Friday, May 09, 2008

DOC'S PAPERBACK CLASSIC'S # 42


IS THIS THE END OF BORDERS?

The following commentary about Borders -- the US uber-bookstore -- came from our good friend Alan Beatts, who, along with Jude Feldman, owns and operates Borderlands Books, a truly fine specialist bookstore in San Francisco. Extracted from his monthly newsletter, it’s kinda long, but it's crucial information for all who read and write books, and will have a major impact on how the latter will sell their work to the former.
"First off, a quick disclaimer -- I don't like Borders. I like them better than Barnes & Noble but still, like any independent bookseller, I don't like them. Despite my intention to be as objective as possible in the article, I'm sure that my bias is going to creep in here and there. But, if you were looking for objective, dispassionate news, you wouldn't be reading this I'm going to start with what has been going on with Borders over the past year, then I'm going to talk about the implications, and I'll finish off with the reasons that it matters to everyone who loves books.What's Been Happening - At the beginning of 2007 reports indicated that Borders had a poor holiday season and that their same-store sales were down compared to the 2005 holiday season. Same-store figures are one of the best measurements of sales since they compare sales at stores that have been open for more than one year and cut out the (usually huge) sales increases that are typical at a store that has just opened and is still in the "honeymoon" phase of a rapidly growing customer base. To be fair (and clear) the drop wasn't very large, somewhere around 1%, but in the world of big business that's serious. What was even more serious was that Borders' showed a loss of $151.3 _million_ in 2006 (that's compared to a profit of $101 million in 2005). Most of that loss was a result of their overseas operations (over $100 million) but the domestic side wasn't doing very well either.Borders' reaction was very strong -- they decided to close or sell all their overseas stores, close more than 120 of their shopping-mall oriented Waldenbooks locations (they started 2006 with 678 Waldenbooks stores and ended 2007 with 490) and started a massive redesign effort for their flagship stores. This store redesign is based on stocking _fewer_ books, providing all sorts of high-tech, multi-media services (vanity book publishing, photo album design and ordering, eBook and music downloads and more), and, according to the original plan, a stronger focus on CD and DVD sales (which changed to a much _weaker_ focus on CDs sometime last year when they realized that music downloads were killing the CD business). The multi-media services come along with staff specifically trained to give assistance to people who aren't terribly comfortable with computer stuff.This process moved along slowly (the first of the redesigned stores opened this January and they still haven't found a buyer for their overseas stores anywhere except in the UK) and, as last year progressed, it seemed to be too little and a bit too late. By the end of last year, Borders' management was really hoping for a good holiday season. Which they didn't get. At the beginning of this year, Borders was short enough on money that they set up a loan from Pershing Square Capital Management (an investment fund and one of their major shareholders) at a very high interest rate. Exactly what Borders needed the money for is beyond the scope of this article but, to put it very simply, companies are just like you and I -- they don't take out loans at a high interest rate unless they really need the cash and don't have another place to get it. Based on Borders' recently released shareholder report . . . wow, did they need the money. Their loss in 2006 was $151.3 million, right? In 2007 the loss was up -- $157.4 million. In two years, Borders has lost over three-hundred million dollars.As of last month they managed to get better terms on the loan (still not great though -- around one-and-a-half times the current, usual interest rate for businesses) and they've gotten themselves some breathing room so that they can, in the words of Borders' CEO George Jones, "review their strategic alternatives". But they're still in financial trouble and everything hinges on whether their new business model is going to work (and if they can manage to make their interest payments). If it doesn't, they're very likely on the way out.What Might Happen - It's possible that Borders' current plan will work. Closing less profitable stores and their new super-store format should reduce their losses and open up new sources of income. But closing stores isn't a cure-all. Closing a store creates other types of loss (selling off the fixtures at a loss, returning inventory, and getting out of leases which are far from expired) as was clearly demonstrated last year when closing their overseas stores produced an enormous loss. This may be a little graphic but closing stores is a little bit like cutting off a mangled limb -- the blood loss and infection stops but the patient is still missing the leg.The new super-store format is very smart in a couple ways: The plan to reduce stock by eliminating titles that sell slowly (or not at all) instead