Collaboration: McGrawHill and the IET in Publishing Partnership

Interesting bit of news came my way this week when I read that McGraw-Hill Professional had entered into a publishing partnership with The Institution of Engineering and Technology (IET).  No doubt you'll have heard of McGraw-Hill but the IET is a member organization with more than 150,000 members located in over 120 countries.  According to the terms of the agreement, the two companies will partner to create engineering content for professionals and students covering every aspect of electrical and electronic engineering.   Content created in this partnership will be available on McGraw-Hill's AccessEngineering platform although there is no word whether the content will also be available on the IET content platform.  From their press release:

"We are very pleased to partner with The IET. This new agreement fits perfectly with our publishing strategy, which is designed to foster technological innovation. It is the next step in growing McGraw-Hill Professional's more than 100 year relationship with the international engineering community," said Steve Chapman, Publisher of Science & Technology at McGraw-Hill Professional.

Daniel Smith, IET's Head of Academic Publishing, said: "We are always looking for opportunities to extend our reach into the engineering community and are delighted to be partnering with McGraw-Hill Professional to develop new content to complement our ongoing publishing program in this area. Developing quality engineering content which accelerates both research and innovation is a major pillar of the IET's knowledge strategy, helping to bring essential engineering intelligence to a wider audience."

As the press release makes clear, this deal looks like a brand extension deal for the IET where McGraw-Hill will be overseeing the publishing services for all the print and electronic titles and will benefit from the strong brand affiliation that IET carries with engineering professionals.  Naturally, IET will benefit from the broader exposure that working with MGH Professional will bring them particularly into the traditional global retail channels that perhaps IET may not have ready access to.  Making IET branded content available on a wider basis looks like a smart play for this organization.

MediaWeek (Vol 5, No 45): Flatworld Knowledge, McGraw Education, Conde Nast + More

Things were so bad last week, I actually read a paper newspaper, maybe things can get back to normal this week.

Hoboken from the storm (WaPo)

Education textbook trailblazer Flatworld Knowledge is changing their business model to paid rather than free content (IHE):

As usage of Flat World’s materials increased (the company’s latest promotional materials assert that the texts are being used in more than 4,000 classrooms at 2,000 institutions), the company became a darling of supporters of open educational resources and critics of high textbook prices. A 2010 report commissioned by the Student PIRGs, for instance, heralded open textbooks as “the path to textbook affordability.”

But that’s only true if the providers of open textbooks can make their materials available sustainably, and the shift in gears by Flat World Knowledge suggests that, for one company at least, providing free and open textbooks is not a viable business plan. While company officials hoped that they’d be able to persuade many of the consumers of the basic, free versions of its textbooks to pay for printed copies or versions enhanced with study aids and other add-ons, “we don’t convert [from free to paid] as much as we used to,” said Shelstad, the Flat World co-founder.

Economic viability is not the only reason Flat World is dumping the free model, Shelstad said. So is fairness. Some of the company’s 15 current institutional partners pay a $20-$25 licensing fee for every student whose use of the materials they subsidize, and others pay less. Raising the minimum price for use of the materials to $19.95 (the company’s tab for its Study Pass product, which includes the full online textbook, note-taking, highlighting and study aids) is fairer and still affordable for students, Shelstad said.

McGraw Hill sees lower results in advance of their Education sell-off (FT):

Several analysts had expected a decision in mid-to-late October over the future of McGraw-Hill Education, which competes in the school and higher education market with Pearson, owner of the Financial Times.

Terry McGraw, chairman and chief executive, told analysts that he would have news on the plans for the education division “in the coming weeks and hopefully sooner”.

“Critical to this decision is ensuring that we choose the option that maximises shareholder value,” he said.

Operating profit at McGraw-Hill Education fell 20 per cent, or 15 per cent when costs of the group’s restructuring programme are excluded. Most of the decline stemmed from weak US state and local spending on schools.

Revenues in McGraw’s school education group fell 16 per cent, while professional, higher education and international revenues slipped 6 per cent. About a third of the fall was because of revenues being deferred as the business moves from publishing textbooks to selling more digital subscriptions.

Also from the FT a look at Bertelsmann's Thomas Rabe (FT):

Mr Rabe thinks he is. Although low key – he wears sober dark suits and drives a Mini – he has a self-assurance that has driven some colleagues to distraction. One reason his predecessor Hartmut Ostrowski quit as chief executive late last year, according to people familiar with events, was that he “was tired of having someone by his side who always signalled he could do things better”.

How does Conde Nast see their future? (Folio):

“The post recessionary moment is really the introduction of alternative platforms that takes the pressure off of the print business, but doesn’t replace the print business,” he said. “Our print business continues to grow post-recession, but this year is a miserable year. Not because of Condé Nast or any other media company, but because of the anemic U.S. economy—nobody can escape the problems the U.S. economy imposes on us.”

Townsend said Condé Nast’s Web business has grown at half the rate expected so far this year, by about 15 percent topline growth, and print has also been trending upward despite the current fiscal climate.

“Even in this worst moment that any of us can remember with the U.S. economy, the print business continues to grow and the margins are sharper—the growth profit margins are mouth watering,” he said. However, he added, with “net margins, we try to run at 10 percent [but] we’re going to fall short of that on the print side, but we are still an expanding business. When this economy recovers, and it must for all of us, the print business is going to be on fire.”

The print business model will now be complimented by a variety of assets, said Townsend, including, digital and mobile, among others. In November, the company will also announce that it is increasing rate-bases for several of its titles due to growing digital tablet circulation, which Townsend estimated to be around 1 million, or close to 10 percent of total circulation.

A long look at how Paul Reid undertook to finish William Manchester's biography of Churchill (Times):

In 1996, The Palm Beach Post assigned Paul Reid to cover the reunion of a group of veteran Marines from World War II that included William Manchester. Although Manchester was too ill to attend, Reid got along so well with the other Marines that in 1998 they invited him to join them on a trip to Manchester’s home in Middletown. Reid and Manchester bonded over their mutual love of military history and eventually became such close friends that Manchester revealed to Reid the trouble he was having finishing his Churchill biography.

Reid regularly traveled from Florida to visit Manchester in his home, always trying to raise his new friend’s sagging spirits. During one visit, on Oct. 9, 2003, the two men sat in Manchester’s bedroom drinking — whiskey in Manchester’s case, red wine in Reid’s — snacking on popcorn and watching the Boston Red Sox try to upset the New York Yankees for the American League pennant. Reid says he noticed Elmore Leonard’s novel “Maximum Bob” on the bed. After the game, Manchester asked Reid to retrieve a large suitcase from his study. It was a big room, more than 16 feet long, with an oversize desk taking up most of one wall; Yousuf Karsh’s famous photograph of Churchill and a picture of Jacqueline and John F. Kennedy autographed for Manchester by the first lady were on display. What Reid noticed most of all, though, were the empty wastebaskets, the still-sharp, unused pencils, the uncluttered desktop. The room was more like a museum exhibit than a working office.

In Reid’s telling, he brought the suitcase to Manchester, who had another whiskey and told him to have a seat. “I’d like you to finish the book,” he said. At first, Reid thought Manchester meant he wanted him to read aloud from “Maximum Bob,” much as Manchester himself had read “Huckleberry Finn” to an ailing, elderly Mencken years before.

