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BOOKSHOPS are having to change with the times, which means so are writers and publishers.

Simon Nash and and Steve Traurig

JOHN Birmingham is in his Brisbane study, reflecting on the seismic upheavals that are shaking the publishing industry to its foundations.

The bestselling author is riffing on the rise of the e-book and the fall of the country's biggest book chain, REDgroup, when he issues this blunt warning to his fellow writers: "We are going to have to get used to change. The industry that we knew is being swept away. The tsunami of change is already upon us."

In a graphic example of this, REDgroup went into voluntary administration earlier this year, trailing debts of $170 million. By mid-July, all of its 26 Australian-based Borders stores, along with 114 Angus & Robertson shops, had been shut down, with the loss of more than 2000 jobs. Together, these chains accounted for 20 per cent to 25 per cent of the nation's retail book sales.

The failure of the country's largest book retailer has not only focused debate on the viability of brick and mortar bookshops, it raises the question: in an era of online retailing and e-reading, what is the future of publishing and print books? How will Australian authors fare in a market with dramatically fewer retail outlets for their work? Certainly, the mass closure of Borders and A&R stores in city centres, suburbs and rural areas underscores how, for authors, publishers and booksellers, sweeping change is on the horizon. With characteristic directness, Birmingham says: "Either we [writers] change with it or we find something else to do."

Some of the nation's biggest publishers, who were REDgroup's key suppliers, reportedly stand to lose millions of dollars from the book chain's collapse, but they refused to discuss this with Review. Book industry insiders warn that the contracted retail market is already reducing print runs and the diversity of titles produced by smaller publishers. They say it is likely to curtail mainstream publishers' future investment in debut and mid-career authors.

Robert Gorman, chief executive of independent publisher Allen & Unwin, doesn't mince words about the implications of REDgroup's failure. In an email, he tells Review: "The move into voluntary administration of Australia's largest book retail chain in February has coincided with some of the toughest conditions for authors, booksellers and publishers in memory. The combination of these factors has led to a decline in book sales -- a problem affecting many retail sectors . . . Every day is a challenge in this difficult retail environment."

Australian Publishers Association chief executive Maree McCaskill warns REDgroup's demise will put some publishers "under extreme pressure". Says McCaskill: "The loss of the largest retail chain is of major concern, particularly as the book industry is in the midst of a prolonged, retail slump . . . The ripple effect in the supply chain means that the profitability and viability of some publishers and printers will be put under extreme pressure, let alone the loss of sales for authors."

The Australian Society of Authors is investigating how writers are faring in a shrinking retail market. "It will play out all the way down the line for authors and everyone else," ASA executive director Angelo Loukakis predicts. Booksellers' anxieties, he says, are "shared by authors. It's not looking good. Whichever end you come at it, the supply chain is compromised."

In a further casualty of the REDgroup failure, one of the country's largest book distributors, Scribo, was shut down in June. Its managers blamed this on factors including competition from online sellers offshore and "the closure of key retail outlets".

More positively, 48 A&R franchisee-run stores were insulated from the collapse and, of these, 20 have been bought by the resurgent Collins Booksellers. Almost all of the New Zealand shops owned by REDgroup were sold, while the company's online business has been bought by educational publisher Pearson. (The Australian Competition and Consumer Commission has been urged to investigate this deal, which would see a large publisher compete against its customers -- bookshops.)

Birmingham is a well-known technophile (he blogs, he tweets) and he predicts that during the next decade book chains will continue to struggle, while e-reading devices will enjoy a "hyper-accelerated rise". This, in turn, would change the way  people read books and the way publishers produce them. "Possibly within five years, and certainly within 10 years, I expect the vast majority of my sales to be electronic," he says. (He is referring to online sales of print books and e-book sales.)

Birmingham's oeuvre spans high, low and grunge (He Died With a Felafel in His Hand) literature. His new thriller, Angels of Vengeance, will be released in November. This market-savvy writer anticipates publishers will eventually confine their output of print books to bestsellers or prestigious "bespoke" books aimed at independent bookshops. The mid-list -- books that typically sell 3000 to 5000 copies -- will be released purely as e-books, Birmingham says. The bad news for authors: e-books usually sell for much less than print books, so writers may have to accept lower advances in the hope of achieving higher sales.

Despite the threats technology poses to his profession, Birmingham enthuses: "I am stoked, I am really excited by the potential of what's coming." He says the downloading of e-books on to smartphones and e-reading devices promises unprecedented sales opportunities for literature.

Few in publishing are as optimistic about this. Still, like the Queensland author, many publishers were far from shocked by REDgroup's collapse. (In the lead-up to its demise, Birmingham referred to Borders as "the Borders death star".)