of trying to have everything that any possible customer might want is a technique that has worked well for independent stores that were struggling (Cody's in Berkeley and Kepler's in Palo Alto are two prime examples). Offering computer services, free computer time, and tech help for people trying to build a "digital lifestyle" are all things that make a bookstore both a destination and hang-out spot. The best-case assumption is that these services are going to both attract shoppers as well as creating a new source of income. Of course, attracting shoppers is only useful if they buy something but in principle it's a good thing.The flip side of the new store format is that it's still predicated on selling books, DVDs and (to a much lesser and perhaps vanishing degree) CDs. A fair amount of Borders' current troubles came from the unanticipated (at least by them) crash of the music CD market (their CD sales were down more than 14% last year) and, based on plummeting CD sales, they abandoned the CD-heavy element of their new store design and have been shrinking their CD sections in all stores like crazy. But may DVD sales go the same way? Apple is busily building their movie download market and Amazon is working on a similar project (more about Apple and Amazon's competition for downloadable media next month). If DVD sales follow CD sales then Borders can expect another huge revenue hit in the next couple of years.As for book sales, Borders is still facing competition from on-line retailers (21% of overall book sales last year) and places like Target, Walmart, and CostCo (9% of sales). Though the last two outlets are not likely to increase their sales, internet sales will probably continue to grow over the next few years, especially as some towns are left without a bookstore as Borders continues to close Waldenbook locations. Overall 33% of book purchases are at chain bookstores. In comparison, independent stores get 3% of sales. Though it's possible that the sales going to the internet will come from independent store customers, it seems unlikely since the majority of people who shop at independent stores do so for qualities that the internet cannot provide, whereas shoppers at chain stores are often motivated by price, convenience and selection -- three qualities that on-line companies have in abundance. In summation, one of the three lines that Borders concentrates on is pretty much gone (CDs), one of them may be on the way out (DVDs), and the final one is certainly not going to grow and is likely to shrink (books). They are building a new service-based income source (on-demand book printing, photo album printing, download services, and etc.) that, while useful to many people, is dependent on a customer base that doesn't have the knowledge to do it themselves. The catch here is that, if their customers get educated, they evaporate, since everything that Borders is offering can be had on-line at a lower cost and with greater convenience.As my brother, the bank-guy, said, "_I_ wouldn't invest in them".So, let's say that Borders continues to have financial trouble. What happens? My bet is that they close. I'm pretty sure no-one is going to buy their business, neither the whole company or piecemeal (i.e. a local chain buying up three or four locations). The only business that might be interested in buying Borders as a complete business entity would be Barnes & Noble and, to be blunt, there's no reason that B&N would want it. Most places where there's a Borders there's a B&N nearby so B&N wouldn't buy Borders to add to their markets. Borders' inventory is very similar to B&N's and the same goes for their staff. Borders doesn't own any of their buildings so there is no real estate asset that would be attractive. In short, Borders doesn't have anything that B&N would want, other than its customers. And, if Borders goes out of business, all B&N needs to do to get the customers is wait. It's possible that some other company would want to buy Borders but essentially all that Borders owns that's worth anything is its inventory and store fixtures. That's not enough value to be worth the trouble of buying the company. The same argument applies to the possibility of Borders being broken up and sold piecemeal to other bookstores. There just isn't anything that Borders has that's unique or particularly difficult to duplicate.Without a buyer or a source of capital, continuing losses for Borders probably means bankruptcy. In cases of bankruptcy like this, it's very common for creditors to be paid somewhere between 30 and 70 percent of what they are owed by the bankrupt company (though it can go as low as 10% or less in some cases). That would mean that almost all of the publishers in the US could lose as much as 14% of their _total_ accounts receivable. To put that in real-world terms, imagine what your personal financial situation would be like if your employer cut your pay by a similar amount (i.e. instead of making $40,000 a year you made $34,000). The effect on publishers would be at least as bad.What Are The Consequences - If Borders declares bankruptcy and closes there will be a cascade of effects. Publishers will lose a great deal of money owed to them. The five major US publishers (Hachette, Macmillan, Peterson, Harper