George Macdonald Fraser

Tom Brown's School Days is a famous book set in the context of Tom's experience at an English boys boarding school. In that book, a boy named Flashman makes a minor appearance as a bully and cad. Forward to 1968 and Flashman makes his literary debut as a self-penned chronicler of some of the epic events of English and World history during the 19th century. Flashman is everywhere from the Crimea to the American Civil War, apparently saving the day and playing a material role in the events in question. At the same time he manages to bed over 400 women (while also maintaining a marriage to a nymphomaniac), is routinely captured, tortured (in some unlikely ways) and escapes. Through complete incompetence and cowardice he always manages to end up looking like the hero.

The entire series of books was based on G M Fraser finding a collection of memoirs at a house sale and it written in the first person narrated by Flashman. They are all hilarious and historically accurate but with respect to Flashman entirely fiction. Fraser made up the entire story of Flashman's travels through British History but what a ride it was. Each book included a sizable addendum that noted the significance of the events, places and people mentioned in each episode. As someone interested in history, these sections were almost as interesting as the fictional work that preceded.

At 82, Fraser died this week after a year long battle with Cancer. As the Times puts it "There will be no more Flashman books chronicling the the life of Brigadier-General Sir Harry Paget Flashman, VC, outstanding Victorian soldier, coward, bully, womaniser, cad, bounder and hugely admired all-round bad egg." Times

Informa: Buy Rating

Following the apparent sale of Emap's businesses over the past month, analysts have cast a look over the rest of the industry for potential upside (Reuters). Analysts at Bear Sterns and Panmure Gordon have rated Informa as 'out perform' and 'buy' respectively. Informa's share price surged 7% in trading following the recommendations. In mid December, Informa gave the following trading update:

The Board is confident that the 2007 performance will be in line with our significant growth expectations. Organic revenue on a constant currency basis* is projected to increase by 9%. All three of Informa's divisions: Academic & Scientific, Professional and Commercial, are contributing well to the year on year increase. Commercial is having a particularly strong 2007 of double digit growth. Trading within each of the divisions is good across all of Informa's business activities: events, performance improvement and publishing.

Shares in Informa have under performed the UK market by 22% and are currently trading at 466p. Panmure is targeting a price between 530 and 550p. Over the past six months the stock has traded over 550 but has fallen recently.

CafeScribe: e-Textbooks are working

Interesting article from Inside Higher Ed on the recent success of CafeScribe and CourseSmart. From the article:

Like iTunes, the model features a type of digital rights management that allows users to download individually purchased e-textbooks to three separate computers or laptops. But like Apple’s digital music service, the success of ventures like CaféScribe depend on the availability of content. Johnson estimated that the company would have some 15 publishers on board in the first quarter of 2008, including more content from Oxford. Still, he conceded, he receives hundreds of requests for titles each day. “Content is our biggest obstacle right now,” he said.

Quebecor in Strife: More News

Quebecor has been given a reprieve of sorts in that lending banks have lifted some of their loan covenants for the company's fourth quarter. It may be all for naught however because in the short term the company must come up with $125mm in short term financing and refinance $500mm in debt. Failure in either case could force the company into bankruptcy. From The Toronto Star:

Quebecor World said it agreed to a requirement to obtain $125-million in new financing by Jan. 15, and also agreed to complete a "refinancing transaction" by Jan. 31. That transaction will require the company to reduce its current credit facility to $500-million by Feb. 29. In addition, the company said it must repay the full borrowing facility and terminate its North American securitization program by June 30. The company said it is in "active discussions" with financial institutions, but no firm commitments have been obtained so far "and there can be no assurance that such financing commitments will be obtained."

It is probable that the company will cover the $125mm if for no other reason than this will give their primary shareholder some breathing room to review their alternatives. Regardless, the amounts in question - quoted in the article an analyst says 'it is a lot of money' - and the present difficult market for financing Quebecor is certainly in a lot of difficulty.

