Changes in Educational Publishing: The Textbook in the 21st Century

A repost from July 13, 2006.  A still relevant post regarding the evolution of the textbook. 

As I have mentioned before, I believe educational publishing - particularly in College - to be an industry ripe with opportunity and therefore very interesting. Challenges obviously exist but educational publishers have an opportunity, facilitated by the internet, to build a virtuous circle connecting the publisher/author, student, educator, advisor and institution. (Even the parent could be part of this grouping). Traditional publishing content remains the 'glue' within this grouping but publishers are also building 'platforms' adding sophisticated testing and evaluative modules, administrative modules and ultimately a social networking component that will further facilitate a level of communication among the groups heretofore unheard of. I have spoken a little about this in an earlier post.

There will be many changes resulting from this different publishing paradigm not least of which the content itself. I doubt many publishers would contest the notion that the existing construct of the traditional published text book will remain the same for much longer. In the not too distant future the course textbook is going to have more in common with an online newspaper that it will with a physical print product encased in board. Editorial and authorship may become more important than it currently is since the product will become dynamic and subject to on-going news events, reinterpretations and the feedback from users. Incorporation of audio and video, blogging and chat also add a 'real time' component that will require monitoring and management.

What is interesting about this article in the NYT today is that it highlights the significant fallibility of the textbook unit when viewed from today’s 'instant update' environment. The article points out a number of things including the surprising similarity across texts, the apparent lack of motivation to change - evidenced by continuing to publish 'name' authors in updated editions even after they were decreased and the clear lack of feedback from user to publisher/author that allowed continued publication of the same material year after year.

In many ways the article makes publishers out to be dummies but there may have been important reasons to leverage a known author for many years. Profits. Institutions, Professors, etc. act conservatively and go with what they know. Rebuilding around a new author increases the risk that the customer may go to a competitor. In addition, from a publisher point of view it is easier to tweak an existing text than start over with a new one. (Although in reading this article you may gain the impression that none of them ever start from scratch).

All the big educational publishers - Wiley, Pearson, Harcourt, McGraw Hill are building online educational content that is - or will represent - a fully interactive educational product. For publishers to gain direct access to a student that enables the student to build an online bookshelf of educational material that they can carry with them forever, and furthermore to establish a relationship with the student after they leave college, is what these publishers are really looking for. Exciting stuff if you are a publisher. And great benefits for students and educators as well.

MediaWeek Report (Vol 5, No 22a): Pearson Buys Global English + McGraw-Hill, Cengage, Wiley Education News

Getting to be a recurring story: Pearson buys a language learning company this time Global English located in California.  Pearson paid $90 million.  From the press release:

Founded in 1997 in California, GlobalEnglish is a leading provider of cloud-based, on-demand Business English learning, assessment and performance support software. It serves more than 450 corporate customers, including 20 per cent of the Forbes Global 2000 companies, including General Electric, HSBC, Tata Consultancy Services and Unilever. Its product suite is uniquely suited to serve the needs of global professionals with a comprehensive offering - formal Business English learning coursework, informal and social learning capabilities, performance support tools, an enterprise collaboration platform, a mobile app, assessments and a premium one-on-one coaching service. GlobalEnglish’s Business English content is also entirely focused on the application of Business English to real life business situations such as composing emails and participating in conference calls, and its efficacy is highly rated by global companies and their employees. Approximately 75 per cent of GlobalEnglish’s more than 200,000 active subscribers are in fast growing economies in Latin America and Asia

McGraw Hill announced some executive changes in advance of their Education spin-off (Press Release):

To continue the process of building a world-class team to lead the new education company, the Corporation is appointing Patrick Milano, currently Executive Vice President and Director of the Program Management Office of the Corporation's Growth and Value Plan, to the new position of Chief Financial Officer and Chief Administrative Officer of McGraw-Hill Education.  Mr. Milano, a multi-year veteran of McGraw-Hill, including in the education segment, has successfully led the separation phase of the Growth and Value Plan since last year.  In this new role, he will be responsible for Finance, Manufacturing, Distribution and IT, reporting to Jack Callahan, Chief Financial Officer of The McGraw-Hill Companies, until the new Chief Executive Officer of McGraw-Hill Education is appointed.  Joe Micallef, currently Senior Vice President, Finance and Operations, will work closely with Mr. Milano on standing up McGraw-Hill Education before retiring following a very successful career at the company.  (More)

Cengage announced their Q3 results last month (Press Release)

Revenue for the third quarter 2012 is estimated to be between $335 million and $340 million as compared to $319 million for the same period in the prior year. Excluding National Geographic School Publishing (“NGSP”), acquired on August 1, 2011, revenue for the third quarter 2012 is estimated to be between $325 million and $330 million driven by growth in the higher education market. Domestic Learning revenue, excluding NGSP, is estimated to be $205 million to $210 million, as compared to $194 million for the same period in the prior year.
Adjusted EBITDA for the third quarter 2012 is estimated to be between $67 million and $72 million. The prior year third quarter Adjusted EBITDA of $89.7 million did not include an accrual for incentive compensation, but did include a credit related to a reversal of an accrual for incentive compensation accrued during the first half of fiscal 2011. On a comparable basis to this year‟s third quarter, Adjusted EBITDA for the third quarter of the prior year would have been $65 million.
Excluding NGSP, Adjusted EBITDA for the third quarter 2012 is estimated to be between $70 million and $75 million. Adjusted EBITDA for NGSP is negative for the quarter primarily due to seasonality as well as one-time costs related to achieving synergies from the integration of NGSP into Cengage Learning.

