Canadian Publishing Supplement 2007

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Canada Market in a Word: TightA flat market and supply-chain issues trouble publishers, but burgeoning alternative markets hold out hope.by Josh Kerbel

May 04, 2007

If there is one consistent theme heard across the entire breadth of the Canadian publishing industry, it's that themarket is "tight." In a country of 30 million people that has available just about every English book title in theworld, having a great frontlist, a supporting backlist or next megabestselling author isn't the path to success it oncewas. For many players in the reportedly stagnant Canadian market it is something far less exciting: operationalefficiency; that is, getting books to people who want to buy them, when they want to buy them, in the wake of theperceived declining value placed on books by the Canadian consumer.

The View from Above

This is all very much in the Canadian character—laconic, unflappable, not given to careless excitation. But if youhappen to catch the ever-engaged Michael Levine, a Toronto-based entertainment lawyer, chairman of WestwoodCreative Artists and a partner in Goodmans LLP, you get to hear from a significant book-deal maker who is only toohappy to enumerate the more exciting development of the past year:

The growth of narrative nonfiction, particularly biography;The increasing importance of on-line for both promotionand sale;The growing appetite of the audiovisual media for Canadian literature as drama, high-lighted by suchprograms as the Canadian Broadcasting Corporation's From Stage and Page to Screen including, in its first season,works by Margaret Atwood, Mordecai Richler, Guy Vanderhaeghe and Douglas Coupland;The prospect ofconsiderable funds being generated as a result of the CTV/ Chum and CanWest Global/Alliance transactions, whichmay result in increasing Canadian drama based on literary adaptations.

As far as an appraisal of the current competitive landscape, Levine says, "The good news is that there have notbeen any major bankruptcies in the current period, and while government largesse has not increased, it has beenquite stable. As a literary agent, I have found the landscape simpatico, with the possibility of placing a variety ofworks. There is a growing appetite among Canadian publishers for world rights and, in some cases, this has had avery successful result, particularly in nonfiction."

The views of Carolyn Wood, executive director of the Association of Canadian Publishers (ACP), have a more urgenttone: "Find new ways of doing business," she says. "A range of research shows that demand for books—printedbooks—is holding steady, but many of the old ways of connecting with readers are being rendered obsolete."Conversations with the heads of multinational publishers operating in Canada confirm Wood's perspective."

By the Numbers

How many books were sold in Canada in 2006? Based on BookNet Canada's BNC SalesData, sales for the Canadianretail market stacked up as follows:

Total Volume in Units Sold in 2006: 47,805,000Total Value Sold in 2006: $785,330,302 CDN

For this analysis, sales were tracked between January 1, 2006 and December 31, 2006. Booknet Canada says thatBNC SalesData (not unlike BookScan in the U.S.) represents about 70% of industry sales, so by extrapolating, it canbe estimated that the total number of units sold in Canada was nearer to 70 million, with a value of about $1.1billion.

As for the top 10 selling books in Canada, it is clear that Dan Brown dominated, taking the first three spots; on thepublishers' side, Random House, with some help from its Doubleday Canada imprint, took four of the top 10 spots.

Breaking things down on a book-by-book basis:

Average list price for titles tracked in 2006 (all publication dates and categories): $18.46

Average list price by subject (based on top 10,000 titles tracked in 2006)

Fiction: $14.80Nonfiction: $23.81Juvenile Fiction: $11.50Juvenile Nonfiction: $14.12

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Industry Challenges

If you had to sum up the major challenges facing players in the book industry in Canada, you could do it with thetriad of stagnant markets, supply chain management and technological hurdles. The majority of issues facing theindustry stem from those three issues.

Stagnant Markets

Prominent Canadian book industry executives seemed unified in their opinion that the Canadian publishing industryand bookselling market is stagnant, and many offered their reasons for the stagnation and how they were feelingthe strain financial. Joel Silver of Indigo summarizes the situation: "While book consumption in Canada is stable,consumers have a tremendous amount of choice as to how to spend their time. Books will always form a core ofthat reading time, but there is intense pressure from an explosion of online activities that now consume significantleisure time."

Kim McArthur of McArthur and Co. says, "I think the biggest challenges facing the Canadian industry today are thesize of our market—tiny compared to the U.S. and U.K.—and the retail landscape, which is shrinking. The numberof both chain and independent customers has shrunk dramatically in the 20 years I've been running a company inCanada, since starting Little, Brown Canada in 1987."

Firefly's Lionel Koffler points out that as a result of big book retailers holding back on advertising, other media aretaking away customers' attention. "You don't see the advertising for the big U.S. and Canadian chains in the sameplaces they used to." Additionally Koffler notes the increasing competition for consumer dollars by nonbookretailers: "I think [booksellers] are losing ground to places like Best Buy and Home Depot as good places toshop—the book business is falling behind at the retail level."

Les Petriw, managing director and international sales director of National Book Network; Oliver Salzmann ofMadison Press; and Chris Hall, senior inventory manager for McNally Robinson Booksellers, all agreed that anotherdriving factor behind stagnation in the Canadian market is competition from other media sources, such as theInternet and a 500-channel TV universe.

Jamie Broadhurst, v-p, marketing, of Raincoast, cited demographic issues—declining birthrates, increasing rates ofaliteracy versus illiteracy. In his words, "People can, but choose not to read." He adds, "The number-one issue isthat the next generation picks up a book. While it may not grab the headlines, it is what drives our business. One ofthe most gratifying things about working on Harry Potter is that two or three weeks after the release of any of thebooks, I can walk down the street and see people reading it. I hope to have more of that excitement with otherbooks."

Kids Can Press v-p and publisher Karen Brunsek sees the stagnant, increasingly competitive market in terms ofdollars and sense. "The squeeze on margins by the changes in the marketplace, which is demanding deeperdiscounts, necessitates a fresh look at the publishing business model," she says. "We need to work with ourpartners—our customers and our authors and illustrators—to address the changes realistically and figure out whatthe new model can be."

