B&N CFO "thrilled" about holiday sales

[DMcCunney]

Originally Posted by fjtorres

As you said: hardware margins are thin.
Thin-margin businesses are by definition high volume businesses.

Well, if you want to survive, they better be...

Amazon sold 8 million kindles in 2010 because they are a worldwide player and the cheapest connected reader around. And one reason they are so cheap is because they sell so many readers (and books) the world over. Development costs are fixed, so are back end costs; spreading them over a large volume is the most competitive way to beef up margins.

The decreasing Kindle costs are standard semi-conductor electronics. The biggest cost of such things is the factory to make them, and the service on the debt you took on to get the money to build the factory. The more you sell, the larger a base you have over which to allocate costs, and the cheaper you can price them. The biggest single component cost in the original Kindle was the eInk screen, which was estimated at about $80. But eInk screens are now manufactured by more than just PVI, and component prices have dropped.

Amazon is not going to stop international operations any more than Kobo is so if B&N is serious about playing with the big boys they need to follow suit.
Kindle 4 is coming so anybody who is serious about staying in the game needs to get within striking distance of K3 before then. Or else.

More to the point, ebooks will increasingly be international. I think geo-restriction's days are numbered, as publishers will increasingly attempt to acquire world rights for ebook publication. In that environment, to maintain and build market share, you want your customers to be able to get your reader anywhere, and buy from you where ever they happen to be.

If I were B&N, I'd certainly be looking at expanding internationally.
______
Dennis

[SensualPoet]

Originally Posted by DMcCunney

If I were B&N, I'd certainly be looking at expanding internationally.

Not impossible to do, but not easy, either. B&N doesn't have a history of partnering and that's essential to international success. Plus, the market is changing quickly and B&N needs to get cracking if it wants to crack the broader market. Given its own challenges on US soil, it may decide to stick to its knitting and get the local market well in hand first. It doesn't have unlimited fiscal resources.

[DMcCunney]

Originally Posted by SensualPoet

Not impossible to do, but not easy, either. B&N doesn't have a history of partnering and that's essential to international success. Plus, the market is changing quickly and B&N needs to get cracking if it wants to crack the broader market. Given its own challenges on US soil, it may decide to stick to its knitting and get the local market well in hand first. It doesn't have unlimited fiscal resources.

Oh, sure. I never claimed it was easy. I just think, longer term, it's necessary. Retailing like this is about market share, and while B&N would be well advised to get the local market in hand first, I don't think it can just do that and stop.

I think the issue will be precisely the partnering you mentioned. Those arrangements take time to develop and mature. If I were B&N, I'd be looking to see whether I had anyone with international expertise in house already, and look to hire someone if not, to start exploring those relationships.
______
Dennis

[fjtorres]

Originally Posted by DMcCunney

If I were B&N, I'd be looking to see whether I had anyone with international expertise in house already, and look to hire someone if not, to start exploring those relationships.
______
Dennis

There have been reports that B&N has been advertising for exactly that.

[jasonkchapman]

Originally Posted by fjtorres

There have been reports that B&N has been advertising for exactly that.

This is the ad I was thinking of when I mentioned it earlier. It's been over a year now, though, and I don't know what, if anything, came of it.

http://techcrunch.com/2009/10/31/bar...nal-expansion/

[DMcCunney]

Originally Posted by jasonkchapman

This is the ad I was thinking of when I mentioned it earlier. It's been over a year now, though, and I don't know what, if anything, came of it.

http://techcrunch.com/2009/10/31/bar...nal-expansion/

Hmmm. I think I recall seeing that. It makes perfect sense.

I don't know whether anything came of it either, but it at least indicates B&N was aware of the need to think globally.
______
Dennis

[Kali Yuga]

Again, I don't see much reason for B&N to do anything international beyond UK, Canada and maybe Australia. That alone will be an expensive and complex addition, especially since I doubt B&N has much brand awareness outside the US.

They'll get a much better ROI if they try to push into education, for example.

It really is not necessary for them to compete with Amazon for each tiny slice of the market.

[DMcCunney]

Originally Posted by Kali Yuga

Again, I don't see much reason for B&N to do anything international beyond UK, Canada and maybe Australia. That alone will be an expensive and complex addition, especially since I doubt B&N has much brand awareness outside the US.

They'll get a much better ROI if they try to push into education, for example.

It really is not necessary for them to compete with Amazon for each tiny slice of the market.

That depends on how tiny a slice of the market it is.

I don't see much sense in B&N trying to expand B&M operations overseas. I do see reason to try to expand B&N.com and push for global ebook sales.

English is the most widely spoken second language in the world. While Hindi may be the official "court language" of India, for example, there are substantial numbers of the population who speak Tamil, Gujurati, Telugu, or other mutually incomprehensible tongues but not Hindi, and business is likely to be conducted across language barriers in English. People in places like Scandinavia and Holland may read as much or more in English as they read in their native language. (This is particularly the case for genre fiction, like SF.)