How Literary Reading is like the Dodo

Publishers received the literary equivalent of coal in their stocking over Christmas courtesy of Caleb Crain at The New Yorker. His article Twilight of the Books presented a depressing synopis of the state of reading in the US. It has long been the case that few people read more than a few books per year. Many read none; however, as Crian points out in his introduction to his essay, that so concerned where pollsters that they began changing the questions in order to make the results seem less bad. From ‘are you reading a book’in 1933 to ‘have you read anything in the past 12 months’ in 2007.

To those in the publishing industry the recent confirmation of the decline in book and newspaper reading merits significant concern and reaction. Most of us recognize that reading is still being conducted but not of ‘publishing’ material as we know it. In his article however, Crain takes the stats a step further and suggests that the impact of the decline in formal reading that helps readers develop and hone their ability to evaluate character, argument, plot and perspective is leading to a population of dumber readers.

More alarming are indications that Americans are losing not just the will to read but even the ability. According to the Department of Education, between 1992 and 2003 the average adult’s skill in reading prose slipped one point on a five-hundred-point scale, and the proportion who were proficient—capable of such tasks as “comparing viewpoints in two editorials”—declined from fifteen per cent to thirteen. The Department of Education found that reading skills have improved moderately among fourth and eighth graders in the past decade and a half, with the largest jump occurring just before the No Child Left Behind Act took effect, but twelfth graders seem to be taking after their elders. Their reading scores fell an average of six points between 1992 and 2005, and the share of proficient twelfth-grade readers dropped from forty per cent to thirty-five per cent. The steepest declines were in “reading for literary experience”—the kind that involves “exploring themes, events, characters, settings, and the language of literary works,” in the words of the department’s test-makers. In 1992, fifty-four per cent of twelfth graders told the Department of Education that they talked about their reading with friends at least once a week. By 2005, only thirty-seven per cent said they did.

Reading for pleasure is a relatively recent phenomenon in human history. It is possible (and maybe a Phd project) that the development of mass market reading also wrought massive hand wringing and consternation from those who controlled media in the 18th and 19th century. No doubt these owners and social and political leaders believed that society was being eroded and undermined and that the youth (and/or the lower classes) of the day were dooming the traditional publishing business to ignominious death. Whether the comparison with the drivers of change we currently see – social networking, gaming, television, etc. – represents a similar transition I do not know. What is certain however, it that publishing and reading will not disappear but will change and adapt to suit the market and perhaps evolution.

Why evolution? Read the article to understand how the brain develops based on external stimuli. This discussion might lead you to conclude that ‘new media’ could lead future generations to develop different cognitive powers than we currently possess.

Emap Break-up

Earlier in December, I noted the sale of Emap consumer publications to Bauer. At the time (mid December) Emap announced they would keep their business to business publications as presumably the offers were not high enough. It was always the intention of the Emap board to sell all the businesses completely if they could.

On Christmas Eve, it was announced by Emap and Apax that Apax and Guardian Media Group had presented Emap with an offer to buy the outstanding shares of Emap for just over £1billion. Apax/GMG already own b2b publisher Incisive Media and hope to merge the two businesses together to produce a £2.0billion publisher.

Despite the announcement there is some speculation that a rival bid may emerge and the Emap share price has traded above the 931p offer price. Apax/GMG have already purchases a 19& holding in Emap.

Telegraph

Predictions 2008

This is the time of year when prognosticators attempt to handicap the future while, at the same time, trying to explain why they were so horribly wrong with respect to the prior year. I am no different. 2007 saw some stunning developments in the publishing and media space--particularly in mergers & acquisitions—and, broadly speaking, I see several trends emerging. First, I expect more change driven by M & A activity in 2008. Second, as more companies bound by traditional publishing models migrate online and join those already there, the application of technology in our industry will accelerate. Third, we will see a ‘squeezing’ of the value-chain (from author to publisher to consumer) driven by publishers looking to build community models around content and authors.