UAE is providing all students with iPads (NYTimes);

The plan to offer iPads across the U.A.E.’s three main higher education institutions has been in the works for one year by government decree. With the support of the government, a team of specialists visited Apple’s headquarters in Cupertino, California, in April to form a partnership and agree on training services for teachers and students.

Apple then completed a feasibility study to determine that the campuses had the proper infrastructure for the project. They shipped 14,000 iPads to the country and asked faculty members for their opinions on which 20 free applications should be downloaded for student use.

Teachers were “panicky” before they realized how easy it would be to use the device, said Andrew Blackmore, curriculum supervisor at Zayed University. He added that educators were now working directly with Apple to develop their own apps and create their own reading material as e-books on iBooks Author. By reducing paper use and waste, the iPads also promote environmentally friendly values in a region where fast cars and massive shopping malls rely on low-cost energy without thinking twice.

Photos from the storm (Atlantic)

MediaWeek (Vol 5, No 44): McGraw Hill Education, Pearson Acquires, Open Access, TIme Mag's Education + More

Brian Kibby, President of McGraw Hill Higher Education interviewed in Inside Higher Ed

Question 4: It seems to me that in your position as president of McGraw-Hill higher education you have before you the very difficult task of leading an enormous change in how your company operates. For many many years the big educational publishes have made very good money with a model of printed books and digital add-ons. You are saying that by 2015 that traditional educational publisher model will be as dead as Blockbuster video, as dead as the old record stores. How are you going to transform your corporate culture and lead your employees to embrace this change? And why should we expect that any big traditional publisher will be able to evolve to embrace this new digital world, as there are not many very good models in other industries of other legacy companies making similar transitions.

Answer 4: McGraw-Hill Education is a company with over 100 years of experience in education, so obviously it’s a place with some history. But the world and the needs of our customers have changed dramatically, as has the technology now available to help satisfy their demands. Our team has embraced this change whole heartedly. Our culture has become one where we have a passion for creative disruption, especially as it relates to what is important to our customers: improved results, retention, and the ability to become even more competitive in the marketplace.

We’re focused on technology now in a way that we’ve never been before, but we still have that deep respect for content, and I think that our employees really appreciate that.

With regard to other models/industries, I think we’ve had something of a late-mover advantage. A lot is made about how education has lagged behind other areas in adopting technology, and I won’t go into that but to say that the more gradual transition in our space gave us the chance to sit down and really figure out the best way to do digital from a business perspective. Newspapers had to make that choice back in the mid-90s, and the music industry had to face it in the early 2000s. Like everyone else, we needed to figure out how to get people to think about digital as something you pay for, and our answer to that was to make digital products that were worth paying for. I think we’ve been able to do that pretty successfully, and the market has responded well.

Pearson announced its largest acquisition in over five years on Tuesday with the purchase of EmbanetCompass, a provider of digital services such as online degrees to leading non-profit colleges and universities in the US (FT).  From Embanet's website:

EmbanetCompass is the premier provider of online learning services and technological solutions for top-tier academic institutions. We are acutely aware of the dynamics that drive higher education and utilize our experience and expertise to assess, finance, develop, recruit for, market and support online learning solutions for our academic partners.

 A new study suggests that open access publishing is larger than expected (Guardian):

They should be encouraged by Laasko and Björk's study which, fittingly, is published in an open access journal. The Finnish researchers found not only that nearly 17% of research papers worldwide are now published in open access journals, a figure that is two to three times higher than was previously supposed, but also that the exponential rise in open access publishing shows no sign of slowing down.

In the UK, since about 35% of papers are reckoned to be made available through deposition in repositories — the green route — the total percentage of open access papers (52%) looks like it has crossed the half-way mark.

Time Magazine devotes most of its current issue to education.  Here is a sample on MOOCs (TIME)

To compare my online experience with a traditional class, I dropped into a physics course at Georgetown University, the opposite of a MOOC. Georgetown admitted only 17% of applicants last fall and, with annual tuition of $42,360, charges the equivalent of about $4,200 per class.
The university’s large lecture course for introductory physics accommodates 150 to 200 students, who receive a relatively traditional classroom experience — which is to say, one not designed according to how the brain learns. The professor, who is new to the course, declined to let me visit.
But Georgetown did allow me to observe Physics 151, an introductory class for science majors, and I soon understood why. This class was impressively nontraditional. Three times a week, the professor delivered a lecture, but she paused every 15 minutes to ask a question, which her 34 students contemplated, discussed and then answered using handheld clickers that let her assess their understanding. There was a weekly lab — an important component missing from the Udacity class. The students also met once a week with a teaching assistant who gave them problems designed to trip them up and had them work in small groups to grapple with the concepts.
The class felt like a luxury car: exquisitely wrought and expensive. Fittingly, it met in a brand-new, state-of-the-art $100 million science center that included 12 teaching labs, six student lounges and a café. It was like going to a science spa.
Elite universities like Georgetown are unlikely to go away in the near future, as even Udacity’s co-founder (and Stanford alum) David Stavens concedes. “I think the top 50 schools are probably safe,” he says. “There’s a magic that goes on inside a university campus that, if you can afford to live inside that bubble, is wonderful.”

Where does that leave the rest of the country’s 4,400 degree-granting colleges? After all, only a fifth of freshmen actually live on a residential campus. Nearly half attend community colleges. Many never experience dorm life, let alone science spas. To return to reality, I visited the University of the District of Columbia (UDC) — a school that, like many other colleges, is not ranked by U.S. News & World Report.

Disruption in the news business from Nieman Report:

With history as our guide, it shouldn't be a surprise when new entrants like The Huffington Post and BuzzFeed, which began life as news aggregators, begin their march up the value network. They may have started by collecting cute pictures of cats but they are now expanding into politics, transforming from aggregators into generators of original content, and even, in the case of The Huffington Post, winning a Pulitzer Prize for its reporting.

They are classic disruptors.

Disruption theory argues that a consistent pattern repeats itself from industry to industry. New entrants to a field establish a foothold at the low end and move up the value network—eating away at the customer base of incumbents—by using a scalable advantage and typically entering the market with a lower-margin profit formula.

It happened with Japanese automakers: They started with cheap subcompacts that were widely considered a joke. Now they make Lexuses that challenge the best of what Europe can offer.

It happened in the steel industry, where minimills began as a cheap, lower-quality alternative to established integrated mills, then moved their way up, pushing aside the industry's giants.

In the news business, newcomers are doing the same thing: delivering a product that is faster and more personalized than that provided by the bigger, more established news organizations. The newcomers aren't burdened by the expensive overheads of legacy organizations that are a function of life in the old world. Instead, they've invested in only those resources critical to survival in the new world. All the while, they have created new market demand by engaging new audiences.

MediaWeek (Vol 5, No 43): McGraw Hill, Springer, Hilary Mantel, Amazon, Metadata +More

The tires are being kicked at McGraw Hill Education by a predictable group of private equity players (Cengage is backed by Apax) but the asking price looks steep (Reuters):

McGraw-Hill Companies Inc's (MHP.N) education unit is expected to draw final bids from private equity firms Bain Capital and Apollo Global Management (APO.N) as well as rival Cengage Learning Inc, in a deal that could fetch around $3 billion, several people familiar with the matter said.

Cengage, the No. 2 U.S. college textbook publisher, and the two private equity firms are working on final offers for McGraw-Hill Education, the world's second-largest education company by sales, with the bids due later in October, the people said.