Here is the full 3Q report

In their investor presentation Cengage also provided this update to their debt refinancing effort:

We completed the previously announced amendment and extension of our Credit Agreement whereby we:

• Extended the maturity of $1.3 billion of our existing Term Loan, net of a partial pay down, to July 2017
• Provided for new commitments to maintain the existing $300 million of revolving credit facility availability until April 2017 resulting in a total extended and non-extended revolving credit facility of up to $525 million until July 2013, $300 million thereafter. We also completed our previously announced private placement of $725 million senior secured notes due in April 2020. These notes bear interest at a coupon rate of 11.5% and were issued at par. We used a portion of the proceeds from these notes to pay down $489 million of the extended term loan.

Anyone interested in how the education business is doing will be disappointed in the deck.

In case you missed it Harcourt's "Official Statement" on their bankruptcy (Press Release):

Today, Houghton Mifflin Harcourt filed a “pre-packaged” comprehensive financial restructuring plan that will strengthen the Company financially so we can continue to invest in our business and ensure we are well positioned for the future. This plan, which is supported by the vast majority of our key financial stakeholders, will eliminate $3.1 billion of debt through a debt to equity transaction, and reduce our annual cash interest costs. The Company today lodged voluntary petitions for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. With a more appropriate capital structure to support our strategic plan and business objectives, we will have greater financial flexibility to pursue growth opportunities.

John Wiley released their 3Q results earlier in the month (Press Release):

John Wiley and Sons, Inc. (NYSE: JWA and JWB), a global provider of content and workflow solutions in areas of scientific, technical, medical, and scholarly research; professional and personal development; and education today announced results for the third quarter of fiscal year 2012:

• Revenue growth of 1% including and excluding foreign exchange (or "FX")
• Revenue by segment, including FX:  STMS +3%, P/T -6% and Education +2%
• Adjusted EPS grew 8% to $0.91, or 6% excluding FX.  Growth was driven by top-line results, prudent expense management and lower interest expense and income taxes.
• Shared Services and Administrative Costs excluding FX, were up 3% to $91 million, driven principally by technology spending to support investments in digital products and infrastructure.   
• Outlook:  Reaffirming FY12 revenue guidance of low single-digit growth excluding FX and EPS guidance in a range from $3.15 to $3.20 including the effect of FX and excluding the unusual tax benefits.  
• Acquisition:  In February, Wiley acquired Inscape Holdings, a leading global provider of workplace learning solutions, for $85 million in cash. Inscape will be integrated into Wiley's Professional/Trade business where it will combine Wiley's extensive reservoir of valuable content and its global reach in leadership and training with Inscape's technology, distribution network, and talent expertise, including the innovative EPIC online assessment-delivery platform and an elite network of nearly 1,700 independent consultants, trainers, and coaches. Annually, Inscape generates approximately $20 million in revenue.
• Divestment:  On March 7, 2012, Wiley announced that it intends to explore opportunities to sell a number of its consumer print and digital publishing assets in its Professional/Trade business as they no longer align with the company's long-term business strategy.  Fiscal Year 2011 revenue associated with the assets to be sold was approximately $85 million with a direct contribution to profit, before shared-service expenses, of approximately $6 million.  Assets include travel (including the well-known Frommer's brand), culinary, general interest, nautical, pets, crafts, Webster's New World, and CliffsNotes.  Wiley will re-deploy resources in its Professional/Trade business to build on its global market-leading positions in business, finance, accounting, leadership, technology, architecture, psychology, education, and through the For Dummies brand. 
• Share Repurchases: Wiley repurchased 520,000 shares this quarter at a cost of $23 million.  The Company has 2.9 million authorized shares remaining in its program.

Houghton Mifflin Announces Innovation Fund

In a press release today Houghton Mifflin Harcourt annouced the creation of a $100mm innovation fund which the company will use to "promote and enhance student achievement, individualized learning and effective technology integration in the classroom." Some other large publishing companies have well known innovation or investment funds so this is nothing revolutionary or new in the publishing business but represents an important strategic move for HMH.

The HMH Innovation Fund will promote and support solutions aimed at engaging all education stakeholder groups — including teachers, administrators, parents and students — by creating a process for soliciting, evaluating, developing and executing innovative ideas that solve teaching and learning challenges. The process will be uniquely collaborative, encouraging input and participation from across the education and technology industries. The Fund will also look to support new consumer applications including gaming platforms and other interactive solutions to engage students outside the classroom.