Associated media markets, such as broadcasting, newspapers and games, also influence our industry in interesting ways. We are starting to see our traditional segment descriptors – publishing, newspaper, broadcasting, information – become meaningless as content becomes ubiquitous and network access (or distribution) becomes universal. Publishers and information providers must expand their capabilities beyond traditional market segments if they want to remain competitive. On a related note, there is an escalating ‘compacting of media’ taking place, where the interests of all media players are converging on issues like rights, piracy, market concentration and access to markets or even consumer attention. (Text) book content, broadcast TV programs, movies, music, games and news can all be delivered via Xbox or Ipod: In this environment, where does the power lie? Who “owns” the customer? And how are content-selection decisions made? A publisher can no longer be one-dimensional and hope to survive, which is why companies like Lexis, West and Pearson are building delivery ‘platforms’ where (traditional) content is only a part of the offering.

In the not-too-distant future, we may look back on 2007 as a significant transition year for the media business. In education, a number of large companies were taken private and will reemerge five years from now as fundamentally different, platform-based companies. The Hollywood writers strike will redefine how content producers are compensated as content distribution expands to the Internet. Journal publishers will trace the history of their ad-based revenue models back to Reed Elsevier’s experiment with oncologyonline. And in the news & information segment, NewsCorp’s purchase of Dow Jones and Thomson’s acquisition of Reuters will radically change the model of information delivery. Even the self-publishing market showed a level of maturity with the consolidation of AuthorHouse and iUniverse.com. Outside our immediate universe (but no less relevant as advertising becomes a more important revenue stream) is the purchase by Google of adserver Doubleclick.

Here are my predictions for 2008:

Education:

• Recognizing the potential for aggressive competition, McGraw-Hill will reorganize its business much as Thomson has done. MGH education could be sold to private equity.
  Cengage will spend aggressively to round out its content and assessment products with course management and school resource planning tools.

Information:

• We will see at least one mega-deal involving, perhaps, D&B, the information assets of McGraw (S&P) or Bloomberg. Following closely on the heels of past investments in tax, legal, financial information, the insurance segment will become a focus of aggressive new investment for information providers.

Trade:

• It also seems inevitable that there will be some additional consolidation in trade and this could result in a higher profile for Hachette, Bloomsbury and/or Macmillan. One publisher may get out of the self-publishing market but another will jump in with both feet. A company like Lulu.com or the AuthorHouse/iUniverse combination could be targeted by a trade publisher seeking to expand its market and build an author community. More trade publishers will eliminate imprints in favor of theme-specific content.

Retail:

• The ongoing rumors of a Barnes&Noble/Borders combination will continue until one of these retailers purchases a third. This new combination will not materially change the book retail market, but the combination of the two companies will result in a financially stronger retailer.

Other:

• Broadcasters will have a strong advertising year due to the political calendar and the Olympics. (A three-party race for President will be an added boost).
• Facebook and Linkedin will join forces, but we will also see the development of more ‘by invitation only’ social networks. (Potentially, these could be administered by the current incumbents but they are more likely to be new entrants).
• As many as ten brand-name magazines will cease publication or reduce their frequency due to ad-base declines and the rise of specialty web sites.
• News sites (either branded or not) will ramp up efforts to harness niche bloggers and online publishers (either by acquisition or association) in an effort to boost traffic, broaden audience and develop more relevant op/ed and reportage. Incumbent news providers are realizing that acquiring an established online presence with a built-in audience represents a path to growth and they will begin to employ this tactic during 2008.

As always, it looks like the coming year will be an exciting one in media. At least according to me.

The Year In Reading 2007

I barely purchased any books this year; however, I managed to read over 20 titles. Around this time last year, I rearranged my book shelves to place all the unread books on one shelf. I was more than a little surprised to find I needed two and a half shelves (or six and a half feet). So, I determined that I would aggressively winnow the back log down before I started buying again. Success of sorts then in the number completed. I have selected the easier titles to read and the next 20 titles will be tougher.