McGraw-Hill, which is running the auction as an alternative to its planned spin-off of the business, wants to get more than $3 billion and could still decide against a sale if the bids fail to meet its price expectations, the people said this week.

Note - If you read my post this week about Pearson the Apollo Group owns for profit University of Phoenix making me some kind of fortune teller.

Journals publisher Springer is up for a recapitalization based on reports from Reuters:

The company has performed well and earnings before interest, tax, depreciation and amortisation (EBITDA) have risen to around 330 million euros, bankers said, from 310 million in 2011, which was quoted on EQT's website.
Although there is no urgency for the company to do anything as its debt does not mature until between 2015 and 2017, conditions in Europe's leveraged loan market are such that it could be good time to do an opportunistic deal.
There have been a number of such deals recently as banks and private equity firms seek to make money and take advantage of stronger market conditions, after a lack of deal activity over the summer, including dividend recapitalisations by the RAC and Formula One.

Hilary Mantel interviewed in The New Statesman:

Mantel wondered if she was being too demanding. But then she thought that to adjust her style in any way would be not only a loss, but patronising (“You simply cannot run remedial classes for people on the page”). Some will be lost along the way, but she doesn’t mind. “It makes me think that some readers read a book as if it were an instruction manual, expecting to understand everything first time, but of course when you write, you put into every sentence an overflow of meaning, and you create in every sentence as many resonances and double meanings and ambiguities as you can possibly pack in there, so that people can read it again and get something new each time.”

She can sound arrogant, Mantel, assured of her abilities and candid about them in a way that seems peculiarly un-English. But even the arrogance is purposeful. It is one of her pieces of advice to young authors: cultivate confidence, have no shame in being bullish about your ideas and your abilities. She was patronised for years by male critics who deemed her work domestic and provincial (one, writing about A Place of Greater Safety – the French 800-pager – dwelt on a brief mention of wallpaper). So she makes no apologies for her self-belief.
...

After all the research, the reading, the note-taking, the indexing, the filing and refiling, it is a question of tuning in. Alison, she says, is how she would have turned out if she hadn’t had an education – not necessarily a medium, but not far off, someone whose brain hadn’t been trained, and so whose only (but consi­derable) powers were those of instinct, of sensing, of awareness. Mantel describes herself as “skinless”. She feels everything: presences, ghosts, memories. Cromwell is researched, constructed and written, but he is also channelled. Occupying his mind is pleasurable. He is cool, all-seeing, almost super-heroic in his powers to anticipate and manipulate. (Craig thinks Mantel made the mistake of falling in love with her leading man and that her version of Cromwell is psychologically implausible for a man we know tortured people.) Mantel relishes his low heart rate, the nerveless approach to life, a mental state unbogged by rumination. She says that when she began writing Wolf Hall, first entering this mind, she felt physically robust in a way she hadn’t for years.

Amazon chief Jeff Bezos was on a promo tour in the UK this week and was interviewed in The Telegraph:

He says the business quickly realised that if they wanted to make ebooks work, they needed to make hardware. Eight years later, the Kindle is into its fifth generation. The latest, film and music playing, multimedia tablet takes on Apple’s iPad and is, on pre-orders alone, the site's number one best seller.

Bezos, though, doesn’t want to take on Apple at their own game. “Proud as I am of the hardware we don’t want to build gadgets, we want to build services,” he says. “I think of it as a service and one of the key elements of the service is the quality of the hardware. But we’re not trying to make money on the hardware – the hardware is basically sold at breakeven and then we have a continuing relationship with the customer. We hope to make money on the services they buy afterwards.”

And make money they do, but Amazon is still not Apple’s size. Would Bezos like it to be? “Even though this device is only £159, in some ways it's better than a £329 iPad – way better wifi, the iPad only has mono sound and the Kindle bookstore is by far the best electronic bookstore in the world.”

Colin Robinson writing in the Guardian suggests ten ways publishing can help itself. Extra points if you can find anything either new in this list (Guardian):

This year, on the face of things, it's been business as usual at the Frankfurt book fair, with some 7,500 exhibitors setting up shop in the gleaming white Messe. But scratch beneath the surface and a tangible unease about the future of the industry is evident: book sales are stagnating, profit margins are being squeezed by higher discounts and falling prices, and the distribution of book buyers is ever more polarised between record-shattering bestsellers and an ocean of titles with tiny readerships. The mid-list, where the unknown writer or new idea can spring to prominence, is progressively being hollowed out. This is bad news not just for publishing but for the culture at large.

Three magazine publisher's experience with Apple's Newsstand (Journalism UK)

When Goldsmith delivered presentations on Newsstand at publishing conferences a year ago, he said he would be asked a common question.  "The first question from the audience would be 'aren't you cannibalising your own sales?' And that question would come from our editors as well."  "But 80 per cent of sales are overseas, 90 per cent of customers are new to the brand." And 40 per cent of all of sales are for subscriptions. "That's brilliant, because it is offsetting that sad decline in print.
It is a similar story for Conde Nast. "We are reaching a new audience, we are able to target them in new ways, we are able to market to them in new ways, it's a pretty exciting new development for us," Read said. "It means that the overall circulations of our magazines in these particular instances are growing very healthily so that we are seeing very big increases in circulation with titles such as Wired and GQ." Overseas sales vary from title to title, Read added, "A magazine like Vanity Fair will see quite a big proportion of its iPad sales coming from overseas, something like 60 to 70 per cent will be international, but that applies to print as well.

Metadata on Stage at Frankfurt reported by Publisher's Weekly:

Indeed this is the thrust of their exchange—the ever-increasing numbers of books and the faulty metadata being circulated about them—over the next half hour. The transition from print to digital has made metadata—which can mean anything from an ISBN to customer ranking on Amazon—not just simply useful, both Dawson and O’Leary emphasized, it is now critical to the ability to find and sell a book. The rise of digital publishing, and the lowering of barriers to entry for just about anyone—from professional publisher to newest self-publisher—has resulted in an explosion of metadata of all kinds. And apparently a sizeable chunk of it is either inaccurate or missing outright, compounding the problem of book discoverability. 

“When it was only the print bookstore, BISAC was a luxury,” O’Leary said, “but with all the digital products, we need accurate and granular metadata. It’s what we need to make book discovery possible.” The explosion in the amount of digital book content, “puts pressure on the metadata,” said Dawson, who pointed out that once inaccurate metadata is published online, “it’s there forever. If you’ve ever tried to correct a mistake in the metadata you know it’s a game of Whack-A-Mole.”
In fact in the olden days of print, O’Leary said, “It used to be that once you shipped the book, that was the end, the metadata was done. But with digital it never stops, there are constant updates and changes.” And as more consumers around the world go online they encounter information on all kinds of books, many of which they will want—but will be unable to buy. “Today, every book you publish is visible everywhere, even if you can’t buy it [because of territorial rights],” O’Leary said, “This encourages piracy, because if people do try to buy it, they find out they can’t.”

