Canadian book publishing — A tough sell

Getting ahead in Canadian book publishing is no easy task.

David Davidar was walking along New York’s Park Avenue during North America’s premier book-buying fair last spring when he decided–on a suggestion from his sales team–to snap up the exclusive Canadian publishing rights to Sudoku, a little-known collection of numerical brainteasers.

It was a somewhat unusual choice for the 46-year-old publisher of Penguin Group (Canada), and a departure from the company’s typical front-list picks, but it paid off in spades when the 208-page book soared to the top of North American bestseller lists last summer, quickly selling out its initial print run of 50,000 copies during the typically sleepy season.

Yet only a few months ago “nobody knew anything about Sudoku in North America,” says Davidar, sitting behind a pile of manuscripts in his Toronto office on a late-summer morning. “We got out of the gates the quickest–but there are about a dozen other books on the market now.”

Welcome to the world of English-language book publishing in Canada–a place where profit margins are super-tight, multinational publishers are muscling in on an already intensely crowded marketplace and the retail market is dominated by one big bookselling chain. In this landscape, one smart move can net big returns, but a series of wrong steps can bring major setback or even bankruptcy. By cashing in on blockbuster trends such as Sudoku and searching out opportunities to distribute and co-publish internationally, our publishers hope to insulate themselves from a shrinking market at home and the continued retail domination of the Indigo big-box bookseller.

It won’t be easy.

In a business where “90% of your revenue comes from 10% of your list,” Canadian book publishing will never be a hugely profitable enterprise. Although total industry revenues rose almost 10% to $2.4 billion in 2001 from 1999, profit margins remain anemically slim. The number of publishers that actually turned a profit in this period remained unchanged at just over 55%, and the 2002 collapse of Jack Stoddart’s distribution network in the wake of the Chapters/Indigo merger still looms in recent memory. And given the Canadian market is about one-tenth the size of the United States’, it’s perhaps no surprise our trade publishing industry appears perpetually stuck at the 3% growth mark.

“The world of publishing is changing in very major ways,” says Davidar. “It isn’t the same place that it was 20 years ago. Readers aren’t necessarily willing to wait anymore. Increasingly, you have one big hit, people go out and buy the hardcover, and because of deep discounting and used books, readers won’t wait for the paperback. [This will make] the model of the classic trade publishing house outdated.”

Davidar–the son of a wealthy Indian tea planter, who jokes he gave up the chance to live the extravagant lifestyle of a “mini maharaja” in favour of becoming a book publishing executive–is putting his money on Canadian authors such as Joseph Boyden, whom he feels have international appeal. And if the worldwide success of once obscure authors Vikram Seth and Rohinton Mistry, whom he signed during his 15-year tenure as publisher, CEO and co-founder of Penguin Books India, is any indication, he may just be on to something.

It’s been almost two years since the Harvard-educated publishing executive and author left India to kick-start Penguin Canada’s book program (described by Davidar as “languishing”) and bring some much-needed buzz to the Toronto-based publisher’s struggling back list. He is confident he’ll be able to grow sales by up to 8% this year. By cutting back on unprofitable areas such as reference and financial planning titles, which have largely migrated to CD-ROMs and how-to websites, and by being “fleet of foot” when it comes to fast-moving global trends like Sudoku, Davidar is hoping to do “fewer books better” while continuing to scout the world for “high-quality” literary fiction that brings profile and prestige to Penguin.

But in Canada, large, foreign-controlled multinationals such as Penguin, Random House, McClelland & Stewart and HarperCollins share the already crowded market with almost 700 Canadian-owned independent book publishers and exclusive agents. In such a jammed environment, biting off a larger piece of the publishing pie has become increasingly difficult. Davidar admits Penguin Canada’s annual sales are “between one-seventh to one-tenth” of its U.S. counterpart, which according to an industry report were estimated at US$900 million for 2004. But he is determined to find innovative ways to sell more books in Canada and around the world.

At home, return rates from retailers still hover between 25% and 35%–and can climb as high as 75% for mass-market paperbacks. And up until now, due to the absence of a comprehensive retail tracking system, it has been almost impossible to tell whether the books that sell are from Canada, the United Kingdom or the U.S. Although a recent government report suggests Canadians are spending more money on books–$1.1 billion in 2001, a 23% increase from 1997–study authors are quick to point out that this doesn’t necessarily mean Canadians are actually reading more books. (By comparison, Canadians spent $451 million on live sporting events in the same year and about $1 billion on both newspapers and movie tickets.)

