Color It Dead: The Coloring Book Bubble Has Burst

Stick a crayon in it: The adult coloring book craze is dead.

Coloring books with grown-up themes were the hot item of 2016 for both brick-and-mortar bookstores and for retail sales of magazines.

Publishers eagerly jumped aboard the bandwagon, cranking out new products in a category that’s well-suited to analog, in-person sales and definitely ill-suited to electronic editions. (Seen a Kindle edition of a coloring book lately?)

Now many stores have grown wary of the category, as sales plummet and inventory stacks up, according to book-industry sources.

Barnes & Noble reported that coloring books were the main reason its Sterling Publishing Co.’s sales grew 22% in the year that ended on April 30, 2016 – and declined 20% during the following nine months.

Recently, B&N management reportedly told its buyers to put the kibosh on bringing in any more adult coloring books, "with rare exceptions." Other retailers are predicting their 2017 book sales will be down versus last year because of the coloring book crash.

Data about sales of adult coloring bookazines distributed via the “newsstand” (magazine retail) system are harder to come by. Magazine publishers were later to the party than book publishers, but many still profited for a while.

The MagNet newsstand-analysis service reported in early 2016 that the category was growing in both titles and unit sales, “with many releases selling over 125,000 copies on the newsstand at higher cover prices.”

But the coloring book trend seems to have cooled off, if not crashed, for magazine publishers as well. No longer does every industry conferences include a speaker telling us that the way to stop the newsstand system from circling the drain is to publish more adult coloring books.

And Cosmo never did publish the Kama Sutra Coloring Book, packaged with a box of 24 different "Flesh Tone" Crayolas, that I was so hoping for.

My friends in the book trade say the Next Big Thing is joke books. Some will say the magazine industry got a jump on that trend with all the special issues about President Trump. (But I, for one, am not laughing.)

Related articles: 

• A Glimmer of Growth Amidst the Newsstand's Gloom 
• Sales of Printed Books Are Growing? Impossible!
• Books: Amazon's Big Mac

Books: Amazon's Big Mac

Profit? That's for other products. Amazon gets more important benefits from selling books.

Inside an Amazon Books store: Kindles, Fires, backpacks,
headphones -- oh, hey, there's a couple of books, too.

Despite its dominance of the book business, Amazon probably derives little, if any, direct profit from selling books. But, as demonstrated by its new brick-and-mortar stores, Amazon derives plenty of value from books.

You can’t understand Amazon the book seller – and how to work with or compete against it – by thinking only about books.

For Amazon, books have always been a springboard to bigger and better things. The company was at best a breakeven venture in its early years as a books-only and then books-mostly retailer, and today it still doesn’t have to earn a cent of profit from books to be a successful bookseller.

Amazon.com, mid-1997. From Geeking with Greg.

Even when Amazon.com started up 22 years ago as an online bookstore, Jeff Bezos’ vision went far beyond books. Or profits: He reportedly didn’t plan to earn a profit for at least four years.

The focus was on growth – acquiring new customers, retaining them with an unmatched shopping experience, and then leveraging that customer base to expand into new types of products.

Books were the perfect way for Amazon to cuts its teeth as an online store. Perhaps no other consumer product offers more SKUs per dollar of sales. Even the largest physical bookstore in the world couldn’t possibly stock anywhere close to all of the books in print.

That left an opening for Amazon that the fledgling company could exploit only by mastering the art and science of marketing, selling, storing, and shipping hundreds of thousands of titles. The resulting lessons it learned and innovations it developed became the foundation for its rapid expansion into other types of merchandise.

Selling books shaped Amazon as much as Amazon reshaped how books are sold.

A gift from book publishers

Amazon recognized early on that each unique snowflake of a book came with a gift from its publisher: book metadata. That’s the information about each title (such as genre, author, description, unique ID number, and reviews) that traditionally enabled bookstores and libraries to decide what to buy and where to shelve it.

A 2006 Amazon promotion

Amazon took the radical (in the mid-1990s) step of putting all that metadata online, enabling it to dominate book-related searches.