Tundra Books publisher Kathy Lowinger points out that there are some challenges specific to selling children'sbooks, namely, "the narrow margins imposed because people are inexplicably reluctant to spend the same moneyon a book for a child as for an adult, and because of reduced budgets in schools and libraries." But the reality is thatthe same can probably be said for the entire book publishing industry.

Supply-Chain Management

Without a doubt, internal operations and supply chain activities have a big role to play in an industry facing fallingmargins and an ever-increasing number of new books. "With the drift toward concentration in the supply chain, thepotential for success tips on a narrowing range of players. All this in a Canadian market of only 30 million" says EdCarson, CEO of the Penguin Group (Canada). "Bibliographic standards and certification, as well as the accuracy ofdata shared among publishers, retailers and wholesalers, is an ongoing challenge for publishers and distributors inCanada. It's not sexy, but in a country where just about every book in English (and French) from the rest of theworld is published or distributed, maintaining clean lines of information and rights management is complex andevolving almost daily."

Patrick Crean of Thomas Allen Publishers is a little more blunt in his assessment of the situation: "Inventory is thebane of publisher's existence. We've got to get to print on demand. It is so obvious. We say how many books weare going to print or we wait and see what the backorders are going to be—it is a guesstimate." This is compoundedby the fact that book retailers have changed their buying habits. As McClelland & Stewart's Doug Pepper puts it,"You used to have a certain level of confidence that a book would be bought, without a lot of reordering. Nowaccounts are buying for the short term, and because we can print and ship faster than ever before, retailers arerelying on us to do the warehousing for them. This is wonderful if you have the stock and demand to match,


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otherwise you are sitting on money. Warehouse space isn't free—this is a challenge for every Canadian publisher."

Technology Hurdles

Books are increasingly competing against other forms of entertainment for a very limited currency—consumers'attention. And the increasing ease with which music, works of literature and video can be distributed means thatsomeone sitting at a computer could just as easily be downloading a copy of the latest Dan Brown novel, a recentepisode of 24 or the latest single from the Black Eyed Peas.

Advances in information technology, be it in the area of cataloguing, scanning, reproduction or distribution, meanthe publishing industry is being lumped in with other forms of information and entertainment and therefore facingmore competition. David Kent, CEO of HarperCollins Canada, explains, "Remember the old Harvard BusinessReviewstory on how the railroad business forgot it was not in the train business, but the transportation business?We are in the information and entertainment industry, and it's a very crowded marketplace."

This leads to an obvious problem—how does one succeed in a digital world with a print-based model? The printedbook isn't going anywhere, but the ways to reach readers are changing and the challenge is figuring out the bestmethods to do it. The first hurdle is copyright.

The problems of copyright protection brings book publishers together with other media, such as music, televisionand motion pictures. According to Jacqueline Hushion, executive director, Canadian Publishers' Council, technology"arm[s] those who would infringe copyright with the tools necessary for widespread illegal dissemination of worksand thus the undermining of publishing.?"

Wilf Clark, v-p of sales for H.B. Fenn and Company, voiced similar concerns: "Barefaced noncompliance withCanada's Copyright Act, with respect to both piracy and violations of Canada's book importation regulations," is oneof the biggest threats to the industry.

The ACP's Wood acknowledges that although there are many technology challenges, "some of these represent newopportunities for publishers. While digitization threatens copyright protection, it also offers new revenueopportunities. New marketing technologies can help to level the playing field." CPC's Hushion agrees, "The greatestchallenge is also the greatest opportunity, and that is the huge bundle of new technologies. They provide thepotential for new marketing to old channels, the opening of new channels, forays into the Internet marketplace,strategies for content management and rights management and titles perpetually available in print."

Brad Martin, CEO of Random House Canada, offers this caveat about electronic distribution: "We believe theelectronic copy is going to become valuable property, and you have to figure out a way to monetize it, so that theauthor, publisher and marketer have a revenue stream." Martin recounts a story of an e-tailer who offeredcustomers the e-copy for another 20% if they purchased a print copy of any book. In Martin's mind, that is sayingthat the electronic copy is worth 80% less than the hard copy. "We are selling creative content. It doesn't matterwhat the delivery method is, it is about what the content is worth, and what it is worth for the person who shapes itand markets it." He adds, "It shouldn't change what the author gets. And the publisher needs to get paid as well."

Reaching Customers

"Publishers are only as good as the foot soldiers, the retailers," says Firefly's Koffler. "If they don't make theirsales, we get all our books returned to us. We need to find ways to help them to do better."

Westwood chairman Levine challenges publishing industry players to step up the level of creativity in publicityoperations although he feels there is growing recognition of the value of publicity, as more authors becomepersonalities, and more exposure, as awards and interviewers with a particular penchant for books to assure anincreasing exposure of the Canadian public in all media to forthcoming titles.

Talk to Carolyn Wood about the topic of traditional versus nontraditional sales channel and she is quick to point outthis meaning of this term "varies greatly from one publisher to another, and it's impossible to give a generalanswer. Some see direct sales through publishers' web sites as non-traditional. Most are interested in movingforward on this front, and some have active programs. In general those who are active have found that salesactivity through this channel is fairly modest. Very few are yet at a stage where they can undertake the kinds ofmarketing support needed to drive such sales, but they are getting there. Some remain philosophically opposed tobypassing independent retailers."

Hushion also acknowledges the wide range of outlets that could be considered "nontraditional" sales channels forbook publishers—"The grocery store, the gift show, Internet-based 'communities', house wares and appliancedepots, and myriad others in many sales channels—both static and electronic—have exploded into theconsciousness of book marketers." Hushion feels that non-traditional sales channels can be used to better reachcertain demographic groups. She offers the example of a publisher wanting to target 18-29-year-olds to do so byensuring that books are available in shops they frequent where they might not otherwise expect to find them. For


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example, books in music stores.

