Junk Books and Junk Bonds (or, Sometimes the Book Game Reminds Me of the Bank Game)

Economics News Publishing

What do corporate book publishers like Random House, Simon and Schuster and Farrar Straus and Giroux have in common with financial powerhouses like Lehman Brothers, Merrill Lynch and AIG? If you guessed that they are all doomed, you're wrong.

Here's the right answer: the book industry, like the financial industry, should be in much better shape than it is. Wall Street is suffering from the consequences of short-sighted management and greedy, over-optimistic expectations, despite the fact that the borrowers these banks finance remain generally productive and profitable. Likewise, many publishing industry complainers claim that nobody reads books anymore (Daniel Mendelsohn) or that the publishing industry is collapsing (Boris Kachka) even though books remain incredibly popular at all levels of American life.

Little known fact: book publishing is a $30 to $35 billion/year business. Consumers spend roughly the same amount of money each year on books that they spend on films or music. Here's another surprising (but easily verifiable) fact: companies like Random House, Simon and Schuster and Penguin are profitable, year after year. Yes, profitable. Doesn't sound like death throes to me.

The reason industry observers claim that book publishing is dying is that they interview industry executives whose own careers are dying. The business is highly irrational and unpredictable, and many high-powered execs are unable to remain atop the bucking rodeo bull. But what these execs are suffering from is an industry that changes too fast, that relies too heavily on high advances and other risks, that doesn't know how to price and market its properties in the new electronic marketplace. In other words, the book publishing industry is not too stagnant -- it's too dynamic.

Let's look more closely at the similarities between finance and book publishing. A great backlist title like Catcher in the Rye or The Alchemist or every Harry Potter book is like a blue-chip stock. They are dependable sources of revenue, and you can never go wrong with a blue-chip book or a blue-chip stock. Success comes to those who locate and develop those properties before they are identified as blue-chips. This is the foundation of smart investment banking, and it's also the foundation of smart book publishing.

The term "junk bond" sounds demeaning, though this should not necessarily be the case. A junk bond is an admittedly less proven loan asset that some investor deems worthy of taking a risk on. A first novel by an unknown author or an unusual title by an experimental author is like a junk bond. If it takes off, that's a big surprise and a big win. If it doesn't, the price wasn't very high to begin with, so the investor (or publisher) can handle the loss.

The problem comes when good fortune inspires investors or publishers to start confusing their junk with their blue-chips. And the real problem comes when this investor or publisher manages to convince others to confuse their junk properties with blue-chips, and to join in on the investment. Often this is a matter of packaging or marketing. Most recently, mortgage bankers found ways to package high-risk home mortgages into bundles that seemed, on the aggregate level, less risky than they actually were. The widespread investment in these questionable assets led directly to our current financial crisis.

Similarly, big hits like Da Vinci Code and Cold Mountain inspire book executives to take great risks on possible future successes. Given the reflective and hype-hungry nature of book publishing, these risky investments generate a lot of attention but then crash and burn more often than they succeed. Sales and marketing efforts create big expectations, but junk is junk, and you can't fool readers into buying a book they instinctively dislike. These highly visible failures are what lead to the mistaken impression that consumers must not be buying books, when in fact consumers are buying books. The publishing industry is simply tripping over itself trying to monetize their readers' interests. They can't stop overrating (and overpaying for) their junk.

The bumpy ride will continue, because book publishing has never been anything but an exciting and high-risk industry. It's aggravating, though, to hear commentators like Daniel Mendelsohn claim that new media has harmed book sales, or that internet publishing has anything to do with industry problems. I can't repeat this fact enough: we spend over $30 billion a year on books. That's plenty enough revenue to allow any industry to prosper.

Book publishers have nobody but themselves to blame for their gullible investments in questionable properties. Here's the problem: the world needs investment firms and the world needs books. The US government can bail out Freddie Mac and AIG, but who is going to bail out Bertelsmann and Holtzbrinck and Hachette?