From Twitter this week:

From the fashion and style section of the NYTimes (??) The Education of Tony Marx head of NYPL.  (NYTimes)

Pearson's Future of Education - No Longer Traditional

In the US, Suzie co-ed may be looking at graduating with over $100k in tuition debt and, it’s even true that her younger brother is going to end up with considerably more since tuition rises inexorably each year.  Seen in this context, it may be hard to understand why publishers get beaten up each year over the $4,000 that a student may spend on educational content over the course of their four years in College.  Despite being asked to spend just 4% of their educational ‘budget’ on content, students (and to some extent their parents) frequently voice their opposition to the high price of textbooks and often gain the attention of media and government.  Publishers may be excused for wondering ‘why us’ when the cost of tuition continues to grow year over year but the annual value of the textbook market has remained stagnant at approximately $7.5billion.  Why textbooks are viewed this way is hard to define: Perhaps the student pays for their textbooks out of their own pocket versus tuition paid by parents or, the utility of the textbooks assigned by professors is questioned when they are not used in full or, the shortened shelf life of textbooks means students can’t resell their books.  Maybe all of the above and other reasons as well.

For publishers the dissatisfaction is problematic but they may not actually care too much about the student even though it is the student that makes the purchase.  Their customer is the faculty member.  After all, the professor is often making an annuity-like decision to select one textbook over another and that decision can often stand for several years meaning recurring revenue for the publisher. Increasingly the institution where the faculty teaches is also important and, while the professor remains vital publishers may be increasingly interested in the $100K spent for tuition.

A number of years ago, I made a presentation at theFrankfurt Bookfair Supply Chain Interests Group where I used the example of Reed Elsevier to show how a business could realign its’ business to compete in a much larger market where the opportunities were potentially significantly greater.  Jack Welsh ex-CEO of General Electric, (when not suggesting conspiracy theories) used to challenge his executives to look beyond their traditional markets to expand their opportunities to grow revenue.  As Reed evidenced, it may better to be a smaller player in a $40billion market than to dominate a $100million market.  Strategically redefining your business can’t be done easily but becomes the driver in business planning and over a defined period a business can move itself into one with significantly more opportunity.

At a conference earlier this year, when the student spending numbers were discussed it occurred to me that fighting over an annual spend of $1,000 per student versus an opportunity to grab some of the $25K spent per year would be a strategic win for a publisher.  With the education market expanding – both in pricing and market penetration – and traditional the textbook market flat, where else could a publisher go?  A strategic rethink and change in direction may appear beyond comprehension for the average book publisher but this is what business strategy is all about.  When we were defining Bowker’s business in 2001/2 we could have stayed in low-margin, low-growth metadata management for libraries and struggled.  Instead the company moved into high-margin, high-growth transaction businesses and market intelligence for publishers and we were able to grow the company.  Strategically for Bowker, this transition was logical but was only achieved by stabilizing the legacy business and making a series of strategic acquisitions.

In publishing, there is a more impressive example in the manner in which Pearson looks to be rethinking how they define their educational market.  Pearson has long been the leader in education publishing both in K-12 and Higher Ed since the big acquisitions from Simon & Schuster in the late 1990s.  Indeed in recent interviews, Majorie Scardino the outgoing CEO of Pearson, recalled realizing education was the growth vehicle for Pearson soon after she became CEO 15 years ago.   During her tenure, the company realigned their operations, redefined their market, invested in content transformation and made many strategic acquisitions thereby broadly expanding the content and services customers in k-12 and higher ed can now purchase (and license) from Pearson.  One only need look at the chart below from their recent annual report to recognize how fundamental has the change in market approach been for Pearson.

Pearson PLC Annual Report: Competitors

The companies we in the ‘publishing’ market would consider their historical competitors – McGraw Hill, Cengage, HMH – are only bit players in comparison with Apollo, Benesse, Kaplan and others.  Pearson is not only a content producer but they are also (via a series of key acquisitions) a distribution point for educational learning on par with Kaplan and the University of Phoenix.  Pearson recently won a contract to deliver “Cal State Online” for the California State University System (CSU) which will enable the delivery of a selection of undergraduate degree and professional master’s programs.   In competing to deliver this solution for CSU it is unlikely that Pearson was competing with their ‘traditional’ publisher competitors.

Other publishers may be starting to take notice and John Wiley’s recently announced acquisition of an educational provider is evidence of this attention.  Yet, Pearson looks to have a significant head start and looking at this chart it’s interesting to speculate what the impact of mergers and acquisitions may have on these players over the next few years.  It seems logical that for some the fastest way to catch up to Pearson would be to merge with someone else.  For example, Kaplan doesn’t have much owned content but wide market penetration; whereas, Cengage is a content developer focused on traditional education delivery.  This type of strategic combination may make sense as these players begin to re-think their markets.

An interesting aspect of the discussion about Scardino’s departure has been focused on what Pearson’s new CEO may divest as though divesture at Pearson is something new.  That’s not the case, as Pearson has divested many businesses over the past ten years.  Whether the company divests the Financial Times or Penguin seems far less interesting to me in contrast to what their education business can become over the next five years.  Leveraging what is increasingly a content platform for creation and delivery looks far more interesting and compelling for Pearson in my view and is a direct result of how they re-thought their market to go beyond the parameters of the traditional publishing market.  Looking at the chart from their annual report, all educational companies are going to struggle to keep up.

FT On Potential McGraw-Hill Break-Up

Reporting via mergermarket.com the FT suggests that the activist shareholders seeking to unearth greater value from their holdings in McGraw-Hill will face an up hill battle (FT).

McGraw-Hill has spent the last ten to twelve months receiving advice from a slew of media bankers, the industry bankers said. “Even if the activists have revolutionary ideas in mind, chances are it’s already been pitched to the management and considered under various scenarios,” the first of the bankers said.

And further comments on the education assets specifically:

McGraw-Hill has been receiving sales pitches for its education publishing assets, specifically its higher education textbook assets, the first and second bankers said.
These assets have drawn strong interest from financial sponsors like Blackstone and Hellman & Friedman and could fetch around USD 3.5bn in a sale, according to a lender following the situation. Both sponsors declined to comment.
Other sponsors with historical expertise in education include Bain Capital, KKR, Providence Equity Partners, and Warburg Pincus.
The approaches come as McGraw-Hill has been accused of being slow to respond to technology changes in the publishing business.
“They’re not playing in the back-office ERP (Enterprise Resource Planning) areas and student information systems that Pearson (PSON:LN) or GlobalScholar are playing in and that are higher growth margins,” said a third banker.
Pearson’s education sales jumped 7% and operating profit rose 16% last year based on public filings, meanwhile McGraw-Hill’s revenue and operating income for 2Q11 decreased 5.0% and 18.3%, respectively. Pearson, the owner of the Financial Times, is the parent company for this news service.
With McGraw’s education business not growing, it makes sense to consider a split of the business from the company’s profitable Standard & Poor’s ratings service, the industry bankers said.

More from the FT here.

MediaWeek Report (Vol 3, No 45a): Recent Publishers' Financial Headlines- Peason, Hachette, Simon & Schuster

The past few weeks have seen a resurgence of sorts in the fortunes of some of publishing's biggest players. Here is a summary: Pearson noted that their markets were 'subdued' however they continued to produce market gains their competitors probably envy (Press Release):

Demand in some of our markets remained subdued in the third quarter, and the macroeconomic outlook is still uncertain. Even so, Pearson increased sales by 7% and adjusted operating profit 15% in the first nine months of 2010*. All parts of the company continued to perform strongly, with sales growth of 5% in Penguin, 7% in education and 11% at the Financial Times Group. ...

