5.0 Market Access for Canadian-Authored Titles

• 5.1 Key Market Characteristics and Their Implications
• 5.2 The Selection Function
• 5.3 Publisher Size and Nationality
• 5.4 Distribution Arrangements for Canadian-Owned Publishers
• 5.5 The Situation for Canada's Smallest Publishers
• 5.6 Summary

Having mapped the distribution system in the English-language market and examined the major trends affecting the sector, we can now move on to a further question of broad interest to industry participants and policy makers alike – namely, the ways in which the distribution system influences market access for Canadian-authored books.

5.1       Key Market Characteristics and Their Implications

We can begin to answer this question by reviewing some of the basic characteristics of the Canadian book market. Earlier in this paper (and in more detail in The Book Retail Sector in Canada), we have described a number of significant shifts in Canada's book marketplace. These include a concentration of market share among large retailers; the growing importance of non-traditional and online sales channels; the impact of exchange rates on Canadian list prices and book imports; and the growth of the supply of new, used, and remaindered books relative to consumer demand.

These market shifts illustrate a period of dramatic change in the book trade. They highlight as well the increasing market-shaping influence of a relatively small number of dominant trading partners in the supply chain. And they suggest the rising power of arguably the most important market participant of all: the consumer.

Today's readers have more options as to what, when, and how they read than at any other time in history. The speed and ease with which they can acquire reading material is unprecedented, as is the range of choice available to them.

In such an environment, those who are most successful at reducing the amount of time and effort it takes consumers to search for, discover, and acquire their books will have a decided competitive advantage. In practical terms, those books that are easily, readily, and affordably available will have the edge over those that are not. This overarching characteristic of the book market draws attention to the power of the consumer as well as the critical selection function that retailers play in determining what is most easily and prominently available to consumers. It is important to note, however, that all members of the book supply chain, including distributors, have an important role to play in shaping the array of titles available to Canadian readers.

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5.2       The Selection Function

The first of the various selection processes that contribute to the mix of titles available to consumers occurs at the production level, when a book publisher accepts, from the many manuscripts available to it, a particular manuscript or project that it will bring forward for publication. An equally important selection occurs at the retail level, when the bookseller (more precisely, when the proprietor or staff member with buying responsibility for the store or stores) selects the titles that will be (1) carried in inventory and (2) featured within the store's stock, either by virtue of prominent placement in the store and/or by inclusion in promotional programs.

Between these two major aspects of selection, a further significant decision is made by the distributor, in its choice of the publishing lines that it will handle, as well as the wholesaler, in its selection of the titles that it will hold in stock. Each of these decisions, at every stage of the supply chain, has a material effect on the books available to Canadians.

5.3      Publisher Size and Nationality

Among the various factors that appear to influence a distributor's choice of which publishing lines to carry, there are two which are particularly relevant to our discussion of market access for Canadian-authored titles: publisher size and publisher nationality.

As we suggested earlier, smaller firms—with their lower sales volumes and more limited economies of scale—are generally less attractive to distributors than are larger publishing houses. In fact, a number of our study respondents indicated that $500,000 in annual sales was an important—albeit informal—benchmark in determining the range of distribution options for an individual firm. That is, firms with annual sales below this level will find relatively few options among distributors based in Canada, while those at or above this level of annual sales may be more attractive clients for a wider field of distributors.

In the Canadian market, with only a few exceptions, the largest firms are foreign-owned, while Canadian-owned firms are on average noticeably smaller. In its 2004 Survey of Book Publishers, Statistics Canada data identified a core group of 330 publishers operating in Canada. Of these, 311 were Canadian-owned and 19 were foreign-owned. Despite their smaller numbers, foreign-owned firms accounted for 59% of domestic book sales.¹ Consequently, when we examine the distribution arrangements and options of smaller publishers, these also describe generally the situation faced by Canadian-owned firms.

Foreign-owned publishing houses have a distinct role in the Canadian book market, where they are particularly active in the production of top-selling titles. These larger firms can often afford to invest more heavily in acquiring titles by high-profile authors and books with significant commercial potential. By virtue of their dominant market positions, they are generally better able to maximize the sales of these books when they come to market.