I was anticipating a hard slog through McCullough's John Adams but this was my personal favorite of the books I read this year. It was especially rewarding to be half way through it when Romney (Presidential hopeful) explained on Meet the Press how Adams would have agreed with him that you can't have freedom without religious morality. That was certainly not my interpretation of what Adams believed. Another notable nonfiction title I enjoyed was Overthrow written by NY Times reporter Stephan Kinzer. Kinzer takes the reader through all our foreign affair blunders from Hawaii to Afghanistan showing how the country and the leadership keep repeating the same mistakes time after time. He shows, using before and after comparisons, that the US involvement had appalling results for the citizens of the countries in question. Naturally, there are highly appropriate references to the current Iraq incursion. Rounding out the top three non-fiction titles was Dawkin's The God Delusion which I found immensely enjoyable. Just knowing our smirking, giggling, singing the wrong lyrics and generally clowning around during required weekly chapel at Melbourne Grammar School is not going to get me in trouble in the hereafter is enough for me.

Fiction. The Night Gardener (Pellecanos), One Good Turn (Atkinson) and Bangkok Haunts (Burdett) were my top three reads this year. Pellecanos sets his crime dramas in Washington DC and this one has the same tight character development and story line. Mrs PND has read Atkinson and I picked this up on her recommendation: She is as good a crime writer as you will find and I look forward to reading her other titles. Burdett launched his Thai/American protagonist about three books ago and he improves with each successive title. I also met the author at the Strand this year which is an added bonus. Read his books to understand more about Thailand and Bangkok generally. Of note, Burdett comes up with some of the most elaborate killing scenarios you will ever find.

Other notable books were Perry Garfinkel's Budda or Bust and Patrick White's A Fringe of Leaves. White won a Noble and is one of Australia's greatest authors. This title sat on my parents shelf since it was published (1976) and I decided to read it based on some controversy reported regarding the current state of Australian literature.

Here's looking forward to another year of reading.

A Year of Reading at The Millions

Graphic Realities

I wrote a post last week about Graphic novels related to an article that appeared in the Philadelphia Inquirer. My post generated this comment from Van Allan and it is a post in and of itself about the developing graphic novel marketplace:


It is amazing to see how much the medium of graphic novels have grown over the past 20 years. And it's been fascinating to see Hollywood come calling. However, I do believe quite strongly that there are some major barriers on the distribution side of things that have inhibited this growth and have prevented comics from growing as much as they could. The main issue isn’t in the book trade, however, but rather in the Direct Market (the “comic shops”).

Diamond's monopoly on the Direct Market has become far too onerous for any of the non-brokered publishers. It boggles my mind that so many of these publishers signed exclusive distribution deals with Diamond that have really gotten them nothing at all. Diamond will still not take an inventory position on titles and "out of stock" titles become defacto "out of print" in many, many cases. Getting re-orders flowing through Diamond in a way that I'm familiar as a bookseller with would seem to be nearly impossible. From this point of view, Diamond is not a distributor at all, but rather a freight-forwarder. And since they are the exclusive supplier in the Direct Market, they really are the only game in town. Certainly the ability to use just-in-time inventory management is a major problem on the retail level as a result of this. Factor in low discounts to retailers and you have a situation that leads to conservatism in ordering. It is fascinating to me that a title like Persepolis performed so much better in the book trade channel. I think the same can be said for manga.

Just to drive this point home even further: it is no surprise to me whatsoever that both Fantagraphics and Drawn & Quarterly have set-up retail operations (in Seattle and Montreal respectfully. The distribution situation is fundamentally untenable as it stands right now and publishers are trying to find alternatives. This all means that if a small press title (and really, that means anything published by anyone save for Marvel, DC, Image and Dark Horse) has small initial orders from Diamond, growing sales long-term is almost impossible. A title is dead right out of the gate.

In my own case, I know that if I tried to launch my graphic novel through Diamond tomorrow I'd be facing initial orders of no more than 300 copies. I'd be looking at re-orders at only another 100-200 if I was very lucky. Even if I managed to get into Ingram, Baker & Taylor, Bookazine, North 49, etc..., orders would most likely be very poor. Printing 1000 copies of my graphic novel is about the minimum I can shoot for with offset printers like Lebonfon. I suspect the odds are long that I'd sell that many over the course of a year.

I think this partially explains why so many graphic novelists are turning to the web and trying to gain traction that way. It certainly does in my case. While I think the diversity in what is being brought to market is truly amazing, I suspect we’re heading towards a schism between the two channels (if we’re not experiencing it already). And that is a somewhat scary proposition for those of us trying to earn a living in this medium.

