously and I really don’t understand why. I really don’t know what the answer is (I wish I were that smart) but it should be the case that any interaction with Google, Amazon and Microsoft should be guarded. In addition, the publishers should be offering some type of counter policy – whether it is alternative options to access to their content (new pricing/subscription models, distribution/retail) – so that consumers have more options. For example, publishers have hesitated historically to mess with the retail channel and I recall in the early days of the internet there was a lot of discussion about publishers creating channel conflict with existing retailers if the publisher set up their own store front. In the past 10 years the retail channel has become far more concentrated and could become even more concentrated as more content becomes electronic.

Perhaps it is time for publishers to be more aggressive in becoming retailers as well as content producers. If so, it’s not as simple as setting up a store front that looks like a mini-version of the Amazon bookstore (obviously) since no one would switch. However, publishers do have the direct relationship with the author and can use this exclusivity to build a more robust presentation of the content. On Amazon you get the Buick version but on the Publisher site you get the Cadillac. None of the added or supplemental content would be made available elsewhere. What that extra content would be I don’t know. Maybe every author is twinned with an additional writer and site designer that builds/creates websites focused on the authors work but with far more expansive material about the works, process, background details, audio, video etc., any of which could be purchased by a consumer. This becomes the new marketing and promotions approach or the way to spend money that is traditionally allocated to print advertising, book tours and launch parties.

That’s a quick thought. Trade faces challenges. Education and Information are/have morphed into new beasts but it is less clear where trade will end up.

Later on in the day, I came across this news story about musicians and acts setting up their own social networking sites. The reasoning is simple: The artist has decided they don't have to have an intermediary between themselves and their fans. Their actions don't mean they forgo any of the other outlets such as Myspace or Facebook but they are understanding that they can insert themselves into the value chain at their choosing. Reuters:

"The thing that separates Thisis50 from MySpace is we control the e-mail database," says Chris "Broadway" Romero, director for new media at G-Unit Records, which handles Thisis50. "We can e-mail members if we want to." Thisis50 isn't meant to be a fan club, but rather a platform for 50 Cent to showcase his music and music he likes, and comment on news and user profile pages. Ludacris' WeMix.com, on the other hand, is more of a hub for aspiring artists to upload their music.

Publishers can do the same kind of thing to distinguish themselves and their authors in the minds of consumers while also establishing more balance in the relationship between producer and retailer. Change is certainly on the horizon but whether publishers move fast enough is the question.

Five Questions with Exact Editions

Exact Editions has developed a seemingly simple aggregation service for magazine publishers so that exact replicas (editions) of their print magazines can be viewed online. No doubt there is a lot more behind the scenes which is why I asked Adam Hodgkin my Five Questions.
1. Tell us about how Exact Editions started and what you set out to do?

Exact Editions was founded by Daryl Rayner, Tim Bruce and me three years ago. We incorporated the business at the end of May 2005. But we didn't have anything to show or sell until March 2006, which is when our service went live with just four magazines. The idea was to provide an aggregation service for magazine publishers and a way for consumers to buy individual subscriptions to consumer magazines. Magazines exactly as they are. As glossy as possible, with the ads in place, and with no 'messing about' or 'repurposing' of the material. We realised that there was an opportunity to add value to the publishers' existing content by working with archives, rather than single issues. When new subscribers sign up they get immediate access to at least a year's worth of back issues - in some cases three years, depending on the title. Our search tool works across all issues and all titles by default, so the archives are a really useful resource.
Daryl, Tim and I had previously worked together for five years at xrefer a business which provided aggregation services for reference book publishers. We knew each other well and that is important in a startup, but we all saw the new business as a completely fresh venture. From the outset we had a very different concept for the kind of service that Exact Editions would provide -- that it would be much more consumer oriented, that it would be providing a service for publishers and that it would be a pure web operation. If possible everything would be automated and would work through the web. xrefer made its sales through subscriptions to libraries, we felt that this would be very much a secondary market with consumer magazines. However it is now looking more important and we are selling subscriptions to libraries -- this is working rather well.

