A Bankrupt Borders Makes Everyone Poorer, Especially Authors

Borders BookstoreIt's official: Borders, the nation's second-largest bookstore chain, has filed for bankruptcy protection. The announcement that came this week has been expected since the end of last year, when Borders first shocked the publishing industry by halting payments to publishers and distributors. Borders will close 200 of its 600 "superstores". Beginning as early as the end of the week, 6,000 employees will be out work -- hard news to hear in a difficult economy.

Borders' bankruptcy filing also means publishers are now on the hook for hundreds of millions of dollars. My publisher, Penguin Group (USA) (PSO), is the hardest hit at $41.1 million. Others with more than $10 million at stake include Hachette, which is owed $36.9 million; Simon & Schuster (CBS) at $33.8 million; Random House at $33.5 million; HarperCollins (NWS) at $25.8 million; Macmillan, at $11.4 million; and Wiley (JW.A) at $11.2 million.

The list of publishers left holding bad Borders' debt goes on and on. While Borders expects to be able to pay vendors for merchandise shipped after the bankruptcy filing, those that were owed money prior to the filing will be paid only with the approval of the bankruptcy court.

Fewer Places for Authors to Sell

As part of the bankruptcy proceedings, Borders has implemented an ordering freeze. In response, the book distributor Ingram has stopped shipments to Borders stores. For hundreds of authors whose books are about to release, the consequences are severe. Their books will be carried in 200 fewer Borders stores, and unless the shipping impasse is resolved, no copies will be shipped to any of the remaining 400 Borders retail outlets.

Until Borders can provide assurances that it will be able to pay for future stock, the situation will likely continue. According to a report from Publishers Marketplace:
The next big question for Borders is whether -- and/or under what conditions -- major publishers will ship the chain new inventory. The bookseller is offering "normal trade terms" under their DIP [debtor in possession] financing, but publishers may require cash up-front, or may be reluctant to resume significant shipments entirely. Publishers we contacted this morning were still consulting with their attorneys and management. At least one large company expressed the skepticism that has prevailed during Borders' slow march to bankruptcy since late December, saying they have not seen any proposal in writing from Borders yet, '"so resupply in the near future seems highly unlikely."
Writers hit hardest by Borders' troubles are the so-called "midlist authors" -- those whose books aren't bestsellers but still do well enough economically to justify their publication. BPM Smith, a reporter who covers the book and music industry, explains:
The biggest fallout could come weeks or months down the line, because all those publishers Borders owes money to will get perhaps only 10%-20% of what they're owed. That's also potentially a bad sign for their authors. I've covered bankruptcies that later resulted in firms going under themselves after a major supplier or customer went bankrupt. How do these publishers make up for the millions of dollars they won't be able to replace? Invariably, when a firm goes bankrupt, the non-guaranteed debtors are the ones who take a haircut.
Even if publishers turn the supply tap back on, midlist authors are still at risk. According to an employee who works in the sales department of a publishing house, "Borders will likely be even more cautious about investing in midlist authors. While their new loans from GE Capital will allow them to finance, among other things, the purchase of new stock, Borders is not in any position to gamble. They're likely, in my opinion, to skip more midlist titles than usual and to only spend their money on names they know they can sell."

Smaller Advances, Fewer Authors

If Borders orders significantly fewer midlist titles, "It's entirely possible that publishers may offer lower advances [to authors], especially on midlist titles," says the same publishing house employee. "The industry has depended on Borders as a major market for new titles. If the publisher can't trust Borders to take a sufficiently large number of copies of a given title, this will factor into their profit and loss statements. As a result, they may advance less money to authors in order to increase the odds that any given acquired title will earn out [the advance]."

Or some publishers may just drop their midlist authors. The blockbuster mentality in which publishers concentrate their marketing and promotion on the books they perceive as guaranteed sellers has long made the midlist author's life difficult. The additional financial burden imposed on publishers by Borders bankruptcy may well be the tipping point for many writers whose sales numbers are less than stellar.

It's an understandable strategy in difficult financial times. But books are so much more than a product. Books help us gain insight or perspectives on issues that matter. They allow us to escape reality and delve into stories or worlds unknown. They inspire us, educate us, change us. Their variety enriches both our culture and our lives.