And I expect publishers to increasingly push for global electronic rights on titles they acquire, with geo-restrictions increasingly a thing of the past.

The international market for English language titles alone is more than sufficient to be seen as valuable, especially if you expand your sales operations beyond countries where it's the native language. If I were B&N, I'd want as big a slice of it as I could get.
______
Dennis

[fjtorres]

Originally Posted by DMcCunney

I don't see much sense in B&N trying to expand B&M operations overseas. I do see reason to try to expand B&N.com and push for global ebook sales.

B&N has made it clear in the Press release that they see B&M as a fading channel and online, especially for ebooks, as their lifeline to avoid the fates of Blockbusters and Borders.

Going international is a relatively low-cost way to expand the reach of their business, even if all they do is stick to english-language content. (Which they aren't. They have a dedicated Spanish ebook section. Which means that they are position to tap into the growth market to be found in South America.)

Going international doesn't mean replicating the entire corporate structure; all it means (at least for starters) is sitting down with the BPH's subsidiaries for the target market and negotiating rates for their existing catalog in that region. Building off the core catalog controlled by the Publishing Oligarchs is harder because at that point you are dealing with local-only publishers, many of which may not *have* an ebook catalog which is where having an inhouse conversion/publishing unit helps. Amazon has it and with Pub-it, so does B&N.

There are no enforced borders on the internet, for all that some countries/regimes try to erect them. While not entirely friction-free, it *is* the smoothest delivery vehicle for digital content and a company with a thriving, growing operation in the biggest, most active market would have to be downright stupid not to try to leverage those capabilities in emerging markets. Sure, the mainstreaming of ebooks is further along the curve in North america than other regions but that doesn't mean the other markets aren't worth targetting. On the contrary, getting in early in a developing market is a good way to build a foundation for *future* growth.

Money is money regardless of where it comes from and B&N would be well advised to look for ways to service those potential customers, whether on its own, as Amazon is doing, or through alliances, as Kobo is doing. Everything else B&N is doing suggests they understand what they need to survive the mainstreaming of ebooks; going international is just another step in the necessary progression.

Geo-restrictions or not (and "not" is the end game, here) regional-only players are going to be guppies in the ebook sea. They may survive for a while but they will always be at risk of getting crushed by the big boys. Safety lies in size and the orcas of that sea are going to be the global-scope retailers.

[Kali Yuga]

Originally Posted by DMcCunney

That depends on how tiny a slice of the market it is.... The international market for English language titles alone is more than sufficient to be seen as valuable.

It's not about the size of these markets. It's an issue of the likely rates of return, the costs of doing international business and the most effective use of scarce capital (aka "opportunity cost.")

For example, let's say B&N has $10 million to spend in an effort to increase their ebook revenues. They could spend it on US education, and leverage their existing systems, college stores and connections, and increase profits (not revenues, but profits) by $20 million over the next year.

Or, they could spend $10 million, and barely make a dent in the UK where they are (I presume) unknown. They'll have to spend a lot of that on UK office space, accountants, taxes, advertising, web servers, wireless contracts, customer service ("Why can't I get book X in the UK, they have it in the US") and so on.

Amazon is already doing lots of business abroad, so I am assuming several of the hard parts were already done. All they had to do was clear up what they could sell with the publishers, modify their databases, and Bob's Yer Uncle.

I might add we've already seen Waterstones drop international ebook sales. Although the reasons are still unclear, I'd assume the reason why they aren't throwing millions into the international markets is that it's too complex and/or expensive and/or has a low ROI.

Originally Posted by DMcCunney

And I expect publishers to increasingly push for global electronic rights on titles they acquire, with geo-restrictions increasingly a thing of the past.

I have serious doubts that "one publisher, global rights" will end up as the solution to the geo-restrictions issues.

A US publisher is probably not going to be the optimal company to translate and market an English book abroad. However large the "International English" market is, it's highly unlikely that 90% of French citizens will prefer to read an ebook in English than in French. (Or: Who do you want as your customers -- the 35% of French citizens who read English, or the 95% that read French?) Small publishers in particular will be ill-equipped to handle those tasks.

The US company also won't have a clue how to really push sales abroad. Heck, consider the Harry Potter books; they were in English to start with, and still had separate publishers for the US and UK.

The authors may also take the "international rights" opportunity to get another advance and/or a higher royalty rate.

And, of course, you still have decades of existing international contracts that are unlikely to be broken, bought out and/or forgotten. So if every new book had one global publisher, you'd still have the issues outstanding for almost the entire back catalog.

The only authors who will grant a single publisher all international rights are the ones with bad lawyers and/or no interest in significant overseas sales.