“The HMH Innovation Fund is a first for our industry, providing the capital to identify and incubate the next generation of innovation in education. We are excited about the opportunity to share in developing new solutions for teachers, students, administrators and parents,” said Barry O’Callaghan, CEO of Houghton Mifflin Harcourt. “HMH will work with, partner and fund the innovators of today and support great ideas that will have an immediate impact in promoting greater student achievement with tools that can be used both inside and outside the classroom.”

HMH has seen its fair share of problems over the past three years with a major restructuring of the company's balance sheet at the end of last year. The core operations of each business have reputedly been doing well even in the tough economic climate. This news, coupled with the news that the company is also investing $300million to develop innovation centers in the US and Ireland, will come as welcome news to those left bewildered by the company's recent financial problems.

The Innovation teams at HMH work closely with third parties including Original Equipment Manufacturers (OEMs), foundations and academia, and have already started rolling out an array of new solutions including:

• A one-year pilot program in four California school districts of the first ever full-curriculum Algebra application on the Apple iPad. More than 400 California eighth-grade students will receive instruction strictly via an iPad loaded with Holt Algebra 1 course materials including highly developed comprehension tracking tools, which provide students with customized online remediation based on quiz and test scores, and simultaneously provide teachers with student-specific performance feedback. Assessment data will be immediately available to the teacher for constant tracking and in-class remediation.
• A new all-digital language arts program in Texas for grades 2–12 called Texas Write Source, which helps students of every learning style master key writing forms and processes and grammar usage through whole-class interactive whiteboards, an online worktext and space that enables students to share personalized essays, and the ability to download video podcasts, audio-enabled interactive mini-lessons, games and trackable quizzes.

“We have a well-established and open incubation strategy for new ideas, partners and start ups that is different than anything that exists within the traditional publishing business,” said Fiona O’Carroll, Executive Vice President of New Ventures. “We have created an environment and a structure to foster and support incubation of new ideas and we feel we can be the partner of choice for big ideas due to our overall scale, market reach, positional advantage and speed in bringing things to market. This is a true incubation model.”

Houghton Mifflin Owner EMPG set for Refinancing

The Irish Independent is reporting advanced debt for equity discussions with loaning banks of troubled Houghton Mifflin Harcourt owner Education Media Publishing Group. The refinancing is likely to significantly reduce CEO/Chairman Barry O'Callaghan's 38pc ownership in EMPG. (Independent)

Other items of note:

• Operationally EMPG appears to be doing well with 'strong cash flow'
• Synergy and savings are pushing EBITDA close to $1bill up 20%
• The company has pulled out of the ratings service after downgrades
• Lending banks have agreed to relax some of their covenants
• Bertelsemann offered to invest $300mm in EMPG but was rejected
• The debt to equity swap will further dilute Reed Elseviers share
  

Harcourt Houghton Mifflin in Anti-Trust Suit

There is no back up to this news item at this point but updates if and when they are available; however the news gets no better for Harcourt Houghton Mifflin. The state of California is investigating the merger of Harcourt and HM in 2007. As part of that agreement Harcourt devolved some assets at the request of the Feds but this action assumes that that wasn't enough. From the Courthouse News Service:

California filed a federal antitrust complaint over the $4 billion merger of textbook publishers Houghton Mifflin and Harcourt Education Group, claiming "The merged entity now commands over 50 percent of aggregate primary and middle school textbook sales in the U.S." Combined with its competitors Pearson and McGraw, the three giants now "account for roughly 87 percent of the aggregate commerce in U.S. primary and middle school textbooks." California claims that December 2007 merger will reduce competition, raise prices and "the value of the materials and services likely will decline."

Not the news that HHM would be in the mood for. (Post: Credit Rating)

Update: In the complaint (and there is a link to it on the Courthouse web page at the bottom) on page 9 the complaint is dated May 15, 2009. This is being contested under the Clayton Act which is more stringent that the Sherman Act. (And I know that sounds like I know what it means but I really don't). Here is more on the Clayton Act. Look for references to section 7.

Houghton Mifflin Harcourt Lose Credit Rating

Speculation about the financial health of Houghton Mifflin Harcourt took another turn for the worst when Moody's debt rating agency removed its' rating on HHM's debt. According to the report in the Irish Times the action by Moody's will impact virtually all the company's debt and it likely to both further raise the cost of their borrowing (although they were already at Caa3 with a negative note) and increase the expectation the company will default. From the Irish Times report:

Moody’s said that it took into account “the business risk and competitive position of the company versus others within its industry; the capital structure and financial risk of the company; the projected financial and operating performance of the company over the near-to-intermediate term, and management’s track record and tolerance for risk”.

Last month, Moody’s downgraded some of HMH’s debts to Caa3 from Caa1, and put it on a negative outlook. The move meant that it classed the company’s debts as high risk.