Which means that ultimately, Borders' bankruptcy makes us all poorer.

Karen Dionne
Karen Dionne
is the internationally published author the environmental thrillers Freezing Point and Boiling Point. Karen is also the cofounder of Backspace, and serves on the board of directors of the International Thriller Writers. Visit Red Room to find out more about her books and to read her blog.

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Dereck

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May 29 2011 at 1:17 AM Report abuse rate up rate down Reply
mryknndy5

This is a fantastic article, Karen. Very perceptive, right on target, thanks for posting!

March 04 2011 at 2:20 PM Report abuse rate up rate down Reply
vobox3343

Now we get to pay for the stupidity of those who thought book stores would thrive in an era of high tech advancement and libraries that have closed in many high schools all across America. Good going!

February 18 2011 at 3:06 PM Report abuse rate up rate down Reply
mullermugs32

So the publishers stock tanked, cry me a river. Go talk to those who had stock in car companies that we bailed out and see what they say.

February 18 2011 at 10:53 AM Report abuse +1 rate up rate down Reply
econisgr8

Before you shout hooray for closing down a third of this Booksellers outlets, you should consider what it will mean for literacy in this country. We will have fewer choices of authors and genres as the market closes. Fewer sellers in the market mean they can better dictate/control their prices and what products they offer buyers.

Borders is the only chain store where you can buy local authors, and these mid-level authors. BN does not offer you that. Sadly, Borders was late in coming to the eReader market but if you've been in a store lately you would notice that they offer a VARIETY of eReaders and they've trained their staff to help you choose the best option. Some of these eReaders (ie Kindle) lock you into only being able to access books purchased from them! If the eReader is not an open-source, you won't be able to download books from the library or other sellers.

I for one will support my local Borders because I want employment in my town, I don't want any empty superstore, my town needs the tax-rateable, and aside from the library, it is the best option I have for encouraging my children to get interested in books.

February 18 2011 at 7:07 AM Report abuse rate up rate down Reply
Peg Mierenfeld

6000 workers out of a job....to bad they werent union.....as we ALL know so many companies have gone out of business with a resut of thousands of jobs lost...

February 17 2011 at 7:47 PM Report abuse +1 rate up rate down Reply
croone22

The days of the publishing monopoly are over. Kindle and Ebooks,Amazon and Google are the new genre and publishers. Finally all authors will have a chance to be published and judged by the people,not some elite publisher who never even reads most manusripts that are submitted unless the author is a celebrity or has name recognition.Now publishers will seek out authors who have sold over a million copies over the internet and don't even have an agent. I say, hurrah! hurrah! Hurrah!

February 17 2011 at 7:20 PM Report abuse rate up rate down Reply
Blackthorn

This wouldn't be a problem if we hadn't let the superstore concept become the norm. When the country was covered with independant stores a publisher would not be greatly affected by one of them failing. This hurts everyone but we need to learn to stop putting so much power into the select few retailers. What will happen if Amazon.com ever crashes? It's happened to bigger companies.

February 17 2011 at 5:31 PM Report abuse +2 rate up rate down Reply
mesager42

No more running out to Borders to buy those last minute music books for my hubby's birthday gifts. The best way to motivate kids to learn how to read is to buy them books with lots of colorful pictures, and be able to look through it to see how readable the book is for that age.

February 17 2011 at 4:03 PM Report abuse +2 rate up rate down Reply
koos458

Publishers did this to themselves. The only ones who ever miss big publishing are the very few authors with mega-contracts. Now, readers will have thousands of times more selections at a lower price.

February 17 2011 at 3:57 PM Report abuse +1 rate up rate down Reply
2 replies to koos458's comment
isoroku5

Where? Online? I want to see a book before I buy it.

February 17 2011 at 4:25 PM Report abuse +1 rate up rate down Reply
econisgr8

Not necessarily. Fewer places to buy translates into less choice for the consumer and less competition among sellers. This combination results in higher prices with less choice overall. The lesser known authors will have a harder time bringing their material to market which will squeeze them out entirely.

February 18 2011 at 7:21 AM Report abuse -1 rate up rate down Reply