According to Kevin Hanson of Simon & Schuster, "typically you see the industry look to non traditional marketplaces when their traditional market place so signs of fatigue."

So when it comes to the traditional versus non-traditional sales channel debate, you can ask ten industry people asto what they consider a traditional and non traditional sales channel and you are more than likely to get 10 differentanswers. Oliver Salzmann of Madison Press put it best by saying "We regard any outlet that is not primarily devotedto the selling of books (i.e., bookstores, book retail chains, retailers with book merchandising plans as a permanentpart of their mix), as nontraditional.

Multinational Profiles

Simon & Schuster Canada—Double-Digit Sales Growth in a Flat Market

"If you look back over the last 24 months, the big story was the effects of the currency exchange rate on pricing—prices have fallen relative to the U.S.," says Kevin Hanson of Simon & Schuster Canada. "On new hardcoverreleases you can point to a 25% decrease over the last 24 months, so publishers have been working hard to sellmore units, but prices have stabilized. Last year, S&S Canada was able to sustain sales growth in the double-digitrange in a Canadian sector that was flat by all accounts. We have some books that are really running, The Secret isa huge book."

The biggest challenge confronting Hanson for 2007 is continuing to grow Simon & Schuster Canada at the rate atwhich it has grown over the past few years. Simon & Schuster Canada recently reconfigured staffers into a numberof highly focused teams that work very closely with Simon & Schuster's U.S. and U.K. publishing colleagues.

What separates the company from others in the market is that the focus at Simon & Schuster Canada is completelyon its import lists from the U.S. and the U.K. Simon & Schuster then applies a "Made in Canada" approach tobuilding sales and marketing strategies for key titles through our various imprint teams.

Simon & Schuster Canada distribution is through the U.S. Its Canadian warehouse was shut at the time Simon &Schuster acquired Distican in 2002. According to Hanson, this frees the company to focus on selling and marketing.This is further enhanced by the fact that Simon & Schuster Canada does not have an indigenous publishing programso the company does not spend time exporting books to the U.S. market.

Simon and Schuster Canada focuses primarily on growing its core business and enhancing capabilities to support;nontraditional channels are less of a priority at the moment (the company doesn't consider Costco nontraditional).Having said that, Simon & Schuster Canada did a huge premium incentive program with General Mills Canada lastyear but those sorts of project are more the exception than the rule.

Random House of Canada: The Thrill of the Giller

"We were having a steak dinner and watching CTV; we had the printer standing by in the U.S. We called from thetable and ordered 40,000 copies and they ran them that night and another 40,000 the next morning." That's BradMartin, CEO of Random House Canada, talking about the night Vincent Liam's Bloodletting and Other MiraculousCures won the Giller Prize. "We have been involved with a number of Gillers over the years and in hardcover, salescan go as high as 60,000 and as low as 35,000—this was in paperback and the biggest Giller we have seen, with180,000 units sold, 170,000 of them after the Giller."

Martin likes to describe Random House as "not just a publishing company, but publishing services company, sincewe provide marketing, sales, design and production services for McClelland & Stewart, as well as providingmarketing and sales services for all the U.S. and U.K. Random House books brought in to Canada."

As Martin put it, Random House had a big fiction year: "We hit all our targets last year. Our Canadian publishingprogram had its biggest year ever." In Martin's eyes, duplicating this year's success is his biggest challenge.

One area where Random House of Canada clearly benefits from being part of the Random House family is in thearea of logistics and distribution, which is done out of two warehouses in the U.S. As Martin points out: "There is nodouble stocking. It makes it more efficient for us. I came from a situation where we double-stocked all the U.S. andU.K. products, except for the slow mover. It provided a challenge and a built-in inefficiency because you can neverbe right all the time." Martin is quick to add that this arrangement means "that we are a day or two behindsomeone who has books here in Canada and it does mean we cant just simply go into the warehouse and get themon a truck, but we can expedite this stuff. Consistency in the supply chain is what is important, and the individualbusiness model dictated the premium you want to put on your turnaround time."

Martin explains that the cost difference of shipping cross border is not an issue, since 72%—75% of Random House'sbusiness comes out of the U.S., so running a separate Canadian supply chain would involve an exponentiallyincreased level of material handing compared to the company's current arrangement. "As it stands now, when


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filling customer orders, the books are handled once when they leave the U.S. warehouse and then once again ifthere are any returns. This is in stark contrast to the situation if Random House maintained a separate Canadiandistribution system—this would require material handling in U.S. and twice in Canada (once into inventory and onceout of inventory) as product is delivered to customers and then rehandling a portion of it when it came back fromthe customer. That is a lot of material handling. With our current arrangement, we handle it once when it leavesthe U.S. warehouse and a portion when it comes back."

What Martin really finds really exciting are the changes going on in the area of marketing plans. According toMartin, prior to about two years ago, all plans looked rather generic, but in the last two years, there have been alot more opportunities in the online world in what you can do to get exposure. And in the online realm, nothing ismost exciting to Martin than Random House's loyalty program, Book Lounge. "We have over 6,000 loyalty clubmembers. And we are now dialoguing with these people. We are asking them questions about our marketing. Thekey thing we hear is that they want to know about new books. It is an opportunity to market direct to theconsumer," says Martin. "When we set this up, there was a survey out there saying there were avid readers inCanada reading 10 to 15 books every three months. These people differ from the next 2.5 million people who readtwo to three books every three months. The second group was bewildered by all the choice, the first group wasn'tbewildered, they wanted to belong more. We ran our 'New Face of Fiction,' a program we have been running for 12years—we profile two new authors on the Knopf list. We had a launch with the Gladstone Hotel— we went to theloyalty club and said the first 30 people will get tickets and the response we got back from these people was great.It is about creating exposure, and word of mouth is the most effective way to market books."

