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Old 03-22-2007, 08:06 PM   #1
Alexander Turcic
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Borders says good-bye to Amazon and works on own online presence

Brick and mortar store die-hards who prefer to being able to flip through a book prior to purchasing it won't be happy to hear this. Borders, who released less than satisfactory earning results for Q4 2006 today, have announced that they will disengage from most of their 73 superstores overseas and nearly half of the nationwide Waldenbooks outlets, and instead focus resources on revitalizing domestic superstores and launching their own online Web store in early 2008. Until now, Amazon handled Borders' online business with Borders only receiving a commission on the revenue generated.

In addition, Borders said they would add new "Digital Centers" in their stores which will allow customers to buy not only old-fashioned paperbooks but also products in digital formats, such as e-books, audiobooks and MP3 audio. Quoting WSJ:

Quote:
George Jones, Borders' recently named CEO, now declares online to be "a necessary component of our business." He says that launching the business "won't be a slam dunk" but that it will complement the company's bricks-and-mortar stores and will enable Borders to partner with a variety of companies.
...
To make its U.S. stores more attractive, Borders is working on a prototype of a new superstore design that will include a digital center. The centers will enable customers to purchase a variety of digital products, including music and audiobooks, and provide such services as personal publishing. The first of the new concept stores will open next year.
Related: Bookstores: Digital or paper? Or both?

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Old 03-22-2007, 08:12 PM   #2
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I guess there was something to the rumors that this might happen when the contract with Amazon ran out.

That 'digital center' business sounds quite promising, e-books aren't specifically named, but it's not much of an assumption that they might be included.
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Old 03-22-2007, 08:16 PM   #3
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Quote:
Originally Posted by NatCh
That 'digital center' business sounds quite promising, e-books aren't specifically named, but it's not much of an assumption that they might be included.
Ahh.. but... but... they are specifically named! Borders press-release (emphasis mine):

Quote:
The addition of new "Digital Centers" in Borders stores will enable customers to learn about, interact with, and purchase new digital products -- such as audio books, e-books, MP3 players -- and services such as downloading and personal publishing that complement the Borders brand. The company is in the process of exploring several potential arrangements for key partnerships with respect to its digital offerings. The digital services can be made available both in-store and online as a result of the Web initiative.

"We need to reinvent our business to exploit the rapid changes taking place in how consumers access information and entertainment," Jones said. "Our ultimate goal is to make Borders a vital community gathering place where people come together to see, touch, interact, and learn -- online and in- store."
Link: http://phx.corporate-ir.net/phoenix....412&highlight=
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Old 03-22-2007, 09:00 PM   #4
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Well, huh. Wonder why the WSJ left them out? That, of course, isn't just promising, but actually exciting!
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Old 03-23-2007, 12:33 AM   #5
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My question is how will Borders make money selling Sony ebooks? They can't. They must be working on making their own branded device.
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Old 03-23-2007, 09:37 AM   #6
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Quote:
Originally Posted by da_jane
My question is how will Borders make money selling Sony ebooks? They can't. They must be working on making their own branded device.
Of course they can: If they sell the e-books at the same cost as Sony's Connect store, Sony gets a cut (along with the publisher, just like any publisher's royalty process). Borders doesn't have to store, shelve or deliver anything, so they make a profit with zero loss from physical expenses.

Sony could try to take a large cut, but since there are other free e-book formats that Borders can sell instead (and thereby only give the publisher a cut), it will behoove Sony to keep their royalty costs low... even non-existent... to encourage people to buy and use their reader.

Even if you discounted the e-books to significantly below printed books, you still make all profit on it.
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Old 03-23-2007, 10:18 AM   #7
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The title of this thread sounds good, but the details will be all important (formats, drm, price, number titles...).

I am more and more convinced that a crucial thing for e-books to succeed is direct selling or at least selling through a channel that does not take more than 20% of your price, rather than the customary 50-55% and I think that Baen's success with e-books is in large part due to the fact that they sell directly, since it allows them to keep prices low and authors happy because they get larger royalties.