Many foreign-owned subsidiary firms operating in Canada also have well-established original publishing programs that produce Canadian-authored titles. Statistics Canada figures indicate that foreign-owned publishers produce roughly 23% of the Canadian-authored titles published each year.  The majority of new Canadian-authored titles, however—the remaining 77% of the total—are produced by Canadian-owned publishing firms.

With these broad patterns in mind, we can imagine that the market access of a diverse selection of Canadian-authored titles is heavily influenced by the market access achieved by Canadian publishers, a factor that is very much influenced by the relatively small size of these publishers. We will use this publisher-title correlation as a device to further explore the question of market access for Canadian-authored titles over the balance of this chapter.

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5.4      Distribution Arrangements for Canadian-Owned Publishers

The Department of Canadian Heritage's Book Publishing Industry Development Program (BPIDP) has a mandate to ensure choice of and access to Canadian-authored books. The program works toward this objective through activities designed to foster "a strong and viable Canadian book industry that publishes and promotes Canadian-authored books."

BPIDP's Aid to Publishers component is a key aspect of the program, and provides targeted funding to enhance the competitiveness of eligible publishing firms. In 2007-08, there were 130 Canadian-owned, English-language publishing firms participating in Aid to Publishers². These represent roughly two-thirds of the Canadian-owned, English-language publishers identified by Statistics Canada in 2004 and will serve here as foundation for a representative sample of Canadian-owned firms in the English-language market.

For the purposes of the breakdown in Figure 7 below, we have removed educational publishers from the sample, on the grounds that those publishers tend to rely less on contracting to exclusive distributors. English-language educational publishers can generally be classed as "self-distributing" but in practice their sales are often made through a combination of direct orders from schools and libraries as well as sales via one or more educational wholesalers. Twenty-seven educational publishers have been removed from the sample used in Figure 7, leaving a reduced sample of 103 English-language Canadian-owned firms.

We should add two quick introductory notes before looking at Figure 7 more closely.

• The bar extending from each distributor in the figure shows the total number of BPIDP publishers distributed by each publisher-distributor or distributor.
• To be noted as a distinct option in the chart, a distributing firm had to distribute a minimum of two BPIDP firms (including its own books).

Figure 7. Distribution arrangements for English-language Aid to Publishers recipients. 

There are a number of observations we can make based on the distribution in Figure 7.

1. Publishers in the "self-distributed" category represent the largest single group (24%) in the adjusted BPIDP sample described in the chart. As noted above, this category reflects 25 self-distributing publishers of varying sizes.

   We note as well that many of these self-distributed publishers have a geographic or market focus that makes self-distribution a more viable option than it might otherwise be. That is, the decision to self-distribute is likely more than just a reflection of the relative costs of self-distributing as opposed to contracting out and/or the range of choices of contracted distribution services available to the publisher.

   For example, Edmonton-based Company's Coming distributes its books largely through non-traditional retail outlets, and via its national network of sales representatives and merchandisers. This full-service, direct-to-retail approach is a key business strategy for the firm. Similarly, the literary press New Star Books emphasizes an innovative consignment strategy to place its books in a network of participating independent booksellers.

   In addition to these strategic considerations, there appears to be a geographic aspect to the decision to self-distribute as 68% of the self-distributing firms in our sample are based outside of Ontario, and so outside of the geographic centre of Canada's English-language book supply chain.

2. Beyond these self-distributing publishers, there are a relatively small number—15 in total—of distributors or publisher-distributors handling these Canadian-owned firms. Five of these—Nimbus, Heritage, Harbour, Formac, and Fenn—distribute their own titles, the titles of one or more wholly owned (or partially owned) affiliates, and (in the case of Nimbus and Fenn) the lines of foreign publishing firms as well. They do not, however, currently handle any other Canadian-owned publishers.