Without Amazon having to spend a cent on marketing, consumers soon learned via the likes of Yahoo! and later Google where to find a title not stocked by their local bookstore. And they learned Amazon would show them similar books, using a recommendation engine fueled by book metadata and other customers' purchase history.

I’m told it took well over a decade for the traditional book-publishing industry to grasp that book metadata should be written for algorithms and consumers, not just for professional book buyers. By then, Amazon had long since leveraged what it learned about the data-based selling of printed books to dominate the e-book business – and to power its moves into selling everything from toasters to groceries.

A gateway drug

To make books a true gateway drug to the Amazon experience, it wasn’t enough just to stock every book publishers had to offer. Too much of the demand was for books that were no longer in print.

From Amazon's Japanese-language site

Amazon had to lure those used books out of myriad basements and offline stores by creating a marketplace that even non-techies could use to sell their wares. That was the beginning of what became a major competitive advantage for Amazon – its third-party sellers, which generate nearly half of the site’s sales.

Books were also the launching pad for Amazon’s entry into the gadget business nearly 10 years ago with the release of its first Kindle. That venture has traveled light-years from those humble, monochromatic beginnings to a new Alexa-enabled world filled with Fires and Echoes.

Revolution, then civil war

“Kindle” itself morphed from a device to an entire ebook-publishing ecosystem that brought both revolution and civil war to the book industry. The Kindle Revolution popularized the struggling ebook category and democratized publishing by enabling authors to bypass the traditional world of publishers and middlemen.

To those in the traditional book-publishing business, Amazon is the Evil Empire, hell-bent on destroying both book publishing companies and competing book sellers. On the other side of the civil war are myriad author-entrepreneurs hailing Amazon as the white knight who valiantly liberated publishing from snobby, self-appointed gatekeepers so that anyone can publish a book.

Neither side seems to understand Amazon, because they envision Amazon as being fundamentally a seller of books. It’s not. A 2014 New Yorker article indicated that Amazon gets at most 7% of its annual revenue from books.

Where’s Chapter 11?

Journalists and book publishers have been assuming for years that Amazon wanted to drive Barnes and Noble out of business. I don’t buy it. Why create a firestorm of legal entanglements and public-relations backlash for the entire company just to boost profits in a relatively slow-growth 7% of your business?

Amazon Books in Tigard, Oregon. By Steve Morgan

If Amazon really wanted to drive large bookstores out of business, don’t you think B&N would be in bankruptcy reorganization by now? And wouldn’t Amazon’s new brick-and-mortar stores at least match the 20,000-title selection of a small B&N instead of offering only 5,000 titles?

Besides, I don’t think book selling for Amazon is about profits. It’s about data and branding. As I wrote in Magazines in the Amazon, a recent Publishing Executive article, Amazon is “a master at using customers’ purchase and search data to determine what other products to pitch to them – and, increasingly, to sell ads to third parties.”

Fifty Shades of Data

More than almost any other purchases, the books someone buys and browses, whether print or ebook, provide Amazon valuable insights into what other products she might buy and which ads she might click. (Magazine purchases can be even more revealing, which I think is why Amazon is selling single-copy magazines in its new brick-and-mortar stores even though it doesn’t market them on its web site.)

In the ecommerce and programmatic advertising worlds, such information about people’s interests and purchase intent is gold.

Some book purchases are more revealing than others. I assume that people interested in travel guides are relatively likely to click on luggage ads, that buyers of how-to guides often need tools or other equipment as well, and that Fifty Shades of Grey readers have a fondness for certain adult toys.

And I’m sure that Amazon’s algorithms have found many other valuable correlations -- correlations that would never occur to the human brain -- between what people read and what else they’ll click or buy.

In other words, for Amazon, some books are more valuable than others. That may explain why Amazon seems to discount select books to seemingly unprofitable levels, allows third-party sellers to charge as little as 1 cent for used books, and encourages self-publishers to offer 99-cent and even free ebook editions.

When there are such strong incentives to know what books people are searching for and especially what they’re buying, profit on book sales naturally takes a back seat.

Big McAmazon

Obvious question: If Amazon makes little or no profit from selling books, why is it opening a chain of brick-and-mortar bookstores?

