Big guys lose their minds

A new irrational exuberance has hit book publishing

Things have been good in corporate book publishing for the last year. Really good. Unprecedentedly good. Sales are up in the range of 10 to 20 percent at the big publishers—Penguin Random House, HarperCollins, Hachette, Simon & Schuster, Macmillan—and profits are even higher. Bonuses, too, are up. Everyone is giddy.

HarperCollins CEO Brian Murray gave an interview this week at an investor conference where he suggested that a new and more lucrative era had dawned in the book world and he was going to ratchet up his spending to meet it. His own revenues have increased 19 percent and his profits 45 percent, according to his last results.

“We are being aggressive in terms of buying books. We’ve seen the book pie grow, maybe 15 percent,” says Murray, “and so our response, which is part opportunistic and part defensive, is to be aggressive in buying right now. Because if that pie remains large, we want to make sure that we get a nice share of the larger pie. And if it happens to wane a little bit, we want to make sure that we have a lot of new, exciting books in the future that will maintain our revenues at the current levels. So we’ve been very aggressive over the last six to nine months in trying to sign up the best books that we see in the marketplace.”

HarperCollins is not only buying the best it sees, which suggests more spending per book, but it is also buying in greater volume than usual, according to Murray.

To justify his liberality, Murray points to what he suggests are good long-term trends in the industry. HarperCollins is publishing better books, knocking it out of the park with, for instance, its Bridgerton series. Digital sales are more profitable and represent a growing volume of the company’s business (25% at the moment). More product is moving through channels with low returns—in other words, Amazon, which has benefitted enormously from bookstore closures (Amazon has a highly efficient logistics network which results in fewer returns). Murray, who recently bought Houghton Mifflin Harcourt’s business, says he is looking to make further acquisitions.

I feel for Murray. He works for a public company, and accounting games at big public companies are a bitch.

Public companies have to grow year after year, otherwise the share price suffers, and nothing annoys the brass at these companies more than a lagging share price, because that affects their compensation. It follows that even a great stretch of financial performance, such as we’ve seen from the summer of 2020 to the summer of 2021, has to be improved upon the following year. So the budgets Murray is handed by his corporate overlords (HarperCollins is owned by Rupert Murdoch’s News Corp) will demand that he improve on 2020 in 2021, and on 2021 in 2022. Hence his aggressive posture. If he doesn’t improve on his previous year, his own compensation will suffer.

Welcome to the 103rd edition of SHuSH, the weekly newsletter of Sutherland House Books. If you’re new here, hit the button—it’s free:

How do you improve on a once-in-a-career windfall? That’s what we’re seeing in all these record results at publishing companies. A windfall. A one-off. The soaring revenues and profits are not driven by brilliant new books by brilliant authors brilliantly promoted by brilliant publishing executives. They’re the results of a pandemic that has closed restaurants and nightclubs and arenas and movie theatres and left people stranded in their homes. After exhausting the Netflix catalog, these people began reading more than usual. And they’ve had little choice but to buy rather than borrow their books because the libraries have been closed (remember, three in four books read by Americans and four in five books read by Canadians are borrowed rather than bought). That’s the only reasonable explanation for the spike in publishing revenues and profits.

As vaccinations spread and lockdowns lift, the freakish conditions publishers have enjoyed will normalize. If they’re lucky, revenues will revert to the mean. If they’re not, revenues will fall below historic levels as people make up for lost time socializing, shopping, dining, and otherwise entertaining themselves.

I can’t tell if Murray has really lost his mind and believes his permanently-bigger-pie hype, or if he can see what’s coming and figures he has no choice to pretend wild optimism.

Either way, he has no choice but to make the moves he’s making.

The best way to manage a windfall year at a public company is to increase spending while it’s happening. By opening the taps this year, Murray will keep his profits from rising too high, mitigating what promises to be an insurmountable target he’ll have to improve on next year. He’ll also be buying more and better books for the years ahead, which he hopes will keep his future revenues within a stone’s throw of this year’s unusual highs. He may make more acquisitions (for which he’ll pay top dollar, because any sizeable company he is looking at buying will probably also be enjoying a pandemic spike).

That’s standard public-company practice, and it almost never works because market conditions are market conditions, and all the management in the world won’t change or surmount them. But what else can Murray do? To stand up and say we got lucky this year, we aren’t going to get lucky next year, and our revenues and profits will decline by double figures, is asking for severance.

I wish him well. He’s probably going to be the most significant competition Penguin Random House will have once it swallows Simon & Schuster. But I think we can see how this is going to play out.

No matter how many good books Murray releases, revenues will disappoint in 2022 because the aggregate demand for books will return to normal, or worse. Twelve months from now, Murray will be out of range of 2021’s windfall profits, and perhaps worried about not losing money. That’s when the cutting begins. If revenues can’t produce an anticipated level of profitability, spending must close the gap.