Predictions 07: How did we do?

This time last year I made a number of predictions and I was less than accurate and as a prelude to looking at what may or may not happen in 2008, I thought I would revisit these. (Current comments in italics).

NYTimes will eliminate the Saturday print edition of the newspaper. It will also create local web news sites for every major metropolitan city in the US and will stream video from their owned broadcast television stations, classified advertising will be free. The company will also launch a citizen’s paper: The New World Times. NYT will create suite of news gathering tools – web services – and make available to ‘citizen journalists’ content and research traditionally only available to professional journalists

Some media prognoticators are suggesting that one of the top 100 US dailies will make the move to eliminate a Saturday print edition sometime in 2008. The NYT is at the same time too conservative to try anything so radical but also without motivation that true public company ownership would insist on.

YouTube tv: Just like America’s funniest home videos we will see a TV show based on original YouTube video content. It will win its night by 10% and will be turned into a weekly Saturday night talent show.

Didn't happen but we did see some excruciatingly scripted YouTube insertions into one of the Presidential debates. We also saw content owners get very angry at Youtube during 2007.

Using cell phones’ camera as a barcode reader will lead to an explosion of mobile in-context/ in situ mobile advertising – followed in 2008 by RFID based in-store advertising (with software for cell phones). Mobile advertising will surpass 5% of all ad dollars spent by agencies by end 2007. (Web currently at 20%)

Not sure about this one. I think more will happen here in 2008 but mobile is not quite ready for prime time. We did see the immense growth of Twitter which wsn't on the radar 12 mths ago. Integrating an ad model somehow here will be a big deal perhaps by 2009.

Google launches product placement advertising program. Based on similar key word algorithms advertisers will bid for placement in movies, television, other broadcast, ports, etc. prior to production and/or live telecast. Program will represent 10% of all fall 2007 upfront spend. FCC will hold hearings on standards related to product placement advertising in late 2007 as the market explodes

Didn't happen but Google expanded their grip on the advertising space with numerous acquisitions including Doubleclick. Despite their size they still only represent a fraction of the potential ad market. See them grow....

Apple will think about buying Disney and Electronic Arts but will buy Tivo and slingBox. Apple will also launch a Beatles version of the I-Pod including the entire Beatles catalog plus video/movies. The Beatles I-Pod will retain the tradition Apple artwork (Green apple front, cut away apple on the back). Yahoo will by EA and within six months launch a social network gaming site based on EA content

Tivo has re-established its self and is now selling its technology to companies they once viewed as competitors. The company seems stronger than it was 12mths ago. Slingbox was acquired by Echostar (Sat provider). EA will be wondering about the big combination in their space of Activision and Vivendi but they have aggresive themselves and is likely to remain independent.

Yahoo continue to have their problems and haven't established a breakout strategy after Jerry Yang took over 12mths ago.

Hard to believe we don't have a Beatles section on iTunes. We do have Led Zep.

No-one will buy Netflix.

Got this one right

Social Media in Education: Several major US colleges will teach various social science courses entirely in simulation. The courses will not be taught in traditional lecture form but entirely within the software simulation.

There hasn't been too much movement here and the biggest news in education were the ginormous monies spread around to acquire Thomson and Harcourt.

News Corp will buy Dow Jones and Financial Times and sell Harpercollins and Hachette will by Harpercollins.

One right. HC may yet be sold in 2008

EBay will by Linden Labs (Second Life). Within six months they will integrate Ebay selling tools into SecondLife enabling virtual store fronts, sales assistance and virtual trading. Will launch program with major retailers and create first Second Life mega-mall in cooperation with Westfield. Ebay also launches SecondLife media placement agency to handle all media inventory on SecondLife. T Mobile buys Skype from Ebay. Linden dollars will be included in the Feds M1 currency calculation.

Ebay has seen continuing deteriorization in revenues from their best customers. The company spectacularly recognized how bad the Skype acquisition had been by reducing its book value by half. Will they sell Skype? If they do it will probably not occur until they have a new CEO. Second Life had some problems: they were hacked and lost some customer information and during 2007 growth has slowed. Hard to know where this will go.

