blog Disturbing news broke late yesterday about REDgroup Retail, the company which operates the Borders and Angus & Robertson brands in Australia, as well as Whitcoulls in New Zealand. From a press release published by administrators Ferrier Hodgson:

“Ferrier Hodgson partners have been appointed voluntary administrators of REDgroup Retail Pty Ltd, which owns and operates Angus & Robertson, Borders and Whitcoulls (NZ). The appointment was made by the REDgroup board.

Ferrier Hodgson partner Steve Sherman said as far as possible it would be business as usual while the administrators conduct an urgent assessment of the business’s financial status and prepare for the first meeting of creditors. During this period he called for regular Angus & Robertson, Borders and Whitcoulls customers to continue supporting their local outlets.”

The news immediately sparked concern about whether customers would be able to keep the eBooks which they had accumulated since Borders’ national launch of the Kobo platform in Australia in mid-2010. But a series of articles by publications like iTNews and ZDNet.com.au has put paid to that worry, with former REDGroup Retail spokesperson and now Australian Kobo representative Malcolm Neill stating the company would continue as normal. In addition, there was this reassuring entry posted on the Kobo blog:

“Your ebook library is perfectly safe. The Borders ebook experience is powered by Kobo, an entirely separate company from Borders. Kobo is financially secure and will continue to maintain your ebook library no matter what happens.”

Now much of the mainstream media attention on the REDgroup Retail issue has focused on the idea that the introduction of eBooks has had a negative effect on the financial fortunes of hard copy booksellers such as the brands operated by the company. And there’s some truth to this idea — with Amazon now selling more eBooks than hard copies, and Apple making a strong push into the market with iBooks, there is no doubt that the eBook phenomenon is getting bigger all the time, although the importation of hard copies of books and even the discount prices of retailers like Big W are more likely culprits for REDgroup’s troubles.

However, it’s hard to see the demise of REDgroup Retail as anything other than negative for Australia when it comes to the future of eBooks Down Under.

Over the past year, the company has earned itself pride of place as the chief local evangelist for the eBook phenomenon in the Australian market. With independent booksellers and major chains like Dymocks alike appearing to primarily view eBooks as a threat to their business, it has been REDgroup Retail — with its flagship Kobo partnership — that has been one of the only forces pushing the eBook meme hard to the industry.

At Borders’ launch of the Kobo device in May last year, the company displayed a strong commitment to not only bridging the gap between the traditional publishing industry and the growing eBook phenomenon, but bringing a strongly Australian flavour to the process while doing so.

REDgroup Retail managing director Dave Fenlon said Borders — through Kobo — had created an “eBook store for Australians” specifically to serve the local market — populating it with Australian content and setting up a string of relationships with Australian publishers to make sure our cultural heritage made it into the eBook age.

With the financial problems being suffered by REDgroup Retail, however, that dream seems likely to go up in smoke. There is now no centre of gravity for the Australian eBook scene to congregate around — instead, local readers will now increasingly look towards the likes of Amazon and Apple for their content — even more so than they were already. And Australian writers and publishers will also look to the same global eBook distribution mechanisms.

In many ways this isn’t a bad thing — after all, Amazon and Apple are doing a better job than any other company in providing what readers actually want — universal availability of eBooks, instantly, and at the right price. However, it does mean Australian writers and publishers will have to fight that much hard to get noticed in a flood of global content. With less localised distribution channels to highlight specifically Australian content, one wonders whether local content will simply get lost in the wash.

The argument on the other side of the coin holds that if Australian content can’t hold its own against global content on the same terms and in the same distribution mechanism, it deserves to be ignored anyway. But I think the truth is somewhere in the middle. And for me, today, Australia’s cultural line just got pushed back a little further towards obscurity.

Image credit: Borders

Related posts:

1. Kobo eReader lands in Borders stores
2. Borders launches $199 Kobo eReader
3. Two big steps for eBooks in Australia
4. The Kobo eReader: What you need to know
5. Review: Two Australian eBook retailers

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1. Benjamin Solah
   Posted 18/02/2011 at 1:39 pm | Permalink | Reply

   I thought the Borders model was great for eBooks down under until I realised their EPUB files go against the ethos of the open-source format by encrypting them with DRM that makes the files just as restrictive as Amazon’s.

   • Renai LeMay
     Posted 18/02/2011 at 2:02 pm | Permalink | Reply

     True — DRM is pretty universal in eBooks atm.

2. JD
   Posted 18/02/2011 at 1:51 pm | Permalink | Reply

   Aside from the fact that ebooks are a bit more than a “meme”, REDgroup’s problem was that they jumped way too late. I think you’ll find that the ebook side of the business will survive (it’s the only part with postential to make a profit on low overheads) and continue unchanged. It’s the extremely costly brick & mortar side of the business that will be trimmed drastically.
   Look for Amazon to make a play here soon.

   • Renai LeMay
     Posted 18/02/2011 at 2:02 pm | Permalink | Reply

     I don’t think you can easily separate the eBook business from the rest of the company, JD — REDgroup Retail’s key advantage in eBooks was its publisher relationships that was slowly building the amount of content which Australians could buy through its online store. It’s these relationships which Amazon doesn’t really care about building up in Australia — they don’t have any Australian presence at all so far — and which will die with REDgroup Retail.

     As silly as it sounds, books are a human business, and the eBook business isn’t really going to be about technology in future. It’s going to be about relationships.

