Executive Summary

In its efforts to gain greater familiarity with each link in the book supply chain and clearly understand the issues confronting the book industry in a constantly changing environment, the Department of Canadian Heritage commissioned this study on the distribution of French-language books in Canada. We will deal with the principal realities and challenges facing trade publishing, aimed primarily at a general readership and released through the retail trade network.

The sector performs two distinct functions: diffusion and distribution. The diffusion of books consists of soliciting orders from bookstores and other retail outlets through a network of representatives acting on behalf of one or more publishers. Distribution covers the logistical tasks related to physically moving books and managing the related financial flows. Considering the complementary nature of these two functions, they are often combined within the same firm: we then speak of a diffuser/distributor.

The diffusion/distribution of books is clearly separate from the other sectors of the book trade, particularly with respect to its economic model. First, the number of book distributors remains limited, as barriers to entry are formidable: distributing books requires large investments and a critical mass that no new business can access. Book distribution requires a technical labour force and works mainly on an industrial model. The distributor has little control over what titles are shipped to it, how the titles are promoted, or even their price. It is not the owner of the product, but is merely an agent.

The diffusion and distribution of books in Quebec — more specifically the diffusion and distribution of new titles — are governed mainly by the système d'office. The principle of the système d'office means that on the basis of a prior agreement between the diffuser and the bookseller, the retailer automatically receives a given number of copies of each new title from a given publisher as it is released. Over the years, the système d'office has been complemented by the prenotification, which makes it possible to selectively alter the number of copies provided for in the système d'office form for a given title. Because of the growing number of new titles, the prenotification is gradually becoming more important than the système d'office form.

Since June 1981, the Act respecting the development of Quebec firms in the book industry, commonly called Bill 51, has allowed better development of Quebec's book industry, better diffusion of Quebec literature and increased accessibility of books, particularly through the establishment of regulations governing industry practices. In addition to confirming the concept of bookstore accreditation and extending it to publishers and distributors, Bill 51 sets out certain principles that have radically changed the conditions for the development of the book supply chain in Quebec. In particular, Bill 51 stipulates that any books acquired on behalf of an institution must be purchased from accredited local bookstores. As a result, the bookstore became an essential factor in book purchases by public institutions, as direct sales by publishers, distributors or wholesalers were prohibited, leading to considerable expansion of bookstores throughout the province.

The BTLF (Banque de titres de langue française, the Bank of French-language titles) lists 52 active distributors in Canada, the vast majority Canadian-owned. In 2005-2006, the three largest distributors controlled 79.7% of all book sales by distributors, compared with 66.9% in 2002-2003, a significant increase in the level of concentration over the past few years. The BTLF lists 2,048 Canadian French-language publishers in its database, 1,915 of which are distributed, which represents 93.5% of the Canadian publishers listed. This reveals the effectiveness of the French-language book trade in Canada in making books from nearly all active publishers accessible in the market. The BTLF also lists 57,712 foreign publishers, some 2,200 of which are distributed in Canada. Similarly, it lists 95,644 Canadian French-language titles to date, 85,390 of which are distributed in Canada, which represents 89.3% of the titles listed. Once again, we see that a very high proportion of the published titles are available in the supply chain, a remarkable testament to the ability of French-Canadian distributors to provide access to a wide diversity of Canadian titles. The BTLF lists 1,073,942 titles from foreign publishers, 665,599 of which are distributed in Canada and 547,824 actually available. Lastly, we see 29,317 new titles released in Quebec and French-Canada in 2004-2005, an average of 564 titles per week. The great majority of these titles (88.7%) are placed on the système d'office form for less than 500 copies.

We note that not only did final books sales by distributors decrease 21.3% from 2001 to 2007, but also that distributors' share of total sales decreased 9.4% from 2001 to 2006, lost mostly to publishers and booksellers. We consider this loss by distributors to be significant, indicating a transformation in the distributor's traditional role within the supply chain.