Neil Young’s Living with War wins the Grammy for best Rock Album.

Lost but still an awesome album.

I will revisit predictions for 2008 next week.

NYC Christmas

Created with Admarket's flickrSLiDR.

I'm experimenting with this photo viewer thing. Not too sure about it. Each image has a comment but it is not obvious.

BBC: A Whale of a Story

The BBC have chosen to cover the Japanese whaling fleet in the South Atlantic by sending a reporter named Jonah Fisher. Some wag suggested it must be a send up but sure enough I saw him on the news last night. I wonder what amount of ribbing he is getting from the crew.

Year in Stats & Popular Posts

By way of thanks to all my loyal readers I thought I would list some of the stats for the blog. I am not sure how 'auditable' these stats are but between google/analytics and feedburner there is some consistency. Currently I have nearly 800 subscribers via RSS and over 100 via email. During the year I had approximately 30,000 visits which resulted in 45,000 page views. On average, those who browsed the content spent 2.25 mins per page. Nearly all of this growth happened since May.

The top label (subject) was 'thomson'. Rounding out the top five were playboy, future of biblio, Harcourt and Educational Publishing. Seasonally, I had my heaviest traffic during the summer when the education publishers were in play. Thomson, Harcourt, Houghton, McGraw Hill and OCLC all provided the most traffic other than that delivered via commercial operators like Comcast, Roadrunner, etc. Top referring sites included the normal suspects: Google, Blogger, Technorati. Additionally, I thank Charblog, Eoin Purcell, Exact Editions, Schlagergroup, Bill Trippe, Lorcan Dempsey, Ed Champion, The Millions, Gladys Bembo , Teleread and PW for their support. (I don't do enough to return the favors and I hope to do better).

The most popular blog posts were:

Amazon & Self Publishing, Headline Guaranteed to Get Attention, Penguin Sued over Dot Parker, High Voltage: Australian Publishers Upset, Five Questions with Rosetta Solutions, Harpercollins reports Higher Revenues, .epub: What it means for Publishers, Endorsement for PND, Scholastic, the future, Five Questions with Lonely Planet.

Perusing my traffic reports, I always notice the 'Hilton hotel' or 'Marriott' network ids and think some poor shlepper is on the road and all they want to do is read my humble blog. Well, thanks to all of you stuck in some bland hotel getting your Personanondata fix. I appreciate it and I've been there myself.

The network addresses throw up other interesting items such as spelling mistakes. It always makes me smile when I see my friends from "Nielson" have come to visit. I always say, one thing you should always be able to do correctly is spell your name.

Search strings are another source of (my) amusement. Here is a sample of actual searches that landed on my site from the past 30 days:

“non german or non chinese customer who engage in electronic commerce”
"Motor Mouth barnsley”
"who is an actor"
"supply chain for a gym”
"2007 2008 email contact of chear holders in france @yahoo.com”
"Mr. Katz is in the widget business. He currently sells 2 million”
"escorting for dummies”
"Local news on the 7 October 1997 in London”

While for obvious reasons I hope these people left my site disappointed there is a reason I look at these queries because they often throw up leads for blog posts.

I hope next year is even bigger. Thanks for the support and please tell colleagues, friends and family members about the site.

HarperRandomCollins or RandomHarperCollinsHouse

Well why not? If Forbes and CNN Money have the same short note suggesting that Bertelsmann is going to buy Harpercollins for a $1.obillion then why not Personanondata? On the suggested deal itself, I am sure Hachette would have something to say about that. Or any media PE oriented group. Maybe CBS would carve off S&S for a combo with Harpercollins. Even the FTC would weigh in once all the booksellers reacted. Anyway, Harpercollins denies any discussions are taking place: But they would wouldn't they. Reuters.

This could make for an interesting new year. With Harpercollins' recent financial performance not comparing well with their own high standard and News Corp's expensive purchase of Dow Jones perhaps there is something to this. On the other hand, Bertelsmann already have a $1billion trade publisher and strategically would they want to invest a $1.obillion in a business with slow (if any) revenue growth and low margins. A better solution, would be to invest in an information business that in the right segment would see fast revenue growth and margins greater than 20%. We will see.