2. Describe the process of loading the content: Can any publisher participate and are there any special considerations that publishers must take into account?

It was important to us to make the import process as straightforward for the publishers as possible. In most cases, we work directly from the same PDFs they send to their printer.

The publisher just has to send a copy to our upload service and tell us the publication date. All the enhancements (phone links, contents page links, ISBN resolution) are added in our import process, and we ensure subscribers receive a notification when the issue goes live. We don't generally charge the publishers up front fees (we may need to if the circulation is very small or we are providing additional promotional services to the publisher) and this makes it easy for publishers to try our service. They can only gain from the digital edition and the new subscriptions that will come in. We take a small commission from the digital subscriptions that we sell. So our rewards are 'success-based'. The publishers get the bulk of the subscription revenues and they set the prices, we will probably only make a decent return once a magazine title is selling 50 or 100 subscriptions a month. But we are now hitting these levels and the growth rates are encouraging, especially since December last year.
We probably would not take on a magazine which we thought could only have 1000 digital subscriptions, but most consumer magazines can work well as digital offerings. We started with magazine publishers based in the UK but we are now looking to add magazines from the consumer sectors in the USA, France, and Australia. We would like to offer and work with Canadian magazines (French and English). We get a lot of Canadian subscribers. In principle, we could now add consumer magazines form other language markets, German, Spanish, Arabic etc, but I suspect that this will wait until we have scaled up our coverage in France, USA and Australia. As it happens I live mostly in Italy, which has a healthy consumer magazine market, but I don't fancy doing the Italian language customer support at this stage of my Italian.

3. You have experimented with some interesting applications such as executable phone numbers and ISBN’s. How are these being used by subscribers? Are you seeking to leverage these applications in additional ways? Are there any results that The Bookseller has seen that you can discuss?

We certainly see the addition of this type of interactivity as very important. We think the iPhone is hugely important. Important in its own right and important because other phones will be like it; and being able to click on emails, urls, ISBNs and phone numbers from your web page is a crucial asset. Especially when your web page is in the palm of your hand. I am amazed that more websites and web resources do not make phone numbers clickable as a matter of course. As an inveterate Skype user I find this slowness even on good web sites quite incomprehensible. Yes the ISBNs are definitely being used.
We only have a couple of months of usage to consider, but I am surprised how much they have been clicked. This page had more ISBN clicks than any other last month. And a lot more for Catherine Alliott and Elizabeth George than for Jeffrey Archer or John Grisham. I don't know why! And yes we will be leveraging this function. Book publishers catalogues -- exactly as in print -- should be on the web as navigable and searchable resources. We will encourage that and facilitate it. PDFs are a very poor way of putting them up.

4. You have experimented with Books. Your approach offers a strong alternative to wholesale programs like Google Book. Do your publisher clients see it this way? How do you pitch the product?

We are working with book publishers and expect this business to grow strongly, because our platform works well for three key functions which book publishers increasingly need to address (1) sampling through the web (2) licensing digital editions to individuals (3) licensing to institutions. We pitch the service as being technologically similar to Google Book Search but as being at the disposal, if you like at the beck and call of, the publisher. Google has positioned its Book Search service as an alternative and a potential competitor to the role of the publisher. That may well have been a mistake. We think book publishers can use our platform to provide their own aggregation service and we are enabling that to happen. Google Book Search also has a great role to play and we think it will be very successful, but in many cases the publishers need to run their own show.