     (I know I’m not giving the whole picture here … but it’s such a complex ecosystem that it’s hard to distill it down)

3. Michael Wyres
   Posted 18/02/2011 at 1:54 pm | Permalink | Reply

   Given this policy…

   http://www.theage.com.au/business/double-trouble-for-holders-of-borders-gift-vouchers-20110218-1ayth.html

   …they deserve to die – unfortunately a lot of people may end up losing their jobs if the administrators can’t trade them out of the hole…

   • Renai LeMay
     Posted 18/02/2011 at 2:03 pm | Permalink | Reply

     Some of this is just standard behaviour from administrators — I’ve suffered personally at the gentle hands of Ferrier Hodgson in the past — but double does seem out of line.

4. Darryl Adams
   Posted 18/02/2011 at 3:17 pm | Permalink | Reply

   My research on REDGroup is leading to me that it was the GFC and not e-books that killed them.

   Why?

   REDGroup was a private equity entity working towards a stockmarket float. What notmally happens in these companies is quite simple and incidious at the same time.

   1. Company gets bought by private equity company
   2. If the company is cash rich, the cash is ripped out of the company
   3. Cash rich or poor, the company is loaded up with the debt that was used to buy it
   4. Private equity owners profit twice. Once from raiding the cookie jar, and secondly when the company is floated on the stock market.

   This systems works well while credit is cheap, just as it was before the GFC, and is quite lucrative like the abortive raid on QANTAS showed. However, when credit dries up, companies are left groaning with the weight of the debt left by the PE raid.

   And the report I saw in the SMH has Liabilities higher than Assets. Without looking at the books, this mean that there is a lot of loans or inability to convert inventory to cash, or declining shareholder equity. Or all three. Or even deeper structural issues that will take months to discover.

   Strike 1.

   For a market to be in, the book retail rates as one of the suckiests. Especially in Australia. Publishers do not really care for booksellers, they make much of their money selling trade paperbacks in bulk in large reatailers like Coles and Woolworths. Even large retailers like REDGroup are second in the food chain. Given the high margins that publishers expect and demand, the slowness of adopting electronic distribution, and the fact that Amazon and Book Depository are killing the local marketplace with extreamly cheap books that are postage and GST free.

   And music and DVD sales are also declining, with electronic downloads and competition from other sources like internet, video games and what not, means that every product that Borders and A&R sold had declining sales.

   Strike 2.

   Most of the locations that Borders and A&R in can not be cheap. The local Borders takes 3 floors with its own lift and coffee shop in Westfields, and while A&R is an order of magnitude smaller, it is still in Westfields. In order to make money in Westfields, you need to have high margins or high turnover, peferably both. Add staff costs, taxes and compliance costs, a traditional retailer does have a harder time competing with online retailers as the built in costs are higher.

   So if you are not getting your income, the costs generally stay the same (you can reduce some of it by sacking staff, but you do not get the benifit financially for a while. It is cheaper to have staff resign). And if your income can not pay for your costs, that is the classic definition of insolvency in Australia

   Strike 3.

   The best that REDGroup can hope for is to be allowed by creditors to take a Deed of Company Arrangemet under the Cororations Act 2001, where creditors get a dividend (could be 100%, sometimes it can be as low as 5% of the debt) and the company continues. The worst case scenerio is that the company is liquidated fully. I expect that a Deed may be executed, but I also see the buisiness broken up or the company slashes many stores (including the more expensive Borders stores), and the e-book business sold as a going concern.

   It is hard to tell what will happen, even Ferrier Hodson will not know until it can tell the creditors what the true state of affairs is, when the company actually became insolvant, and if there is any peferential payments that can be claimed back.

   Its a mess.

   • Michael Wyres
     Posted 18/02/2011 at 3:27 pm | Permalink | Reply

     +1

     I was going to do some reading on the history of this one tonight – saved me the effort!

   • Renai LeMay
     Posted 18/02/2011 at 4:41 pm | Permalink | Reply

     Excellent post — I agree with almost all of this.

5. Darryl Adams
   Posted 18/02/2011 at 4:03 pm | Permalink | Reply

   Crickey has the best article I have seen in the news arena http://www.crikey.com.au/2010/08/11/closing-the-book-on-retailing-publishers-nervous-at-giants-health/

   Some of the comments, including one from a Borders staff member, shed good light onto the story

6. Chris
   Posted 18/02/2011 at 5:06 pm | Permalink | Reply

   Never mind e-books, what about gift cards?

   As of lunchtime today, A&R have devalued their gift cards to a 50% discount on purchases, rather than full payment. And they can no longer be used for on-line purchases.

7. Matthew
   Posted 18/02/2011 at 6:00 pm | Permalink | Reply

   Pressure from the local publishing industry on the government to continue to block parallel imports of books despite the recommendation from the productivity commission. http://www.pc.gov.au/projects/study/books/report/media-release likely had an effect.

8. Clytie Siddall
   Posted 19/02/2011 at 5:14 pm | Permalink | Reply

   I was really pleased when Borders Online launched, and planned to feed my ebook habit there. I buy a lot of ebooks (before geolims, around a thousand a year).

   However, Borders haven’t fixed the problems plaguing their launch. Please see this post I made yesterday on the Borders forum (a bit long to post here: Darryl, you’re welcome to use any of it on OzEbooks).

   http://bordersau.zendesk.com/entries/452981-how-to-save-borders-online

   In summary: they’re not effectively targeting ebook readers, the site sucks, integration between the site and ereaders is unreliable, and books disappear or become unreadable on the iPhone.

   • Darryl Adams
     Posted 20/02/2011 at 5:42 pm | Permalink | Reply

     Thanks Clytie, conciser it stolen!