Earlier this year, long time HMH executive and current CEO Tony Lucki retired and was replaced by Barry O'Callaghan.

HMH CEO Tony Lucki to Retire

The WSJ is reporting that Tony Lucki will retire on April 15th. In an email to staff he noted he had been involved with Harcourt or Houghton Mifflin for 30yrs and continued,

"Recent steps we have taken put the company in an even stronger position to deliver value to our customers and to build on our market leadership. We are on sound operational and financial footing and have great potential to grow our trusted brands and businesses," he said

The company has appointed 39yr old Barry O'Callahan as CEO who is the current CEO of corporate owner Education Media & Publishing Group. EMPG has approximately $7billion in debt resulting from the acquisition of both Harcourt and Houghton Mifflin. Reports earlier this year indicated that the company was attempting to sell their trade business but there was debate whether the company could achieve fair value (in their view) given the current economic environment.

Swan Song for Sir Crispin

Reed Elsevier presented a robust end to 2008 with the presentation of their end of year numbers yesterday. In constant currencies, RE revenues were up 7% over 2007 and operating income was up 12%. Underlying results were slightly less at 4% and 9% respectively.

Reed Elsevier revenues finished the year at £5.3billion and earning per share were up 15% in constant currencies and the press release points out this is their highest growth in 10 yrs. As expected Elsevier, Lexis and Exhibitions all drove revenue and operating income growth and while Reed Business Information was the laggard the business hardly fell off a cliff during 2008.

From the press release:

“Reed Elsevier has had a very successful year with major progress in developing the business, and the strongest constant currency adjusted eps growth in a decade. Good revenue growth was seen across most of the business driven by the growing demand for online information and workflow solutions. The revenue growth and a strong focus on restructuring and cost management delivered meaningful margin improvement and the operating cash generation was excellent. Whilst the economic environment has become progressively more challenging, our business is more resilient than most and we are in a strong financial position.

The year saw demonstrable progress across the business from our continued investment in new content and online product development. In Elsevier, subscription renewals reached record levels whilst other online solutions for the scientific and healthcare communities grew rapidly. Online legal information solutions have continued to expand, and there is growing demand for information analytics in the risk market. In legal research we see significant opportunities for more intuitive and interoperable offerings to enhance customer productivity and are stepping up our investment to reflect this. Reed Exhibitions had an exceptional year including the benefit of non annual shows cycling in. Reed Business Information held up well for most of the year, helped by the strong growth of its significant online franchises. In the last quarter, however, the business increasingly felt the impact on advertising markets of the global downturn.

The year has also seen a major reshaping of our business with completion of the sale of the remaining Harcourt Education businesses and the acquisition of ChoicePoint. ChoicePoint transforms our position in the risk information and analytics sector and the strategic and financial benefits are very attractive. The business has performed well with the insurance data and services business, which accounts for the substantial majority of ChoicePoint’s operating profits, delivering 10% year-on-year organic revenue growth. The integration with our existing risk business is progressing well and we are confident of achieving our savings and returns targets. We were disappointed not to be able to sell Reed Business Information but the macro-economic environment and poor credit market conditions made it too difficult to structure a transaction on acceptable terms. Whilst the short term outlook for RBI is very challenging, RBI is a high quality business, with a strong management team and a record of success in developing online services. It remains our intention to divest RBI in the medium term when conditions are more favourable.

Buried in the report was also the expected news that RE have reduced what was a $300mm (€230mm) investment in Harcourt parent Education Media and Publishing Group (EMPG) to just €15m. The equity stake that RE was forced to take in Harcourt when the business was sold represented just less than 12%. Companies do use their own judgment (there are FASB rules) when re-evaluating the value of third party investments like this one however, this action isn't likely to impress the bankers who lent $7Billion to EMPG for their acquisition spree.

Management Powerpoint Presentation

Greenwood To Close

On the heals of the deal by Harcourt to sell perpetual rights to the Greenwood list, the company will vacate its offices in Westport CT by year end. According to WestportNow, a company source has told them that approximately 150 positions will be lost when the pink slips go out in December.

Pearson Get Merger Clearance with Divestitures

Pearson received clearance from the US Justice department for the completion of their $950million acquisition of Harcourt Assessment which they purchased from Reed Elsevier. The court required that they divest a number of products which on the surface appear inconsequential to the entire deal. From PRnewswire:

"Without the divestitures obtained by the department, purchasers of clinical tests for adaptive behavior, speech and language, and adult abnormal personality likely would have faced higher prices and reduced innovation as a result of this transaction," said Thomas O. Barnett, assistant attorney general for antitrust, in a statement.

Under the terms of the proposed settlement, Pearson and Harcourt must divest: Harcourt's adaptive behavior clinical test, the Adaptive Behavior Assessment System; Harcourt's adult abnormal personality clinical test, the Emotional Assessment System, which is under development; and in the speech and language clinical test market, either Pearson's Comprehensive Assessment of Spoken Language and the Oral and Written Language Scales or Harcourt's Clinical Evaluation of Language Fundamentals. Under the proposed settlement, the Department's Antitrust Division must approve the buyer of each of the divested assets.

