The vultures are circling.

Borders Books announced bankruptcy and store closures earlier this month.  Now bargain-hunters are swarming the hundreds of stores closing around the country.

Many were not surprised at the announcement.  “A win for Amazon and the mom ‘n’ pop bookstores,” said one pundit.  “Is this the beginning of the end for real world bookstores?” added another.

Such are the signs of change.  On one end of the spectrum: a revolution in the Middle East, on the other end: big changes in the book-publishing industry akin to the challenge felt by the record industry.  Both are harbingers of goodbye to “business-as-usual”… regardless of their import.

Don’t think audiobook narrators are going to be untouched by this turn of events.  I’m not saying necessarily bad, but with every Tsunami some shoreline gets rearranged.

James Adams, the Chairman and CEO of Bee Audio has some incisive analysis of this eventuality in his most recent newsletter.

Please take the time to read his excerpts below if you’re interested in being a part of change, or at least keeping up with it.

CourVO

(the demise of Borders)…is a story about a whole industry that has signally failed to adapt to a future in which all of us are playing a vital role.

Everyone in the publishing industry has known for months, if not years, that Borders was in trouble. The same is true of Barnes & Noble, despite their apparent success with the Nook eReader and general online sales. The fact of the matter is that the more a bookseller does digitally, the less attractive the terrestrial world looks and the less business sense a bookstore makes.

For the smaller bookstores that have tried hard to hold on to an ever-smaller niche with ever-smaller margins, the future looks bleak also. They do their best to highlight local authors and to offer generous discounts on bestselling books as well as decent coffee, locally made eats and a congenial atmosphere. But, a hard look at the numbers makes clear that few, if any, local bookstores make money. Instead, they are a vanity business where the owner takes out what little profit there may be as income. If the owner was paid a real salary, the store would be making a loss each and every year.

That leaves the digital domain as the last person standing in the world of bookselling. Without the bricks and mortar and with centralized distribution, it’s possible to make a modest profit on books. That leaves Amazon in pole position with Google coming up fast and Apple destined to run a distant third.

Of course, this is not just about books in the traditional sense. One of the striking things about the Borders collapse is how battered this leaves the publishing industry. And I don’t just mean Penguin, Hachette and the rest who stand to lose tens of millions of dollars they can ill afford but also all the audiobook publishers who have also been left swinging by the bankruptcy. For years, Borders has been late on payments and for some in the audiobook business, the Borders check has meant the difference between survival and bankruptcy.

Yet, with the bankruptcy writing so clearly on the wall, nobody – and I mean nobody – took preemptive action to either sufficiently diversify their business to mitigate the Borders risk or to recognize the new market reality and change fundamentally the product mix to reflect the 21stcentury market.

In a revolution, it is the old models and ways that get swept away and for many of us who embrace change, this is a good thing. It is the collateral damage that is always so painful and that will be so in this case.

Some predictions then:

1. Combined, Borders and Barnes & Noble have over 1,000 stores. Within five years, there will be no more than 200.

2. In the same timeframe, 50 percent of all local bookstores will go out of business. The only ones who survive will be those with a large niche in the digital domain.

3. With the success of the Android platform, its abilities with machine and its integrated technology, Google will become the single largest media retailer in the world. It will offer every single book ever written in any language to anyone, anywhere in any media.

4. Amazon is already being left behind by the technology and the gap will widen so that it holds a distant second place.

5. Apple’s arrogance and insistence on telling the consumer how to behave will leave the iPad a distant and fond memory as consumers switch to more accessible products.

6. The audiobook CD market is vanishing (who uses CDs any more?) and will have disappeared altogether within three years. The only way to access an audiobook will be through digital download. A number of the larger audiobook companies will be forced either into bankruptcy or into mergers as a result of Borders going under.

7. Audible will remain the digital download king although it is developing many of the characteristics of an inert bureaucracy and is becoming ripe for challenge by a more nimble upstart.

8. The self-publishing industry will begin to dominate publishing as a whole as the creators begin to take control over how and where their product should be marketed.

9. The self-publishing model will change the business model so fundamentally that prices for content will be transformed. A digital download will be $5 for a new book and an audiobook the same, with discounted bundles for multi-media content. There will be completely seamless integration between one medium and the next.

10. Hardback books will be a very small niche market for which some groups (old people like me, libraries for a limited time, and collectors) will be willing to pay a premium.

11. That in turn means huge further consolidation in the publishing industry with most of the big names either merging or going bust because the economics of their business no longer makes sense.

A revolution indeed.

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www. BeeAudio.com

Sound Board From the desk of James Adams, Chairman and CEO of BeeAudio
Issue No. 7
February 2011
What’s the Buzz?

Are We All Bankrupt Now?

In the last newsletter, I wrote about the likely bankruptcy of Borders and this week it finally happened. I find myself of two minds on occasions like this. On the one hand, bookstores are in some respects a second home, a sanctuary where, since I was a boy, I could always spend many happy hours seeking and finding inspiration. On the other hand, change is exciting and I have very little sympathy for those who stand in the way of change or fail to adapt fast enough to business circumstances.

But the Borders bankruptcy is a bellweather event and I’ve devoted this entire newsletter to looking at it and what the fallout will be for our industry. All my working life, I’ve been about the future: seeing it, embracing it, starting companies that help bring it closer. I’ve made both good and bad calls but I write today as an outsider who really has very little investment either in the status quo or in what the future of publishing might bring. I hope that this somewhat objective place makes this perspective just a little more real.