On a related note, Bertelsmann confirmed again that they have no intention of sell Gruner + Jahr. Bloomberg.

Scholastic Beat Estimates

Scholastic reported second-quarter profit above analysts' estimates, helped by revenue and profit growth in their International segment. The company also announced they are divesting the direct to home continuity business. From the press release;

Revenue in the second quarter was $746.2 million compared to $735.5 million in the prior year period, and net profit was $75.6 million versus $75.1 million. Earnings per diluted share rose to $1.93 from $1.75 in the prior year period, primarily reflecting accretion from the previously announced $200 million accelerated share repurchase. In the quarter, Direct-to-Home Continuities contributed revenue of $33.2 million and resulted in a pro forma net loss of $6.1 million or $0.16 per diluted share, based on the Company's normal effective tax rate of 37.0%; this is compared to revenue of $38.1 million and a pro forma net loss of $2.8 million or $0.06 per diluted share in the second quarter of fiscal 2007.

"In the second quarter, Scholastic's businesses, excluding Direct-to-Home, performed on plan, and the Company's operating income and margin improved year-over-year," commented Richard Robinson, Chairman, CEO and President. "Profits from School Book Fairs, Clubs and Trade Publishing all rose, while Scholastic Education made progress investing in a reorganized sales force, increased technical support and consulting services, and new technology products. In addition our International segment recorded double-digit revenue and profit growth."

The company has retained Greenhill & Co. and has begun the sales process and will also report direct to home as discontinued operations.

The company maintains their full year revenue forecast of $2.3 to $2.5 billion and earnings per diluted share of $2.35 to $2.85, noting that they expect the solid performance in their core businesses to offset the lower than expected results from Continuities. Full year net income may be impacted by write-downs associated with the sale of the business unit but there is no expectation that cash flow will be adversely impacted. The company also announced a modest stock repurchase plan and is authorized to purchase $20mm of its common stock.

Highlights:

• Harry Potter's boxed set helped the consumer segment to achieve flat revenue and profit
• In education, revenues were flat with prior but operating income was lower due to planned investments
• Large gains in international revenues and profits offset declines in other segments.
• Revenues were up 13% and profit up $4.5mm (22%)

Philadelphia Graphic

The Philadelphia Inquirer (philly.com) has an overview of the the growth of graphic novels and the accelerating relationship with movie productions from these works:

The genre's success has carved out new bookshelf space in bookstores, and caused Hollywood to come calling: In addition to Miller's Sin City and 300, recent movies such as V for Vendetta, Road to Perdition, and A History of Violence began as graphic novels. The holiday season brings the animated film version of Marjane Satrapi's Persepolis, about girlhood in Iran after the fall of the shah; Satrapi served as codirector. Satrapi lives in France, a nation where graphic novels have been a respected form for decades. In Japan, the bulky comics known as manga are read by businessmen on the subway. In many ways, America has embraced its graphic novelists a little late. Even so, the genre's success is due to its global appeal, Mahoney said. Graphics with straightforward dialogue enable the medium to simplify complex issues and cut through language and cultural barriers at the lightning speed of the Internet.

The article orients itself around an exhibit at the Norman Rockwell museum in Stockbridge MA. which is described as 'captivating'. I will do what they didn't which is to link to the exhibition which runs from November 10 - May 26, 2008.

LitGraphic: The World of the Graphic Novel
A burgeoning art form with roots planted firmly in history, graphic novels, or long-form comic books, have inspired the interest of the literary establishment and a growing number of readers. For today's aficionados, graphic novels, with their antiheroes and visual appeal, are positioned to usurp the role that the novel once played. Focused on subjects as diverse as the nature of relationships, the perils of war, and the meaning of life, graphic novels now comprise the fastest-growing sections of many bookstores‹an accessible, vernacular art form with mass appeal.