5. What is next for Exact Editions?

Our biggest challenge is to automate more of the key processes involved in 'signing up' to the business proposition. The one bit of our process which is still rooted in paper is the simple contract. We need to have that process completely web-based. And I don't just mean a click-through contract, I mean a click-through process for testing, for uploading content, for defining samples and customisation. Daryl and I still spend a lot of time talking to publishers and even visiting them. We like doing this, but its not strictly necessary. We are on the road to automating all these steps, but there is still a way to go.
Adam is available here: adam.hodgkin@exacteditions.com

Territorial Rights Aren't Fair (Dinkum)

Henry Rosenbloom is an Australian publisher as well as well known commentator on media and publishing matters impacting the Australian publishing market. As a publisher in a market which has traditionally represented the icing on the cake for many UK based publishers he has a perspective on the manner in which territorial rights are auctioned. The entire system is an anachronism based on the pseudo-political "commonwealth" but finally leaks are starting to appear in the edifice.

It is an interesting post and perhaps his most interesting point is that he blames the current territorial rights framework for harming the Australian publishing market. No doubt the real changes will occur when e-Book versions are universally available; that will make traditional 'territorial' right hard to sustain. From his post:

In recent years, despite the continuation of neo-colonial rule from London, an insurgency has emerged: Australian publishing has developed a rights-buying culture. Many houses, large and small, now look to acquire local rights in US titles. (Our own company has been prominent in this area.) Often, the books they’re interested in are of relatively little interest to UK houses; but, equally often, the UK refuses to abandon its hard-line position, because it doesn’t want to set an unwelcome precedent.

The galling thing is that Australia often understands US books better than UK publishers do — and that, when Australian houses do manage to acquire local rights, they often publish the books with verve and commercial success. They print substantial quantities, publicise the books professionally (sometimes bringing the author out for a publicity tour), and often create a market for an author that would otherwise never have existed. And they do this while paying a market price for the rights, and higher, domestic royalties to the US publishers and their authors.

(Thanks to my Australian Stringer for the lead).

Clipping Service

NY Magazine takes a look at British author/artist Graham Rawle who has constructed a book entirely from the clippings of Women's World magazine. The concept wouldn't be unfamiliar to a six year old but his application is sophisticated and impressive. In reading his noted points to the image, you get a glimpse of his process. Some of the plot characteristics were a direct result of what elements (words and phases) were in the text of the articles. For example, he picks 'Hands' as a surname because the word is frequently used in the magazine.

A mash up of the first order: One wonders how something like this could be constructed in a web environment.



In my comment to the article I said the following:

What about copy editing? Reading this I was amused by the thought of some exasperated editor trying to reword or add punctuation. Would they need their own inventory of clippings? Not something the average six year old would be unfamiliar with but a really interesting application.

Gaming the Library

Big, Stuffy, Parental New York Public Library is counter to expectation a big gamer. A recent article in the NYT tells how the library is far more with it and in tune with a segment of its target audience than we might otherwise believe.

Under the Beaux-Arts arches of Astor Hall at the New York Public Library’s flagship building on Fifth Avenue and 42nd Street, thumping hard-rock beats mixed with tennis-ball thwacks and the screech of burning tires late Friday afternoon, as the library showed off the latest addition to its collections of books, films, music and maps: video games. Beneath the engraved names of august benefactors like John Jacob Astor and Simon Guggenheim, several hundred children, young adults and the people who love them virtually jumped, drove, battled and rocked out as the library celebrated its burgeoning “Game On @ the Library!” initiative.

The library has been loaning out games since 2006, but they are expanding the program in a big way. It is all to reach out to that illusive audience that in the words of one attendee "you don’t see too many kids my age in a place like this to check out a book." He's fifteen.

Borders UK

There seems to be a revolving door at the offices of Borders UK. Last week the company announced that Commercial Director David Kohn, who was bought in from W H Smith at the end of 2006 would leave the company in April. Kohn's had responsibility for buying and marketing and hence this is possibly a more critical loss than the loss several weeks ago of the CEO David Roche.

Borders UK was purchased last year (from Borders US) by ex-Pizza Express founder Luke Johnson. Johnson is also currently chairman of UK's Channel four television. It is probable that philosophical differences with the Chairman on store merchandising, negotiation and store closings have had something to do with both departures.

