11 Concentration and Integration in The Industry

In the past twenty years, the book trade has experienced two distinct but complementary trends that have greatly changed its environment: concentration and integration.

Concentration was especially substantial among publishers and booksellers. The 1990s saw the first publishing groups appear. Trade publisher Sogides (which already brought together a number of publishing houses) formed the Groupe Ville-Marie. In educational texts, the Groupe Beauchemin and the Groupe Gaëtan Morin were formed through mergers and acquisitions. Concentration accelerated in the late 1990s and the 2000s, and the groups increased in size; Quebecor acquired a still-growing number of individual publishers as well as the Groupe Sogides/Ville-Marie, while Éditions de la Chenelière merged with the Groupe Gaëtan Morin Éditeur, then acquired the Groupe Beauchemin, before being themselves bought by Transcontinental. All these changes led to the emergence of two major publishing groups: Quebecor, mainly in the literature sector (the group also includes a textbook publisher); and Transcontinental, mainly in the educational sector. There are of course a number of smaller groups in both sectors as well.

Among booksellers, there is a struggle between two factions: independent bookstores and the bookstore chains, which in Quebec are defined as being four or more bookstores held by the same owner. Concentration among booksellers is mainly marked by the presence of two large groups. First, the Groupe Archambault, owned by Quebecor, owns 15 locations plus an English-language bookstore, Paragraph, in addition to having taken over the Camelot bookstores. Then, the Groupe Renaud-Bray was formed by the merger in 1999 of the chains Renaud Bray, Champigny and Garneau, and today has 24 locations. In Quebec, bookstore chains, including Renaud Bray and Archambault, control 48.7% of the book market.¹

Until quite recently, distribution seemed to have been spared from the concentration, which might seem surprising since, as we mentioned, distribution profitability depends on attaining a critical mass. However, the absence of mergers and acquisitions has not prevented the increasing concentration of publishers among a few large diffuser/distributors. Even so, the recent acquisition of the Groupe Sogides by Quebecor has led to the merger of the distributors in each of the two groups, Québec-Livres and ADP, under a new entity that has adopted the name ADP. Therefore, there is now much greater concentration among distributors. In 2005-2006 (see Table 2), the three largest distributors controlled 79.7% of retail trade, and the five largest, 90.2%.

Already in 2001, Marc Ménard recognized a certain logic in the concentration among distributors: [translation] "Any tendency to rationalization, considering the constraints of critical size and the presence of economies of scale inherent in this type of activity, obviously encourages business concentration."² Concentration itself will allow distributors to better reach the critical mass necessary to make their activities cost-effective. They will be better able to serve both their publisher partners and their customers in the bookstores and any they may have in the mass-market channels. However, the benefits of distributor concentration can at the same time conceal certain negative effects. In its rush to increase profitability at any cost, a distributor may become more inclined to give priority only to titles with virtually assured sales: [translation] "Greater concentration could first weigh heavily on the publishing sector. Indeed, a title with a strong placement is, and always will be, more profitable and easier to distribute than a series of titles with limited, more uncertain sales. If the concentration of diffusion/distribution increases, this profitability constraint, that is, concentrating efforts only on titles with strong placement, is very likely to increase further. However, this is clearly contrary to the push for productive and innovative exuberance in publishing […] The goal of distributor profitability could thus make diffusion and distribution of smaller publishers or more challenging titles more uncertain if they begin, for example, refusing to distribute titles that do not meet certain minimum sales criteria.³

As can be seen from the formation of business groups in the book trade, concentration (horizontal) and integration (vertical) often go hand in hand. Through integration, organizational structures bring together businesses (business groups) in several sectors, or even all sectors in the book supply chain. Thus, the Groupe Quebecor, for example, has numerous printing firms, a considerable number of publishing houses covering virtually all publication sectors, one of the largest distribution companies in Quebec, a chain of bookstores, newspapers, electronic media, etc. Transcontinental has a similar profile, owning a large number of newspapers, and has gained a prominent position in academic publishing at all educational levels, except that the group does not own any bookstores.

Should we fear integration in the book trade? What is obviously most disturbing, at first glance, is the weight these large groups can have within the sector. Integration is also of concern because it gives these groups every opportunity to improve their own position in marketing their books. At the beginning of this study, we mentioned certain characteristics specific to distributors — that they had little influence over their products or the conditions of their marketing: little or no influence over supply, how titles are promoted, price, etc. However, integration gives distributors from the major groups the power to influence supply and how their group's books are released. The groups control all businesses in the marketing chain needed to impose the best conditions for a title: they own publishing houses to publish the book, printers, the distributor to properly position the book in bookstores and in mass-market channels, bookstores to properly present the book to customers, media to promote the author and the book, etc. It is not the fact that groups actually put these strategies into practice that is worrisome (no one can demonstrate that they have actually done so); it is just that they have the power to do so.

Similarly, we consider that businesses within integrated groups can offer each other favourable conditions that could give them a competitive advantage: lower costs or quicker printing turnaround, lower distribution costs, better positioning in bookstores, less expensive advertising, more accessible interviews for authors, etc. The distributor knows how many copies are in stock for a title that is selling out quickly and could inform the group bookstore of any anticipated inventory shortage and encourage it to order up the remaining copies, and so on. A group publisher can automatically forward online orders to a bookstore in its group. Once again, no one is accusing the groups of encouraging these practices, but we fear that they have all the ingredients needed to be able to encourage them.

Lastly, the businesses within the integrated groups could have access to privileged information on their competitors' performance. They have the means to find out, for example, the sales of their competitors in bookstores that are part of the group, or in all bookstores served by the group distributor. The most promising authors or themes can be identified, publishers' successes and failures known. The businesses concerned do not actually allow themselves access to such information, but they do have an alarming power to gain such access.

Concentration and integration are surely two of the main issues facing the French-language book trade in Canada. By concentrating distribution in too-restricted a number of distributors, there is a risk of endangering diversity of supply and access to French-language books throughout Canada. By giving priority to financial interests and granting increasing space to bestsellers, we are considerably impeding the emergence of new publishers that will introduce the new authors who are often among the most innovative.

Moreover, [translation] "this concentration can also increase the pressures on bookstores, particularly independent or trade bookstores or those in remote areas. Bookstores that can order only small quantities could be isolated and neglected by distributors with rising profitability thresholds and minimum-quantity requirements. Once again, this would curb diversity and accessibility to books throughout the territory."⁴

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