As far as Random House is concerned, the mass marketer is a traditional market for them. If you visit thecompany's Web site, it is obvious the company is selling direct to consumers in both Canada and the U.S., althoughMartin is quite clear that "in Canada all our initiatives are on the marketing side. While we have the facility to selldirect to consumer, the sales are so far relatively insignificant; the greatest win for the author is the opportunity tointeract directly with the reader. Right now what we are interested in is creating more of a buzz for our books bybeing in direct contact with our consumers and driving them to the store."

From a consumer's point of view, Random House is rolling out the "Insight Widget" on Random House's AmericanWeb site, with the Canadian Web site to follow. It allows people to sample a book and post book content on theirpersonal Web sites.

HarperCollins Canada— Awards Galore

Ask David Kent about the biggest successes for HarperCollins Canada over the past year and he's likely to rattleoff a list of awards that include multiple awards at last year's Book Expo Canada, including Publisher of theYear—the third time in five years; Children's Author of the Year, Kenneth Opal; and Marketing Campaign of theYear for Chronicles of Narnia. Additionally HarperCollins Canada won the Gold Award in the Publishing Products andServices category and the Award of Merit for an Integrated Multi-media Campaign: Budget under $1,000,000 at the2006 Canadian Marketing Association Awards for its campaign for The Weather Makers by Tim Flannery.

Kent will probably also tell you about Heather O'Neill's debut novel, Lullabies for Little Criminals, winning the CUBICCanada Reads contest and shooting to #1 on bestseller lists across the country, along with numerous other #1national bestsellers, including Make It Right by Mike Holmes, The Book of Negroes by Lawrence Hill, Helpless byBarbara Goody and Flannery's The Weather Makers.

What Kent probably wont tell you about, unless you press him, is the "boring" operational details, like the 90% oforders shipping out of the 100,000-square-foot HarperCollins Canada distribution center the day they are placed;the 99.79% order accuracy; or the stock turns of approximately 90 days. In a market as tight as Canada's, internaloperational efficiency can make the difference between a good year and a great year. Accordingly, Kent sees thebiggest challenge for his firm next year in terms of operation—the implementation of a new global JD Edwards ERASystem in early 2008. Kent says, "HarperCollins Canada was chosen to go live first because we are a microcosm ofthe entire company, selling books from all of the other HC divisions. The project is currently on schedule, and weare confident that we will implement on time with minimal impact to our customers and client service levels."

With "nontraditional" channels being put forth as a solution to many publishers' flatlining sales, Kent is pretty clearthat HarperCollins Canada will keep doing what it is already doing, "with a few key exceptions, where we haveproducts that don't cannibalize our traditional sales." HarperCollins Canada operates on the basis that nontraditionalsales channels in Canada will not become more important than its traditional retail channels.

In approaching the U.S. market, HarperCollins Canada continues to refrain from selling finished books and focus ononly offering subsidiary rights to its Canadian-authored titles to a wide variety of U.S. publishers, includingHarperCollins U.S.

HarperCollins Canada is looking to incorporate new technologies into both the marketing and distribution aspects ofthe business. On the marketing front, next year will see the company roll out three dedicated audio programs andtwo new video programs; rich media originally intended for online being repurposed for the company's traditional


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marketing channels, including advertising in movie theaters and in print; and showcasing on flat-screens inbookstores and at literary event venues.

On the distribution side, Kent says HarperCollins Canada "utilizes state-of-the-art distribution technologies. Weactively participate, and are considered to be leaders, in all industry technology and IT initiatives (EDI, ONYX,ISBN-13, etc.). As with other industry-wide initiatives, we will actively lead the effort to implement RID inconjunction with our customers."

Penguin Group Canada: Changing of the Guard

Ed Carson, president, and David Divider, publisher and as of the time of writing, soon to be president, of PenguinGroup Canada, point out that their list was a powerhouse of bestsellers, with the entire list's growth in 2006 at30%. The company boasted a number major titles in the fall, such as Secretsfrom the Vinyl Café(Stuart McLean),Heart Matters (Adrienne Clarkson), Nixon in China (Margaret Macmillan), Knights of the Black and White (JackWhite), Ysabel (Guy Gavriel Kay), The Inheritance of Loss (Kiran Desai), On Beauty(Zadie Smith), Tales from DogRiver(Michele Sponagle) and The Mission Song(John le Carré).

"A substantial and very successful re-structuring within the sales and marketing groups in April/May 2006 broughtabout a renewed energy and focus to the company as a whole," says Carson, who is leaving the company at theend of April. "These changes were the last of a series of material, structural, staffing and business plan changesbrought in as part of Penguin Canada's revitalization program initiated five years ago."

With Dividar taking over for Carson in a well-planned transition, the company is looking forward to even strongerCanadian and international lists throughout 2007, and a much greater focus on strategic marketing and publicitytied to bestselling authors and their titles across a range of media. This involves working closely with Penguin's U.S.and U.K. cousins to introduce key authors to the Canadian market.

Penguin, shortlisted for the CBA's Libris Award as Publisher of the Year for 2007, is deploying technology to growand develop its digital and customer data bases, especially in the area targeted direct-to-consumer onlinemarketing

Penguin has strongly embraced several new technologies, especially in the marketing of authors and their books.Over the past two years, Penguin increased its online presence, including a number of dedicated microsites packedwith bonus interactive content, allowing readers an extended insight into the book.

Consumers can keep track of upcoming author events through Penguin's Facebook.com page, interact with theirfavorite characters through Myspace.com, and while away the hours with streaming event video footage and authorinterviews on YouTube.com. Also in the works is a planned presence on the popular 3D virtual reality siteSecondLife.com.

Home-Grown Talent: Canadian Publishers

Government Support

No discussion of the Canadian publishing industry is complete without a mention of the role of the Canadiangovernment in fostering the industry through Heritage Canada and its Book Publishing Industry DevelopmentProgram (BPIDP).

According to Carla Curran, director, book publishing policy and programs at Heritage Canada, "The objective of theBook Publishing Industry Development Program [BPIDP] is to support the production and promotion of Canadian-authored books through contributions to Canadian-owned and controlled publishers.