In North America, this strategy enabled us to gain share and grow faster than our market, with sales growth of 5% in the first nine months. Our Higher Education business grew strongly once again. Its market remains healthy (industry sales up 10% in the first eight months, according to the Association of American Publishers) and our leadership in digital learning continues to produce market share gains. More than 3.5m students have enrolled in an online course provided by eCollege in the first nine months, an increase of almost 39% over last year. More than 6.5m college students have registered for our subject-specific digital learning tools (MyLabs), an increase of almost 34%. Our Assessment and Information business remained resilient as we won or renewed a number of contracts including a teacher certification contract in Pennsylvania and student data systems in Utah. The breadth of our School Curriculum business and its strength in digital is enabling us to grow despite weakness in state and local funding and uncertainty around the impact of new Common Core standards. We are planning on the basis that school funding remains under pressure in 2011 and that the total new adoption opportunity will be lower than in 2010. We are accelerating the transformation of our School business, investing to broaden the range of products and services we offer to schools to help them boost student performance and institutional efficiency. Sales in International Education are up 8% after nine months. We are benefiting from strong demand in developing markets and for assessment services, English Language learning in China and digital, while developed markets and school publishing are generally soft. In the first nine months, MyLab registrations outside North America were up almost 40% on the same period last year to more than 460,000. ....

At Penguin, sales are up 5%. Physical retail markets are tough, but are offset for Penguin by strong publishing and rapid growth in eBook sales (which have increased threefold). Penguin continues to lead the industry in innovation in digital publishing, with 16,500 eBook titles now available and a number of children’s apps for bestselling brands. The Fry Chronicles by Stephen Fry became a bestseller in five formats (hardback, ebook, enhanced ebook, app and audio), a publishing first. The fourth quarter is an important selling season in consumer publishing and Penguin has a strong line-up of bestselling authors including Tom Clancy, Patricia Cornwell, Barbra Streisand and Nora Roberts in the US; and Michael McIntyre and Jamie Oliver in the UK.

Hachette (Grand Central Books) reported declines attributed to reduced sales of the Stephanie Meyer 'saga' (Press Release):

As expected, the erosion in sales of Stephenie Meyer's Twilight saga (Twilight, New Moon, Eclipse and Breaking Dawn) had a marked impact on revenue trends not only in the United States, but also in France and the United Kingdom. In France, the postponement of deliveries of secondary school textbooks from the third quarter to the fourth quarter (due to the late announcement of new curriculums) also had a temporarily negative effect. And in Spain, the Education market was more challenging than last year.

After a like-for-like revenue fall of just 4.5% in the first half of 2010, there was a more marked fall (of 6.8%) in the nine months to end September; this was largely due to the sharp decline in the Stephenie Meyer phenomenon and the non-recurrence of the sale of the international rights to the saga, booked in the first half of 2010.

However, revenues for the first nine months of 2010 are slightly ahead of those for the comparable period of 2008, demonstrating the remarkable resilience of the Lagardère group. Numerous literary successes - James Patterson and Nicholas Sparks in the United States, David Nicholls and Sarah Waters in the United Kingdom, and Jacques Attali and Erik Orsenna in France - are testimony to the dynamism of our publishing houses.

Sales of e-books remain strong, accounting for some 9% of revenues in the United States in the first nine months of 2010.

Simon & Schuster (Part of CBS)

For the three months ended September 30, 2010, Publishing revenues decreased 6% to $217.7 million from $230.4 million for the same prior-year period reflecting lower book sales in the adult group from the soft retail market, partially offset by growth in sales of digital content. Best-selling titles in the third quarter of 2010 included The Power by Rhonda Byrne and Obama's Wars by Bob Woodward. For the three months ended September 30, 2010, Publishing operating income increased 11% to $29.4 million from $26.6 million and OIBDA increased 10% to $31.1 million from $28.4 million for the same prior-year period reflecting the impact of cost containment measures, lower royalty expenses and lower production costs from a change in the mix of titles. Nine Months Ended September 30, 2010 and 2009: For the nine months ended September 30, 2010, Publishing revenues decreased 3% to $559.1 million from $573.5 million for the same prior-year period reflecting the soft retail market, partially offset by growth in digital sales of Publishing content. For the nine months ended September 30, 2010, Publishing operating income increased 47% to $44.9 million from $30.6 million and OIBDA increased 36% to $49.9 million from $36.6 million for the same prior-year period reflecting the impact of cost reduction measures and lower production expenses from a change in the mix of titles, partially offset by higher royalty expenses. Restructuring charges of $1.8 million incurred during the nine months ended September 30, 2010 reflect severance costs associated with the elimination of positions.

NewsCorp is done separating out the Harpercollins unit from their other publishing assets. (SeekingAlpha)

McGraw-Hill Education and Professional publishing reported as follows (Press Release):

Education: Revenue for this segment increased by 5.5% to $1.1 billion in the third quarter compared to the same period last year. Including a $3.8 million pre-tax gain on the divestiture of a secondary school business in Australia, the operating profit for the third quarter grew by 19.9% to $357.5 million. Cost controls contributed to the increase in the segment's operating margin to 33.9%, the best third-quarter performance for McGraw-Hill Education since 2007. Foreign exchange rates had an immaterial impact on revenue and operating profit in the third quarter. Revenue for the McGraw-Hill School Education Group increased by 6.7% to $534.7 million in the third quarter versus the same period last year. Revenue for the McGraw-Hill Higher Education, Professional and International Group grew by 4.3% to $520.0 million in the third quarter, compared to the same period last year. A strong performance in the state new adoption market was the major factor in McGraw-Hill School Education Group's third quarter results. The McGraw-Hill School Education Group is on track to capture approximately 30% of the estimated $825 million to $875 million state new adoption market in 2010. In 2009, the state new adoption market was about $500 million. ... In professional publishing, online sales of books and digital products produced solid growth in the third quarter. Double-digit e-book sales were a bright spot in the sluggish retail book market, which continues to be buffeted by difficult economic conditions. More than 5,000 McGraw-Hill professional titles are now available to customers as e-books.

Harlequin a division of TorStar is often beset by forex changes (PR)

Book Publishing operating profit was $23.0 million in the third quarter of 2010, up $0.1 million from $22.9 million in the third quarter of 2009, as $1.4 million of underlying growth offset a negative $1.3 million from the impact of foreign exchange. Year to date, Book Publishing operating profit was $66.1 million, up $3.0 million from $63.1 million last year as $6.2 million of underlying growth more than offset a negative $3.2 million from the impact of foreign exchange. In both the quarter and the year to date, operating results were up in the North America Direct-To-Consumer and Overseas divisions and down in the North America Retail division.

Earlier this month Wolters Kluwer reiterated their full year guidance (PR)

In the third quarter, growth in online and software solutions continued in all divisions. With improving retention rates across the business, subscription revenues, which represent 72% of total revenues, showed improvement over the prior year, especially for electronic revenues. This growth helped to offset the impact of print publishing declines and the continued pressure on advertising and pharma promotional product lines. Book performance improved in the third quarter driven by strong results in legal education and health book product lines. The Health & Pharma Solutions division performed well, with strong growth noted at Clinical Solutions, Ovid, and books. Within Tax & Accounting, new sales and retention rates for software solutions grew at a solid rate which helped offset pressure on print-based publishing. Financial & Compliance Services saw double-digit growth in its audit risk and compliance product lines and cyclical revenues associated with mortgage lending improved in the third quarter. In the Legal & Regulatory division, transactional revenues at Corporate Legal Services continued to grow, reflecting the steady economic recovery underway in the U.S. While online and software products grew globally within Legal & Regulatory, macro economic conditions continue to put pressure on publishing and cyclical product lines such as training, consulting and advertising, particularly within Europe, offsetting the positive trends for electronic revenues.