[Kali Yuga]

Originally Posted by fjtorres

Going international is a relatively low-cost way to expand the reach of their business....

Yeah, I don't see it that way. There are a lot of niches that are still wide open, lucrative, and easier to grow -- particularly education and children's books.

Originally Posted by fjtorres

Going international doesn't mean replicating the entire corporate structure....

Yeah, sorry, it kinda does.

You'll need local advertising, local PR and marketing, local accountants and taxes and VAT, you'll need managers, local wireless contracts, in quite a few places you'll need new web servers as well.

Originally Posted by fjtorres

There are no enforced borders on the internet....

*cough* Great Firewall of China *cough*

Oh, and let's not forget that foreign companies don't always do so hot abroad. Witness how Baidu has flourished while Google is all but run out of China on a rail. Running an international business is a different ballgame than just browsing a website.

And of course it won't be long before there is lots of local non-English competition, who may well be favored by local governments as well as local consumers.

Originally Posted by fjtorres

Money is money regardless of where it comes from....

Well....

Again, it's a question of opportunity cost. If it's more expensive to build a dozen international businesses than to expand in the domestic education market, which do you do first? B&N is too busy struggling with its core business and collapsing paper sales to pour unlimited funds into a unilateral ebook expansion.

[DMcCunney]

Originally Posted by Kali Yuga

It's not about the size of these markets. It's an issue of the likely rates of return, the costs of doing international business and the most effective use of scarce capital (aka "opportunity cost.")

Let's be clear what we mean by an opportunity cost. In economics, an "opportunity cost" is the cost of the next highest valued alternative use of the resource. If I choose to invest in a speculative venture, my opportunity cost is what I could make putting my funds into a safer investment, like a Certificate of Deposit. The CD is a pretty well guaranteed rate of return. The speculative investment is not. I'm seeing an attractive enough return on the speculative investment to take the risk of getting no return if it fails. I'm placing a bet, because I like the odds, and I can afford to lose.

For example, let's say B&N has $10 million to spend in an effort to increase their ebook revenues. They could spend it on US education, and leverage their existing systems, college stores and connections, and increase profits (not revenues, but profits) by $20 million over the next year.

Which assumes that they would, in fact, make that $20 million in profit over the next year from that $10 million investment. I'm not sure I would view it as certain enough to make the decision as clear cut as you suggest.

Or, they could spend $10 million, and barely make a dent in the UK where they are (I presume) unknown. They'll have to spend a lot of that on UK office space, accountants, taxes, advertising, web servers, wireless contracts, customer service ("Why can't I get book X in the UK, they have it in the US") and so on.

We need to consider time frames. One of the complaints (justifiably) leveled at a lot of US enterprises is an emphasis on short terms results at the expense of long term growth and profitability. If I'm B&N, looking at expanding overseas, $10 million will be a drop in the bucket, and it will be a multi-year effort. You don't create an international sales infrastructure fast or cheap.

And if I'm B&N, and I'm intending to do it, I'm almost certainly not going to fund the effort out of ongoing revenues. I'll attempt to raise funds to do it through equity or debt, and my challenge will be convincing the prospective new shareholders or lenders that the potential returns justify the investment, that I have a coherent plan, and that I can execute on it given funding, and that I will get returns that will justify the investment. (But I will not get those returns immediately - I am investing for the longer term.)

Amazon is already doing lots of business abroad, so I am assuming several of the hard parts were already done. All they had to do was clear up what they could sell with the publishers, modify their databases, and Bob's Yer Uncle.

And how did those hard parts get "already done"? Someone was thinking longer term and made the investments needed to put those pieces in place.

Amazon is a catalog retailer. The catalog is on the Internet. The Internet is global. It's a short step to realizing that if the entire globe can view your catalog, you have the potential of selling to them, and should put the pieces in place to do so.

The fact that Amazon has already done it doesn't mean that no one else should try to.

I might add we've already seen Waterstones drop international ebook sales. Although the reasons are still unclear, I'd assume the reason why they aren't throwing millions into the international markets is that it's too complex and/or expensive and/or has a low ROI.

Waterstones is a unit of HMV, and HMV is having problems. Waterstones likely doesn't have the money to throw at it, and given the issues faced by the parent, can't get the money.

I have serious doubts that "one publisher, global rights" will end up as the solution to the geo-restrictions issues.

A US publisher is probably not going to be the optimal company to translate and market an English book abroad. However large the "International English" market is, it's highly unlikely that 90% of French citizens will prefer to read an ebook in English than in French. (Or: Who do you want as your customers -- the 35% of French citizens who read English, or the 95% that read French?) Small publishers in particular will be ill-equipped to handle those tasks.

