June 25, 2014
The part of the Hachette-Perseus deal you didn’t hear about: It involves 400 leading indie publishers
by Dennis Johnson
It was one of the great buried stories of twenty-first century American publishing: Back in late 2007 running into early 2008, when the Perseus, L.L.C. hedge fund, owners of the Perseus Books Group (a conglomerate consisting of Basic Books, DaCapo Books, PublicAffairs, Running Press, Avalon, Nation Books and other imprints) took over first the classy indie distributor Consortium (which distributed Melville House, City Lights, Europa, Seven Stories, Coffee House, Akashic, Bellevue Literary Press, Two Dollar Radio, and Archipelago, to name just a few) and then just a few months later bought Publishers Group West (PGW), the country’s other indie distributor of tony literary and political presses (such as Grove Atlantic, McSweeney’s, Agate, Milkweed, Tin House, Soft Skull, and Counterpoint), almost no one noted that a hedge fund had thereby taken over about 80 percent of the distribution of indie publishers in America — that is to say, the publishers who had taken up where big publishing had dropped off on the publication of poetry, literary fiction, translation, avant gardism and leftist politics.
And it was a disastrous takeover for some of us. Melville House’s books were in the process of being moved to the Perseus warehouse in Jackson, Tennessee when Perseus basically dropped everything in a mad rush to buy PGW (when its previous owner unexpectedly announced it was bankrupt over the Christmas holiday). Perseus’ rudderless warehouse seemed to simply stop functioning. When it lost an entire shipment of one of our titles — 4,000 books they acknowledged receiving but nonetheless couldn’t find — we started calling the facility the “wherehouse” … because they didn’t know where they’d put our books.
Funny, but it never got better and brought us to the verge of bankruptcy; Perseus denied the problems and offered no restitution, and so we switched to another distributor in relatively short order, as did many of its other clients. Most of Perseus’ client publishers, though, had no choice but to stay put — switching distributors is a risky business, whereby your stock is tied up and you therefore have no income for nine months or so. Few little publishers can afford that — few humans can afford that — and so those remaining presses were stuck with a company that was run the way you’d expect a hedge fund to run a company: it was about the bottom line and nothing else. Not the best way to sell poetry, but there you have it.
Flash forward a mere seven years and a similar story about control of the distribution of many of our leading indie publishers is once again being buried. That is, it should have been part of the story of yesterday’s sale of Perseus to Hachette, but it really wasn’t.
In the New York Times coverage, for example, the fact that hundreds of indie publishers were part of the deal doesn’t show up until — well, it doesn’t really show up at all. The fact that Perseus even had a “distribution arm” doesn’t appear until paragraph seven, but you’d have to know what “distribution arm” meant to really get it, and even then it only merits half a sentence: “Under the terms of the deal, Hachette would keep the Perseus publishing business, but it has signed a binding agreement to sell its distribution arm, including warehouses and sales force, to Ingram Content Group, a distributor.” You’d never know from such reporting, or really non-reporting, that “distribution arm” meant “hundreds of popular and important indie publishers.”
The Wall Street Journal story, by Jeffrey Trachtenberg (which is behind a paywall), includes slightly more reporting:
The deal includes Perseus’s client services businesses, through which Perseus distributes books for others, although Hachette will sell that business to Ingram Content Group, a unit of Ingram Industries Inc. Perseus generates about $300 million in distribution sales volume on behalf of more than 400 publisher clients, of which it takes a percentage.
That’s a serious amount of scratch — even robotron beancounters on Wall Street might see $300 million as representing something meaningful — but reports from Reuters, Businessweek, and the Associated Press either barely mentioned Perseus’ distribution business, or didn’t mention it at all. And suffice it to say that not a single one of the reports I’ve cited so far so much as mentioned the name of one of the indie publishers involved in that multi-million dollar business.
Instead, following the lead of the Times — because it’s easier than actually reporting, I suppose — most reports were more concerned with positioning the story as coverage of the war going on between Hachette and Amazon. Indeed, the Times report was headlined, “Hachette Adds Heft to Combat Amazon.”
But there’s reason to think that’s not the case. After all, as a Publishers Weekly report notes, the sale of Perseus has been rumored since the death of the hedge fund’s founder Frank Pearl in 2012. And surely this deal has been in the works for weeks or more likely months — in other words, long before war with Amazon broke out. (Adding fuel to that speculation is the fact that Perseus’s second-in-command Joe Mangan left the company as recently as December to go work at … yep, Hachette.) What’s more, as Hachette recently revealed, sixty percent of its digital business, and probably 30-40 percent of its print business, came from Amazon. The midst of a hellacious financial siege seems like an odd time to decide to spend an enormous wad of your cash on an expensive new bauble — unless you were already pretty much obligated to do so.
Nor, it should be observed, is adding Basic Books and Nation Books to your portfolio quite the same as, say, Random House adding Penguin. Basic and Nation are fantastic houses Melville House would be lucky to equal someday … but they’re not the kind of cashboxes that are going to help you stave off the Vandals. (While we’re at it, the whole idea that publishing’s consolidation is about fighting Amazon should be put to rest. Most of the news stories cited above cite that as the reason Random merged with Penguin, but that’s a canard — Penguin Random House is a $3 billion company. Amazon is worth omewhere around $140 billion. What kind of leverage does anyone think PRH has?)
No, it’s just another consolidation story, one that’s been predicted all along: More of American publishing is going to consolidate, not necessarily to fight Amazon but simply to survive in a marketplace that dictates consolidation, and has since before Amazon existed. American publishing, after all, has been consolidating slowly since the 1960s. It’s only accelerated recently, and now the other shoe will drop soon enough — HarperCollins merging with Simon and Schuster is the one most are predicting.
But meanwhile what about those indies? Remember those indies? Whither Grove Atlantic? City Lights? McSweeney’s? Akashic?
According to a PW report, the business of warehousing their books, selling them to the trade, and collecting the fees for all that, has been sold to Ingram Publisher Services, a division of Ingram’s, the book distributor, which is a middleman service that buys books from publishers and sells them to indie booksellers, colleges, and others, such as Amazon.
As the PW report notes, “With Perseus already the country’s largest distributor, the addition of its 400 clients to IPS will make the Ingram division the country’s largest distributor by a substantial margin.”
Could be good, could be bad, if you ask me. The sale will inevitably mean a period of turmoil for all the Perseus client publishers. It will remain uncertain, despite what everyone says, whether they will get to keep their sales teams, or administrative personnel, for example. (Take-over companies are notoriously hard to believe when they say they have no plans to fire anyone. Right after Perseus took over Consortium, it staged a meeting with Consortium’s client publishers intended to quell any dissent, a meeting at which company head David Steinberger assured us all by saying flatly that he wasn’t going to fire anyone. This was just a few days before he fired more than half the company, starting with the entire warehouse crew. Steinberger was named publisher of the year by PW shortly thereafter.) Other disruptions could occur, too — lapses in billing or shipping, for instance.
On the other hand, if there’s one thing Ingram’s is known for, it’s prompt and uncomplicated billing, and shipping books, a couple of things most booksellers will tell you Perseus was just godawful at. So all those great indies may indeed be better off to be out of the clutches of the Perseus hedge fund.
Maybe, maybe. But there’s the one thing: The PW report notes that Ingram plans to keep using the Perseus warehouse in Jackson, Tennessee — the wherehouse.
Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.