McGraw-Hill Reports 3rd Quarter

MGH expect a 1-2% revenue decline in the performance of their education unit this year and a resulting erosion in the units operating margin. Typically the MGH press release summary contains a lot of detail and here is the relevant educational division explanation:

Education: "Revenue for this segment declined 3.8% to $1.1 billion in the third quarter compared to the same period last year. Reflecting a pre-tax restructuring charge of $5.4 million in the third quarter for a workforce reduction of approximately 90 positions and a $15.9 million decline in incentive compensation expense, operating profit decreased by 14.5% to $351.5 million. Foreign exchange rates had no material impact on revenue and operating profit for the third quarter.

"Revenue for the McGraw-Hill School Education Group declined by 9.1% to $623.5 million in the third quarter. Revenue for the McGraw-Hill Higher Education, Professional and International Group increased by 3.7% to $507.8 million.

"In the seasonally important third quarter for the elementary-high school market, the McGraw-Hill School Education Group captured 31% of the total available dollars in a robust state new adoption market. Strong performances in K-5 reading and math were key to our results in this year's state new adoption market, which is anticipated to be $925 to $950 million.

"In the Florida K-5 reading adoption, we expect to capture more than 70% of the market. We also expect to take more than 40% of the K-12 reading/literature state new adoption market, which includes Alabama, Indiana, Louisiana and Oklahoma. In math, we had solid results in Texas and California. We project a 31% capture rate in the K-5 math market in Texas and similar success in the first year of the K-8 math adoption in California, where purchasing will continue into 2009.

"A solid performance in the growing state new adoption market, however, could not offset lower residual and supplemental sales in both adoption states and the open territory. The supplemental market has been soft all year, but the sudden decline in residual sales did not hit the market until August, normally a peak sales period each year for the school business. The decline in residual sales reflects budgetary pressures that school districts are facing due to higher energy and commodity costs, lower tax revenue and higher pension and salary requirements. These higher costs drain resources that otherwise would be used for discretionary purchases such as instructional materials.

"The worsening economic conditions were particularly acute for school districts in large urban markets. A significant factor for many of these districts was reduced funding for the federally supported Reading First program, which was cut from $1 billion in prior years to $383 million in 2008. A portion of the Reading First funding would have been used to provide materials such as workbooks.

"As indicated by the 16.6% decline in the market's sales for August followed by a 17.6% drop in September that was reported by the Association of American Publishers, the reduction in residual ordering is an industry-wide phenomenon. As a result of this unprecedented development, sales for the total Pre-K-12 market will probably decline by 3% to 4% in 2008.

"In testing, a decrease in custom contract work and legacy products offset growing sales from Acuity, our new formative testing program; LAS Links, our assessments for English-language learners; and TABE diagnostic assessments and instructional support for adult students.

"In the McGraw-Hill Higher Education, Professional and International Group, growth in international and U.S. college and university markets offset softness in professional markets.

"A surge in ordering in September was key to our improvement in the U.S. college and university market. We produced gains in each of our three main areas of academic focus: Business and Economics; Science, Engineering and Mathematics; Humanities, Social Sciences and Languages. Growth in our digital and custom career product lines was especially strong.

"Based on the performance of the U.S. college and university market so far this year, we still expect the industry to grow between 4% and 6% in 2008.

"In the international marketplace, our third quarter revenue increase was led by higher education products in Europe and the Middle East as well as the continuing success of the 17th edition of Harrison's Principles of Internal Medicine in India. In our Spanish-language markets, we benefited from back-to- school sales in Spain and Mexico together with the third quarter release of Harrison's Principles of Internal Medicine in Spanish.

"In professional markets, economically challenged retailers cut back on orders and reduced inventory, so even though six of our new titles appeared on best-seller lists during the third quarter, there was a decline in overall revenue. However, our digital subscription products for professional markets continue to produce solid growth.

McGraw Hill Plotting to Buy RBI

The Telegraph handicaps some of the interest in the sale of Reed Business information and offers the intreging notion that MGH would purchase the Reed titles. What they don't discuss is what would happen afterwards. As I have speculated, some assets are likely to be sold after a sales of RBI and this article compares the 'overlap' between the RBI titles and those currently owned by MGH.

The McGraw Hill Companies, owner of Standard & Poor's credit rating agency, has titles which overlap with RBI in aviation and construction. McGraw publishes aviation Week and a collection of architectural and engineering titles, while RBI has a large portfolio of construction titles including Construction News and Professional Builder.

And:

The sale of Reed Business Information (RBI), whose titles include film industry bible Variety, Flight International and New Scientist, began last week when information was sent to prospective bidders. If RBI fetches the asking price, it would be the biggest media takeover since the sale of Emap at the end of last year.

McGraw Hill Results

McGraw Hill reported their full year results on Thursday with revenues and net income up versus 2007. Revenues for 2007 of $6.8Billion were 8.3% higher versus 2006 and 2007 net income of $1.0billion was 14.9% higher versus 2006. Their stock price also got a kick on their more encouraging outlook for 2008. The company said they expect revenue growth in 2008 of 6% to 8% at McGraw-Hill Education and Information & Media, and a 2% to 4% increase at Financial Services. This exceeded analysts expectations.

Shares rose as much as 12.5 percent. Chief Executive Harold McGraw said he expects the U.S. economy and capital markets to show signs of recovery in the
second half of 2008, though a "housing recession" will likely persist all year. McGraw-Hill also publishes school textbooks and magazines such as BusinessWeek,
and owns researcher J.D. Power & Associates.

Despite these full year numbers, the company's results were significantly impacted by a slow fourth quarter - mainly due to the slow-down in credit market - and net income was almost half the level the company recorded in 2006. Revenues were off 1.5% versus 2006.

Other highlights from the press release:

Education: "Revenue for this segment in 2007 increased 7.2% to $2.7 billion compared to 2006. Operating profit in 2007 grew by 21.5% to $400 million. Included in the segment's 2007 operating profit is a pre-tax restructuring charge of $16.3 million in the fourth quarter for severance relating to a workforce reduction of 304 positions. In 2006, there were pre- tax restructuring charges of $5.6 million in the third quarter and $10.4 million in the fourth quarter.

Financial Services: "Revenue for this segment in 2007 increased by 10.9% to $3.0 billion compared to last year. Operating profit grew by 13.1% to $1.4 billion. Included in the segment's operating profit is a pre-tax gain of $17.3 million on the divestiture of a mutual fund data business in the first quarter and an $18.8 million pre-tax restructuring charge in the fourth quarter consisting mostly of severance relating to a workforce reduction of 172 positions, driven by the current business environment, as well as the consolidation of business support functions.