The program employs a wide range of performance measures, such as title production and sales data, to determinewhether this objective is being achieved in an effective and efficient manner."

Curran says the program's audience-driven, sales-based funding structure is designed to encourage efficiency, andthe financial support provided through BPIDP rewards success in selling Canadian-authored books by providingfunding based on a recipient's total sales of eligible titles. Off the record, many Canadian publishing executivesdisagree with this assessment.

As to the success of the BPIDP's approach, Curran offers examples:

There are nearly three times as many Canadian-owned publishers as there were in the 1970s, four times as manybooks published each year by Canadian houses and five times as many Canadian authors. The 2004 evaluationconfirmed this view by noting that BPIDP has had a significant impact on increases in the production and sale ofCanadian books in Canada and around the world, has contributed substantially to diversity in the Canadian bookpublishing industry, and has helped many companies to grow.


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BPIDP's Supply Chain Initiative component: Through this component the program was instrumental in bringingtogether diverse industry participants to address the broad challenges surrounding the modernization of the booksupply chain. In 2005—2006, BookNet Canada, with the assistance of Supply Chain Initiative funding, launched acomprehensive Sales Data Analysis service for the Canadian English-language market. This service tracks salesfrom more than 650 sources across Canada, from traditional book retail chains, independent booksellers andcollege/university stores to nontraditional sources such as airport shops and grocery chains. The service providesreal-time reports to publishers and retailers on what is selling, helping the industry to optimize print runs, analyzepricing strategies and maximize sales.

The Small Presses

According to Ronda Kellington, executive director of the Literary Press Group of Canada, a national tradeassociation that advocates for independent Canadian literary publishers as well as offering sales and marketingservices, the biggest challenge publishers face "is the current state of the marketplace. Sales are flat, at best.Return levels are high, and with one dominant retailer, there's concern about the lack of diversity of titles in themarketplace on offer to Canadian readers."

Fitzhenry & Whiteside Ltd.— Family Owned and Still Going Strong After 40 Years

Talking with Stephanie Stewart, U.S. sales & marketing manager for Fitzhenry & Whiteside, you get a sense of theenthusiasm that has kept the company going strong for the past 40 years. In fact, celebrating 40 years in businesswas one of the company's biggest successes last year. The other success was the book Sidney Crosby: Taking theGame by Stormby Gare Joyce. The paperback edition came out in January and the company already plans toreprint.

In Stewart's mind, the challenges facing her firm are twofold: trying to keep a balance between supportingtraditional booksellers—bricks-and-mortar booksellers—and trying to grow in nontraditional markets, which includeonline retailers, big-box retailers such as Costco, and niche market stores.

Another goal is keeping up with the way books are promoted to the general public yet trying not to jump on everysingle bandwagon. "This means making sure the company has diverse and innovative strategies that will work notonly in the trades but also in the education market. If you look at teachers and librarians," says Stewart, "they areas quickly bored as the kids they deal with. They get so inundated with every single thing that publishers are tryingto pitch as the new big thing."

As for marketing changes over the past year, Fitzhenry & Whiteside revamped its Web site and sells direct toconsumer. Stewart is quite clear: "The retailer and institutional markets are our main focus right now. Direct-to-consumer is a secondary market for us.

When asked about her company's specific strengths, Stewart is quick to point out "a strong education side fork—12, with dedicated sales educational consultants. We put in a lot of time learning the specific needs of individualeducational institutions."

In its U.S. operations, the company plays to its strength in the institutional markets. "At present, 16% of Fitzhenry'ssales come from the U.S." Stewart says. "And because the U.S. is a larger market, we have a strong chance forgrowth, but it is important for us that for any books we launch into the U.S. market, we have the clear focus as tothe target market for the book—institution versus. trade. We've been incredibly successful in the institutionalmarket but our books are not the Harry Potters of the world. We do not have the mass market trade appeal yet.The one area we are really looking to grow is our science fiction, because we have Robert J. Sawyer's books. This iswhere we feel we can have the most growth within the adult trade side in the U.S."

On the technology side, Fitzhenry's focus is on its role in marketing—enhancing copy for both its own Web site andthose of its retailing partners, especially the types of excerpt that can be provided. The biggest challenge in thisare, a according to Steward, is in the area of working with picturebooks—"most excerpts require text, not images.So we are trying to come up with different ways, without giving away the entire book, to have that enhancedcontent out there."

Another example of the interaction between marketing and technology at Fitzhenry is changing the way of doing anauthor tour. Steward is quite front and center about the fact that "it isn't economically viable for us to be sendingauthors across the country. Even a five-city tour is expensive. Something we are embarking on—and we arestarting it with Deborah Ellis and her book Jakeman—is a Webcast tour. We are going to bring her to students andteachers via an interactive Webcast."

Firefly Books—In Full Color

"We rarely have big-name authors," Firefly president Lionel Koffler says proudly. "We focus on big, bold four-colorbooks in the area of practical, science, nature and wildlife. This year we did Insects: Their Natural History and


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Diversity by Stephen Marshall; it retailed for $95 and sold 7,000 copies. We did 35,000 copies of our new edition ofNight Watch,and 16,000 copies of a new large-format book on the early days of the Rolling Stones.

Koffler's explains that Firefly has a "big investment in backlist and continuing to promote it. Almost all of it isfour-color and it takes the public a long time to get familiar with it." Koffler says that it is Firefly's attention toquality that attracts authors from other firms. And he not shy about discussing Firefly's investment in its works. "Wespend a lot of time on our books. We have several books coming this year that have been in the works for fouryears. The insect book took five years to produce— 700 pages and a real labor of love—but it sold because it wasgood quality. We sold a small amount in trade, and did a mailing to entomologist and plant professionals, and wesaw loads of special orders through online booksellers. We are just about to go into second printing. It told us thatmaking a better book and promoting it to the right people is what we need to do."