The launch this fall of Canada’s first-ever retail sales analysis service by not-for-profit agency BookNet Canada will hopefully provide a clearer picture of what sells, and where it sells. Despite the obvious advantages of the system, it has also led some to question whether the Canadian book publishing industry will become little more than a “bestseller culture”: shelves awash in Sudoku-style international hits, but less room for more regionally focused or made-in-Canada works.

The temptation to cash in on the bestseller craze is more heightened than ever. Consider, for example, what happened to Vancouver-based Raincoast Books when it scored the exclusive Canadian publishing rights to J. K. Rowling’s Harry Potter and the Philosopher’s Stone in 2000. Although Kevin Williams, the company’s executive vice-president of business development, insists the 130-employee company continues to operate “like we don’t have Harry,” it’s hard to deny the “Harry years” have been very good for business, bumping up Raincoast’s revenues by about $20 million each time Rowling pens a new Harry book. Raincoast has recently considerably scaled back its front list–from 40 new titles last year to 25 in 2005–in a bid to throw additional resources into more profitable areas.

Ron Woodward, a faculty member at Simon Fraser University’s master of publishing program, says the Raincoast story is a perfect example of how independent publishers without a niche market need to take advantage of international co-publishing and lucrative distribution deals in order to stay in the game. At Raincoast, for example, almost 80% of annual sales are generated from deals with the company’s 140 or so global distribution partners, including U.K.-based Bloomsbury and California’s Chronicle Books.”With globalization, you’ve got to be big to get the economies of scale to work for you. Or you have to be real smart,” Woodward says.

Without the ability to leverage global connections, industry insiders predict small and medium-size independent presses such as Raincoast will continue to get squeezed, despite $38 million in handouts last year from the Department of Canadian Heritage. According to the most recent Statistics Canada data, profitability for Canadian-controlled firms was significantly lower in 2001 than it was for their foreign-owned competitors. Although multinationals such as Penguin make up only 4% of the Canadian book publishing market, they accounted for 46% of total book sales in 2001, an increase of 3% from 1999. Profit margins were also higher for foreign-controlled publishers–9.5% of sales or $82.8 million in pre-tax profits–compared to 5.5% of sales, or $85 million for independent firms.

By finding alternative sources of revenue through book distribution and co-publishing deals, larger presses such as Raincoast, Douglas & McIntyre and Bolton, Ont.-based H. B. Fenn and Co. have been able to stay in the black, while minimizing the risk–inherent to all Canadian trade publishers–of having only one major customer, Indigo, with such significant buying power influence. Despite on-again, off-again rumours that Heather Reisman’s big-box book-selling empire, which is thought to command as much as 60% of the Canadian retail market, could eventually fall, few in the publishing industry are willing to speak openly about their largest customer for fear of biting the hand that feeds them. One veteran publisher submits the model is “broken,” but acknowledges a fix will be no easy task.

Scott McIntyre, another longtime publisher, says his 34-year-old Vancouver-based independent publishing house, Douglas & McIntyre, has managed to insulate itself against the retail squeeze by also forging unique publishing relationships with partners such as the National Gallery of Canada and by securing co-publishing deals with other international presses.

Gordon Platt, Canadian Heritage’s director general of publishing policy and programs, will only say that “diversity in retail is healthy for Canadian publishing” and adds that independent booksellers such as Winnipeg’s McNally Robinson and Toronto’s Book City seem to have had “healthy development” over the past few years. Retail woes aside, savvy publishers know the business is equal parts strategy and luck. As McIntyre puts it: “You never know when you’re going to get a Titanic.”

Penguin’s Davidar is willing to hedge his bets. He’s “wagering big” on Canadian authors with blockbuster potential such as Joseph Boyden, whose debut novel, Three Day Road, has met with critical acclaim. He’s also allocating more marketing dollars to Penguin’s blockbuster books.

“We paid a lot of money [for Boyden]. Now we’re waiting for him to win every prize in the book,” says Davidar.

By cutting his list of new titles this year from 121 to 105, Davidar is hoping to tone Penguin’s front list into a lean, mean profitable machine, before bringing list numbers back up in 2006. As always, he’ll be on the lookout for the next big author, or book, with the potential to become a hit at home and abroad.

“Canada has grown to be a really, really interesting place,” Davidar says. “It is potentially a market where you could find the next great Vietnamese novel or the next great Winnipeg novel, so you have the world in a microcosm. The only other two places where you have that are London and New York.” He also has plans to grow Penguin Canada’s international rights sales by as much as 100% from an “almost non-existent” base only five years ago. It’s a move, he says, that is designed to “balance the high-revenue earning countries of the present with the markets of the future.”

For publishing execs, adapting to the winds of global change now appears to be more of a reality than a choice. And that–unlike the brain-twisting puzzles that Davidar helped bring to North America–is just plain common sense.