Bertelsmann Is Cautious

The Times Online takes a critical view of Bertelsmann's strategic vision but does note that since they are a family owned business maybe the criticism doesn't matter:

All this is a far cry from the swashbuckling days of Thomas Middelhoff, the Anglophile chief executive who was booted out after thinking that he might persuade the Mohns to float. Mr Middelhoff bought Random House, did the deals that made RTL, now the best business, and made a ridiculous sum, $7 billion, on a half-share of AOL Europe. Now, there is a cosier approach, where keeping the family happy matters too much. Remarkably, there is almost no Asian business and not much internet to talk about, although Hartmut Ostrowski, the new chief executive, talks about changing that. Yet a limited appetite for risk is already being seen in limited rewards, with profits up by only 3.4 per cent last year.

Google Print Integration

I always wondered at my own immediate need for 10,000 e-book titles available on things like the Kindle and Sony e-Reader. Give me an e-Book library of my librarything.com titles then I might be interested. The idea that I could browse the full text of my collection on librarything has far more relevance for me than a e-Book catalog that's just BIG. And what do you know? We are almost there because librarything.com announced an integration with Google Book Search several weeks ago and on the site a user can link to the text of many of the titles in their collection. The links aren't universal but as a taste of what is surely inevitable it is a great step forward.

Other companies are jumping on the API bandwagon. ExLibris announced they have integrated a link to 'About this Book' pages on Google Book Search. From their press release:

Using a new “viewability” application programming interface (API) supported by Google Book Search, library patrons can now enhance their findings with Google Book Search features such as full text, book previews, cover thumbnails, and a mashup from Google Maps linking pages in a book describing a specific place to its location on the world map. Use of this “viewability” API has been added to the Ex Libris Primo® discovery and delivery solution, SFX® context-sensitive link resolver, and the Aleph® and Voyager® integrated library systems.

In the ILS world everyone plays follow the leader so the links should start appearing in all the other vendors products if they haven't already. Libraries have long had the ability to gather content in a similar manner (not full text) from Amazon.com. Many have done this successfully to augment (prettify) their catalogs, but the Google option will prove to be compelling both because of the potential breadth of content in the 'About the Book' package but also the limited commercial nature of the Google Book Program. The Google Book Program could become the primary distribution mechanism for publishers into libraries: Imagine every ILS using the Google API and publishers making their titles available via a subscription/lending module. All of this at very low capital expense for publishers.

The other interesting aspect of the Exlibris implementation is the integration with the SFX link resolver. How this will develop could also be interesting for the discovery of journals and articles.

Over on Exact Editions, Adam had some related thoughts on this.

Also, I had an additional thought that it may be Microsoft that has the better Publisher workbench/toolkit for managing access to their content from what I saw at their presentations last year. Where they are in their relationships to library intermediaries is anyone's guess however.

Book Expo America

I have been shanghaied into arranging a panel discussion at Book Expo in LA. It will be interesting and I am looking for several more panelists. Please let me know if you would like to participate and or if you have any recommendations as to who I could ask to participate.

The following is a draft of the panel discription:

Digital Bundling: Considerations, Combinations & Costs
Most publishers are committed to allowing consumers access to electronic versions of their books whether on their own account or via programs such as the Google Book program. Some publishers are going a step further and are allowing consumers to interact with and create their own products using the publisher’s content. As publisher’s build their content databases, digital bundling will become a significant part of the product mix and will change the concept of the customer – from bookstore to consumer - and the concept of the product – from book to service. Rapid improvements in technology will enable ‘mass customization’ of publishing products and will fundamentally change the relationship with customers.
While many publishers are still tentative in their e-book experiments others are already experimenting with digital bundling. As these publishers experiment, what are their experiences, what are the issues and what costs exist as these publishers engage their customers in new and revolutionary ways? Hear from publishers who are experimenting or are contemplating launching making their content available to consumers for new and exciting products.

Moderator: Michael Cairns, Information Media Partners
Thursday May 29th: 11am - 12pm
Panelists:

Penguin Redux

Email subscribers may not have been able to view the Penguin newstory from Reuters that I noted last week.

