German media conglomerate Bertelsmann SE announced earlier this month it would close its bookselling business in its German-speaking markets, after years of declining sales.
The company’s retail locations as well as the online store, branded under the “Der Club” label, will cease operations in Germany, Austria and Switzerland by the end of 2015, spelling the end to almost all of Bertelsmann’s remaining bookselling activities.
The decision isn’t only the latest sign of how digitization is changing the book industry, but also a farewell to the core business that had originally made the German publisher a media giant—the sale of books and other media via a “book club” subscription service.
“The business model of book clubs is old and has been largely superseded by online sales, where Amazon is the market leader,” said Sarah Simon, senior media analyst with Berenberg Bank in London.
Bertelsmann had been a family-owned publisher since the 19th century but it gained mass appeal in the 1950s after Reinhard Mohn invented the “Bertelsmann Lesering” (“reading circle”), building on Germany’s postwar economic boom by selling books at a discount through the mail.
The first retail store opened in 1964 and they then expanded across Germany. Meanwhile, the book-club business grew across Europe and North America, offering book subscriptions at a discount by signing readers up for bulk purchases.
By 1992, there were more than 300 stores in Germany alone and more than seven million members enrolled in the Bertelsmann book club. Today, only 52 locations remain and sales have fallen sharply, down to less than €100 million, or roughly $136 million, from a peak of €700 million in the mid-1990s.
“Even with an existing customer base from the book-club operation, I suspect it would have been very hard to make any money doing it independently, given Bertelsmann’s lack of scale versus Amazon,” Ms. Simon said.
Fernando Carro, the Bertelsmann manager responsible for the book-club business, said that “despite our best efforts to develop the club model, we’ve come to the conclusion that the business model wasn’t on a sustainable path.”
With the rise of the Internet, German book-buying habits have sharply changed over the past decade. Last year, some €1.6 billion of books—16.3% of all books sold—were sold via the Internet. About 70% of online and mail-ordered printed and digital books are sold via Amazon.com Inc., AMZN +1.46% according to industry data.
“It is a pity, but I haven’t bought books there for many years,” said an 86-year-old longtime member of the Bertelsmann book club.
Since the 1960s, Bertelsmann has diversified into other media channels, buying and then selling stakes in music ventures like Sony Music as well as other joint ventures like an ill-fated deal with AOL Inc. in the 1990s.
The company has also acquired assets such as the German magazine publisher Gruner & Jahr, German television stations under RTL Group, RTL.BT +0.21% and the U.S. book publisher Random House, all areas where the company continues to look for growth.
“Bertelsmann has come a long way from bookselling,” said Bettina Deuscher, a media analyst at Landesbank Baden-Wuerttemberg. “The bulk of its revenues today come from TV, publishing and business services. The company is trying to gain market share as media become more digital and advertising revenues shrink.”
In 2013, Bertelsmann and Pearson PSON.LN +0.79% PLC created the Penguin Random House joint venture, making the combined entity the world’s biggest consumer publishing company. It publishes 150,000 titles a year across 250 different imprints.
With Bertelsmann having moved firmly into the content business, the company is seeking to challenge online booksellers like Amazon on price, not by maintaining a rival distribution network that cannot compete against the Seattle-based company’s reach.
“Pearson management has said its increased scale gives it stronger leverage with distributors like Amazon, so perhaps Bertelsmann, as the majority shareholder of the new Penguin Random House, doesn’t feel the need to sell books directly to consumers anymore,” Ms. Simon said.
A Bertelsmann spokesman declined to comment on Ms. Simon’s assessment.
The company’s logistical know-how from its bookselling heyday is now part of the Arvato unit, which provides business services for companies looking to outsource.
The company had been unwinding its way out of the bookselling game over the last several years, selling off its international book clubs in fits and starts and folding what remained of the German-language business into a separate DirectGroup unit, which was given few resources and little attention by senior management.
Beyond 2015, the Bertelsmann book club will be available only in Russia, Ukraine and Spain, but no one is expecting these small niche markets to thrive.
“This has been a long-announced death,” said Holger Ehling, an independent media consultant.
Date: June 29, 2014