and Bertelsman) and the the big distributors (Ingram, Baker and Taylor, Diamond Books, and so on) will be able to weather it without too much disruption but all the smaller publishers in the country are going to be hurt. Many of them may be hurt badly enough that they'll close. Publishers closing has the immediate effect of reducing the number of books that get out to the consumers and also reduces the number of places that authors can sell books.These effects will be amplified by the loss of bookstore shelf space nationwide. Here's a simple equation -- the ability of a publisher to purchase a book from an author and print it is determined by the number of copies the publisher believes will sell. The format (i.e. hardcover, large-size softcover, or paperback) of the book is also determined by expected sales. You would think that the number of copies that will sell is simply based on the number of readers who will buy the book but it's not that simple. For a reader to buy a book, they have to find it and the most common way that readers find a book is on a shelf at a bookstore (though word of mouth and publicity are also important). If there are fewer shelves and fewer stores in the country, fewer books will sell. So, in the immediate aftermath of Borders closing, fewer books will be sold in the US. Perhaps a great deal fewer -- remember, of every six copies of a book that are sold anywhere in the country, Borders sells one of them.So, on the heels of financial losses as a result of a bankrupt Borders not paying its bills, there would also be a potentially major decrease in book sales over all. Which would cause more independent publishers to go out of business. Consequently even fewer books are published, authors have more trouble selling their books and readers have less choices in reading. It's also possible that print runs would get smaller, which means less money for authors. Less income from writing means that some authors won't be able to spend as much time doing it, which also means fewer books out there for readers.Which brings us to the final consequence -- readers' access to books. Borders and Barnes & Noble have been so successful over the years that there are many towns and cities in which the only bookstore is either one or both of those chains. If Borders closes, there are many towns that will be without any bookstore of any sort or, if they do have a bookstore, it will be Barnes & Noble. In the first case, the residents will have the choice of either ordering books on-line or driving long distances (in these days of four-dollar-a-gallon gas) to get to a store. In time, a local store might open or B&N might move into the area but it could be a long time coming, if at all. In the areas that have a B&N as well as a Borders things will be better but there's a catch - the buying decisions for chain bookstores are made at the corporate level. In other words, for any given section (like SF and fantasy for example) one person decides for all the stores not only what books are going to be stocked but also how many copies each store gets. As far as I know, the buyers for the chains are all nice people and they really care about books but they are still individual people with all the assumptions, biases, and foibles that you'd expect.Let's say, for example, that the science fiction buyer for B&N decides that British hard SF is too complicated for an American audience and therefore won't sell. In a world without Borders, that might mean that a huge number of readers wouldn't be able to read Iain Banks or Alastair Reynolds since the only store near them wouldn't have their books. Even worse, without significant orders from B&N, it's quite possible that those authors wouldn't even be published in the US. And there would be no way of proving that the authors would be popular since the books would simply be unavailable (though people might order them from British outlets). If this seems farfetched, consider that A) that comment about "too complicated" is an exact quote from a US editor and that, due to their huge market share, B) both Borders and B&N have enough influence with publishers to get cover art and even book formats changed, pretty much on a whim.To sum up, Borders closes. Some small publishers close. Book sales drop. More publishers close. Number of books published per year drop. Print runs get smaller. Authors sell fewer books and get less money for the books they do sell. Fewer books get written. Many areas are without bookstores or only have a representative of the one remaining chain. Readers have less access to books and the books they do have access to are increasingly the product of a single corporate "style".Who loses in this scenario? Publishers, authors, and most of all readers. And who wins? To some degree, independent bookstores since some portion of Borders' former customers would end up going to them. But the big winners are Barnes & Noble and Amazon.com when they divide up what's left. However many of the pressures that have been squeezing Borders are going to affect B&N as well, so how long will they stay profitable? And then we're left with Amazon. Who is making a huge bid to avoid the fate of their non-virtual competitors."
The secret work is Stack