Here is the link:

http://www.reuters.com/resources/flash/includevideo.swf?edition=US&videoId=78374

Penguin On the March

Penguin continue to innovate and experiment. Last year they launched wiki-novel idea "A Million Penguins" which generated over 85,000 visitors and this week they announced a collaboration project between authors and game producers. This Video from Reuters explains all.



Thanks to April for the link.

Borders' Punished: Not a Pretty Picture

After yesterday's announcement of their 'refinancing' package from current 18% shareholder Pershing Capital, Borders shares fell over 28% yesterday. The company began the day with a market cap over $400mm - and at that level a poor reflection of the value of the company - and ended the day at a value of $297mm.

On a day when the company could have touted the upswing in 4th quarter results as proof their strategic plan was on track they decided instead to concoct a deal that on the surface appears to have been conceived over pizza the night before. Even the analysts who remain closely familiar with the company questioned the immediate need for the capital infusion. Matthew Fastler from Goldman Sachs noted in reviewing their balance sheet he saw no cause for concern. "What's the urgency," he asked.

A believer in conspiracy theories might conclude this stock price has been beaten down to cheapen an acquisition price. A offer at the closing price on Wednesday would give shareholders a 40% premium on Thursdays close.

Barnes & Noble, who's stock has been heavily purchased by insiders (primarily Len Riggio) was up 8% yesterday. Even Books A Million was up 4%. On their conference call yesterday, B&N were asked whether they would be interested in buying Borders and while they said they haven't been contacted they did say it would be something they would consider. Of course they would take a look, they're a competitor! I maintain B&N would not want to be saddled with the headaches and would rather take share the old fashioned way; that is, better store merch, better store location, better negotiation and better logistics. The likely scenarios are: 1. Purchase by Pershing, 2. Purchase by unknown PE, 3. Purchase by competitor or 4. Purchase by a Canadian. 5. Purchase by an Australian (wouldn't it be funny if they offered to buy everything).

I've always thought that a far better combination all around would be Borders and Books A Million. (Borders A Million?) Another interesting combination would be Indigo Books and Borders. Indigo is the combination of the two largest book retailers in Canada and there were rumours of some cross border combination with either Borders or B&N. These have died down in recent years but the Borders Indigo combination could be interesting. The owner of Indigo is married to one of the richest men in Canada and money to acquire the business (at $300mm come on!) wouldn't be a problem.

Heck, I'm going to go out and play the lotto and when I win I might take a shot.

Borders Conference Call Update

After this morning’s conference call I was still as much in the dark as to the reasoning behind the rapid run for cash at Borders. In discussing the funding deal on the call both CEO Jones and CFO Wilhelm commented they saw business was falling off late in the fourth quarter which, coupled with the failure to sell the Australian/New Zealand operations led them to believe vendors (in particular) would be worried about their financial health. There is no reason to believe the latter would have happened. When asked directly they admitted this has not been a factor in their dealings with publishers. They also noted that there are other organizations interested in purchasing the Australian operations and they are confident that they will consummate a deal in the short term.

They spent a lot of time on the call congratulating themselves that the basic elements of their strategic plan is going according to plan such as STS have improved 2.1% at Borders and 1.2% at Walden. The international stores improved 7% - possibly partly due to currency.

So to recap: They think there is a little market slow down, they had a hiccup in realizing a $120mm asset sale but they mortgaged a quarter of the value of the company to gain some short term cash when it isn’t clear they needed it. The company plans to sell parts or all of itself to maximize shareholder value but there is no timetable set against that pledge (other than that tied to the loan conditions).

Jones did emphasize that they continue to operate in a highly promotion driven environment and this impacts gross margin. One analyst asked where the balance existed between continuing to drive top line revenues (comp store growth) and gross margin erosion. Jones said they do want to improve gross margins but they won’t be doing it via a reduction in promotion spend or a reduction in the rewards program. Perhaps holding back on some of this spending, further reducing their capital spending and slowing some of the web role out would have eliminated the need for the capital infusion.