16 Responses to "Junk Books and Junk Bonds (or, Sometimes the Book Game Reminds Me of the Bank Game)"

by Daniel Mendelsohn on

I must believe that you weren't actually at the event at the New York Public LIbrary, the "reportage" on which, by Ed Champion, constitutes nothing more than his usual grab-bag of distortions, inaccurate or highly selective quotations, gross misrepresentations and failures to account for context, and of course outright lies. That's fine; no one takes him seriously. But it's irritating to see his gossip replicated endlessly online as fact. One would never guess, reading his deranged blog entry, that I was, as it happens, the member of that panel who was arguing that there is in fact a large and passionate readership out there, eager to read and believe in literature; and that all the doom-saying of the kind of people your own blog is criticizing results from critical short-sightedness and a failure to take the long view of how culture works. (People have been complaining about the end of literature since the beginning of literature, basically.) My comments about the (I maintain) visible erosion of book-reading on public transportation, in favor of phone call-making, personal dvd-watching, computing, etc., was made in the contact of another discussion entirely that evening, about the way that reading enhances a sense of a "private world" to which few other pastimes are comparable.
I am told that a podcast of the event will soon be online, and you and everyone else who has been misled by "Champion's" metastasizing inanities will be able to check the record for yourselves.

by Milton on

Great post, and great headline. I often wonder what Nas' take on the publishing industry might sound like.

by Daniel Mendelsohn on

PS: Apropos of "metastasizing inanities": You wrote: "It's aggravating, though, to hear commentators like Daniel Mendelsohn claim that new media has harmed book sales, or that internet publishing has anything to do with industry problems." I never said anything of the sort; in fact, you got me totally backwards. Referring to the Kindle that I just bought my dad, I was making an argument FOR new technologies as a vehicle for promulgating literature--the whole POINT I was emphasizing was that the fetishization of "books" was itself misguided and showed a certain cultural short-sightedness, since (as I pointed out that evening in making this argument) there was literature way before there were books, and there will be literature way after books disappear (which is when I brought up the Kindle). That you should have not only misquoted me but INVERTED the point I was making is boggling; again, it's hard to believe you were present at the event itself.
In closing both these comments, I would say, in all good faith, that people who work in the traditional media, such as myself, would be a lot more willing to extend intellectual credit to certain quarters in the blogosphere (which, again--I made this point about the Internet that evening--is no more or less valuable than what people put into it) if there were signs that the standard ethics of traditional journalism were being applied--starting with a concern for the accuracy of what's being reported (as opposed to the endless repetition of hearsay), and a willingness to check sources before you rush into print. One difference between what I do and what you do (to say nothing of "Champion" does) is that I wouldn't be able to print what you print, since it would have died in fact-check.

by Levi Asher on

Thanks for your input, Daniel. Yes, I was at the New York Public Library event (actually sitting next to Ed Champion, who is indeed deranged) but I will agree with you that Ed's article is a little over the top and that you may have not been treated fairly in some of the exchanges that followed.

You are right that you made your comment about nobody reading on trains in the context of an entirely different discussion, but you *did* say it. I guess I take that point seriously because when I sit on the train and watch people around me read it is sometimes the most encouraging part of my day. And I'm proud of my fellow New Yorkers for being avid readers -- books, yes books, not just newspapers and magazines -- and I really hated it that you had just declared that nobody reads on trains in New York (I think you were referring to the PATH train to New Jersey, which I rarely take, but I have to assume they read in New Jersey too).

Finally, about the blogosphere itself -- well, Daniel, you did utter many broad generalizations about the nature of blogging from the stage at the Library. As I wrote on Ed's site (pardon me for repeating a joke), I sat there feeling like a caveman in a Geico commercial. So I guess that may have gotten us off on the wrong foot here. I look forward to reading your next published reviews with an open mind, and thanks for commenting.

by Daniel Mendelsohn on

I appreciate your measured response, Levi. May I add a few points to this conversation?

1) I continue to be alarmed by your apparent reluctance to call a spade a spade: Ed's reportage was not "a little over the top"--he never does things by halves (a quality that he himself, I suspect, in his role as "ranter," sees as a plus); his account of my event with A. M. Homes was a fabrication from start to finish--it was a gross misrepresentation, ignoring everything I said that contradicted the picture of me he wanted to paint, while focusing, without any context (especially HUMOR-!?!?) on the phrases that get him going: and "may not have been treated fairly" is, again, tip-toeing. I will say it again: if you're reporting, report accurately and include the big picture: how could you fix on my one offhand comment that reading is ceding more and more ground to all those other gadgets (it was "New Jersey Transit," incidentally) and not contextualize it in, or make any attempt to balance it with, my much broader comments, reiterated THROUGHOUT the evening, that the world is filled with passionate readers still, and that the doom and gloom was premature, that literature is persistent whatever the modes of its publication? You can't just write "well, you DID say it" without acknowledging the responsibility to report on all of what I was discussing, not just the bits that ticked you off, stripped of their proper context.