Koffler was quick to point out that one of the biggest challenges to his firm this year was the amount of advertising,or lack thereof, done by big retailers in the U.S. "I used to see ads for big retailers and now they are very lacking.There was just an article last week about the L.A. Times killing their book section and commentary from someoneat of the big five or six standalone book reviews about not having a single ad from any publisher anywhere in one oftheir February issues. That is the biggest threat to book retailing and publishing, the kind of path of laying back.Everyone has a huge investment in the current structure and we need to do more to help it survive."

Firefly believes in promoting through what most publishers would consider nontraditional channels, for example,advertising in Canadian Geographic, because that is where their audience is. And being a producer of niche,expensive books, Firefly requires sizable international markets in order to be successful. Koffler makes no apologiesfor focusing on markets outside of Canada for the majority of his business: "60% of our sales are in the U.S., 35%in Canada and 5% in Britain." As a publisher doing expensive books, we need a big market to cover our costs; weoften have as much as $400,000 to $500,000 invested in a book, so we need big market and long print runs. That'swhy we publish for the international market."

On the technology front, Firefly looks for improvements and applications that make four-color printing glow on thepage. "We use technology to make better books. Now we get photography overnight—no more transparencies. Wemay not make a book faster, but we put more into them."

Thomas Allen Publishers— "Jim Allen is my secret weapon"

"One of the advantages I have is that our owner, Jim Allen, sells books personally," says Patrick Crean, publisher atThomas Allen Publishers. "Jim is the consummate salesman, so he interacts directly with Indigo. When you ownyour own business, what a difference it makes, because all the marbles are on the line."

As far as Thomas Allen's biggest success's this year, Crean is quick to name a number of Houghton Mifflin titles fromtheir distribution side: Richard Dawkins's God Delusion, The Trouble with Physicsby Lee Smolin and How DoctorsThink by Jerome Groopman, as well as homegrown talents such as Caroline Adderson's collection of short stories,Pleased to Meet You, which was longlisted for the 2006 Giller Prize, and a book by Scott Griffin (publisher at Houseof Anasi), My Heart Is Africa.

When it comes to challenges in the coming year, Crean is very clear: "Reading levels are holding in Canada, so thebiggest challenge is getting attention for your book. We work in arguably the most difficult book market in theworld. We share a common language with the American and British. It is a game of inches—it's about gettingattention."

What separates Thomas Allen Publishers from others in the Canadian market is the size of its list. "Jim and Idecided that the imprint will publish 12 to 15, maybe 20 books a year—we are keeping it small to showcase ourauthors better," says Crean. "I don't have to fill a list. I wanted to create something where an author will have anexcellent experience all the way through the process. And this is how we compete against bigger houses as weprovide more personalized treatment and they feel they are invested. They feel that this is a house, a home."

When it comes to sales channels, Crean says, "We have always been very big in the gift market. We are a presenceat the gift fairs. Our sales force will go to Whitehorse and sell a few copies rather than going out to London andsaying this is as far as we are going to venture out to the hinterland. Our guys fan out and leave no stoneunturned."

McClelland & Stewart: The Start of a New Century

Ask Doug Pepper, president and publisher of McClelland & Stewart, about the successes of 2006, and you will get anearful: "Last year was our 100th anniversary, and we did an extensive backlist promotion. We have an enviablebacklist and it was a way to move up to the front of the store. We made a profit last year, which for a company likethis is pretty good. We are looking to triple it or quadruple it this year."

"Financially the year started off with a boom, with Leonard Cohen's Book of Longing. I'm speculating about this, but


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feel pretty good in saying there is rarely a book of poetry on a national bestseller list, with the exception of MayaAngelou. Our poetry program has always been solid and while it doesn't make us much money, it allows us topublish the biggest names in poetry."

As to what separates McClelland & Stewart from other Canadian publishers, Pepper isn't shy: "The best Canadianbookselling brand. We have published almost every Canadian writer of note and still publish one of the mostenviable literary fiction and nonfiction lists in the country. We are independent, although partially owned byRandom House, and in a world where independents are disappearing, it is a selling point of the company." He goeson to add, "In the last few years, we've turned around the look of the company, we've added some real youth andnow that we are working more with Random House, our backroom operations are more aggressive."

As far as the U.S. market goes, Tundra, McClelland & Stewart's kids' list, does 40% its sales in the U.S. butMcClelland & Stewart likes to sell rights, rather than distribute directly in the U.S. in order to find people who knowthe market well.

For McClelland & Stewart, the story on the technology front is about archiving and downloading. "The real story forus here is the New Canadian Library series, and for its 50th anniversary we want to archive it all, to make itavailable to professors who want to order 60 copies when we don't get that many all year—it allows us to keepthese books in print."

McArthur & Co: Waving the Flag

According to Kim McArthur, her firm's biggest successes included Maeve Binchy's Whitethorn Woods, the #1 fictionbestseller of 2006 in Canada on the year-end list in the Globe and Mail; doubling the sales of Ian Rankin's Naming ofthe Dead; and helping launch the More Canada program with Indigo and independent booksellers.

In McArthur's opinion, "The company's greatest strength is finding and launching new Canadian authors. We arealso known for our original and creative marketing an author tours, to ensure that as many readers as possiblehear about our books and buy them."

As for the biggest challenge in the coming year, McArthur is clear, it's all about the returns: "Our biggest challengewill be to keep returns at the lower levels achieved during 2006 , which were in stark contrast to 2005, when manyof our lead titles were returned during November and December." McArthur is also on the hunt for new places tosell books as well: "Since regular retail channels are becoming fewer and fewer, McArthur & Company is looking tonontraditional channels such as Home Depot, gardening outlets and gift stores to carry those of our specialty booksthat suit their markets."

In terms of technology, McArthur & Company is embracing new technologies such as podcasts, rich ONIXbibliographic data, and BookNet on its own web site as well as taking advantage of the efficiencies of print ondemand technology to better control its inventory of Canadian titles.