Given the breadth of the Harcourt and Pearson assessment offerings this resolution looks inconsequential; the subject areas are fairly narrow and specialized. Also, the release doesn't indicate whether Pearson is precluded from competing in these segments at some point in the future. There is likely to be any number of potential buyers - Reed Elsevier may buy them back, Wolters Kluwer may also be interested given their existing health titles.

Riverdeep Rumor and Reed Elsevier "Buy"

A curious note from Usman Ghazi of Dresdner Kleinwort who, in the process of recommeding Reed Elsevier as a buy - with a target price of 780p - takes note of rumors suggesting Riverdeep risk "either not securing the bank funding required to finalize the [Harcourt] transaction or going bankrupt in the intervening period, leaving the deal unfinished." He dismisses these rumours and I can't find any other suggestion of these issues so how much of a concern are they?

Reed Sells Harcourt

Essentially on-time, Reuters is reporting that Riverdeep will purchase the remaining Harcourt assets from Reed Elsevier for $4.obill. Reed earlier announced they had sold the assessment segment to Pearson for $950mm.

Reuters.
MSNBC

Harcourt finished 2006 with revenues of Eur 1.4bill ($3.0bill) and operating profit of Eur190bill ($140mm). 2006 operating profit was boosted by currency fluctuations. Reed have sold the education business for a revenue multiple of about 1.7 which isn't bad going.

Earlier this year, Riverdeep performed a reverse takover of Houghton Mifflin in a deal worth $5.0mm, Apax Partners purchased Thomson Learning for $7.7bill and Bridgepoint bought Wolters Kluwer education for $1.5Bill.

Under the headline "Wheeler Dealer," the Irish Independent profiles Barry O'Callaghan and how he got here.

Thomson and Harcourt Reunited Again?

There was an interesting suggestion doing the rounds in London this week (Reuters) suggesting that the prospects for Thomson Learning and Harcourt Education would be better if the businesses were combined by one purchaser. The discussion started in an article in the UK Sunday Telegraph which pointed out that the businesses were once part of the same operating company and that at least two of the private equity groups looking at these companies are looking at both of them.

Thomson Learning and Harcourt were part of the same group until 2000, when Harcourt General was bought by Reed. Reed kept the school textbook and testing division and Harcourt's science and medical titles but sold the higher education arm to Thomson Corporation, the Canadian publisher.

The combination could result in additional competition for Pearson and McGraw Hill which retain both School and Higher Ed businesses. While the school and college businesses operate in definably different environments and are generally managed separately within the larger organizations, the scale opportunities could generate millions in additional operating profit were the businesses combined. Coupled with the imperative to create digital delivery platforms for their content and this combination may make some sense.

It will be interesting to see the strategy employed by the bidders. The Thomson auction is expected to be completed first but would one firm try to preempt the bid process for Harcourt to secure that company in advance of the Thomson process? Having secured Thomson, will Reed benefit financially if the sale price for Harcourt contains some 'combination' bonus based on savings the purchaser expects to receive with a combined business? Regardless, it will be a long while until the opportunity to combine two educational publishers of this size comes again so I suspect some pencils are being sharpened as we speak.

Weekly Update

As mentioned London Bookfair is next week and posts will be sporadic.

Deal News:
Wicks buys Thomson Education Direct (Distant Learning) Times Tribune
Torstar may be under attack and what of Harlequin? National Post
A possible buyer of the Borders' Australia and New Zealand stores. NZ Herald
Media finance conference in Europe announced. Release
Buyers are less then enthused with Primedia enthusiast magazines. Reuters
Reed Elsevier advised to gear up. The Independent
Nancy McKinstry thinks Germany is ripe for new deals. Reuters
Axel Springer likely to do more deals soon (doubtful in publishing). The Australian

Google News
Lorcan Dempsey linking to comment on Google and Publishers Blog
Adam Hodgkin on publishers grumbling about Google Blog

Education:
Harcourt have had a lot of problems in School academic testing this year. Casper Trib. ZDNET
Thomson revolutionizes marketing text Release
There will be more on this: Wikipedea 'broken beyond repair' according to founder. ITNews

Other News:
Penguin obsession Blog
Peter Brantley's lively discussion over a $58 Paperback Blog
Mike Hyatt on Imprints and the decision to do away with them Blog
GalleyCat linking to a Bookseller article about what works here but not there. Blog
Joe Wikert gets all riled up about the logic of Print Blog
Reed Elsevier can't trade mark 'Lawyers.com' Bloomberg
SmartMoney wonders why no one is excited about Gannett. Smartmoney
The commercial E-Book market is broken. Blog

People:
McGraw Hill Hire Dan Caton as Head of Learning Group Release
New Board Members for SIIA. Release
Riverdeep/Houghton Mifflin announce appointment of President. Release