2) Ditto for my "general comments about blogging," to which you took exception: I made it quite clear (well, maybe not!) that I was talking about the irresponsible, "gossip"-like aspect of blogging (of which James had just given an example eerily like what has indeed happened with Champion's nutty account of the evening: it's like the old game of "telephone," in which what was actually said gets lost, the distortion more pronounced in each generation of recycling--which as you know was my criticism of your blandly linking to Champion's site without even trying to suggest what you and so many others know to be the case, and which you now, tardily, ACKNOWLEDGE, which is that he is unbalanced (in every way, I suspect) and, as you now gingerly admit, his account of the evening--which you initially pointed your readers to with no further comment--was tendentious and inaccurate. Does it not occur that there is an ethical stake in preventing further misrepresentation? Does it not occur that there is a person on the other end of the inaccurate characterization you're blithely promulgating? Was it not possible to link to Champion with a caveat?

3) The irony of all this perfervid Championizing is, indeed, that his outraged obsession with me, and the tempest in the teacup it has occasionally raised, began with the very one-two punch that is so bewildering to me: the misinterpretation followed by the misquote. The day after I made my sardonic reference, in my 2007 NBCC acceptance remarks, to the fact that it was nice to be honored by professional critics in a day when "anyone who owns a Dell laptop can be a published critic" was immediately seized upon by Champion as a denunciation of bloggers (subsequent accounts, based on his, had me deriding bloggers "as the devil": the speech is on YouTube and anyone can see that I never even mentioned bloggers). The hilarious irony is that when I made the comment, I was thinking of Amazon reviews, since at that point I'd barely even read a blog--something I only started doing as a result of my attempt, subsequently, to set the record straight about what I meant that night. But of course, Champion was off and running, denouncing me as a fogie implacably opposed to the Internet: an absurdity that the actual, accurate record of any of my public comments about internet culture will demolish (not least, at the Yale "Why Literature Matters Panel" in 2003, when I again derided the reflexive "highbrow" resistance to new media and technology).

Of course I know there are terrific lit blogs, and I now read them regularly, that are records of the very serious engagement with literature (and, less interesting, with "publishing") on the part of the bloggers (and as we all know, there are also these people like Champion, whose blogs are merely a record of their sweaty spites, resentments, and envies). The whole POINT of my comment on stage (that the difference between the literary scene now (with its--yes, often confusing--mix of traditional and new-media input, all vying for space, authority, exposure) and that of the 1950s (with traditional media and "professional critics" only) was that there is now so many more kinds of commentary on literature, and however destabilizing it can sometimes seem, it's ALL GOOD (Champion made it sound as if I was bemoaning the new status quo and yearning for an earlier era: false). I am a TEACHER of literature, for heaven's sake; I LIKE the fact that the discussion has opened out in these unimaginably vast ways, I TALKED ABOUT the fact that students and readers all over seem to want to be "true believers" (as I put it that night); that's why to be cast, so inaccurately, as some kind of anti-Internet curmudgeon is so irritating to me. (I never made the comment, now attributed to me and circulating, that there was something wrong "with 30 million people opining about Moby Dick": what I actually said, as the podcast will prove, is that when the gossipy aspect of the blogosphere kicks in, there is nothing to prevent falsehoods and inaccuracies from zinging their way to 30 million people. I simply never said the other thing.)

4) What I continue to underscore is that IF the lit bloggers want to be seen as doing THE SAME thing that people like me and James do--people with editors, fact checkers, and publishers (who, along with their lawyers, don't like the idea of inaccuracy, misreporting, and casual libels), then they have to play by the same rules: which is to say, an attempt, at least, at fairness of reportage; a good faith attempt at accuracy; and some kind of acknowledgment that there are standards of civilized discourse. (And yes, I know it doesn't always work in traditional media; but it's specious on the face of it to act as if that fact made the whole entrerprise worthless.) I don't any longer respond to Champion, because it is very clear to me that he writes in bad faith--he'll just say anything, however inaccurate or invented, to get his rocks off (unless he's very stupid and actually believes what he's writing, which I find hard to believe myself, however unstable he may be). I cannot engage in a conversation with someone acting in bad faith; but I am happy to have had the chance to respond to your posting, and I hope that my earnest attempt to explain why I was so upset by it, and now my further comments clarifying my stances on these issues, will be taken in the right way--which is precisely that I do recognize that this is a valid mode of discourse, one that deserves serious engagement. But only as long as the discourse is going both ways!

