A Bankrupt Borders Makes Everyone Poorer, Especially Authors

Borders Bookstore
Borders Bookstore

It's official: Borders, the nation's second-largest bookstore chain, has filed for bankruptcy protection. The announcement that came this week has been expected since the end of last year, when Borders first shocked the publishing industry by halting payments to publishers and distributors. Borders will close 200 of its 600 "superstores". Beginning as early as the end of the week, 6,000 employees will be out work -- hard news to hear in a difficult economy.

Borders' bankruptcy filing also means publishers are now on the hook for hundreds of millions of dollars. My publisher, Penguin Group (USA) (PSO), is the hardest hit at $41.1 million. Others with more than $10 million at stake include Hachette, which is owed $36.9 million; Simon & Schuster (CBS) at $33.8 million; Random House at $33.5 million; HarperCollins (NWS) at $25.8 million; Macmillan, at $11.4 million; and Wiley (JW.A) at $11.2 million.

The list of publishers left holding bad Borders' debt goes on and on. While Borders expects to be able to pay vendors for merchandise shipped after the bankruptcy filing, those that were owed money prior to the filing will be paid only with the approval of the bankruptcy court.

Fewer Places for Authors to Sell

As part of the bankruptcy proceedings, Borders has implemented an ordering freeze. In response, the book distributor Ingram has stopped shipments to Borders stores. For hundreds of authors whose books are about to release, the consequences are severe. Their books will be carried in 200 fewer Borders stores, and unless the shipping impasse is resolved, no copies will be shipped to any of the remaining 400 Borders retail outlets.

Until Borders can provide assurances that it will be able to pay for future stock, the situation will likely continue. According to a report from Publishers Marketplace:

The next big question for Borders is whether -- and/or under what conditions -- major publishers will ship the chain new inventory. The bookseller is offering "normal trade terms" under their DIP [debtor in possession] financing, but publishers may require cash up-front, or may be reluctant to resume significant shipments entirely. Publishers we contacted this morning were still consulting with their attorneys and management. At least one large company expressed the skepticism that has prevailed during Borders' slow march to bankruptcy since late December, saying they have not seen any proposal in writing from Borders yet, '"so resupply in the near future seems highly unlikely."

Writers hit hardest by Borders' troubles are the so-called "midlist authors" -- those whose books aren't bestsellers but still do well enough economically to justify their publication. BPM Smith, a reporter who covers the book and music industry, explains:

The biggest fallout could come weeks or months down the line, because all those publishers Borders owes money to will get perhaps only 10%-20% of what they're owed. That's also potentially a bad sign for their authors. I've covered bankruptcies that later resulted in firms going under themselves after a major supplier or customer went bankrupt. How do these publishers make up for the millions of dollars they won't be able to replace? Invariably, when a firm goes bankrupt, the non-guaranteed debtors are the ones who take a haircut.

Even if publishers turn the supply tap back on, midlist authors are still at risk. According to an employee who works in the sales department of a publishing house, "Borders will likely be even more cautious about investing in midlist authors. While their new loans from GE Capital will allow them to finance, among other things, the purchase of new stock, Borders is not in any position to gamble. They're likely, in my opinion, to skip more midlist titles than usual and to only spend their money on names they know they can sell."

Smaller Advances, Fewer Authors

If Borders orders significantly fewer midlist titles, "It's entirely possible that publishers may offer lower advances [to authors], especially on midlist titles," says the same publishing house employee. "The industry has depended on Borders as a major market for new titles. If the publisher can't trust Borders to take a sufficiently large number of copies of a given title, this will factor into their profit and loss statements. As a result, they may advance less money to authors in order to increase the odds that any given acquired title will earn out [the advance]."

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Or some publishers may just drop their midlist authors. The blockbuster mentality in which publishers concentrate their marketing and promotion on the books they perceive as guaranteed sellers has long made the midlist author's life difficult. The additional financial burden imposed on publishers by Borders bankruptcy may well be the tipping point for many writers whose sales numbers are less than stellar.

It's an understandable strategy in difficult financial times. But books are so much more than a product. Books help us gain insight or perspectives on issues that matter. They allow us to escape reality and delve into stories or worlds unknown. They inspire us, educate us, change us. Their variety enriches both our culture and our lives.

Which means that ultimately, Borders' bankruptcy makes us all poorer.

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Karen Dionne
Karen Dionne

Karen Dionne

is the internationally published author the environmental thrillers Freezing PointandBoiling Point. Karen is also the cofounder of Backspace, and serves on the board of directors of the International Thriller Writers. Visit Red Room to find out more about her books and to read her blog.