Sport:
Man Utd into the Champions League semi-final in style BBC

12/10/97: Reader's Digest, Reed Elsevier, Kluwer, Thomson

Summary
Shareholder Unrest Brewing At Reader's Digest
Dow Jones Teams Up With NBC: Companies Hope to Stem Losses Abroad With TV-Internet Partnership
Wolters Plans Acquisition Of Thomson Publications
Penguin Putnam Inc. Announces Publishing Partnership With DreamWorks SKG
Thomson Financial Publishing to Expand Electronic Commerce Initiatives
Harcourt General Announces Results For Fourth Quarter And Full Year
Reed Elsevier: Update on Trading and on Progress on Proposed Merger with Wolters Kluwer:
National Geographic Chief Quits: John Fahey Moves Up in Society as Reg Murphy Suddenly Moves Out
Wolters Kluwer Reed Elsevier
New York Times Says It Plans Acquisition In 1999

RECENT NEWS

Shareholder Unrest Brewing At Reader's Digest
(Book Publishing Report) A minority shareholder is going forward with its bid to place two candidates on the Reader's Digest board of directors, despite the fact that the company has politely refused its request. Making matters worse for Reader's Digest-which will hold what could be a fractious annual meeting this Friday (12th)-is the fact that shareholder Corporate Value Partners has chosen to conduct its efforts publicly. The shareholder discord is just the latest problem to beset Reader's Digest, which has been struggling to reverse an alarming drop in its financial performance caused by a steadily eroding customer base (BPR, Aug. 18). BPR has learned that Barbara Morgan, senior vice president and editor in chief of the company's Books and Home Entertainment Products division, is leaving the company. The division's operating income sank 37.5% to $201.1 million on revenues that fell 11.9% to $1.85 billion in fiscal 1997, ended June 30. Morgan is the latest in a series of executive departures that began with chief executive officer James Schadt's forced resignation in August. Since then, CFO Stephen Wilson, senior VP of strategic planning Glenda Burkhart, senior VP and general counsel Paul Soden and RD Europe president Martin Pearson have also left.

Dow Jones Teams Up With NBC: Companies Hope to Stem Losses Abroad With TV-Internet Partnership
After a year of talks, media giants Dow Jones & Co. and General Electric Co.'s NBC division announced today that they will form a global television and Internet partnership cementing the brands internationally and tempering losses both companies are experiencing in their overseas operations. The merger will consolidate the two companies' business-news channels in Europe and Asia -- cutting costs and expanding each side's distribution -- while also adding Dow Jones news, and perhaps interviews with its Wall Street Journal reporters, to CNBC's programming in the United States. Dow Jones lost $48 million in its television ventures last year, while NBC 's subsidiary CNBC lost $15 million in Asia. NBC will pay a licensing fee to Dow Jones but did not disclose how much. CNBC will now be known both domestically and internationally as "a service of NBC and Dow Jones. For Dow Jones, the alliance comes at a time when Kann is under intense pressure from the company's board to curtail money-losing operations. Revenue from this deal, as well as the cash from several recent deals to license the well-known market barometer Dow Jones industrial average as a vehicle for the trading of futures and options contracts, will enhance the company's bottom line. But Kann's larger problem, analysts said, is Dow Jones Markets, the real-time news and data service formerly known as Telerate, which is losing market share to competing services run by Reuters Holdings PLC and Bloomberg Financial Markets. Kann announced a controversial plan in January to spend $650 million to revive the ailing unit, which drew the ire of shareholders and certain members of the Bancroft family, which controls 70 percent of the voting shares of Dow Jones stock and has four of the 15 seats on the company's board of directors. After pressure from outsiders and a fresh look at the plan by Dow Jones's board, the company changed course and announced it was "exploring options" regarding Dow Jones Markets, including the sale of the unit. "It has got to be sold," said Michael Price, the influential money manager who holds 4.1 million shares of Dow Jones stock and has been pushing the company since January to sell the flagging unit. Still, one of the things Kann has been criticized for is not doing enough to leverage the Dow Jones franchise as a premiere provider of financial news. Today's deal will help give the company a worldwide television platform to showcase its stories. CNBC will have worldwide television rights to Dow Jones stories and plans to set up studios at the Wall Street Journal's headquarters in the World Financial Center in downtown Manhattan. For NBC , the move strengthens its CNBC subsidiary, which is accessible in 65 million households and is projecting a $100 million profit this year. On the Internet, the Web site run by MSNBC -- an existing NBC -Microsoft Corp. joint venture -- will provide highlights from the Wall Street Journal, flagged under the CNBC/Dow Jones logo. As part of today's deal, Dow Jones acquired a third of MSNBC Business Video, which delivers video clips from corporate speeches and conferences to clients' computers. Both NBC and Dow Jones acknowledged that fourth-quarter earnings may be pinched by restructuring costs related to today's announcement. December 10, 1997 Copyright (c) 1997 The Washington Post Received via NewsEDGE

