Dwindling sales hit publishers / Soshisha collapse reflects structural changes in readership
The collapse in January of Soshisha Publishing Co., a company well known for its long list of best sellers, is believed to signal the end of the myth that the publishing industry is almost immune from the hardships of the business cycle.
"The one and only Soshisha couldn't avoid going bust? How is that possible?" said Yoshiaki Kiyota, president of Shuppan News Co., which publishes news on the industry.
The Tokyo-based publisher essentially announced its bankruptcy when it filed an application with the Tokyo District Court on Jan. 9 for protection from creditors under the Civil Rehabilitation Law.
With the news of Soshisha's demise coming right at the start of the year, a wave of anxiety swept through publishing circles with some companies saying they could also be on the brink of collapse as difficult times approach the publishing world.
At the time of its application for court protection under the Civil Rehabilitation Law, Soshisha had debts amounting to 2.2 billion yen, of which interest-bearing liabilities comprised 1.9 billion yen.
The company was founded in 1961 by Masao Kase, the current chairman, winning fame through a succession of unusual publications in its range of books that initially centered on titles dealing with the humanities and social science.
In particular, the firm's innovative titles, such as "Tanin o Homeru Hito, Kenasu Hito" (People who Praise Others and People who Disparage Them)," were held in high regard by other publishers.
In the business year ending Oct. 30, 1997, at the height of the publisher's success, Soshisha chalked up about 3.9 billion yen in sales. But its business began to fall into decline in 2004.
Company officials said the downturn was due mostly to the firm's failure to come out with any best-selling works at that time or subsequently.
As one of them put it, "We got locked into this idea of 'everything depends on best sellers,' and tried to make up for our swelling deficits by increasing the number of new publications and the number of copies in an attempt to produce big sellers."
As a result, the proportion of returns--copies returned to a publisher unsold--kept rising.
It is generally said that the danger zone for the publishing business starts when returns hits 40 percent. In Soshisha's case, its returns were higher than 40 percent four years in a row.
The company's financial basis also was prone to instability since it placed priority on books sold as one-offs, rather than books or periodicals that could be sold as part of a series.
"Machigai Darake no Kuruma Erabi" (Mistakes People Make When Choosing Cars) published twice a year and authored by Aritsune Tokudaiji, was one of the few series the company did publish and proved to be a major pillar of its business performance.
The series by Tokudaiji, a racing driver-turned-writer, was a publishing phenomenon when it started, as he openly criticized the quality of cars built by major manufacturers.
Each edition sold about 200,000 copies, but the series had to be brought to an end in 2006 because of the writer's poor health, leading to a further deterioration in the business performance of Soshisha.
Readers turn to new formats
Meanwhile, the publishing industry's business environment has been getting increasingly tough.
The number of newly published books in 2007 was 77,417, a sharp increase from 1998 when new books numbered 65,513, according to the Research Institute for Publications, a nationwide organization of publishing houses.
At first glance the figures suggest the publishing industry is more prosperous than ever.
Book sales, however, have been shrinking markedly, falling to an estimated 2.09 trillion yen in 2007, a decrease of about 20 percent from 2.54 trillion yen in 1998, according to the January issue of a monthly Shuppan News report.
While the rate of returns across the industry has not entered the danger zone of 40 percent, it is still more than 39 percent for publishing houses as a whole last year, a high since 2001, according to the report.
An increasing number of publishing houses have in fact declared themselves bankrupt or sought court protection from creditors under the Civil Rehabilitation Law in the past few years.
Cases of bankruptcies have been particularly high in fiscal 2007 among small-sized and second-tier publishers, with about one publisher per month hitting the wall.
The myth that publishing is "strong in a recession" seems to stem from the idea that people will always seek knowledge and information irrespective of the ups and downs of business conditions.
However, a structural transformation seems to have taken place in the readership of publications.
In addition to the ongoing spread of the Internet, hot-selling publication lines have been rapidly shifting away from conventional book types toward low-priced, pocket-edition paperbacks and novels available in installment via cellular phone, according to the research firm.
One of its officials said, "Popular books are priced at around 1,000 yen, the kind of price that seems reasonable for buying a book related to a movie you like."
Problem with revenue structure
Some analysts have pointed out that the declining business performance of publishers is related to their complicated revenue system.
Of the revenue generated through books sold on a commission basis, a percentage goes to the distributor. Small-sized publishers are prone to have their share of this revenue squeezed by the distributors, and are often obliged to wait five or six months for the revenue to be paid to them, according to analysts.
In the case of Soshisha, though, its share of commission revenues was favorable and the delay in payments generally much shorter compared with other publishers.
Such advantageous conditions, however, may have had a detrimental effect on the publisher in the long run, allowing Soshisha to become too dependent on short-term income generated by an excessive number of books, the analysts said.
In light of Soshisha's attractive publication lineup and its advantageous business terms, several other publishing firms have offered to help Soshisha immediately since its application for court protection from creditors.
A few companies have even offered to bail out Soshisha, and the publisher says it will choose one or more companies for a tie-up by the end of February.
Given that even a publishing company blessed with favorable business conditions is not impervious to the general slump of the publishing business, publishing houses throughout the industry need to square up to the challenge of adapting themselves to the fast-changing conditions surrounding them.