Information & Media: "Revenue for this segment in 2007 increased 3.6% to $1.0 billion compared to last year. Operating profit grew 27.2% to $63.5 million. Included in the segment's 2007 operating profit is a pre-tax restructuring charge of $6.7 million in the fourth quarter for severance relating to a workforce reduction of 114 positions. In 2006, there were pre- tax restructuring charges of $5.7 million in the third quarter and $3.0 million in the fourth quarter. The operating margin for 2007 was 6.2% versus 5.1% in 2006. Foreign exchange rates did not have a material effect on revenue, but reduced operating profit growth by $4.6 million.

McGraw Hill Job Cuts

MGH announced yesterday that it will cut 3% of their workforce (about 600 jobs) and take a charge for the upcoming quarter. From Reuters:

The cuts will result in a $43.7 million pretax restructuring charge and reduce fourth-quarter earnings by $27.3 million after taxes, or 8 cents per share, McGraw said.
"For 2007, we still expect double-digit earnings per share growth" excluding the restructuring costs and other charges, McGraw said.

Also of note, MGH shares have fallen 39% over the past 12 mths in part because of what some have seen as faulty advice from its S&P unit with respect to the sub-prime banking crisis. While McGraw attributed the restructuring to the financial market issues the largest cuts look to be in their education unit. Given the amounts being invested by the other large players this seems counter intuitive.

NYTimes

McGraw Hill Third Quarter Strong

MGH continued to delivery strong financial results on the back of their strong start to the year. In the third quarter revenues up over 9.8% to $2.2billion. Net income for the third quarter grew by 18.2% to $452.0 million. Foreign exchange rates positively affected the growth of revenue by $21.3 million and contributed $1.8 million to operating profit. From the press release,

"Double-digit growth and increased share in the elementary-high school market in
the most important quarter of the year for education and solid performances in Financial Services even as the structured finance market deteriorated were key to our results," said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. "The operating margin expanded in all
three segments."

Net income for the first nine months was $872.9 million. and Revenue for the first nine months grew by 11.6% to $5.2 billion. Commenting on the outlook for the balance of the year the company stated:

"We are still on course to produce double-digit earnings per share growth in 2007, as well as improved operating margins in the Financial Services and McGraw-Hill Education segments. For the fourth quarter, revenues and earnings will not match last year's results because of challenging conditions in the structured finance market and some softness in education."

Highlights:

Education:

• Revenue for the McGraw-Hill School Education Group increased 11.2% in the third quarter to $670.8 million.
• Revenue for the McGraw-Hill Higher Education, Professional and International Group grew by 8.1% in the third quarter to $505.1 million
• Capturing 32% of the fast-growing state new adoption market was the key to this year's industry-leading performance by the McGraw-Hill School Education Group
• In professional markets, digital products, which include Access Medicine, Access Surgery, Access Emergency Medicine and Access Pharmacy, continue to attract a growing number of domestic and international subscribers. Our new digital iSpeak products, launched in April and now available in seven languages, are gaining traction

Financial Services:

• "Revenue for this segment increased 12.5% in the third quarter to $759.6 million compared to the same period last year.
• Operating profit grew by 17.3% to $346.7 million. Foreign exchange rates positively affected revenue growth by $12.6 million and had an immaterial impact on operating profit growth.
• Double-digit growth in Standard & Poor's international fixed income markets, a strong performance by corporate and government ratings, and outstanding results from financial information products and services offset growing weakness in structured finance
• "Standard & Poor's data and information products and index services recorded solid gains. Increasing assets under management in exchange-traded funds, stepped up trading volume of derivative contracts, and growth in licensing fees, all linked to Standard & Poor's indices, contributed to the improvement.
• "Strong demand for data and information products is spurring growth. Capital IQ continues to add new customers and expand services to existing clients. A primary revenue driver has been the addition of new modules to the Capital IQ platform, including portfolio management tools and detailed fixed income information.

Information & Media:

• Revenue for this segment increased 2.1% in the third quarter to $252.4 million compared to the same period last year.
• Operating profit grew by 35.8% to $18.6 million. In the third quarter of 2006, the segment incurred a pre-tax restructuring charge of $5.8 million.
• Foreign exchange rates did not have a material effect on revenue or operating profit growth.

Full press release
Powerpoint

McGraw Hill Posts Strong Quarter

McGraw Hill reported second quarter results this morning with their financial services group (Standard and Poors) reporting a 21% increase in revenue and a 28% increase in operating income versus the same period last year. Overall revenue and profit rose 12.5% and 25% respectively. Income per share was 79cents versus 60cents in the period last year.

The McGraw Hill School education division reflected industry growth trends and full year revenue growth is on track for a 5-6% increase.

"A very strong performance by Financial Services was a key factor in our second quarter," said Harold McGraw III, chairman, president and chief executive officer of The McGraw-Hill Companies. "We also benefited from the McGraw-Hill School Education Group's strong start in this year's state new adoption market and solid performances in higher education, professional and international markets.

In education, the company expects a strong adoption cycle to offset mediocre growth in open territories. The company is also seeing strong performance in College and international markets.

"Revenue for this segment increased 5.8% in the second quarter to $647.3 million compared to the same period last year. Operating profit grew by 18.6% to $80.4 million. Foreign exchange rates added $4.5 million to the growth in revenue, but had an immaterial effect on operating profit growth

The outlook for McGraw Hill is as follows:

"We expect to achieve our goal of double-digit earnings growth in 2007 even though the growth rate will probably slow during the second half of the year as compared to our very strong first half performance. Although we expect low double-digit growth from Financial Services in the second half, tougher comparisons will make the fourth quarter more challenging. Some operating margin compression may occur in our segments in the second half, but we still expect improved operating margins in all three segments for the full year".

Press Release
Investor Relations

Weekly Update

Deal News:
Thomson Learning Sale said to Encourge Share Buy-Back: Globe

Publishing:
About Book Reviews Sections: HuffPo
One Billion E-Books From Ingram: PR
LexisNexis Teams with Elsevier: PR
SilverChair and MGH announce Pharmacy Platform: PR
Elsevier Extends ScienceDirect ArticleChoice: PR
Elsevier Selects Rightslink: PR
McGraw Hill report first Quarter: PR
Edgar Award Winners: PR
Wiley in India: IHT

Other News:
Swets/Muze Glabal Announcement on Fed Search: PR
Generate, Inc. Announce tool For in Context Content Distribution: PR
OCLC Announce WorldCat Local: OCLC

Sports:
Whinging Cry Baby: BBC

Bear Sterns Media Conference

For those interested in the publishing company participants for the current (Mon/Thur) Bear Sterns media conference at the Breakers in Palm Beach here is the approximate schedule:

Monday 3/5
Moodys - 10am. Webinar
Meridith - 11.00am. Webinar
CBS - 12.20pm. Webinar
Thomson - 2.40pm. Webinar
McGraw Hill - 3.20pm. Webinar

Tuesday 3/6
NYTimes - 9.25am. Webinar
Primedia - 10:05am Webinar
Dow Jones - 10:40am Webinar
Scripps - 2:40om Webinar

2/1/99: McGrawHill, Primedia, HoughtonMifflin, Dow Jones,

Publishing News: February 1, 1999
The McGraw-Hill Companies Reports 15% Increase in 1998 Earnings
Internet sales Gain at WH Smith
EarthWeb Announces Online Publishing Deals with Seven Leading Book Publishers
Primedia's 1998 Annual Sales Grow to $1.5Billion
Houghton Mifflin Company Reports 1998 Fourth-Quarter and Full-Year Results
EU Probes FT/Dow Jones/Knight Ridder 1996 deal
Mirror Group CEO is Out

