Chains make their money on advertising.
Now I knew that the chains, Barnes&Noble and Borders, plus the giant book retailer Amazon, make money providing prime display space to publishers of books, but I was sure that there was something wrong with the magnitude of the statement. So I did some hunting around, trying to put a number on how much the big book retailers make on cooperative advertising payments and largely drew a blank. They don't break out all of that revenue in their SEC filings, it gets combined with other items. Amazon, for example, treats co-op money as a reduction in the cost of goods, while B&N mainly puts it to the overhead of the stores.
The best information I could find came from this redacted Federal court filing from 2002 The Intimate Bookshop, Inc. v. Barnes & Noble and Borders. It reports B&N received in excess of $100 million in co-op money in 1997, which if correct and extrapolated out to their 2007 revenue, would exceed their net profit. From that standpoint, you could argue that the line about chains making their money on advertising is more than true. But they still have to sell billions of dollars worth of books to do it. It's analogous to the situation with top professional athletes who can earn more advertising products than they can in salary. The catch is they can't stop playing the game and devote themselves full-time to making commercials, or that money would dry up in a hurry.
Many publishers offer a single digit percentage of their net sales through a retailer back to that retailer in return for promotions that retailer runs. A large part of the lawsuit, to my unprofessional eye, had to do with the availability of similar co-op advertising money to independent bookstores or the relative amount of work they had to go to in order to claim it. As near as I can tell, co-op advertising has been around for nearly 100 years, and may be named for the early efforts of the Greeting Card Association members in banding together and paying stores for cooperative displays after The Great War. Maybe their first great success was the card with the young man and the young woman sitting under a tree with a book, and the man asking the woman "Do you like Kipling?" She replies, "I don't know, you naughty boy. I've never Kippled." I don't know when it was published, I just remember the 1922 Book of Knowledge Encyclopedia saying it was the bestselling greeting card of all times.
Over the years, that model has morphed into individual publishers paying retailers to promote their titles so they can manufacture bestsellers, increase the predictability of sales or beat competing titles. I'm still reading through the documents, but a side benefit is it brought up the name of the Federal law that regulates discounting practices, The Robinson-Patman Act. Somebody asked me about that very recently, but I couldn't recall it. Coincidentally, the predecessor was the Clayton Act of 1914, which probably preceded the co-operative advertising efforts of the Greeting Card Association.