Future Uncertain for Barnes & Noble and Other Booksellers Following Justice Department Lawsuit
By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid
Barnes & Noble and other booksellers will have a tough time competing with Amazon following the Department of Justice’s lawsuit against Apple and some of the largest U.S. publishers, say some in the publishing industry.
With the renewed ability to set prices on more e-books that it sells, Amazon will resume discounting of some best-selling e-books and selling them at a loss, putting price pressure on other retailers.
Amazon itself came out with a short statement saying as much following Wednesday’s announcement by the Justice Department that it had filed a lawsuit against Apple and five of the largest U.S. publishers for colluding to fix the prices of e-books: “This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” said Amazon spokesperson Drew Herdener of the settlement three of the five publishers made with Justice, which many think will return them to wholesale pricing in which the retailer – not the publisher – sets the price of e-books.
“Amazon has just had a weapon – price – put into its arsenal that it had lived without for two years,” said Mike Shatzkin, a book industry consultant (and partner with Digital Book World on the Digital Book World Conference in January). “They’ll use it and every competitor they have will suffer. Barnes & Noble is likely to have problems mustering the resources to fight the price battle while they’re also trying to keep stores open and develop their own technology.”
Stock in Barnes & Noble was trading at $12.06 at the open of the markets on Wednesday, plunging 8% as news on the Justice Department lawsuit and the settlements broke to a low of $11.00. The stock rallied later in the day, but ended down.
An unusually large number of Barnes & Noble shares changed hands on Wednesday – nearly six million – versus the average daily volume over the past three months of 1.3 million. The stock resumed its fall on Thursday, closing at $10.97. As Digital Book World went to press, Barnes & Noble stock was down 4.37% in early trading to $10.50.
A Barnes & Noble spokesperson said that the company had no comment when asked to about the lawsuit and its Nook e-book business.
It’s not just Barnes & Noble under pressure, say observers.
“You take any company in the book retailing business, they can’t compete with Amazon,” said Lorraine Shanley, president of Market Partners International, a New York-based publishing consultancy.
The belief among some in the publishing community is that Amazon will begin discounting best-selling e-books at levels that other retailers can’t afford, selling each one at a loss. If Hachette, for instance, sells an e-book to Amazon at $14.99 and Amazon re-sells it for $9.99, taking a $5 loss on each copy sold, other retailers will be pressured to match Amazon’s price, losing money on each copy sold.
Unlike Amazon, which had $48 billion in revenue in 2011, most of it not from selling books, other booksellers need to make a profit on bookselling.
“Kobo’s new owners [the Japanese e-tailer Rakutan] are going to have to dig deeper into their pockets to finance an upstart competing on price. Apple is either going to have to devote a lot more time and bandwidth to running a store than they have before or face total irrelevance. The challenge grows for everybody else as well: Blio, Copia, the soon-to-open Bookish, and other upstarts on the runway,” said Shatzkin.
Of course, it all depends on what Amazon does.
“Nobody knows what the new order will look like,” said a source at a publisher named in the lawsuit who works on e-book pricing and wanted to remain anonymous. “What happens with price depends on whether Amazon goes predatory. The more flexibility Amazon has to be aggressive, they may ultimately lower prices for consumers, but, as a result, we may lose Barnes & Noble.”
To be sure, not all industry observers are predicting doom for the nation’s leading bricks-and-mortar bookseller.
“Barnes & Noble has to become a retailer of stuff other than content and devices if it wants to survive,” said James McQuivey, Ph.D. and principal analyst at Forrester Research who covers the book industry and told Digital Book World yesterday that Amazon may lower its e-book prices slowly. “William Lynch [CEO of Barnes & Noble] is smart and he has to say, ‘we have to be a lifestyle retailer, rather than a bookseller.’”
And Barnes & Noble may be able to compete with Amazon in other ways. According to Thad McIlroy, a Vancouver-based digital publishing consultant who has written about the bookseller for Digital Book World, Barnes & Noble scored a huge success with a Hunger Games promotion in which it gave away two free tickets to advanced screenings of the movie to those who purchased a Nook in select Barnes & Noble locations. The company also made a splash this week in releasing a new e-ink e-reader with a built-in reading light, a first on the market, according to Barnes & Noble.
Barnes & Noble is also reportedly launching an international expansion of its e-reader and e-book business, which will expose its devices and content to a growing international e-book market.
It could be too little too late, said McIlroy, who recently published an e-book about the retailer’s plight called Stripping Covers Off The Hunger Games: How 7 Billionaires Control the Future of Publishing in America.
“They’ll get a toe-hold in the UK, although they don’t have any international operational expertise. They’ve been hiring for it, but Amazon is a million miles ahead of them, as is Apple, as is Kobo,” he said.
Meanwhile, shares in the nation’s second largest bricks-and-mortar books retailer, Books-A-Million, are down 14% to $2.63 since an early-Wednesday high of $3.06.
Write to Jeremy Greenfield
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