This document explores a number of issues related to the diffusion and distribution of books within a continually changing sector:

• Profitability challenge: Despite an increase in distributors' average net profit margin in 2005-2006, 33% of distribution companies are still experiencing losses. Their great challenge is to increase their critical mass in order to take advantage of economies of scale to better cover their fixed costs and improve their performance, and thus reduce the cost per title.
• Return rates: The economics of the book market rests in particular on the principle that an unsold book may be returned within a given period. The breakdown of the unit costs of book distribution clearly shows the significance of book handling and shipping costs. There is considerable concern about the increase in the rate of returns, since the profitability of the whole distribution business depends on it. A recent study has shown that if only the return of copies shipped under the système d'office is considered, the return rate is equivalent to 49.78%. However, if we also consider copies sent for restocking during the year following the release of the book, the return rate through the système d'office and restocking is 30.62%. Moreover, the return on système d'office and restocking is different for Quebec titles (27.04%) and foreign titles (32.51%), showing the efficiency of diffusers and distributors in properly planning the positioning of Quebec and French-Canadian titles in the bookstore channel.
• New technologies: Technology has opened new possibilities for diffuser/distributors, more specifically in communications between the diffuser/distributor and the retailer. A new sales information system will soon make it possible to follow day-to-day changes in the sales of a title and see fluctuations in sales, etc., by title, collection, publisher or region. New technological developments also influence the sales medium; since online sales began, books have been one of the highest-selling products. New technologies are even changing the book as a product, now offering consumers access to content in alternative formats, and publishers the ability to sell content directly in electronic format to individuals and institutions without going through the traditional middlemen, the distributor and the bookstore. For distributors, there is cause for concern, especially given their relative decline in books sales. Distributors must redefine their place and their role within this new environment.
• Foreign influence: Over the years, the book distribution sector in Quebec and French Canada has shifted from predominantly foreign to predominantly Canadian-owned.However, foreign ownership does not represent the only risk from the book industry abroad affecting the French-language book trade in Canada. Indeed, the greatest changes experienced by Quebec distributors have been the result of transactions that occurred abroad — mainly in France — and involved the foreign publishers that they distribute in Canada. Even though foreign investment in the French-language book distribution sector in Canada may not specifically constitute an issue for the industry, we must not therefore assume that there is no danger of a transfer of important players in French Canada to foreign owners, which would then have a major impact on the sector. In effect, the concentration of many book industry firms into large groups could expose them to foreign acquisition in the event that such a group was sold as a whole. These groups are so large that it is possible that no Canadian purchaser would have the means of acquiring one.
• Concentration and integration: In 2005-2006, concentration among distributors increased significantly, thus improving the profitability outlook among certain firms. However, the benefits of concentration among distributors can at the same time conceal certain negative effects. Concentrating distribution within an overly limited number of distributors, and within large business groups, may reduce the diversity of supply and access to French-language books across Canada. Presumptively concentrating on financial interests and increasingly focusing on bestsellers considerably impedes the entry of new publishers, which bring new and often some of the most innovative authors into the book trade.
• Issues specific to small publishers: In an environment marked by concentration and a steady increase in the number of titles being released, small publishers are finding it increasingly difficult to find diffusion and distribution partners. Furthermore, those that do succeed in concluding diffusion/distribution agreements will have no assurance that they will be dealt with fairly and that their titles will receive all the attention they would like. Certain groups of small publishers have attempted to develop more affordable solutions that are better suited to their status and more likely to give them greater visibility, at times developing new diffusion and distribution management models.
• Issues specific to book distribution in French Canada: There are problems in the French-language book marketing system in Canada, particularly in its small capacity for making books available to Francophone communities spread out across the country.This issue deserves special attention from governments and should be dealt with by a specific strategy to meet this essential need for better access to a wide range of French-language titles for communities, since access to culture is essential for their development.

The study shows that the book distribution mechanisms in Quebec and French Canada promote exceptional access to a diversity of titles by Canadian authors — 93.5% of Canadian French-language publishers have access to a national distributor, and 89.3% of Canadian French-language titles are distributed across the country. This shows the great capacity of the book distribution system in French Canada to make a great majority of the titles by Canadian French-language authors available. In Quebec, the Act respecting the development of Quebec firms in the book industry (Bill 51) and use of the système d'office as a mechanism for releasing new titles have greatly encouraged diversity in the supply of titles by Quebec authors and access to books — specifically Quebec books — in communities across the country.

However, this fragile balance is threatened. Although essential, calling into question the marketing approaches that make use of the système d'office risks limiting the availability of titles with smaller print runs and titles from lesser-known publishers and authors. Furthermore, even though it promises to greatly improve the efficiency and effectiveness of book diffusion, access to new technologies also risks accentuating the importance of a title's performance in bookstores, thereby limiting the presence of slower-moving titles; sales will become increasingly predictable using these sophisticated tools, solely on the basis of sales performance. Lastly, the concentration and particularly the integration that affect the book trade may change the conditions of book distribution to a drive for profitability at all costs.

 

[ Table of Contents | Next Page ]