5) Thanks so much. --Daniel.

by Bill Ectric on

Question for Daniel Mendelsohn (I couldn't be New York Public Library event). . .

I like to think that even if the overall percentage of book readers declines, the actual number of book readers is increasing because of the growth in population. I don't have the figures to back that up, but, for example, 25% of 300,000,000 is still more than 30% of 200,000,000. I was wondering if you could comment on that.

I'm looking forward to the podcast.

by stevadore on

Wow! A tete a tete on the internet. Gotta love it.

by catalyst on

great post sir. i didn't know a lot of what you pointed out. although, i wouldn't mind seeing a few of the big names die out myself.

by Bill Ectric on

I didn't have any problem reading your replies, D.M.

by rubiao on

We seem to have arrived at a point where old media is angry at new media rather than vice versa. I can see how it would be aggravating to have everything you say twisted around and thrown in your face, or as I like to call it, politics, but name dropping the kindle does not make you a progressive nor do vitriolic rants make an argument. Not to mention thinly veiled threats to sic your lawyers on Levi.

And the idea that lit bloggers even want to do the SAME THING as people like you is a bit egotistical, which might be part of the problem. Your disdain for lit bloggers was quite clear throughout your posts (maybe just pent up frustration), but this is not a zero sum equation. Both can exist, published critics fulfilling their important role, and bloggers covering the vast spectrum of everything else.

That being said, I agree with a lot of what you wrote and people should be more careful with others' reputations. The more you show up here and defend yourself the more accurate an opinion people will have of you.

by Kevin on

Daniel,
It's great to see a cogent response. As someone who studied journalism/j-law, I'm with you 100% (for whatever it's worth).

Dear Levi:

Your post is very perceptive, but aren’t you contradicting yourself when you write this: “Little known fact: book publishing is a $30 to $35 billion/year business. Here's another surprising (but easily verifiable) fact: companies like Random House, Simon and Schuster and Penguin are profitable, year after year. Yes, profitable. Doesn't sound like death throes to me.”

And then this: “The US government can bail out Freddie Mac and AIG, but who is going to bail out Bertelsmann and Holtzbrinck and Hachette?”

Are those three companies foundering?

by Levi Asher on

Yes, Kevin, I agree -- it's a pleasure and a privilege to have Daniel Mendelsohn, a very respected critic and writer, drop by here to speak up for himself. I'm not responding to his last statement because I'm happy to give him the last word.

I will speak up, though, about one last point that bothered me from the Mendelsohn/James Wood/Pico Iyer conversation at the NY Public Library. Daniel described the process of blog publishing as if anybody can fire up a new Dell, sign up at WordPress.com and become an established blog writer in minutes. Honestly, it's just not that easy, as anyone who has ever managed a successful blog knows. It takes incredible commitment and hard work. You need knowledge and accuracy (yes, accuracy) or nobody will trust your blog or link to it. You must have good writing skills and some amount of stylistic felicity. It's really offensive (here I go sounding like a Geico caveman again) when people think that all bloggers get Technorati rankings in the top 2000 just for showing up and saying hi.

I was sorry to hear Daniel Mendelsohn say several things at the Library along the lines of "the blogosphere has no filter", or "anybody can blog" (I didn't take notes, but I trust the podcast will bear me out that this is what was said). This is misleading, because it doesn't differentiate between bloggers who don't have readers and bloggers who do.

It's like me saying "Sure he writes for the New Yorker. Any rich kid can go to any Ivy League school and get published in the New Yorker". It's not that simple for kids from Ivy League schools, and it's not that simple for bloggers.

by Levi Asher on

Peter, good question. I am referring to what can happen if book publishers continue to act more and more like greedy investment bankers. These publishers do manage to remain steadily profitable every year, but the "big advance" game is only getting bigger and crazier every year (mostly due to continued occasional huge successes like Stephanie Meyer and Christopher Paolini). So, no, the major corporate publishers don't need bailing out yet, but some deals I read about in Publisher's Lunch look pretty shaky to me.