Answer: It’s not. Amazon Books is probably a bookstore in the same sense that McDonald’s is a hamburger restaurant. Burgers are of course the featured attraction at Mickey D’s, yet almost all the profits come from side items. But who’s going to eat at a fries-and-soft-drinks joint?

Early reports indicate that about half of the new Amazon Books stores are actually devoted to books. The rest of the space offers appliances, Amazon-branded gadgets, magazines, and other non-book merchandise and displays.

Amazon wants you to think of these places as bookstores – as places where interesting, curious people go to browse. The real money may be in getting those browsers to check out the Fires, Echoes, and Cuisinarts. But if people wanted to hang out at appliance stores the way they do at bookstores, Best Buy would be a major tourist attraction.

The hipsters' Walmart

In many ways, Amazon is the Sam Walton model translated to the digital age – massive selection, with low prices made possible by both scale and an incessant drive for efficiency. There’s significant overlap in the products offered by Amazon and Walmart. Yet why has Amazon escaped the downscale, hope-my-friends-don’t-find-out-I-shop-there image that plagues Walmart?

Books. Plenty of people buy from both Amazon and Walmart, but the public’s perception of the two brands are vastly different. Amazon’s beginnings as an online bookseller meant its clientele was – and still is -- assumed to be hip and educated. Because of Walmart’s start in small-town USA, it’s still the butt of many a comedian’s quip about the denizens of double-wides.

In marketing, perception is reality. That’s why Amazon still wants people to think of it as a bookseller and to ignore that 7% statistic.

If Amazon’s vision to be The Everything Store continues to mean a 20+% annual growth rate, books will constitute an ever-shrinking proportion of its sales. Nevertheless, books are likely to remain Amazon’s Big Mac – not very profitable but still central to its brand identity and its strategy.

Other Dead Tree articles about Amazon include:

• Stuck at the Borders: Magazine Publishers Have Failed to Explore the Amazon: Six years later, it's still true. My fellow magazine publishers haven't really figured out how to sell on Amazon.
• Magazines in the Amazon: What to Expect from Amazon's Newsstand & Subscription Business
• Bezos Needs To Learn the First Rule of Newspaper Ownership: Yeah, well actually Bezos seems to have a better idea of how to run a newspaper than newspaper veterans do.
• An Amazon Approach to Selling Magazine Subscriptions: A moldy but goodie.

 

Four Print-Related Giants That Have Defied Bankruptcy Predictions

So much for crowd sourcing.

Exactly 18 months ago, 79% of voters in a Dead Tree Edition poll predicted that at least one of four major U.S. print-related companies would be in bankruptcy court by the end of 2012. All four companies – the country’s largest magazine distributor, the largest seller of magazines, and the #2 printer and paper maker for the industry – are still afloat. Two of the four are even profitable.

Print, it turns out, isn’t dead. Maybe comatose, but definitely not dead yet.

The 743 voters in that January 2012 poll couldn’t agree which of the four would go belly up, but the vast majority thought at least one would. Here’s another look at those four organizations and where they are today:

Barnes & Noble was chosen Most Likely to Expire, with 30% of the voters saying it would be in bankruptcy by the end of the year. Pundits were dubious whether B&N’s Nook venture would be sufficient to save the big bookseller from the rapid shift to digital media.

The bookstores, however, continue to be profitable, keeping the company afloat despite continuing losses in the Nook business, which has turned out to be more of an anchor than a lifeboat. The company seems likely to spin off the Nook business or at least to de-emphasize sales of Nook tablets.

What’s not clear is what would take the place of the huge Nook department in the typical brick-and-mortar B&N store. Books? Event space? Food service? Kindles and iPads? In any case, Barnes & Noble’s stock price is up 45% since Jan. 31, 2012 when the Dead Tree Edition poll ended.

Quad/Graphics was #2 on the See-You-In-Chapter 11 list with 21% of those January 2012 voters saying it wouldn’t survive the year. Meanwhile, its stock has risen 131%, it gobbled up another major competitor (Vertis) in January, and it’s apparently on pace for a profitable year.