Wolters Plans Acquisition Of Thomson Publications
AMSTERDAM -- Dutch publisher Wolters Kluwer NV said it agreed to acquire scientific and medical publisher Thomson Science from Thomson Corp. of Canada. Wolters Kluwer didn't provide financial details of the planned transaction. However, the company said it expects the deal to be completed around the end of the year. Wolters said a significant number of Thomson Science's medical publications fit well with those of Wolters' U.S. medical publisher Lippincott-Raven, while its general scientific publications complement those of Wolters Kluwer Academic Publishing. Wolters said the acquisition won't include the German medical and scientific publications of Thomson Science. Wolters Kluwer's core activities include the legal, medical, educational, and other scientific and professional fields. Its principal operations are in the U.S. and eight European countries including Spain, Italy, Germany and France. Copyright (c) 1997 Dow Jones and Company, Inc.

Penguin Putnam Inc. Announces Publishing Partnership With DreamWorks SKG
NEW YORK, Dec. 9 Penguin Putnam Inc. has signed a multi- year strategic license agreement with DreamWorks Consumer Products, it was announced today by Douglas Whiteman, Executive Vice President of Penguin Putnam. The deal grants Penguin Putnam publishing rights for at least the first five animated feature films for DreamWorks Pictures, as well as the option to propose publishing programs for other DreamWorks properties, including live action motion pictures, animated and live action TV programs and direct-to-video films. Penguin Putnam's rights encompass most book formats with a suggested retail price of $4.00 and above. Penguin Putnam is currently working on more than two dozen titles in support of the 1997-1998 motion pictures set for release from DreamWorks Pictures. The first four books shipped in early November and are based on the film Amistad, directed by Steven Spielberg. Penguin Putnam is also developing a range of titles and formats for Small Soldiers (Summer 1998). Directed by Joe Dante (Gremlins, Innerspace) and with special effects from Stan Winston Studio and Industrial Light & Magic (The Lost World: Jurassic Park), the film tells the story of a small town that is overtaken by artificially intelligent toys. Grosset & Dunlap plans six titles, including a movie storybook and a top secret dossier, all capturing the innovative look of the film. In support of DreamWorks' first animated film The Prince of Egypt (Holiday 1998), Penguin Putnam is developing titles in at least a dozen formats, with age-appropriate content for both adults and children, and honoring the ground-breaking animation style of the film. SOURCE Penguin Putnam Inc via Businesswire

Thomson Financial Publishing to Expand Electronic Commerce Initiatives
Thomson Financial Services announced today the acquisition of The EDI Group, Ltd. by its Thomson Financial Publishing unit. Terms of the agreement were not disclosed. The EDI Group is a professional services organization specializing in providing the highest quality research, publication and education services to companies participating in the EDI and Electronic Commerce marketplace. The EDI Group also offers public and private courses in EDI, EC and financial EDI/EFT. In addition, The EDI Group publishes quarterly a professional journal; EDI FORUM: The Journal of Electronic Commerce. Source Businesswire

Harcourt General Announces Results For Fourth Quarter And Full Year
Harcourt General, Inc. (NYSE:H) today reported that its Harcourt Brace publishing businesses achieved strong year-over-year gains in the fourth quarter of fiscal 1997, resulting in a record full-year performance by the Company before non-recurring charges and amortization associated with the acquisition of National Education Corporation (NEC). For the full year, Harcourt General reported that revenues rose 12.2 percent to $3.69 billion from $3.29 billion in 1996. Before NEC-related amortization of goodwill and acquired intangibles and non-recurring charges, operating earnings for the year were $375.7 million, a 9.0 percent increase from $344.7 million in 1996. After $104.1 million in NEC-related amortization of goodwill and acquired intangible assets and $277.2 million in non-recurring charges, the Company had an operating loss in 1997 of $5.7 million. The Company reported a net loss of $115.1 million, or $1.64 per share, for the full year, compared to net income of $190.9 million, or $2.62 per share in 1996. Revenues in the Harcourt Brace publishing operations increased 12.8 percent in the fourth quarter to $398.0 million, while operating earnings were up 22.3 percent to $97.0 million. For the full year, Harcourt Brace publishing revenues increased 14.5 percent to $1.25 billion, with operating earnings before non-recurring charges rising 13.3 percent to $223.1 million.