Raincoast Books: Business as Usual

With its head office situated on the west coast, Raincoast Books is probably best known to the general public for itsinvolvement in the Harry Potter series but speak with Jamie Broadhurst, v-p of marketing for Raincoast Books andyou get a much different view of the organization. "The heart and soul of the company is that we can ship booksfaster to anyone else in Canada," says Broadhurst. "At Book Expo Canada last year, the CBA voted Raincoastdistributor of the year; I think it was the third year in a row."Raincoast and its affiliates run two warehouses—one inToronto and one in Vancouver—and moved approximately six million units last year. This is an area whereRaincoast continues to invest a lot of money in the back-office end of things."

Broadhurst isn't shy discussing the company's greatest challenge for the company in the coming year on the table:ramifications from the AMS debacle in the U.S., as AMS has a 25% stake in Raincoast books. Although there are stillmany undetermined issues at this point, Broadhurst is clear: "We have been telling our customers that in terms ofdaily operating capital, AMS is not a factor, and in terms of executive decisions, it is a made-in-Canada decision"

In Broadhurst's eyes, the U.S. is a very tough market. "Some of the best retailers in the world are in the UnitedStates and they have high demands." Raincoast saw double-digit growth in the U.S. last year working with PGWand claims that selling and marketing into the United States has made them a better publisher. Raincoast's strategyin the U.S. is to focus on its picture books and young adult titles. In the next two to three years they want beviewed as a North American publisher.

On the technology front, Raincoast is applying it to both internal operations and marketing. The company isimproving its business-to-business Web site by adding an online-trackable order system.

From the marketing side, Raincoast believes it is the first independent Canadian publisher to launch a podcastprogram. The impact, they found, and a pleasant surprise, was the uptake in the institutional market—teachers,librarians, instructors—who were really hungry for that material.


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Madison Press: International Book Producer

In 2006 Madison Press Books launched a number of new art titles, including The Museum of the Missing: A History ofArt Theft, Leonardo and The Mona Lisa Story, and others that have gone on to sell rights in many internationalmarkets. "Our most recent title for young readers by the Canadian artist Robert Bateman won two important andprestigious awards: the Silver Birch award and the Science in Society prize," says Oliver Salzmann, Publisher. "Weexpect its successor, Bateman's Birds of Prey, to sell over 100,000 copies in North America this year." Madisonrelaunched some classic bestsellers to great success in Canada, including the 25th-anniversary edition of The Art ofRobert Bateman, which has sold more than 400,000 copies since it was first published.

Madison conducts a large amount of its business in U.S. dollars and Salzmann suggests that currency issues don'taffect Madison as much as they might other Canadian publishers.

He considers the gain and loss on positive and adverse foreign exchange movements simply a cost of doingbusiness.

Children's Market: Gunning for the U.S.

Kids Can Press

When asked to describe the strengths of her firm, Kids Can Press, a subsidiary of the publicly traded CorusEntertainment, Karen Boersma, v-p, publisher, summed it up by saying: "We are a publisher of high quality,critically acclaimed, well-produced children's books with a strong market orientation and considerable technologicalsavvy for our size." She goes on to say, "Our strength as a market leader, as innovators and as producers of superbbooks with strong sales around the world makes us very attractive to many people."

According to Judy Brunsek, v-p, sales & marketing, Kids Can Press had some great successes across the list.Scaredy Squirrel was the company's top-selling book in 2006. It was a summer Book Sense pick, and was recentlyselected as an ALA Notable for 2006. Herb Shoveller's Ryan & Jimmy and the Well in Africa That Brought ThemTogether sold out its print run in the fall after some major touring that featured Ryan & Jimmy being interviewed byMaya Angelou for Oprah & Friends and the book appearing on Oprah's Web site as recommended reading.

"We have a sort of happy challenge this coming year, " says Boersma. "Our fall 2007 picture book list is anembarrassment of riches. We have four books that on any list would be lead titles, but which we happen to have allon one list. Frank Asch and Devin Asch return with Mrs. Marlowe's Mice, Melanie Watt has an audacious newcharacter in Chester, Wallace Edwards is following up his success last with A Painted Circus and Heather Collins hascollected and illustrated an amazing nursery rhyme book that takes a child through the course of a day in Out Camethe Sun. Our challenge will be to ensure our customers appreciate the strength of each title and give each itsdue—we have very high expectations for these titles and other on our fall list."

In Canada, Kids Can has long been selling to nontraditional channels. Brunsek says that Kids Can Press "has a goodhandle on the marketplace and broad success in a variety of areas. However, we are always weighing the risksagainst the rewards of nontraditional channels. We are very open to opportunities but extremely aware of some ofthe inherent dangers in some areas. Since they often require a major investment of resources, our US efforts havebeen more focused on our traditional market. "

The U.S. market is critical to Kids Can Press success, as it represents a full third of the company's sales. It is themarket where Brunsek sees the greatest potential for growth and she's working hard to build it. Kids Can has beenselling direct, as opposed to licensing rights, into the U.S. market for almost 10 years now.

Like other publishing companies, Kids Can Press is exploring print-on-demand technology but, as Boersma says,"Children's publishers have the extra challenge of four-color printing and quality expectations that we have not yetseen with POD."

Tundra Books: The 40-Year-Old Kid

"We had a great year. Our Ice Time: The Story of Hockeyhas done extraordinarily well. Our picture books TheBirdman, Let's Go for a Rideand Taming Horrible Harrywere all finalists for the country's most prestigious prize, theGovernor Generals Award for Literature," says publisher Kathy Lowinger. "Our novels continue to sell well; StealingHomewas our U.S. bestseller."

With 30%—50% of Tundra's sales coming from the U.S., the company has to grow sales against a strong Canadiandollar in addition to the challenges of publishing for children today, Lowinger says there are some challengesspecific to selling children's books, namely "the narrow margins imposed because people are inexplicably reluctantto spend the same money on a book for a child as for an adult, and because of reduced budgets in schools andlibraries."