It’s not that catalogs, books, and direct mail are suddenly growth businesses, but those who predicted the sort of catastrophic declines that devastated the newspaper industry have so far missed the mark. Quad has been able to grow market share with acquisitions and to battle declining demand and prices with efficiency-improving plant consolidations.

A close third to Quad was Verso Paper, which has continued to defy predictions that bankruptcy reorganization was just around the corner. Its stock price is down 14% since the January 2012 poll, and “profit” is still not part of Verso’s lexicon.

The heavily indebted paper maker seemed too fragile to survive a major disaster like the May 2012 explosion that led to the closing of its Sartell, MN mill. But an insurance settlement and sale of the mill property have provided cash infusions, and prices for coated paper have remained remarkably stable despite eroding demand.

And then there’s the U.S. Postal Service, which brought up the rear with only 20% of the voters predicting a 2012 bankruptcy despite suffering by far the largest financial losses. Commenters noted that USPS was on a financially unsustainable path but said Congress would eventually do something because a shutdown of the Postal Service would be politically unacceptable.

But, so far, Congress has done little except to prevent USPS from curtailing Saturday deliveries and to extract projections from postal officials about the exact hour and day when USPS will run out of cash. Oh, and of course to name more post offices – a task so crucial to national security that even one of the most do-nothing Congresses in U.S. history would not shirk it.

If the Postal Service were a real business, its stock price would be zero now. Then again, if it were a real business it wouldn’t have loaned the federal government billions of dollars interest-free in the form of “prepaid” retiree health benefits. And Congress would probably have bailed it out by now.

Related articles:

• Is the Postal Service Really Broke? 
• Congress Is Fixin' To Fix the Postal Service
• Weak Demand Will Mean Higher Paper Prices  
• Yankee Invasion: Quad/Graphics' Jonesboro Closing Marks End of an Era 
• Verso Changes Course -- Why?

The Biggest Stories of 2012, the Year of No

It's been a year of "no" in this little corner of the universe -- no postal reform, no big paper merger, no more listing on the RISI Top 50, no major bankruptcies. There was even a double negative: no No Print Day.

The hot topic this year for Dead Tree Edition readers has been retirement: Nine of the 10 most-read stories dealt with efforts (or lack thereof) to downsize the U.S. Postal Service workforce by getting more employees to quit.

Here's a brief recap of the year's highs and lows:

• Most popular article: By a landslide it was USPS Planning Retirement Incentives To Help Downsizing, Donahoe Testifies, with 42,000+ page views, more than double that of any other story.
• Most commented article: 8 Reasons USPS Productivity Is Declining: The Employees Speak Out, with a whopping 74, including many insightful responses from the Postal Service's front lines.
• Most influential article: Some would say it was Greenpeace Sticks It To Toshiba: Company Has No Paper Policy because an embarrassed Toshiba pulled the plug on its hypocritical No-Print Day the next day, but I suspect that was a coincidence. My vote is for 10 Questions About Toshiba's No-Print Day, which nine days earlier brought Toshiba's greenwash effort to the attention of a fairly small audience, but an audience that quickly spread the word to more influential writers and

A Major Print-Media Bankruptcy Is Likely in 2012, Voters Say

A major print-related company is likely to go bankrupt this year, according to the vast majority of voters in a Dead Tree Edition poll that ended tonight. The voters just can't agree on which company it will be.

Out of 743 voters, only 158 (21%) chose "None of the above" on the question of which four print-dependent U.S. companies would go belly up in 2012. Leading the pack was Barnes & Noble, with 227 votes -- which still means that 70% of the voters think it won't go bankrupt this year.

With 161 votes (21%), Quad/Graphics edged out Verso Paper (157 votes; 21%) for second place, with the U.S. Postal Service not far behind at 153 votes (20%).

A Surprise Leader in the Print-Media Bankruptcy Sweepstakes

Which would you rather own: paper mills, large printing plants, a leading e-tablet platform, or the U.S. postal system?

Here’s another way to look at it: Which of those assets does not have to contend with overcapacity in a shrinking market.

