Executive Summary

Commissioned by the Department of Canadian Heritage (PCH) and conducted from December 2007 through March 2008, this study aims to contribute to our understanding of the book trade by presenting a comprehensive overview of book distribution in Canada's English-language market, and by exploring current issues and market trends related to the book supply chain.

All major categories of book publishing, including educational texts, are considered but the focus throughout is largely on trade publishing—that is, books that are published for a general audience and sold mainly through bookstores.

The term "distribution" is generally used to refer to a wide range of activities within the book supply chain. These encompass functions such as sales and marketing, warehousing and inventory management, order processing and administration, logistics and fulfillment, collections, data management, and customer service. Book distribution is therefore concerned with the functions required to manage book inventories along with all of the transactions involved in trading these inventories between publishers and customer accounts throughout the supply chain.

The major participants in the supply chain are (a) publishers, who acquire rights to titles and prepare them for sale; (b) distributors, who provide fulfillment and warehousing services to the publisher for a fee, have exclusive territorial rights to the publishing lines that they represent, and sell to all types of customers, including wholesale accounts; (c) sales representatives, who provide sales representation for a range of publisher-clients and are paid on a commission basis; (d) wholesalers, who buy selected titles from many publishers and distributors on a non-exclusive basis and then re-sell to retail and institutional accounts; and (e) customer accounts, including retailers and institutions.

Controlling sales and distribution within the publishing house can be thought of as an ideal state for many publishers. Nevertheless, most publishers will contract for some combination of sales representation and distribution services. This approach remains the norm in Canadian publishing, and the reasons are straightforward: the need to manage costs relative to sales volume, the greater market access that larger distributors and sales teams can provide, and the need to manage risk.

The paper explores a number of issues and trends that flow from the following broad characteristics of book distribution.

Capacity. Available distribution capacity—both in terms of the capacity of an individual distributor and in terms of the distribution capacity of the book system as a whole—has a direct effect on (1) the distribution options available to Canadian publishers, (2) the costs of distribution, and (3) the selection of titles that can be kept in stock and delivered quickly to Canadian accounts and consumers.

Scale. The significant investment required in facilities and systems means that successful distributors and wholesalers are those that are able to spread these high fixed costs over the largest possible sales volume. This pursuit of economies of scale is a powerful force in centralizing and consolidating distribution capacity within the book supply chain.

Focus. Book distributors and wholesalers have emerged as distinct specialists in the supply chain. Many of the respondents to this study noted that "focus" was a key success factor for a book distributor—highlighting the importance of an ongoing commitment to reducing errors, improving processes, investing in systems, and accumulating concentrated expertise in book logistics.

Cash. Distributors are generally bound by contract to pay publisher receivables within a specified time frame. Because of this, the distributor's ability to effectively collect and manage cash, and, in particular, to manage the timing of cash receipts from accounts and disbursements to client-publishers, is critical to its survival.

Margin. The need to maintain an adequate operating margin drives the constant search among distributors for greater operating efficiencies. This also bears on the distributor's selection of publisher-clients, in that those publishing lines that offer higher volume and greater profitability will be more sought after than lower-volume clients that will be more expensive to serve.

The paper also considers the issue of market access for Canadian-authored titles, and notes the challenges faced by Canadian-owned publishers—particularly those with $500,000 or less in annual sales—in securing affordable and effective distribution. We observe that these smaller firms have a relatively limited field of potential distributors to choose from, and that their ability to access effective distribution has a significant bearing on the ease with which the books they publish can be discovered by Canadian consumers.

Given that Canadian-owned firms are responsible for publishing a majority of Canadian-authored titles, this in turn indicates that the wide availability of a diverse selection of Canadian titles is heavily dependent on the ability of Canadian publishers to access effective distribution.

The study concludes with an overview of a parallel supply chain in the book trade—a digital supply chain—that moves digital content from publishers to retailers and other aggregators. As social and consumer behaviour, and reading behaviour in particular, continues to shift online, these new models and platforms for digital content distribution bear on the distribution of print books in that (1) the channels by which different kinds of digital and print content are sold are becoming increasingly intertwined, and (2) some of the market-leading firms in print distribution, notably Ingram, HarperCollins, and Random House, have begun to invest heavily in digital distribution.

There are many parallels to be drawn between the market dynamics of digital distribution and those of print distribution. These include the importance of economies of scale, the natural competitive advantages of market leaders, and the presence of powerful gatekeeping effects in the marketplace. These parallels are important if we are to understand how print distribution may change in the coming years as a result of developments in the digital realm.

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