ONE BIG UNION!

Thursday, May 08, 2008

DON'T FUCK WITH FRANK ZAPPA (#5 in a series)


"What’s the ugliest part of your body?
What’s the ugliest part of your body?
Some say you nose,
Some say your toes,
But I think it’s your mind."

Meanwhile, Doug the Bass send over this gem from The Baltimore Sun. Seems like the good folk of Baltimore can’t make up their minds if the city should have its own a statue of Frank Zappa, and the Sun are holding an online referendum. Vote Now. Vote often.
The secret words are Help I'm A Rock
Irvine Robbins -- RIP

Monday, May 05, 2008

MEANWHILE, BACK AMONG THE CYLONS


“We definitely don’t wear lipstick. We leave that to the skinjobs.”

Aeswiren sent us the following rumination before I took my recent enforced break…

"Thinking about the Cylons etc. and your growing preference for them v the humans of the Twelve Colonies etc. ...The persistent fear and loathing of robots is one of those interestinglittle windows into the human mind, yeah? Think of positive robot stories. I Robot in print, Robbie in Forbidden Planet, the "good" artificial person played by Lance Henrikson in Aliens, Data in Trek "Generation," some other books from here and there....And then the negative ones-- overwhelming numbers... Terminators,Cylons, inexplicable giant alien machinery, e.g. Kronos (1957)-- fucked up human-mades like Hal, or Ash, the "bad" artificial person in Alien-- it's endless. H'wood even reversed Asimov's entire concept to let Will Smith do battle with evil minded machinery.Is this perverse Luddism? We hate and fear the machines, even as they make our lives more comfie? Or is it a deeper fear of being replaced?AI-- Spielberg's yawnfest, circled around this stuff, but then veered down his canyon of sentimentality into total tedium. Neuromancerworked the territory, but Gibson is always too clever to actually take sides. T2 & 3 offered a little nuance on the subject-- some machines might be reprogrammed to save us rather than exterminate us.But the core emotion, the primary color, is that we know in our gut that they will do that. Exterminate us. Or sideline us and take control of the Earth, or whatever's left of it. Or, if by some miracle we've actually done the right thing and moved out into the Solar system,they'll wage war on us to take that over.Glossing over the problem of machine intelligence becomingself-willed-- which may be possible, but then again, may not-- aren't we confronting the basic duality of human social existence, here?We love ourselves-- officially. Human self-glorification sells stuff galore.But we hate ourselves-- for our selfish, ugly, fucked up, worthless,weak stupidity.And even as we celebrate human accomplishments we're aware that we're eating the world down to the pips, that we're as superstitious and ignorant as mediaeval peasants, and if we did produce a bunch of Cylons they would just be so much better than us, so much more in control of their hungers, their needs and desires, that they would fucking well deserve to replace us. Yeah?"

DOC'S PAPERBACK CLASSIC'S # 41


I guess the secret word would have to be Suspended

Sunday, May 04, 2008

An easy Sunday. Nothing too strenuous.

DON'T FUCK WITH TOM DUNSON (#3 in a series)


"You're soft, you should have let 'em kill me, 'cause I'm gonna kill you. I'll catch up with ya. I don't know when, but I'll catch up. Every time you turn around, expect to see me, 'cause one time you'll turn around and I'll be there. I'm gonna kill you."

THE CONTINUING QUESTION OF LIPSTICK IN SPACE



“All I wear in space is lipstick, pasties, a bubble helmet, and a plastic bag.” (Send by Valerie against her better judgment.








The secret word is Microgram