In both cases, I thought the answer overwhelmingly favored tablets, which is why the results so far of the current Dead Tree Edition poll (in the right column, just below the first ad) surprise me so much. The 30% of voters who think Barnes & Noble (owner of the Nook tablet platform) will go bankrupt this year is well ahead of the number voting for Quad/Graphics (23%; printing presses), the U.S. Postal Service (22%), and Verso (paper mills, 20%).

Update: Final poll results are at A Major Print-Media Bankruptcy Is Likely in 2012, Voters Say.

Financial markets seem to have pegged Verso as the most likely to succumb among the three private companies. Its market value has dropped precipitously in the past year, to 84% below its peak and less than 1/30th of annual revenue. B&N and Quad both have market values of about 1/10th their annual sales.

The comments about the article introducing the poll, both on this site and in various LinkedIn groups, are some of the best I’ve ever seen. I extended the voting deadline by a week to 3 p.m. Hawaii time (8 p.m. Eastern) this Tuesday because I find the comments and the voting so interesting. As they say in Chicago, vote early and vote often.

Here are some of the best comments:

Which of These 4 Print-Related Giants Is Headed for Bankruptcy? Cast Your Vote

It was one thing when weak companies like Borders and NewPage went Chapter 11 last year. But now the bankruptcy talk has spread to four print-related companies that once seemed invincible or eternal: the U.S. Postal Service, Barnes & Noble, Quad/Graphics, and Verso Paper.

Are things really so bad for print media that the companies we thought were victors of the competitive wars have now become victims? Dead Tree Edition isn't so sure, so we're turning to our readers to help us understand.

We have initiated a poll (in the right column, just below the first ad and above the "Popular Posts" listing), asking which, if any, of these four companies will end up in bankruptcy court during 2012. You may vote for more than one, or for "None of the above." In the early balloting, only 30% of the voters thought none of the four would face bankruptcy this year, while Verso and USPS were in a tight battle for the title of most likely to succumb.

Update: Final poll results are at A Major Print-Media Bankruptcy Is Likely in 2012, Voters Say. Additional commentary: A Surprise Leader in the Print-Media Bankruptcy Sweepstakes.

Here's a quick rundown of the candidates: 

Are Quad/Graphics and Barnes & Noble Really on the Ropes?

Not again!

Those of us in the ink-on-paper side of the publishing world have become accustomed to our vendors and sellers going through bankruptcy reorganization. But seeing Quad/Graphics and Barnes & Noble listed recently by Business Insider among The Next 11 Big Companies That Could Go Bankrupt was a bit of a jolt.

When a big printer (Quebecor World) went Chapter 11 in 2008, it was no big surprise. Nor was the demise earlier this year of the big Borders bookstore chain. One was burdened by out-of-date plants, the other by an out-of-date business plan.

But Quad and B&N are supposed to be the strong survivors who benefit from the demise of their less nimble and innovative competitors.

BI’s list is based on research from GovernanceMetrics International that identifies companies with “an elevated financial distress probability and which have experienced high risk events that increase the likelihood of bankruptcy."

B&N is #5 on the list, with a "financial distress probability" of 6.32% and what BI calls a business model that is “only slightly more viable” than Borders’. Amazon’s new Kindle Fire and low-price black-and-white Kindles will “put pressure” on Borders and its competing Nook e-readers, BI says.

Quad is ranked #6, with a 6.25% probability of distress (during what period of time? BI doesn’t say.) It noted the big printer’s high debt and tight profit margins. BI also cited a recent analysis from The Street showing that Quad had a “quick ratio” (current assets to current liabilities) of only 0.77, which suggests questionable ability to cover its short-term cash needs.

A profile of Quad in the Milwaukee Journal Sentinel over the weekend pointed out that Quad has “lowered its full-year earnings outlook for the third time in as many quarters.” Also spooking Wall Street are declining sales in the book division, which represents only 7% of the company’s revenue, according to JS reporter John Schmid.

Seeing the stock lose more than two-thirds of its value in barely a year hasn’t helped either.