I'm new to Literary Fiction blogging, and well understand that it will take time and hard work to build the readership I desire. I find this particular thread interesting, though it seems both Mr. Mendelsohn and Mr. Asher are, to a degree, correct.

The truth is that there are good bloggers and bad bloggers, good critics and bad critics, good writers and bad writers. The problem is that the bad always seems to outweigh the good when others begin to point fingers. In other words, it seems that even though Mr. Asher was well intended, he heard criticisms of bloggers that Mr. Mendelsohn didn't necessarily intend to apply to ALL bloggers. And Mr. Mendelsohn reacted as if he was being attacked when, as written, Mr. Asher considers him to be a respected critic and writer, and was merely pointing out what he saw to be a couple on inconsistent remarks.

I personally believe that the future of literary criticism will be more blog based than print based as the medium matures and access and confidence becomes more widespread. I see the Kindle as a device that will revolutionize the industry as not only books become available on demand, but available criticism does as well.

Having said that, I also believe pure print media will survive and that there will be a place in the literary world for all of us. After all, vinyl LP's still sell!

In the words of Rodney King, "Can't we all just get along?"

by Steve Plonk on

CHUTES and LADDERS WEEK at MURDOCK’S PIER
By Steve Plonk

All the week of September 20, 2008
Chutes and ladders of the stock market fell and rose
Residents of Galveston, TX and Bolivar Peninsula,
Plus 2,000,000 other Houston metro residents were
Displaced by Hurricane Ike which hit Galveston head on
The Texas coast with a vengeance—especially on Murdock’s Pier…
.

Now the town of Crystal Springs, TX is no more…
Congress and the Fed are bailing out
Much of our country’s financial system,
While an occasional body washes in from the sea,
Black Monday sparked the week which rocked
Foundations of our nation’s financial system.

Wagging heads were saying it is was the worst
Financial calamity since the Great Depression.
Cooler heads will hopefully find us ways
Out of this colossal mess,
Both in Texas and up in the financial centers
Of New York, NY, and around the world.

Meanwhile, back in Galveston, a huge amount
Is going into the rebuilding of the city.
Nearby Houston has streets full of glass
From skyscraper windows being blown out
Even the Space Center shutdown for several days.

My cousins are in nearby Austin, TX
Having evacuated from Houston—
I am much relieved to hear of it.
This is a thought poem to larger world which needs
To hear of our struggles in the western hemisphere

CHUTES and LADDERS…Cont. PAGE 2

Widespread destruction reminds me, of Katrina, &
Of Hurricane Carla many years ago—
Back in 1961—the only hurricane I’ve been through,
Though the area is much grown up since then…

Trees, cars, boats, and houses being tossed like matchsticks
By a storm as wide as the state of Texas itself.
I am awed by the devastation and pray for
Deliverance of the Houston Metro area
Along with our country’s financial system…

Muck and mire abounds both in Texas
Along with the mess created by bad loans
Leverage and sheer greed by investment bankers
Up in New York City and echoing in other
Stock markets around the world.
Russia shut down their stock market temporarily.

The Hoobert Heever do-alikes in republican circles
Finally got their wake-up call
But will they heed the warning:
WE NEED A MIXED ECONOMY.
Laissez-faire capitalism and supply-side economics
Should be on their way out of our policies.
The same thing happened to our country during
The 1920s and the aftermath of World War One.

The policies of eighty years ago come back to haunt USA—
Overspeculation, bad loans, variable mortgages which
People can’t pay because they were not aware
When they signed them what they were in for…
Deregulation at a time when regulation was needed…

FDR led the USA to create good things like:
The Security and Exchange Commission,
Social Security Administration,
The FDIC, and even the Tennessee Valley Authority…
Bi-partisanship is on the rise this week—
The Democrats, it is hoped, will inherit the presidency,
The Congress, and the Fed, with two “twilight zone” wars.
The republicans, like they did in the thirties of
The last century have passed the buck.
Where does the buck stop in the kingdom of “Baksheesh”?

Why do people, who don’t study history, continue
To spin their wheels and their news and repeat past mistakes?
Haven’t we learned anything about disasters and economics
In eighty some odd years? We need another FDR.

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