The Publishing Bubble

Booms and bubbles are considered economic inevitabilities—when the getting is good, people will keep buying and selling until the last dollar to be made is had. Recent times have witnessed the burst of the tech and housing bubble. Most bubbles generally don’t survive longer than a decade due to a continued escalation in the destructive behavior that eventually dooms the industry. But what if a bubble lasted longer? Could the traditional publishing model be seeing the end of a 40-year bubble?
 
Bubbles occur for several psychological reasons, but the one that pertains most closely to the traditional publishing model is “The Greater Fool Theory.” This theory, although not scientifically proven but empirically observed, relies on the market’s overvaluation of a product leading to an inflation in price. The price continues to rise as long as a seller can find a greater fool than himself to sell it to. When the price finally plummets, the bubble bursts.
 
Moreso than books being overpriced, the traditional publishing model has been propped up by several illogical modus operandi that could eventually lead to the collapse of this house of cards.
 
1. Dog eat dog: Over the past 40 years, the publishing industry has gone from small publishers working with authors to instead being dominated by the “Big Six” corporate publishing houses (Random House, Macmillian, Simon & Schuster, Pearson/Penguin, HarperCollins, Hachette). Corporate publishing eventually led to the rise of the literary agent and the retail behemoths Barnes & Noble and Borders. Corporate publishers continued to acquire smaller presses that couldn’t compete with the large advances that corporations could offer. Larger advances led to more complicated deals, which needed to be brokered by an agent who preferred to work with corporate publishers who offered larger advances. With more books in their catalogues and backlists, the small independent bookstore could no long house, nor move, that quantity of inventory, and they were soon largely put out of business by the corporate mega-bookstores. However, in order for corporate publishers to continue to see profit in a very mature industry (and every corporation has to see profit), the Big Six began acquiring and producing fewer titles and attempting to sell more of the books they produce (i.e., publishing high concept book that could be optioned for their film rights, celebrity tell-alls, etc.) So while there is more book-selling space, fewer books are actually sold.
 
2. Retailers can return books for up to two years: Generally retailers buy enough inventory that they think they can sell in a reasonable time, but not in publishing. Shelf space in a bookstore is bought and sold at a high price, and since books are fully returnable for up to two years, bookstores are more than willing to put books on the shelf that may never sell through to a consumer. Retailers bring books in, eventually ship the unsold lot back, but in the meantime, they have bought more inventory. Publishers and retail chains are in a perpetual state of simultaneously owing and being owed large amounts of money.
 
Borders’s impending and seemingly inevitable collapse brings all these issues into crisis. If Borders goes bankrupt or, even worse, goes out of business, they will leave a legacy of debt and unpaid invoices to the Big Six who relied on them for stocking their inventory. If Borders’s stores worldwide are closed, that decreases the shelf space to basically what Barnes & Noble can carry (the corporate retailer will probably buy several of Borders’s stores if the company does fail).
 
If traditional publishing and brick-and-mortar were the only game in town, then Borders’s collapse would simply lead to a windfall for Barnes & Noble, and likely book prices would increase from a lack of competition. However, with ebooks and Amazon, there’s cheaper competition. Self-publishers out-produced traditional publishers in 2009 nearly 3 to 1. With one less bookstore chain (when there are really only two major ones), will people simply go to bookstores less? Will the “Big Six” be reduced to only its most profitable imprints, and we see a return to the smaller publishing house model? Will ebooks really become the reckoning force people predict?
 
Time can only answer these questions, but it seems that what happens to Borders will largely dictate what happens to publishing as a whole. The 40-year-old bubble may be on the brink.

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