Other articles about Quad and B&N include:

• Mine's Bigger Than Yours: Quad and Donnelley Squabble Over Co-Mail
• A Rough Day For Ink-on-Paper Companies 
• Quad/Graphics Claims Success in 'Quadracizing' Worldcolor
• Stuck at the Borders: Magazine Publishers Have Failed to Explore the Amazon

Stuck at the Borders: Magazine Publishers Have Failed to Explore the Amazon

Magazine publishers’ inability to sell their products in online bookstores makes them especially vulnerable to the demise of Borders and other traditional booksellers.

The bankruptcy reorganization and downsizing of Borders, announced today, may hit some magazine publishers harder than book publishers. As more and more book buyers took to the Web, book publishers followed, becoming less reliant on brick-and-mortar booksellers. Not so with magazine publishers, at least not in the U.S.

Walk into any Barnes & Noble store and you’ll see an entire section offering the current issue of hundreds of magazines. But good luck finding those same magazines at barnesandnoble.com; a search of the titles will mostly turn up subscription offers.

Single copies of magazines are sold at Amazon.com, but only as second-class citizens. The giant Internet merchant doesn’t sell single copies itself -- not even iconic special items like the Sports Illustrated Swimsuit Issue that was released this week. Only independent merchants with “storefronts” on Amazon offer magazines.

Single copies of most of the major U.S. consumer titles, including the 10 most circulated magazines, are not consistently available for sale on Amazon. (I’m not counting Kindle editions, which are generally awful bastardizations of real magazines.)

To get even the most recent print issues of popular magazines via Amazon, you’ll have to rely on such independent storefronts as “soxfan44883”, “lolita30”, and “Power of 2 minds” – which typically operate and ship from someone’s home.

And if you find the issue you want, which is not a certainty, you’ll probably pay $3.99 per magazine for shipping because Amazon only offers free shipping on items it sells or fulfills.

Dead Tree Edition could find only two publishers that seemed to be actively marketing their print magazines on Amazon, and neither is a typical magazine publisher.

The Old Farmer’s Almanac is considered a magazine by brick-and-mortar retailers because it has a magazine UPC code, is distributed and displayed with other magazines, and has a specific on-sale period. But Amazon treats each of the annual editions as a book, keeping it on sale for at least several years.

U.S. News & World Report abandoned the print magazine business last year, but its well-known Best Colleges and America’s Best Graduate Schools annuals are still considered magazines by retailers. The company has its own storefront on Amazon (with a Seller Rating of “Just Launched”) that offers the most recent edition of the two products, using “Fulfillment by Amazon” to make them eligible for free shipping.

Magazines and books have always been merchandised separately and differently, even when sold in the same stores. Although “bookazines” and rapidly produced books are blurring the line between the two types of products in the consumer’s mind, the merchandising distinctions between the two have carried over from the brick-and-mortar world to the Internet world.

Amazon, for example, will sell single copies of magazines, but only if each one has “an ISBN or EAN that is printed on the book and a scannable bar code printed on the back of the book.” Putting a barcode on the most lucrative advertising space in the publication is a problem for most magazines.

But publishers are also to blame for their no-show on Amazon. It’s a problem of mindset.

The departments that used to be called “Circulation” are now known as “Audience Development” or “Consumer Marketing” in acknowledgement of their role in bringing customers to Web sites, e-newsletters, and other non-magazine products.

But the “newsstand” people are still “newsstand” people, which means Amazon is not on their radar. Their focus is on marketing impulse buys to people who are actually looking for something else.

The idea that someone might intentionally look for a specific issue of a printed magazine to buy is foreign to the American magazine industry.

A note about the Amazon ads and links: I included ads for three magazines so that my readers could easily see how they are marketed on Amazon. It was also an easy way to illustrate the article without worrying about copyright violations. Yeah, I might make a few bucks from the ads (and from the links to the independent Amazon storefronts), but based on my experience with Amazon ads it will be a pittance.

Other recent commentary about the magazine industry includes:

• How Two Words Can Lick What's Ailing Publishers 
• App-oplexy: Magazines on the iPad
• USPS Is Wasting Money on Unwanted Services, Publishing Executive Says