Books may be relatively recession-proof but they won't be impervious to the recession, Hachette Livre UK CEO Tim Hely Hutchinson believes. 'The bad news must be affecting consumer confidence and it will mute people's enthusiasm to buy almost anything. I don't think books will be impervious, though they will be less affected than other items... But,' he believes, 'the consumer impact on books will be limited.' Hely Hutchinson was talking last week, ahead of Black Friday but with the cascade effect of the bank crisis already clear. He acknowledged that 24-hour media was fuelling the flames but said: 'You could blame the media a bit, because it's a crisis of confidence, but that's in the same bracket as blaming the short sellers. Neither is to blame for the fundamental problem.' In fact, Hodder & Stoughton, part of the Hachette Group, is poised to publish an updated version of Who Runs Britain? , a book by Robert Peston, the BBC's Business Editor and a man who stands accused in some quarters of fanning the flames. That and a new edition of Delia Smith's Frugal Food - first published in 1976, when Britain was in the grip of the crisis that led to the so-called Winter of Discontent - should see that Hodder, at least, is in good shape.
While Hely Hutchinson believes the impact of the crisis on consumers will be 'limited', he is less sanguine about how wholesalers and retailers will cope. 'We've already seen credit insurance withdrawn on some important customers, and we may see it withdrawn on others. Who knows whether the insurers are right or not, but they certainly have concerns. Businesses, when they come to renew their banking facilities, will find they are charged more for credit - if they can get as much credit as they had before. So there will be a squeeze on business and we will take such risk management actions as we reasonably can,' including, where possible, a contraction of payment periods.
As to Frankfurt, it will be business 'nearly as usual but I think there will be caution. No one wants to splash money around. Publishers have been under pressure to produce results for a long time. The last thing to give is usually advances, but I think they will be affected now,' Hely Hutchinson continued. 'I've noticed this year that some of the advances mooted for books I didn't terribly fancy haven't been achieved. We've had quite an intense debate about whether to pay a seven-figure sum and then having decided not to offer we found that no one else had either.
'I think people are going to be very picky about celebrity books, sports books... That's not to say that the very best won't be bought for good money, but we have to be very careful about the second 11. The typical publishers' thinking is that all geese are swans. Publishers have to impose discipline on themselves... If something of tremendous bestseller potential comes up everyone will go for it. When something is not top drawer, or is borderline top drawer, I think people will exercise a lot more caution. I would rather spend money on real writers or absolutely first-class celebrities or non-fiction writers who will produce other books. So, you're not just paying a lot of money for someone who will sex up the autumn list but for someone with whom you're going to have a long relationship.'
Hely Hutchinson agrees that, if venture capitalists are stymied, that will perhaps be no bad thing. After all, it is Permira and its like that has, to a large degree, destabilised both publishing and bookselling, offering seemingly nonsensical sums for businesses that, left alone, would do quite nicely thank you. 'We had for many years a fairly ridiculous situation whereby venture capitalists were able to outbid trade bidders, particularly educational publishers.' And having bought a business, VCs are frequently at a loss as to how to develop it - which leads them to sell on to another venture capitalist, 'a classic bubble activity'.
However, Hely Hutchinson does not foresee the severe job losses of the recessions of the late 80s and early 90s. '[The industry] is leaner now, there's less to be taken out without causing damage. Here we'd be cautious about adding to the payroll, but you can't switch on and off your talented publishing staff when you feel like it. The big publishers are well funded and will be able to continue publishing in a positive way.'
Hachette has enjoyed a good year, but Hely Hutchinson is all too aware that the group is bucking a trend, 'which you can't do forever, although you can try'. In Britain, inflationary pressures will persist, but weak sterling will help export sales.
As one of the publishers who helped kill off the Net Book Agreement, does Hely Hutchinson feel discounting is now out of hand? Yes and no. 'Those of us who were for abolition were right in more ways than we realised.' The reduction in book prices has led to a spread of books to a much wider demographic, 'which, in general, has been healthy'. But he acknowledges that retailers have to know where to stop. 'For example, with supermarket books, we've found that once they're below £3.99 it doesn't matter how much you lower the price - you don't sell any more. But it does matter that they're below £4... With hardbacks, reducing the price from £20 to £10 or £12 is hugely effective in driving volume. But if you reduce from say £10 to £8, that doesn't drive any more sales.'
The pressure on publishers from retailers, Hely Hutchinson agrees, only 'seems to get worse', and he admits that he would 'quite like a Robinson-Patman Act' (the US act that prohibits price discrimination by producers) but doesn't think he'll get it. (Hachette is involved in a long-running terms dispute with Amazon.co.uk.) Discounts in the UK are 'the highest in the western world', but consolidation among publishers is making it harder for retailers to maintain the upper hand. 'There are now four publishers with a market share of 10% to the high teens, and if you've got a market share as we have of 16% or 17% it's harder for retailers to say they'll never buy any more of your books unless you give them more. There's a limit to how much you can squeeze the printer. They've reached their limit, the paper makers have reached their limit, authors have reached their limit, publishers have reached their limit. So it has to stop and publishers have to be a little bit braver. They tend to worry about the next month's sales and not think about the three or five-year future. My main focus is on making sure the business is strong and healthy in five and 10 and 20 years' time. I won't mortgage the future.'
And that future is in part digital and, in part, based elsewhere. The effects of the banking crisis will not go unnoticed in India, but 'the economy is still growing and won't be halted in its tracks'. With a population of a billion and education a high priority, there's all to play for, and Hachette India is going 'full steam ahead'.
As to digitisation, the group has just bought a digital warehouse in France which will be used to service Hachette internationally. 'Ebooks will take off to a significant degree here. They've accelerated in America and we think they might reach one per cent of sales by the end of next year, perhaps five per cent by 2012. Here, I think we will lag a little bit behind that... Although not that many reading devices have been sold, purchases from the base have been very strong.' The demographic at present is one of early adopters, and thrillers are the bestselling category, 'though that will develop'.
Hely Hutchinson concludes: 'There will be constant innovation, and that will not be interrupted by the economic environment.'
This article is an extract from a videocast for the London Book Fair website. To view the complete interview, click on this link.