3. Setting these five firms aside, the distribution landscape for Canadian-owned publishers is composed of University of Toronto Press's (UTP) distribution division, Raincoast Books/Publishers Group Canada, Georgetown Terminal Warehouse, Fraser Direct, Firefly, Fitzhenry & Whiteside, and H.B. Fenn. The "multinational" category in the chart includes the foreign-owned HarperCollins Canada, Random House Canada, and Pearson Canada.

Another lens through which we can examine the distribution options of Canadian-owned publishers is to consider which of the larger distribution firms carry the titles of Canadian-owned firm, and to what degree. Many of the major book distributors currently operating in Canada carry a relatively small number of Canadian publishers among the lines they distribute. The business model of these firms appears to emphasize instead distribution of imported lines that require full-service distribution (e.g., warehouse and fulfillment, sales representation, and marketing), and that offer higher sales volumes and greater profitability.

The following table illustrates the import-domestic mix, by publisher line (i.e., where each line is a distinct publisher or imprint) for Canada's largest book distributors. Of these, BookNet Canada reports³ that select lines distributed by Pearson Canada, Simon & Schuster Canada, Random House Canada, HarperCollins Canada, and H.B. Fenn accounted for roughly 37% of tracked retail book sales in Canada 2006⁴.

As the table suggests, much of Canada's domestic book distribution capacity is dedicated to imported books, whether titles published by the parent company of a foreign-owned Canadian subsidiary or other foreign lines. Because of the considerable pressures on book distributors to achieve the greatest possible economies of scale—and the greatest efficiency and operating margins—this capacity is unlikely to shift to accommodate Canadian-owned publishers to a greater degree (particularly given the smaller size of most Canadian-owned publishers relative to foreign firms).

There are a relatively small number of distributors in the Canadian market that represent viable options for Canadian-owned publishers. The country's largest distributors by sales volume, such as Fenn, Random House, and Raincoast, tend to carry larger BPIDP publishers. As a result, many publishers—particularly smaller firms (that is, those with $500,000 or less in annual sales)—reported in our interviews that they feel they have relatively few choices with respect to contracting for distribution services. In fact, absent a small sample of distributors currently active in Canada—notably UTP and Fraser Direct—they appear to have very few options indeed. This limits competitiveness in the Canadian-owned sector which may, in turn, limit efficiency in the distribution of Canadian-authored books.  

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5.5      The Situation for Canada's Smallest Publishers

This pattern appears to reinforce an earlier observation regarding the inverse relationship between sales volume and distribution cost. Smaller publishers are more expensive to serve for distributors, and so less profitable, than are higher-volume clients. As a result, smaller firms are less attractive to many distributors and have fewer viable distribution choices within the supply chain.

This issue becomes more pronounced when we consider that--beyond the sample of Canadian-owned firms we have explored in this chapter--there are a number of very small book publishing firms operating in Canada (that is, publishers with less than $200,000 in annual sales). Outside of self-distribution or industry collectives such as LitDistCo, there are few available or affordable options for these smaller firms, and these options lack the capacity and efficiency that large-scale, national distribution can bring. As a result, it remains difficult for smaller Canadian-owned publishers to effectively place their books within the "book system"—the mainstream sales channels for books throughout the country—and/or to achieve more widespread distribution. Similarly, distribution remains expensive (on a percentage-of-sales basis) for smaller firms and so the ability of these publishers to invest in new titles and new markets—in short, to improve their competitiveness—is in turn constrained.

The challenge of finding affordable and effective distribution is therefore particularly acute for these very small publishers. However, as we have explored throughout this chapter, all but the largest Canadian publishing houses face a relatively limited field of distribution options in today's book market.

5.6       Summary

In this chapter, we have explored some of the challenges for Canadian-owned publishers—particularly those with $500,000 or less in annual sales—in securing affordable and effective distribution. We have observed 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.

We can note as well that Canadian-owned firms have demonstrated a willingness and ability to create new distribution platforms for their books through collective efforts, such as the well-established LitDistCo model, emerging regional cooperatives of smaller firms, and recent national initiatives towards effective digital distribution undertaken by the Association of Canadian Publishers.

Notes

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