With best wishes, James

The First Day of The Rest of The Revolution

Big business comes and goes but the bankruptcy of Borders is so much more than just another failure. Certainly there was bad management, a serious misjudgment about the impact of technology on the book market and an utterly feeble and mistimed response to the growth of the eReader.

But the bankruptcy is really about a seismic shift in the market which will affect all of us in fundamental ways as we move forward into the Great Unknown which is the future of publishing.

Let’s review: Borders has gone bust employing 19,500 people in 650 stores and owing its 30 largest unsecured creditors $272m, including $41.1m to the Penguin Group. GE Capital and others have put forward a $550m loan that will tide the company over for the next three months or so but after that, the future is unclear. What is very clear is that if Borders has any future at all, it will involve massive layoffs and the closing of hundreds of stores.

There has been talk of some kind of deal between Barnes & Noble and Borders but it is unclear why this would make much business sense. The two booksellers compete in the same markets and if I were a shareholder in B&N I would not want to see my investment devalued by taking on more real estate and debt which I would find it tough to service.

All Change for The Industry

But, this is more than just a story of everyday bookselling folks and management incompetence. It is a story about a whole industry that has signally failed to adapt to a future in which all of us are playing a vital role.

Everyone in the publishing industry has known for months, if not years, that Borders was in trouble. The same is true of Barnes & Noble, despite their apparent success with the Nook eReader and general online sales. The fact of the matter is that the more a bookseller does digitally, the less attractive the terrestrial world looks and the less business sense a bookstore makes.

For the smaller bookstores that have tried hard to hold on to an ever-smaller niche with ever-smaller margins, the future looks bleak also. They do their best to highlight local authors and to offer generous discounts on bestselling books as well as decent coffee, locally made eats and a congenial atmosphere. But, a hard look at the numbers makes clear that few, if any, local bookstores make money. Instead, they are a vanity business where the owner takes out what little profit there may be as income. If the owner was paid a real salary, the store would be making a loss each and every year.

That leaves the digital domain as the last person standing in the world of bookselling. Without the bricks and mortar and with centralized distribution, it’s possible to make a modest profit on books. That leaves Amazon in pole position with Google coming up fast and Apple destined to run a distant third.

Of course, this is not just about books in the traditional sense. One of the striking things about the Borders collapse is how battered this leaves the publishing industry. And I don’t just mean Penguin, Hachette and the rest who stand to lose tens of millions of dollars they can ill afford but also all the audiobook publishers who have also been left swinging by the bankruptcy. For years, Borders has been late on payments and for some in the audiobook business, the Borders check has meant the difference between survival and bankruptcy.

Yet, with the bankruptcy writing so clearly on the wall, nobody – and I mean nobody – took preemptive action to either sufficiently diversify their business to mitigate the Borders risk or to recognize the new market reality and change fundamentally the product mix to reflect the 21stcentury market.

In a revolution, it is the old models and ways that get swept away and for many of us who embrace change, this is a good thing. It is the collateral damage that is always so painful and that will be so in this case.

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In This Issue
The First Day of the Rest of the Revolution
All Change for the Industry
A Tough Road Ahead

A Tough Road Ahead

Some predictions then:

1. Combined, Borders and Barnes & Noble have over 1,000 stores. Within five years, there will be no more than 200.

2. In the same timeframe, 50 percent of all local bookstores will go out of business. The only ones who survive will be those with a large niche in the digital domain.

3. With the success of the Android platform, its abilities with machine and its integrated technology, Google will become the single largest media retailer in the world. It will offer every single book ever written in any language to anyone, anywhere in any media.

4. Amazon is already being left behind by the technology and the gap will widen so that it holds a distant second place.

5. Apple’s arrogance and insistence on telling the consumer how to behave will leave the iPad a distant and fond memory as consumers switch to more accessible products.

6. The audiobook CD market is vanishing (who uses CDs any more?) and will have disappeared altogether within three years. The only way to access an audiobook will be through digital download. A number of the larger audiobook companies will be forced either into bankruptcy or into mergers as a result of Borders going under.

7. Audible will remain the digital download king although it is developing many of the characteristics of an inert bureaucracy and is becoming ripe for challenge by a more nimble upstart.

8. The self-publishing industry will begin to dominate publishing as a whole as the creators begin to take control over how and where their product should be marketed.

9. The self-publishing model will change the business model so fundamentally that prices for content will be transformed. A digital download will be $5 for a new book and an audiobook the same, with discounted bundles for multi-media content. There will be completely seamless integration between one medium and the next.

10. Hardback books will be a very small niche market for which some groups (old people like me, libraries for a limited time, and collectors) will be willing to pay a premium.

11. That in turn means huge further consolidation in the publishing industry with most of the big names either merging or going bust because the economics of their business no longer makes sense.

A revolution indeed.

About James Adams

James Adams is the former Managing Editor of the London Sunday Times, CEO of United Press International, founder and CEO of iDEFENSE, a cyber intelligence company, Board member at the National Security Agency and NCIS, author of 13 bestselling books on warfare and intelligence and currently Chairman of ADRevolution http://adrevolution.com/ and Founder and CEO of BeeAudio http://beeaudio.com/.

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