Traditional Bookstores Might Not Be Dead Yet

Online retailers now take in more revenue from the sale of books than their traditional brick-and-mortar competitors, according to the annual BookStats report from the Book Industry Study Group.

In 2013, publishers took in $7.54 billion in online orders, including e-books, slightly more than the $7.12 billion made from sales at physical retailers. More than half of the online sales, however, were for physical books. While e-book sales climbed to a record 512.7 million in 2013, revenue was flat from a year earlier, at $3 billion.

The industry as a whole took a bit of a hit. Total revenue from print and digital books in the trade category, which excludes textbooks and journals, declined 2% to $14.6 billion. The figures used in the report are based on how much publishers collected, not how much retailers charged and consumers paid. BookStats, a joint project between the Association of American Publishers and the Book Industry Study Group, reported that 2012's huge crop of best-sellers and lower prices set by retailers in 2013 could be to blame for stagnant revenue.

While lower sales are not a great sign for the industry, physical bookstores, including remaining megachain Barnes & Noble (NYSE: BKS  ) should be heartened by the fact that momentum for e-books appears to have stalled.

Digital books -- where Amazon  (NASDAQ: AMZN  ) dominates -- represent only 21% of the total market. Two years is not long enough to prove that demand for e-books has leveled off, but flat year-to-year revenue suggests that physical books have at least a little life left. 

What this might mean
In the music business, the rise of digital delivery did not bring an end to CDs, but it did bring a huge decline. Digital formats have even undermined the concept of owning music, as use of streaming services rose while overall music sales transactions slipped 6.3% in 2013, down to 1.56 billion from 1.66 billion in 2012, according to Nielsen SoundScan. 

Through the week that ended Dec. 29, 2013, total album sales -- CDs, digital albums, LPs, and cassettes -- slumped 8%, to 289.4 million, off from 316 million the previous year. CD sales have been on a downward spiral, falling 14%, to 165 million in 2013, down from 193 million the prior year. That leaves physical music with a 66% share -- a number that falls every year and has yet to stabilize. 

Though physical music sales have a ways to go before dropping to zero, the combination of fewer overall purchases and the rise of digital delivery has wiped out most of the music stores in the United States. Tower Records, Sam Goody, The Virgin Megastore, and countless regional or local chains no longer exist in the U.S. 

The fear in the book industry is that the retail booksellers would go the same way. If people still want physical books, as the BookStats numbers suggest, it's possible that a place remains for physical retailers.

Is this good for Barnes & Noble?
If e-book sales continue to grow as a percentage of the overall book business, then Barnes & Noble is little more than a chain of very large coffee shops that maintains a warehouse where customers can browse for items they later buy on Amazon. The struggling retail bookseller has essentially placed all its eggs in the physical books basket. It has even announced that it plans to spin off its Nook division into a separate company.

Nook was never able to win significant market share from Amazon's Kindle line of e-readers and tablets. But if sales go purely digital, Barnes & Noble has lost. If the numbers stay around where they are, the company has a chance to remain relevant with its physical stores and website.

This apparent pause in the digital trend may prove to be a nostalgic bump in the road toward an inevitable conclusion. It also may be proof that no matter how good e-readers are, and no matter how much cheaper digital books are than physical ones, a lot of people just find the idea of holding the real thing more satisfying.

How does this help publishers?
Amazon has been driving a hard bargain with publishers that have little leverage to fight back. The potential stalling of digital sales has perhaps kicked open the door a bit and may explain why major publisher Hachette has drawn a line in the sand in its negotiations with Amazon. 

"The conflict is a result of the maturation of online book sales distribution and publishers' starting to find effective ways to directly distribute themselves or in cooperation with other publishers," Robert Picard, director of research at the University of Oxford's Reuters Institute and an expert on media economics told Yahoo! "Some, like Hachette, are now willing to challenge Amazon."

The demise of physical bookstores would be bad for publishers, so they have reason to make things harder on Amazon and support the brick-and-mortar retailers. That may be tilting at windmills, but it's better than making a deal with Amazon they later regret.

Is digital really slowing?
Other surveys show interest in digital books has continued to grow. A January survey from the Pew Research Internet Project showed that 28% of U.S. adults read an e-book in the past year, up from 23% in the 2012 survey and 17% in 2011.

Even if sales for digital books flatten for a few years, it seems unlikely that the convenience and price advantage won't ultimately win. A slowdown in the process, however, gives the publishers and the brick-and-mortar retailers time to adjust. Unfortunately, few good strategies remain. With Nook being a bust, Barnes & Noble lost its chance to own a platform that competes with Kindle. The alternatives -- such as partnering with tablet leaders Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOG  ) -- are almost as unpleasant as dealing with Amazon.

Still, it's better to die tomorrow than today, and the BookStats numbers make it seem likely that the physical book will hold out a little longer than the CD did. That gives Barnes & Noble and the publishers time to consider alternate delivery methods for digital products that don't involve Amazon.

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