Reed Elsevier: Update on Trading and on Progress on Proposed Merger with Wolters Kluwer: Reed Elsevier today issues a brief status report on the progress of the proposed merger of Reed Elsevier with Wolters Kluwer and, in line with the practice introduced last year, an update on recent trading and some other material issues. Proposed Merger with Wolters Kluwer: "On 13 October 1997, the Boards of Reed International P.L.C., Elsevier NV and Wolters Kluwer NV announced that they had agreed in principle to propose to their respective shareholders a merger of their businesses. Progress continues to be made in developing the detailed merger proposals. The major steps implemented so far have included relevant employee consultation processes in the Netherlands, as well as the filing of necessary information with the competition authorities in various jurisdictions. "It is expected that, subject to receiving certain regulatory clearances, a circular to the shareholders of Reed, Elsevier and Wolters Kluwer, setting out details of the proposed merger will be issued on 27 March 1998 together with the respective 1997 annual reports. IPC Magazines: "On 27 October 1997, Reed Elsevier announced the possible divestment of IPC Magazines, its UK consumer magazines business. Review of the available options is continuing and if it is decided to pursue such a divestment, it is intended that any transaction would be concluded early in 1998. Update on Reed Elsevier’s Trading: "In September we completed the $447 million acquisition of the Chilton Business Group, a major US business to business publisher. Also, in October, we agreed a merger between Utell, our hotel reservation and representation business, and the US company, Anasazi Inc., which is the leading supplier of technology solutions to the hotel and hospitality market. "Reed Elsevier’s 1997 preliminary results will contain a number of exceptional items, the most significant of which will be substantial provisions in respect of the Reed Travel Group. Since the announcement, on 26 September 1997, of irregularities in circulation claims made by the Reed Travel Group, considerable progress has been made in determining the extent of the misstatements and in developing recompense plans for advertisers in the affected publications. Revised sales and marketing practices have already been introduced and circulation claims are now being rigorously controlled. "It is not possible at this stage in the process to quantify either the full financial effect of the recompense plans or the impact on the future profitability of the Reed Travel Group and the related value of its intangible assets. The exceptional charges will be in relation to the recompense plans, together with a non-cash write-down of intangible asset values. Source: Reed Elsevier

National Geographic Chief Quits: John Fahey Moves Up in Society as Reg Murphy Suddenly Moves Out
The National Geographic Society's chief executive resigned yesterday, only 18 months after taking the top job at the venerable Washington educational and publishing organization. Reg Murphy said he had been planning the move all along and dismissed any suggestions of dissension in his departure. He had been the society's No. 2 executive since 1993. During his tenure, Murphy, 63, a former newspaper publisher, aggressively cut costs and steered the nonprofit society toward profit-making ventures, such as producing dramatic TV movies and starting a chain of National Geographic stores. He also launched new foreign-language editions of the society's famed yellow-bordered magazine in one of the biggest expansion pushes in the publication's 109-year history. The strategic changes made Murphy a controversial figure within the society, a genteel, tradition-bound outfit that has long projected a semi-academic air. Murphy's successor, appointed by the society's board yesterday, is John Fahey, who joined National Geographic just 20 months ago from Time-Life, the direct-marketing arm of Time Warner . Fahey, 45, was recruited by Murphy from Time-Life in Alexandria to run National Geographic Ventures, the for-profit subsidiary Murphy started in 1995. The management changes represent a swift transition at an institution not known for moving quickly. They underscore the ascendancy of executives who've come from outside the organization and have a keener eye on the bottom line. Fahey takes over at a time when the society is in relatively strong shape. Circulation of its flagship magazine, which lost readers throughout much of the 1980s, has stabilized at about 9 million subscribers, who receive the magazine by becoming dues-paying "members" of the society. Its major growth area is its television operations. National Geographic Television produces documentaries and nature programs appearing on NBC and the TBS and Disney Channel cable networks. It has also moved into making dramatic movies for theatrical and broadcast distribution. Its first dramatic offering, "Forbidden Territory: Stanley's Search for Livingstone," was broadcast on ABC Sunday. Copyright (c) 1997 The Washington Post Received via NewsEDGE

Wolters Kluwer Reed Elsevier
The European Union Commission Friday opened a detailed four-month inquiry into the planned merger of Anglo-Dutch publisher Reed Elsevier (N.ELS, U.REE) and Dutch publisher Wolters Kluwer NV (N.WOK), an E.U. source said. Via Newsedge

New York Times Says It Plans Acquisition In 1999
The New York Times Co. said Thursday that it was ``counting on an acquisition to provide considerable future growth'' sometime in 1999. The company also predicted increases in revenues and operating profits, and its stock rose to a 52-week high. ``The next step in our external development plan is to bring an investment banker on board'' to examine potential properties, the company's president and chief executive, Russell T. Lewis, said at a New York conference of investors, sponsored by Paine Webber. But Lewis added that he did not ``anticipate any significant developments in this area until 1999.'' The Times also disclosed that it planned a new section of technology news called Circuits in February and that it would publish seven to nine special one-time sections in 1998. In addition, the company made its earnings predictions, reporting that operating profit for the newspaper group, its largest division, was expected to rise 35 percent from last year to between $430 million and $440 million. The Times also said that earnings before interest, taxes, depreciation and amortization were expected to rise 30 percent, to between $590 million and $600 million. The Times Co., which had revenues of $2.6 billion in 1996, publishes The Boston Globe and 21 regional newspapers in addition to The New York Times, as well as three magazines. The company also operates television and radio stations
Copyright (c) 1997 The New York Times Co. Received via NewsEDGE from Desktop Data, Inc.