Publishing: The Problem of Deseret Book Part 3: Unresolvable?

This is the third in a three-part series on the role of Deseret Book in the LDS Market. As the largest player in the market and because it is owned by the LDS Church, it occupies a unique, but problematic, in my view, position. You can still read part 1 and part 2.

Before addressing whether or not this situation can be resolved, let me address one subject that came up in the comments to the first part of this series, which I don't think I discussed well. That subject is control. And this turns out to be the key issue.

In Deseret Book's case, the control comes from two different sources; the fact that it is owned by the LDS Church, which gives it a certain authority, and the fact that it is the largest player in the market.

Deseret Book gets a certain degree of its control because it is owned by the LDS Church. This control means that the books it publishes are considered, if not authoritative, at least 'more safe' or more orthodox. Given the choice between two similar books on the same subject, LDS Church members will more often purchase the Deseret Book title because of its association with the Church.

This authority also passes to Deseret Book's stores. Church members are more likely to shop in these stores, knowing that they are owned by Deseret Book, simply because they assume that Deseret Book has approved the titles sold there.

Deseret Book's size, on the other hand, also plays an important role. Its size means that bookstores, reviewers and newspapers, and even customers pay more attention to the titles it publishes. This size also means that customers are more likely to find and shop at a Deseret Book store or make their purchases from Deseret Book's website, rather than someone else's website.

In addition, the combination of being a publisher and a chain of bookstores means that Deseret Book can profit from every point on the chain from publisher to distributor and to bookstore. It also means that both its stores and its publishing company can favor one another over other players in the market -- the bookstores can get special deals on titles from the publisher that other publishers can get, and the publisher can get better shelf space and stocking than other publishers can.

Of course, these advantages do have a downside. Because Deseret Book is owned by the Church, many members expect orthodoxy from the titles it publishes and the books it carries in its stores. Its employees also face possibly more drastic consequences if the General Authorities feel it hasn't lived up to expectations of how it represents the Church. And its publishing operations probably also face an expectation that books by General Authorities (or at least by the Quorum of the Twelve and First Presidency) will be published there, regardless of marketability.

So what's the solution? Since Deseret Book's control comes from two different sources, a solution should ideally address both sources. Severing the official connection to the Church would reduce the authority Deseret Book gains from being owned by the Church. And splitting Deseret Book's publishing and retail operations would address the company's size and would simultaneously address the unfair advantages that Deseret Book gains from being simultaneously the largest publisher and the largest retailer in the market.

Could such a split happen? Well, there is some precedent. Until the early 1970s, the LDS Church owned hospitals throughout the intermountain west. In 1974 (if I remember correctly), these hospitals were spun off into a separate company that is no longer owned by the Church, Intermountain Health Care (IHC). Why did this happen? Well, the Church simply decided that healthcare was no longer part of its core mission, and what became IHC no longer fit in its investment portfolio.

On the other hand, its quite easy to argue, in my opinion, that Deseret Book is part of the Church's mission. The Church has always had some kind of publishing operation, and much of the time has owned several operations. In addition to Deseret Book, which is one of the for-profit companies the Church owns through its Deseret Management holding company, the Church also owns the Deseret News (also part of Deseret Management), its slate of magazines (i.e, the Ensign, Liahona, etc. These are published directly by the Church -- they don't carry advertising and are a non-profit operation), and LDS Church Distribution, which distributes Church published books and materials.

This last operation, LDS Church Distribution, actually argues for the idea that Deseret Book may no longer be part of the Church's mission. The books actually published by the Church have been reduced to just those the Church wants to be considered official Church publications -- the Scriptures, missionary materials, sunday school, priesthood and auxiliary manuals, and books like Our Heritage, Jesus the Christ, and the Miracle of Forgiveness. If the Church can already publish officially what it likes, why does it need to own an unofficial publishing company?

Indeed, the substantial growth of independent LDS publishing over the past 30 years or more shows that there are many publishers who are able and interested in publishing what the Church wants published unofficially. And recently the Church has even been able to get a succession of unofficial works published by national publishers like Doubleday.

Should Deseret Book be considered anything but an investment anymore?

The case for splitting Deseret Book's publishing and retailing operations into separate companies is somewhat easier to understand. Even on a theoretical basis, economists see potential ethical and competitive difficulties with vertical integration, the practice of one company owning operations from start to finish in a supply chain. In most countries around the world, anti-trust laws frown on vertical integration along with monopolies or cartels because of the ability to abuse the power they give.

On a practical basis, other companies in the LDS market already believe they have been disadvantaged because of the combinations like Deseret Book and like Covenant Communications-Seagull Books.

But splitting Deseret Book into two is not without its difficulties. While I don't know a lot about Deseret Book's internal operations, I would not be surprised to find that its publishing operations and retail operations share common computer systems, a common warehouse and even personnel in key areas. Deseret Book has long maintained that it has a "wall" between its publishing and retail operations, but exactly what this means isn't clear. I've long assumed this simply meant different personnel in different locations, and not separate computer systems, warehousing, etc. To the extent that the publishing and retail operations share resources, splitting the two operations is difficult.

What should happen? I think ideally Deseret Book should be spun off into an independent company, not owned by the Church, and split into a book publisher and a chain of stores. Yes this would make each of these companies smaller, and possibly weaker. But it would clearly solve the problem.

At a minimum, I would like to see the Church sell off one of the two, preferably the bookstores, since the argument that the publishing company is part of the Church's mission is stronger.

Do I think this might actually happen? No. I suspect that even just as an investment, Deseret Book makes sense. I estimate its sales must be about $75 million, and most companies in the industry earn 5-10% of sales, or $3 to $5 million a year. And because Deseret Book is so specifically oriented to the LDS market, I think it would be very difficult to sell it. No other company in the LDS market is large enough to buy it, and those outside the LDS market would likely shy away.

So, I think we're stuck with the status quo. In the mean time, let's work on reducing Deseret Book's domination of the market. Perhaps I'll take a stab at that in a future post.