Long before the administrators were called in, private equity group Pacific Equity Partners came under attack for the way it ran the Borders/A&R shops it bought in 2004. According to its critics, PEP took on too much debt, charged more than the recommended retail price for many titles, focused heavily on a narrow range of bestsellers and froze out smaller, local publishers. In 2007, authors called for a boycott of company-owned A&R stores that had demanded that publishers pay rent to display their books on these shops' shelves.

In a scathing blog published earlier this year, Henry Rosenbloom, founder of Melbourne publisher Scribe, wrote: "Borders/A&R in its REDgroup incarnation was a very badly run business . . . PEP deliberately created a brutalist regime: they installed bovver-boy managers . . . made appalling decisions about stock selection and presentation, and tried to treat books like potatoes."

REDgroup argues its demise was caused by online competition and Australia's parallel import restrictions, which prevent cheap, overseas editions of books flooding the local market but keep book prices high. It's also undeniable that, across the world, competition from cut-price, online retailers means high street book retailers are doing it tough. Borders UK folded in 2009 and last month Borders in the US announced it would go into liquidation, in the absence of any white knight bidder for its 399 shops. (Borders in Britain and US had different owners from the Borders stores here.)

Lou Johnson, managing director of Simon & Schuster Australia, says the closure of 140 Borders and A&R outlets in Australia will reduce many publishers' sales, and this, in turn, may restrict their investment in local authors. Johnson explains that publishers need a certain volume of turnover to reinvest profits in local writing.

While big-name authors would continue to sell well in department stores, emerging and mid-list authors is "where we are seeing the biggest impact". "We could lose avenues to develop and promote new authors," Johnson warns. "You can't do that through a department store."

Publishers, she adds, are also worried about Australian book buyers defecting to overseas online retailers such as Amazon and the Book Depository. (Amazon recently bought the latter, strengthening its already muscular market power.) Says Johnson: "Our biggest concern is sales migrating offshore, so everybody will have to work even harder to demonstrate to the consumer the value of shopping locally."

Rex Finch shares Johnson's concerns. He runs the small, nonfiction publishing house Finch Publishing and convenes the Independent Publishers Committee for the Australian Publishers Association. This committee represents about 130 small, independent publishers, among them Transit Lounge Publishing, National Library of Australia Publishing and Broome's Magabala Books.

Finch says the Borders/A&R closures have serious implications for such publishers. "I don't think there are many businesses that can sustain a 10 or 15 per cent drop in turnover and that may be the impact on some publishers." He also says the shrunken retail market will have a "marked effect" on the diversity of new Australian titles, especially those released by niche publishers: "Everyone's had to make hard decisions about reducing print runs and not publishing titles they would once would have published." Bigger publishers still have lucrative bestsellers that can cross-subsidise other titles but "the mid-list is being pummelled".

He is perplexed that REDgroup's demise hasn't led to a noticeable increase in orders from the failed retailer's rivals: "If you like, the lost sales aren't being picked up." Finch has been in publishing for 38 years. Finch Publishing -- which has released bestsellers including Steve Biddulph's Raising Boys, which has sold more than 250,000 copies -- is almost 20 years old. "This has been one of the worst periods we have been through," laments Finch.

Sean Simmons, from sales tracking service Nielsen BookScan, confirms REDgroup's collapse has happened when even bankable books -- crime, romance and vampire titles -- "aren't selling as much as they used to". However, he says an expected sales slump following the collapse of Borders/A&R has been masked by clearance sales, as administrators sold off heavily discounted stock. "As a result of clearance sales, the market is holding its own," he says. BookScan figures (which don't include online sales) show the value of book sales fell 5 per cent from February to May this year compared with the same period last year, while volume rose by 1.5 per cent.

Tim Coronel, publisher of trade journal Australian Bookseller and Publisher, concurs that "the book industry is undergoing an increasingly tough time . . . independents would say that their market conditions are as bad as they can remember". But he denies the Borders/A&R collapse "is a dramatic harbinger of everything going down the gurgler". He maintains there is a lot of hype about e-books. For instance, it was widely misreported last year that Amazon had sold more e-books than print books in one quarter. In fact, the online giant had sold more e-books than hardback books, and hardbacks have always sold in much smaller quantities than paperbacks. Coronel estimates that, collectively, Australians buy 10 per cent to 15 per cent of their books online. E-book sales, he says, are in their infancy here, but are "definitely building" in the US.