Other items of interest from the call:

Jones announced the web site is set to launch May 3rd and the integration with stores - ‘cross brand strategy’ – will also roll out to in-store kiosks.

Aside from the financing they believe there exist other operational improvements that will lead to cash generation

EBITDA from Paperchase and the A/NZ operations is about $30mm

Asked whether Pershing is an insider, Wilhelm quickly said they have a representative on the board but did not affirm whether they should be considered an insider. They said they reviewed other financing options before setting on Pershing and the package had the approval of the board.

Asked about full year performance Wilhelm said they wouldn’t give guidance but that there were many opportunities available to them to improve results. He believes they will improve but perhaps not as fast as anticipated earlier in 2007.

Speaking about the margin Jones said that they were “absolutely paying attention to margin”. He noted favorable things happening in the sales mix: Paperchase, café, bargain books: Music falling but it is low margin. He said they are “still playing with promotional mix” and that the market very promotional.

Borders Seeks "Strategic Review"

The long wait is over. Borders has announced they are seeking advice from Merrill Lynch and J.P. Morgan to seek alternatives that will "maximize shareholder value." The company has been preparing itself for this moment for the past year or so since George Jones became CEO and began dismantling the international operations and conducting a wholesale review of the Borders and Walden operations. Over the past year, Pershing Capital Advisors, an investment firm, has purchased 18% of the shares of the company and with today's announcement they are also bailing out Borders with a loan of $42.5million to shore up the company's finances. Earlier this month, the company announced that they had failed to agree terms with Pacific Equity Partners to sell the Australian and New Zealand store operations. The sale was widely expected to generate over $100mm in purchase price.

This capital commitment comes at quite a price. Firstly, they will be paying 12.5% interest. Secondly, Borders has agreed to sell them the Paperchase and Australia and New Zealand operations and the 17% interest they hold in the UK operation if Borders is unsucessful in selling them to a third party. CEO Jones has been consistent in viewing Paperchase as important to the growth of Borders and a key component of their evolving merchandising strategy. To consider selling it appears a sign of desperation. As mentioned the A/NZ operations may have been worth $100mm but there was only one real buyer. Without competition how much is this operation worth? The UK interest is essentially worthless given the sale price of the whole business. If worse comes to worse and Pershing ends up buying these assets for $125mm they will appear to have gained a bargain since even Borders management state that they believe the value of the assets is far in excess of the $125mm. (If I read the press release correctly, on receiving the $125mm Borders immediately must pay back the $42.5mm loan: that nets to $82.5mm). Pershing is likely to prefer the whole company rather than the parts.

In addition to the capital commitment Pershing is also gaining warrants that equate to 19% of the company's shares. This amount plus the shares they already own (and Jones' shares) must mean they will effectively control the company once the deal is finalized on or before April 4th. (They would have to exercise the warrants).

Shares in the company closed just above $7 which values the company at $400mm. Pennies really considering managements belief in the value of the pledged assets (Paperchase etc.). Investors are expecting something to happen to the stock as it has ticked up $1 in pre-open trading.

The company also announced full year results with total consolidated sales from continuing operations of $3.8 billion for the full year 2007. On an operating basis, Borders Group posted full-year consolidated income from continuing operations of $9.2 million, or $0.16 per share, compared to $33.0 million, or $0.53 per share a year ago. The company has previously noted write-offs associated with the sale of the UK operation and non-operating investments in their web relaunch that total $125mm and $28mm respectively. On a GAAP basis the full year net income loss was $157.4mm.

Their fourth quarter numbers with revenue up almost 3% and net income flat with last year should give investors some belief that operating changes put in place by CEO Jones may be working. However, it is early in his term and he has only recently filled all his key executive positions. With a volatile economic situation it remains to be seen how successful the company will be over the medium to long term. Certainly operating outside the glare of the financial markets will help turn Border's around and it seems to me that that is where the company is headed.

More from the press release.