The McGraw-Hill Companies Reports 15% Increase in 1998 EarningsThe McGraw-Hill Companies today reported a 15.1% increase in diluted earnings per share to $3.35 for 1998 compared to $2.91 in 1997. Net income for the year grew to $333.1 million and revenue increased 5.5% to $3.7 billion. Excluding an extraordinary loss and other one-time items, diluted earnings per share were $3.37 and net income was $335.4 million.
Educational and Professional Publishing: Revenues in this segment increased 3.0% to $1.6 billion in 1998 and operating profit improved by 7.7% to $202.1 million. Excluding the write-off for CEC in 1998 and the facilities charge in 1997, operating profit increased 11.1% and operating margin improved to 13.5%. "Revenue in the seasonally slow fourth quarter increased 1.9% to $344.7 million and operating profits climbed by 26.0% to $22.4 million. Despite a lighter adoption schedule in the elementary school market in 1998 and challenging comparisons created by a 25.4% increase in revenue last year, our elementary-high school operations produced a 7.6% gain in revenue to $831.5 million. Outstanding results at Glencoe/McGraw-Hill, our secondary school publisher, SRA/McGraw-Hill, our supplementary publisher, and CTB/McGraw-Hill, our testing division and a better than expected performance by the School Division all contributed to this record. Glencoe produced market-leading performances in math and social studies, scoring well with multi-media programs in both adoption states and open territories. SRA/McGraw-Hill and the School Division combined to take 34% of the California reading market in the second year of the adoption and led the market after two years with a 35% share. The School Division's social studies program also performed well, helping it to overcome a disappointing performance in math. In Higher Education, solid results with both the front and backlists combined to produce a 7.0% gain in revenue to $359.4 million. Revenue for the Professional Publishing Group declined by 4.8% to $429.5 million, reflecting the continuing weakness at CEC. Softness in the Asia-Pacific markets also held back International Publishing operations, although our Spanish-language programs in Mexico and Spain showed solid gains.
Source: Businesswire 1/26/99

Internet sales Gain at WH Smith
British retailer W.H. Smith Group on Wednesday reported a modest sales increase over Christmas and New Year, but saw orders surge at its newly-acquired Internet Bookshop. The Internet Bookshop, the online bookseller Smith bought last July for 8.8 million pounds ($14.54 million), saw sales jump by 70 percent to 1.7 million pounds since September 1 last year, with orders up 170 percent in December. The firm's shares have been swept along on a wave of Internet fever, sparked by investors scouring the UK stock market for Internet plays, which look cheap against U.S. cyber-stocks like rival online bookseller Amazon.com and search engine Yahoo!. Home electronics retailer Dixons, owner of Internet service provider Freeserve, has been the main beneficiary so far. It shares have surged some 70 percent since Freeserve's success first became apparent in November, boosting Dixons' market value by some three billion pounds. Analysts said there has been intense speculation about how Smith might expand its online business, including rumors it might do its own ``Freeserve.'' When Smith bought Helicon it said this marked another step along the way in developing its electronic commerce business and said it would reveal more about Internet plans in the spring.
Source: Reuters 1/27/99

EarthWeb Announces Online Publishing Deals with Seven Leading Book Publishers EarthWeb announced today that it has entered into agreements with seven leading Information Technology (IT) publishers to provide the complete text of their technical books on EarthWeb's ITKnowledge. The deals give EarthWeb licensing rights to over 3,000 technical books for its subscription-based online library of IT information. The ITKnowledge roster of publishers comprises many of the most respected companies in the technical publishing industry including: IDG Books Worldwide and its imprints, M&T Books and IDG Books; Macmillan Computer Publishing and its imprints, Hayden, Macmillan Technical, New Riders, Que, Sams, Waite Group Press and Ziff-Davis Press; The Coriolis Group and its Coriolis and Ventana imprints; Wordware Publishing; CRC Press and its Auerbach and St. Lucie Press imprints; 29th Street Press (formerly Duke Press); and ASP Publishing.
ITKnowledge (http://www.itknowledge.com) is EarthWeb's first subscription service and contains the largest online collection of technical books for IT professionals.
Source: PRNewswire 1/26/99

Primedia's 1998 Annual Sales Grow to $1.5Billion
Primedia reported annual sales rose to $1.53 billion, up 26.3%, and EBITDA, rose 15.6% to $323.1 million. According to company sources the company will strengthen our market positions as we accelerate organic growth through market penetration, international expansion and new products, particularly delivered via the ultimate targeted medium - the Internet." Some of PRIMEDIA's brands include Seventeen, HPC Apartment Guides, Horticulture, IntelliChoice, Telephony, Channel One Network and Weekly Reader. During the week there was some media speculation which referred to Primedia as a potential acquition target. The management group which sold Petersens have loads of cash and will apparently be looking to repeat their success.
Source: Businesswire 1/28/99

Houghton Mifflin Company Reports 1998 Fourth-Quarter and Full-Year Results Houghton Mifflin Company today reported results for the fourth quarter and full year 1998. Net sales in 1998 reached a record $861.7 million for the full year compared to $797.3 million in 1997, an increase of 8.1%. Income from operations was $40.8 million, or $1.40 per fully diluted share, compared to $42.7 million, or $1.48 per diluted share, in 1997. The 1998 results included $.07 per share of operating losses attributable to the Company's July 1998 acquisition of Computer Adaptive Technologies, Inc. and a $.02-per-share charge for the cost of the Company's unsuccessful bid for a portion of Simon & Schuster's publishing assets. Net income for 1998 was $63.6 million, or $2.19 per fully diluted share. This result included other earnings related to the Company's investment in INSO Corporation (INSO) totaling $28.4 million after tax, a $2.0 million after-tax loss on the disposition of certain long-term investments, and a $3.5 million charge for in-process research and development. Net income in 1997, including special items related to INSO totaling $7.2 million, was $49.8 million, or $1.73 per fully diluted share.
Source: Businesswire 1/28/99

EU Probes FT/Dow Jones/Knight Ridder 1996 deal The European Commission said on Friday it was probing a 1996 agreement between Financial Times Information Ltd, Dow Jones Information Publishing Inc and Knight Ridder Business Information, now called Dialog Corp Plc, to set up an electronic database for financial information. The European Union's competition watchdog said in a notice published in the bloc's Official Journal that the agreement was filed for regulatory clearance in June 1997. It added that it could fall under EU regulation 17 which bans anti-competitive agreements and abuse of a dominant position. The Commission called on interested parties to comment within a month. FT Information is controlled by Pearson Plc. Dialog was created in 1997 by the merger of M.A.I.D. Plc and Knight-Ridder Information Inc. The three financial news service providers agreed in September 1996 to cooperate to develop and maintain a new worldwide electronic database for historical business and financial information, the Commission said in the short notice.
Source: Businesswire 1/29/99

Mirror Group CEO is Out
As reported last week, disgruntled investors acted out their threats this week by requesting the resignation of chief executive David Montgomery. Institutional investors cited under-performance and “poor strategic decisions by its senior management” as reasons for the action. Chief among these were management’s decision to invest in the Independent newspaper and establish its Live TV subsidiary.
Source: Financial Times 1/29/99