Since Random House handles Tundra's sales in Canada and distribution in the U.S. Tundra benefits from an array of


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cutting-edge technology that would otherwise be beyond the reach of a small independent publisher.

Title Author PublisherPub.

Date

List

PriceSubject

The Da Vinci Code Dan BrownRandom House ofCanada

Mar 06 $10.99 FICTION

Angels and Demons Dan Brown Simon & Schuster Mar 06 $12.99 FICTION

Deception Point Dan Brown Simon & Schuster Mar 06 $12.99 FICTION

A Million Little Pieces James FreyRandom House ofCanada

Sep 05 $21BIOGRAPHY &AUTOBIOGRAPHY

Whitethorn Woods Maeve BinchyMcArthur &Company

Aug 06 $24.95 FICTION

Night Elie WieselFarrar, Straus &Giroux

Dec 05 $12BIOGRAPHY &AUTOBIOGRAPHY

Bloodletting and

Miraculous CuresVincent Lam Doubleday Canada Sep 06 $17.95 FICTION

Guinness World

Records 2007

Guinness WorldRecords Editors

Guinness WorldRecords

Aug 06 $35.95 REFERENCE

The Kite Runner Khaled Hosseini Doubleday Canada May 04 $21 FICTION

The End Lemony SnicketHarperCollinsCanada

Oct 06 $16.99 JUVENILE FICTION

Getting Product to Customers—Distributors and RetailersNo discussion of the Canadian publishing industry is complete without considering the proverbial "last mile"—getting product into the hands of customers—which relies on the combined efforts of distributors and retailers

Ask Les Petriw, managing director of National Book Network Canada, a subsidiary of the Rowman & LittlefieldPublishing Group, about his successes over the last year, and he can give you a perfect example of the impact ofcross media promotional efforts. "All our Rachael Ray titles sold very well due to the launch of her new daily TVshow, especially the new Classic Rachael Ray book, which shipped almost 300,000 copies in 2006, "Petriw says."The Eat Clean Dietby Tosca Reno, from Canadian magazine and book publisher Robert Kennedy Publishing, hasalso done extremely well. Since its release January 1, we have 125,000 copies in print for North America and inCanada it has been on the Toronto Star's national special interest bestseller list for over two months."

In Canada, NBN had a 30% increase in sales last year thanks to entering new market channels and handling manybestsellers and Canadian authored titles. NBN keeps over 20,000 SKUs and sees that increasing in the comingyear, with more than 20 new publishers joining NBN.

For Petriw, embracing technology meant building a state of the art warehouse, installed a new software systemfor ordering, and providing publishers and sales reps with the best possible online reports.

Shipping over 12 million units in 2006 and managing 25,000—30,000 SKUs gives the team at H.B. Fenn andCompany a pretty good perspective on Canadian publishing. The company saw very strong growth in sales of YAfiction right across its children's lists and noted that sales of graphic novels were up and had found solid foothold inthe Canadian bookstore market.

Since its inception in 1977, H.B. Fenn has been focused on alternative or nontraditional markets and says that thefurther development of nontraditional sales opportunities is the its greatest challenge. It is the principal or solevendor of record with a number of retailers where books are not the dominant product offering.

The biggest industry change seen by the company is that 20 years ago there were few barriers to entry inbecoming a Canadian book distributor. Today, the need for real-time position files, bibliographic data, dailyscorecards and related information means you cannot compete unless you have invested millions of dollars tomeet this demand.

The Retailers


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As far as the biggest challenge facing Canadian book retailers, industry executives echo some of the samecomplaints that publishers voice—flat markets and perceived product value. Indigo's Joel Silver is quick to pointout, "When books become discounted so heavily online and in other environments, it diminishes their value andthe connection we have to them." This sentiment is also echoed by McNally Robinson's Chris Hall: "The discountedprice is being established as the new regular price."

One question that remains unanswered: Who is responsible for this erosion of value? Publishers or booksellers?

Indigo Meets Challenge

"Since Heather has taken over 'combined Chapters Indigo,' their performance has improved dramatically, and itcould have gone the other way," says Brad Martin, CEO of Random House, discussing Heather Reisman and hermanagement of the Indigo Book Chain

Joel Silver, chief merchant at Indigo,sums up 2006: "We overcame a challenging year by successfully focusing ondelivering a great in-store and online experience. Our marketing and customer support programs helped deliveron our business objectives. Programs such as Reader's Choice, Junior Advisory Board for tweens and teenagers,combined with our iRewards program, continue to enhance the shopping experience with Indigo."

But just because Indigo dominates the Canadian book retailing business, it doesn't mean it is insulated fromcompetitive issues. The company faces intense pricing pressure from online competition, mass marketers andexchange rate issues particular to the Canadian market.

As far how publishers can better work with retailers, Silver suggests that publishers should "expand the 'pie' toenhance reading and books as a category, rather than battling for share of the existing market." In other words,publishers should attempt to compete for a greater share of the consumers' wallet rather than stealing customersfrom one another.

Coulda, Shoulda and Woulda

While it is often said that envy is an undesirable trait, once in a while it's okay to covet thy neighbor's book. A fewpublishing players talked about the books they wished they had published this year, but didn't.

While David Kent at HarperCollins Canada was the most unabashed in lusting after "all of the #1 bestsellers andaward winners," Kevin Hanson of Simon and Schuster Canada was a little more reserved, only naming two books,both of which were published by Simon & Schuster in the United States: The Thirteenth Tale and Peter Pan inScarlett.

Jamie Broadhurst, v-p of marketing at Raincoast Books, was probably the most gracious: "The book I was mostproud of, for our industry, was by HarperCollins Canada, Weather Makersby Tim Flannery. It was anextraordinary marketing coup and spoke to exactly why we are all in publishing, which is, every now and then, topublish books that manage to change public attitudes in our time. I think that what HarperCollins did with theFlannery book was superb."


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Documents

Canadian Publishing Supplement 2007