I don’t think Murray will be alone in this. Joseph Karp, the head of Simon & Schuster, also attributed his company’s huge gains this year to great books and marketing savvy, as if they were repeatable. So did Penguin Random House.

There’s a lot of self-congratulations in the air. When market conditions are in your favor—whether because everyone is in lockdown, or because you’re selling a search engine in the early days of the internet, or cellphone service in the early days of wireless—the natural tendency is to think you’re a genius. You get irrationally exuberant, and you set yourself up for the inevitable hangover.

So if you’re anywhere in the corporate publishing world, enjoy this moment. Enjoy this year. If you’re an author or an agent, get your next book proposals into the hands of acquiring editors fast.

We’ll check back in twelve months to discuss the great publishing contraction of 2022.

That’s my best guess, anyway.

Cruelty as a business practice

Speaking of big companies, Tim Carmody follows Amazon in his newsletter Amazon Chronicles, which I’m adding to the Newsletter Roll below. His most recent issue looks at Amazon’s labor practices, following up on stories in Recode and the New York Times. It details how the company hires people for its warehouses, pays them low wages, works them like dogs, and gives them no opportunity for advancement (unlike, say Walmart, where most warehouses and stores are eventually run by people who work their way up through the ranks). Amazon prefers to drive its people out of the company after a couple of years because, in its grim view, employees who stick around get disgruntled and lazy and become a threat to the enterprise. So wage increases stop after three years. Employees are encouraged to depart through retraining programs, and some even get cash bonuses to leave. Its high churn rate is considered a positive because it keeps costs low and prevents workers from organizing. This is known as “unregretted attrition.”

As Carmody says, “the cruelty is the point.”

Sadly, he doesn’t think this behavior is particular to Amazon: “Among Amazon’s peers, whether in tech or in logistics or retail, none of this is wild. This is all awfully close to The Way Things Are Done Now.” Amazon is just slightly ahead of the curve.

Self-censorship runs amuck

Two of my friends found each other and conversed recently. Lydia Perovic, a Sutherland House author (coming next year), and novelist Zsu Zsi Gartner discussed a range of issues in contemporary fiction. This is from Zsu Zsi:

I know emerging writers who are self-censoring like crazy, to the point that they’re paralyzed. One friend who I’ve been mentoring is writing something about some guy swallowed by a whale—she was afraid that it would be misconstrued as stealing some kind of Indigenous myth even though it wasn’t, it was based on the story of Jonah and the whale from the Bible. She phoned me and said nobody’s gonna publish it, and I thought, well this is silly. And then certain things happened to me with a story. There’s this section of [my novel] The Beguiling where another woman gives away the baby… I did an excerpt from that, it was actually accepted in a major Canadian cultural magazine as a Christmas story three years ago. And at the very end of the editing process, I’m asked to take things out because they will be offensive to people. One was the words “Carl the Harelip,” a story comes from an old Hungarian superstition. Well, “harelip” was offensive. And the other thing was a thought by Arvo Pekka, who you’ll remember from the book. He’s at the Kinko’s in the story, he’s excited to be closing for Christmas holiday and not have to come back to work until day after tomorrow, and he’s saying goodbye to the place, “to Sunita, to the unclaimed and increasingly frightening half-pineapple in the staff fridge which reeked of voodoo, to the bearded guy who’d come in that very afternoon and made a bee-line for Arvo,” etc. And the editor told me we can’t have this. We can’t have anything reeking of voodoo because it gives voodoo a negative connotation. Why? Who’s going to be offended?

I write satire and I couldn’t make this up.

Lydia’s newsletter, which covers literature, music, and culture, is called Long Play. You can find it here. Take a look at her most recent piece on the miserable state of arts criticism in Canada:

 A lot what we see published today in the form of criticism or journalism is a version of:

-         what’s the ethnic, sexual etc makeup of the director, producer?

-         what’s the ethnic, sexual etc makeup of actors?

-         what’s the ethnic, sexual etc makeup of the author? Is s/he allowed to write about topics in the play or novel by virtue of his/her ethnicity, sexual preference etc? Turn on the cultural appropriation detectors!

-         Is this work contributing in any shape or form to the Reconciliation? If not, why not?

Because, let me tell you something: I ain’t reading that. Few people will. And let’s not call it art criticism.

Our Newsletter Roll (suggestions welcome)

Lydia Perovic’s Long Play: literature and music.

Tim Carmody’s Amazon Chronicles: an eye on the monster.

Jason Logan’s Urban Color Report: adventures in ink (sign-up at bottom of page)

Anne Trubek’s Notes from a Small Press: like SHuSH, but different

Art Canada Institute: reliable source of Canadian arts info/opinion

Kate McKean’s Agents & Books: an interesting angle on the literary world

Rebecca Eckler’s Re:Book: unpretentious recommendations

Anna Sproul Latimer’s How to Glow in the Dark: interesting advice

John Biggs Great Reads: strong recommendations


Leave a comment