Who's talking about translations? That's a whole separate issue. There are people all over the globe who can read books in English, even if it isn't their native tongue, but who can't get some books in electronic form because the publisher of the ebook edition doesn't have the right to sell it where they are. Those books were published under contracts written before ebooks began to become pervasive and the Internet became an international delivery medium. Going forward, I expect contracts to change to reflect the reality of a global market.

The US company also won't have a clue how to really push sales abroad. Heck, consider the Harry Potter books; they were in English to start with, and still had separate publishers for the US and UK.

Yes. So? they began in England, published by Bloomsbury, who is a UK publisher. Bloomsbury doesn't have a US operation, so there had to be a separate US publisher. Scholastic picked them up here.

(And I suspect Scholastic has had the odd thought that they might have been better all told not to. The HP books were a phenomenon overshadowing everything else they did. A few years back, Scholastic's then President resigned when yearly results were off. Why were they off? Rowling was behind schedule delivering the next HP book, and it didn't make it's expected contribution to revenue and profit in the expected time frame.
I'm not sure what Scholastic's President was supposed to have done. Fly to the UK and hold a gun to Rowling's head to get her to write faster?

Personally, I'd have shouted as loud and often as I could that the HP books should be considered a completely separate extraordinary event outside of Scholastic's normal operations, and people looking for meaningful numbers should consider year to year comparisons of continuing Scholastic operations excluding HP.

A friend who works for HarperCollins says their numbers people say exactly that about the hugely popular Lemony Snicket titles, as they are a limited series with a distinct ending point, and should be considered a separate thing, nice to have while it lasts, but not expected to continue indefinitely.)

The authors may also take the "international rights" opportunity to get another advance and/or a higher royalty rate.

Depends on what rights you are talking about. For print editions, that may be the case. I might have a book published in the US by one publisher, and in the UK by another. But does having the electronic edition of my book offered by several different publishers with restrictions on where they might sell it make sense?

If my US publisher thinks my book has international appeal, they might well make global erights a non-negotiable part of the contract. "Sell print rights to publishers abroad where we don't do business all you want, but we get global ebook rights, or there's no deal..."

And, of course, you still have decades of existing international contracts that are unlikely to be broken, bought out and/or forgotten. So if every new book had one global publisher, you'd still have the issues outstanding for almost the entire back catalog.

The only authors who will grant a single publisher all international rights are the ones with bad lawyers and/or no interest in significant overseas sales.

Again, I said publishers would increasingly try to acquire global electronic rights. I was not, and am not, talking about print editions.

Yes, there is all that back catalog tied up by existing contracts. But the contracts aren't forever. Rights eventually lapse and revert. What happens then?
______
Dennis

[mon012]

good news for bn, i hope this year will have more new stuff from all

[fjtorres]

Originally Posted by DMcCunney

Yes, there is all that back catalog tied up by existing contracts. But the contracts aren't forever. Rights eventually lapse and revert. What happens then?
______
Dennis

Correct.
Contracts lapse or get renegotiated all the time.
Electronic rights are now being negotiated separately, too, because many existing contracts did not explictly list them. In the process, the *smart* agents and lawyers are realizing that *language-based* global rights can command higher rates with less effort and a higher return to global players than piecemealing them to 20 regional publishers who may or may not have comparable reach.
Indeed, the smarter established writers are simply refusing to license electronic rights to publishers and dealing directly with retailers.

When it comes to ebooks, the rules of the game are changing.
It is an entirely new business and it is a business where success will come from playing by internet rules, not by 19th century customs.

For all the ill-will many have for them, Amazon is not going to vanish in a puff of smoke any more than Google is. Or Microsoft or Apple or any other successful global player. B&N seems to understand that to compete with Amazon in ebooks they need to match them and then better them.
That means long-term thinking.
It means getting to new markets before Amazon whenever possible (Hello, NookColor! Hello NookStudy! Hello NookKids!) and it means going international ASAP.

Things are only going to get harder in the immediate future, for publishers *and* retailers. The survivors will be those that don't stick their heads in the sand thinking the walls of past practice will protect them. It is going to take boldness and creativity and long term thinking.

B&N seems to have a reasonable plan. They also have a boat anchor holding them back in the form of their B&M past. But they are wisely not letting their past define their future. They're not out of the woods and won't be for years but they at least know which way the wind is blowing and are tacking to take advantage of it.

Odds are, they'll outlast the naysayers.

[ProfCrash]

If BN went international they would do massive amounts of business. The Nook Classic has pretty much te same features as the Kindle and it reads EPub. Since most of the non-English published books are, os far, EPub only, the Nook would be the prefect alternative to the Kindle.

Although I have a sneaking suspicion that Amazon's inability, so far, to sell foreign language books for the Kindle has less to do with format and more to do with laws that make EBooks more expensive then many folks would want to pay.

Keep in mind, it took Amazon close to two years to make the international move. I am sure it is more complicated then it seems.