So overall I am quite skeptical of Borders' ability to sell significant number of e-books, but on the other hand the more exposure of people to e-books, and the more mentioning of them in the news is an unqualified good thing.
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Old 03-23-2007, 03:18 PM   #8
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<blockquote>Of course they can: If they sell the e-books at the same cost as Sony's Connect store, Sony gets a cut (along with the publisher, just like any publisher's royalty process). Borders doesn't have to store, shelve or deliver anything, so they make a profit with zero loss from physical expenses.</blockquote>

I don't see this. If they offer up Sony books, they'll have to sell them at the same price as Sony does, the 20% off figure, else they won't be competitive. Conceivably, Sony could agree to apportion Borders some amount of profit but that wouldn't be significant compared to a physical book sale which has a 40% markup. In essence, despite having lower overhead, ebooks could generate only a tiny portion of what a physical book sale represents.

If Borders sold its own format or sold a device that could read existing formats such as MS Lit, Mobi or Ereader, that are not tied to any specific device, then their mark up could still be 40% but it could also have a greater profit margin on that 40% markup.
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Old 03-23-2007, 11:34 PM   #9
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Quote:
Originally Posted by da_jane
Conceivably, Sony could agree to apportion Borders some amount of profit but that wouldn't be significant compared to a physical book sale which has a 40% markup. In essence, despite having lower overhead, ebooks could generate only a tiny portion of what a physical book sale represents.
Remember, the book itself pays royalties to the publisher, not Sony. I wouldn't expect Sony to charge anything close to the markup for a book, just to get their e-book format (with other free formats available, such a move would be ridiculous, as the bookstore would simply push the other formats and make more profit). So the cost to the bookstore should be the typical book markup, plus a very small additional amount to Sony... not much different than the sale of a print book.

This seems to make more sense for Borders, as it allows them to stay out of the hardware business, and simply sell books.
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Old 03-24-2007, 11:27 AM   #10
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Hm. Something I noticed in the article on first read, but was distracted from, is the "disengage" statement. What will happen to those overseas Borders and in-states Waldenbooks?
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Old 03-24-2007, 06:45 PM   #11
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<i>Remember, the book itself pays royalties to the publisher, not Sony. </i>

Yes, this is true, but as an author you know that it works this way. With a paper book, the publisher sells the book to the bookstore through a distributor, such as Ingrams or Baker & Taylor. The book is sold from P to B at a 40% off discount (generally). The author is paid a full royalty on any book sold and NOT RETURNED.

For any book that is sold to the bookstore and the bookstore cannot sell, it can be returned and the bookstore is given a credit toward future "purchases."

The bookstore sells the book to the consumer.

Ebooks work essentially the same way. Publishers sell content through a distributor like Lightning Source or some other jobber at the same rate - generally 40% (as far as I know). The retailer, fictionwise, sony, etc, then adds a markup. Obviously Sony does a markup of 20% (because it sells the books at 20% off, assuming the 40% off discount it receives).


<i>I wouldn't expect Sony to charge anything close to the markup for a book, just to get their e-book format (with other free formats available, such a move would be ridiculous, as the bookstore would simply push the other formats and make more profit).</i>

This is essentially my point. Why would Sony resell its ebooks to Borders when it can sell directly to the consumer? If Borders resells Sony books - they would have to do so at the same discount. Therefore, either Sony or Borders is going to have a very slim profit margin - if any at all.
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Old 03-25-2007, 01:44 AM   #12
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Quote:
Originally Posted by Alexander Turcic
In addition, Borders said they would add new "Digital Centers" in their stores which will allow customers to buy not only old-fashioned paperbooks but also products in digital formats, such as e-books, audiobooks and MP3 audio.
Call me new-fashioned, but I can't for the life of me think why I would want to enter a brick & mortar store to download electronic content. That isn't just misguided; it seems stupid.

This sounds more like a lame threat to Amazon to try to negotiate a better price on the new contract.

Regards,

Matt
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Old 03-26-2007, 11:59 PM   #13
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Quote:
Originally Posted by da_jane
This is essentially my point. Why would Sony resell its ebooks to Borders when it can sell directly to the consumer? If Borders resells Sony books - they would have to do so at the same discount. Therefore, either Sony or Borders is going to have a very slim profit margin - if any at all.
Okay, you're probably right there. I would guess that the point here may not be actual profit, but good customer relations ("Hey, at least we sold 'em something!") that will bring those customers back.

As far as "Sony reselling their books"... well, they're not Sony's books, it's just their format on other publisher's books. The publishers can sell those books directly to Borders without Sony and their eReader format, so it will be up to Sony to work out a deal with Borders to include their format with the others.
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