Last year, US publishers told the Association of American Publishers that e-books comprised 8.3 per cent of their domestic sales; in the first few months of this year, this figure more than doubled at some publishing companies. But the publishers association also says print books in the US still outsell e-books by a ratio of four to one. Coronel declares that the day e-books outsell print books "is a long, long way away".

Reflecting this, Dymocks chief executive Don Grover reveals that 98 per cent of his chain's sales are for print books. "Print books are still the greatest, greatest majority of what we do, whether it is online or in our stores," he says. He believes Borders/A&R was operating in a saturated market and that a more streamlined and profitable book trade will now emerge: "I think it's going to be good for others in the market, both chains and independents."

One beneficiary of the REDgroup failure is Collins Booksellers. This local chain last month acquired 20 A&R franchise stores, bringing to 72 the number of shops trading under the Collins umbrella. This is a startling recovery by a retailer that went into voluntary administration in 2005 and was revived, on a much-reduced scale, in a franchisee buy-out. Collins now has a slightly greater number of shops in Australia than Dymocks, making it the country's biggest book chain.

Interestingly, Collins franchisees operate as quasi-independents, so the expansion of this retailer means independent bookshops -- which have traditionally shown a strong commitment to Australian literature -- are fast becoming the norm here. Collins chairman Duncan Johnston is upbeat about bookselling's prospects, yet mindful of the challenges: "People can buy a book from anywhere in the world and have it land on their doorsteps within five days, and we have to compete with that."

Like Dymocks and the independent chain Readings, Collins has plunged headlong into the world of digital books. Last month it bought online book retailer Seek Media and announced an exclusive partnership with global eReading company Kobo. This partnership will give visitors to the Collins website access to an e-book store with a catalogue boasting more than 2.4 million e-titles. Such books can be downloaded on to Kobo e-readers, which Collins will sell on and offline. While Johnston believes sales of print books probably peaked in 2009, he adds: "I have never been more optimistic. If it were just bricks and mortar bookselling, I'd be very concerned."

IN an industrial estate in Sydney's north lies a warehouse that may represent the future of bookselling. It's in an unglamorous location next to an electricity substation and it's an adamantly low-key operation; it houses a management team, but there isn't a suit, tie or flash haircut in sight.

The nondescript building is the headquarters of Booktopia, an online bookshop that was founded in 2004 by two Sydney brothers and their brother-in-law, none of whom have publishing backgrounds. Since then, it has grown from a sideline with a daily marketing budget of $10 to become Australia's biggest, locally owned online book retailer. Booktopia has a monthly turnover of up to $1.6 million and expects to sell more than 750,000 books this year. These are startling figures for a bookseller that took three days to sell its first title.

Co-owners Tony Nash, Simon Nash and their brother-in-law Steve Traurig are unassuming, middle-aged dads who ran an internet marketing business before they founded Booktopia. They used to show clients, including A&R, how to drive traffic to their websites. Simon Nash remembers how he and his brother eventually said to one another: "We should give that book thing a go", referring to what would evolve into a multimillion dollar business.

The Booktopia founders were warned they could not make money running an online bookstore. They also ran into resistance from some publishers who initially didn't take them seriously. Today, leading publishers make the trek to the no-frills warehouse to brief these booksellers about their latest titles. Booktopia employs 40 people. Some pack books in envelopes, others manage stock and take customer orders, and there is a team dedicated to a customer phone service. Online booksellers don't usually offer phone contact but Traurig says: "We put our phone number out there because we wanted to be well known as an Australian company that provides an Australian service."

Booktopia was a state finalist in this year's Telstra Business Awards and has appeared twice on BRW's Fast 100 list, which ranks Australia's 100 fastest growing companies. Do traditional booksellers resent this tech-savvy upstart? "Probably," admits Simon Nash, "but they probably shouldn't. Our goal is taking on the 800-pound gorilla that is Amazon." Nash admits Booktopia cannot always match Amazon's low prices, but according to Traurig, "What we have found is that while price is a factor, it's not the only factor." These executives say that maintaining their phone service, specialising in Australian titles and offering a capped postage fee of $6.50 has attracted customers to an operation that has grown so fast it initially caught them off-guard.

Booktopia illustrates how with technological tumult comes opportunity. Similarly, Birmingham believes the radical changes confronting authors, publishers and booksellers continue a cultural evolution that began in the 20th century: radio challenged the theatre, television challenged radio and iTunes challenged the music recording industry. Despite fears these newfangled technologies would annihilate existing forms of art and entertainment, the established industries survived.

So it will be, he reckons, with publishing.

Asked about the book industry's future, the novelist and blogger paraphrases Winston Churchill: "The first reports will be neither as good nor as bleak as everyone makes out."