The still-to-be named imprint intends to operate on a nonreturnable basis, forgo or reduce author advances in favor of profit sharing, publish in multiple physical and digital formats, and rely heavily on Internet promotion over securing prime display space in stores. Print editions will include both hardcover and trade paperback, with an emphasis on relatively short titles and “popular” pricing (hardcovers priced at about $20).

The ambitious venture spotlights the industry’s growing need and inclination to harness new media and move toward nontraditional business models in the face of rising costs and growth challenges in some categories.

While most categories saw net sales increases last year, and net book sales overall rose 7.4%, adult mass market was down 2%, and adult paperbacks were flat, according to the Association of American Publishers (AAP). The current economy may be encouraging some consumers to opt for relatively cheap entertainment in the form of paperbacks and other books (overall sales were up through February of this year, with adult and mass paperback showing the most strength). But some book chains reported dips in same-store sales and declines in net income in last year’s fourth quarter. And with declining income and stock prices, Borders Group, Inc. recently announced that it is exploring alternatives that include selling the company, and obtained financing from its largest shareholder, hedge fund Pershing Square Capital Management.

New printing technologies, shorter, more frequent runs and data analysis have improved the industry’s ability to manage supply/demand, and overall industry returns last year were about flat with 2007, according to AAP. Still, return rates averaged 44% for mass market, 23% for adult paperback and 32% for adult hardcover.

The industry has “an unacceptable amount of waste,” says Robert S. Miller, president and publisher of the new HarperCollins imprint, who founded and built the Walt Disney Company’s Hyperion book publishing division over 17 years before joining HarperCollins. “It’s not ecological and it’s not good financially for publishers, booksellers or authors.”
 
Despite his success with the traditional publishing model, Miller told IPDA Newsstand Forum that he’s become increasingly concerned in recent years about practices that are undermining the financial health of the book business. The new imprint is an opportunity, with the support of HarperCollins, “to be a laboratory for experimenting with author agreements, distribution and marketing to see if we can solve some of the business’s problems in new ways,” he says.

Publishers already have nonreturnable terms under certain circumstances, such as books produced for retailers on a custom basis, but past attempts at making nonreturnable terms standard practice have not succeeded. For instance, Harcourt Brace Jovanovich’s attempt in 1980 to raise retailer discounts and make books nonreturnable didn’t fly.

But challenging times tend to make new models more viable. “Returns are a problem for the retailer, as well,” says Miller. “The books themselves are at the publisher’s expense, but there are costs involved for the bookseller in bringing them into stores, tracking them and returning them.”

Miller doesn’t claim to as yet have a solid formula for convincing retailers to assume financial responsibility for unsolds, but he’s know for his determination, as well as passion for the business. At present, he says, “We’re developing new approaches, and retailers are indicating openness to discussing them.”

“Everyone would love to get rid of returns,” observes Lorraine Shanley, principal in Market Partners International Inc., a publishing consultancy. Obviously, she adds, "the key is for suppliers to make the terms attractive enough to retailers.”

Leveraging Digital Formats and Marketing
HarperCollins has also been a leader in employing the Internet and digital technology to try to build consumer demand. In addition to making samples of content available on its site through its Browse Inside function, the publisher recently began posting entire selected titles online for free. (The books stay up on the site for one month, and are not downloadable.)

HC has made “incredible investments” in developing new technology approaches and “getting the whole company in the habit of leveraging them,” says Miller. “There’s a lot going on already in other divisions, and I hope to learn from their efforts.”

It remains to be seen whether free content will build sales or create cannibalization, but HC is by no means alone in such experiments. In just one example, Random House recently launched a widget that lets readers flip through the pages of 500 titles, and has said it hopes to have 5,000 available by year-end.

“Publicity has always been effective, but video and electronic samples of books, viral online sampling and other new approaches have the potential to be more effective than traditional methods,” observes Miller.

The new imprint will develop and market digital, as well as print formats, and Miller is frank about having “no special bias” toward specific categories of brick-and-mortar retailers or other distribution outlets.

“Today, it’s possible to distribute and sell in many different ways,” he says. “Depending on the book, it might be sold in price clubs, chains, independents, online and elsewhere. We are the intermediary between the authors and the readers buying the books. If a reader wants to buy a book in a small store, or online, that’s great with us.”

Online retail via standalone sites like Amazon and bookseller sites have of course become a major distribution stream, and electronic books, while still representing less than 1% of industry net sales, are growing. Last year, electronic titles generated about $32 million in net sales, up 24% from 2006, according to AAP.

E-books make returns a non-issue—one of many potential advantages if they can be developed into a viable staple of the publishing model, points out Shanley.

And again, HC is not alone in seeking to create profitable e-book models. Indeed, Miller’s successor as Hyperion’s president, Ellen Archer, recently told Huffingtonpost.com that the publisher is working on an unspecified digital deal that aims to create “a paradigm shift for how a book is published.”
“Anyone who isn't thinking like this, trying to change the way we published, is going to be out of business," Archer added.

Profit Sharing As An Alternative to Advances 
The quest is also on for alternatives to reduce the financial drain of large author advances and reliance on blockbusters that don’t always perform to expectations.

In announcing the new imprint, Miller said the goal is also to “effectively publish books that might not otherwise emerge in an increasingly ‘big book’ environment—an environment in which established authors are under enormous pressure to top their previous successes.”

“We’re trying to find a financial way around advances that get in the way of profitability,” he told Newsstand Forum--suggesting that instead of an advance, an author might, for example, receive a 50% share of the profits, “so the author and publisher are making exactly the same.” He acknowledges that such a model isn’t likely to work with major, established authors, but say the idea is "to work with those who are willing to forgo the advance ‘bird in hand’ for longer-term ‘in the bush’ financial gain.”

The industry will be closely watching such nontraditional, “joint venture” publisher/author agreements because of their potential to change business dynamics, notes Shanley. She adds that deals based on the potential for higher royalties could appeal to some authors, particularly if they enable the publisher to invest in more significant campaigns for books that might otherwise receive minimal marketing.

She points to Vanguard Press’s new deal with New York City mayor Michael Bloomberg to publish Do The Hard Things First (And Other Bloomberg Rules for Business and Politics), which calls for guaranteed marketing support in lieu of an advance. Of course, billionaire Bloomberg certainly doesn’t need an advance, and he's donating all book proceeds to the World Trade Center Memorial Foundation. Still, the basic premise is intriguing, says Shanley. 

Authors would want to understand how costs are calculated in determining profits, and some are concerned that nonreturnable terms could make retailers wary of trying new or little-known authors, Authors Guild executive director Paul Aiken pointed out to Huffingtonpost.com.

Meanwhile, Miller, who will be publishing about 25 books per year once up and running, says he's already working on a few specific titles, and hopes to have all of the pieces in place to begin publishing early next year.