Reed Business Expect Slower Growth

Reed Business Chief Executive Gerard van de Aast spoke to Dutch daily De Telegraaf (via Reuters) and indicated that revenue growth in 2008 could slow due to continued weaker US dollar rates and a general economic slow down. He did confirm that results for 2007 show significant improvement over 2006 with internet revenues up 25-30%. Naturally, since the discussion was in the Netherlands he was asked about a proposed merger between Reed and Wolters Kluwer which he dismissed as pure speculation. He indicated that on paper it could make sense but culturally the two companies were not compatible.

Quebecor in Strife

Quebecor's CEO resigned on Monday in the wake of a failed recapitalization several weeks ago and on the heels of the collapse of their deal to sell their European printing operations. There is now heightened concern that the company could become insolvent in the short term unless their existing banks or primary shareholder provides some additional short term liquidity. There may be little expectation from the banking sector both because the company's access to revolving credit was reduced recently and analysts expectations that Quebecor will miss their liquidity covenants when they announce their next financial results.

Predictably, the markets have identified parties that could be circling the sinking ship and these include Donnelly and Transnational (Transnational have said they may only want parts) with some private equity companies for good measure. Another option is for Quebecor's primary shareholder Quebecor Inc. (35% of shares and 84% of voting) to take the company private. Certainly, if Quebecor Inc, stepped in they would want some assurances but their shareholders may not be happy with any type of rescue. Quebecor Inc's shares also dropped on news of Quebecor's problems.

From The Globe and Mail:

The company was once a money-spinning jewel in Pierre Karl Péladeau's Quebecor Inc. media and printing empire. Now, it is viewed as a drag on Quebecor, which has to decide whether it wants to throw it a lifeline or cut it loose by selling it or letting it fend for itself. At this point, it appears less likely that Quebecor World's banks will want to extend credit lines after having recently lowered the credit facility to $750-million from $1-billion, National Bank Financial analyst Adam Shine said in a research note. There would have to be assurances of help from parent Quebecor, but coming to the printing subsidiary's rescue appears "increasingly burdensome and certainly wouldn't sit well with [Quebecor] shareholders," he wrote.

While the sale of the European operations would not have generated a significant (less than $50mm) gain it would have eliminated a loss making drain on the company's resources. Coupled with the loss of their CEO (sixth in four years) and the failed recapitalization, Quebecor shareholders have bailed. Quebecor was at one stage the worlds largest commercial printer but failed management and misguided strategic leadership has left it light years behind industry leader Donnelly.

Cancelled: Lynne Spears Parenting Book!

Is it really a surprise that Lynne Spears book on Parenting that was to be published in 2008 has been cancelled? Thomas Nelson is saying it has been delayed not cancelled. Perhaps she can rethink this as "Lynne Spears: Grand Parenting for Dummies."

Replacing Harry in 39 Steps

Scholastic will announce a new publishing program that they hope will replace the Harry Potter franchise. In this case, they will retain all rights to the intellectual content so while traditional published product may not reach the heights of success that Harry did, Scholastic will be able to leverage the content in a much broader fashion than the Potter series. Rowling retained most rights to negotiate directly with other third parties such as movie producers without having to pay Scholastic or Bloomsbury a percentage.

From the NYTimes:

The series, to be officially announced by Scholastic on Tuesday morning, will be aimed at readers 8 to 12 and offer mystery novels telling the story of a centuries-old family, the Cahills, who are supposed to be the world’s most powerful clan. According to the books, famous historical figures ranging from Benjamin Franklin to Mozart were members of the family. The plots will revolve around the race by two young Cahills, Amy, 14, and Dan, 11, against other branches of the family to be the first to find the 39 clues that will lead to ultimate power.

Scholastic intend to make non-print publishing a key component of this program recognizing that not only is print less appealing to younger readers but that the web related product could actually create a larger more compelling product.

As a side note, I thought it curious that NYT has chose not to place this story in the media & advertising section of the times but in the Arts section. Seems to me that this is both: Certainly from a business perspective, replacing Potter revenues at Scholastic will be of interest to the business community.

Reed Elsevier: How to Expand a Market

Professional publishing companies are leading the industry in the transformation from a print single volume paradigm to an integrated, unified platform approach to content delivery. This latter approach combines the integration of content across categories with third party content and the integration into/with client workflows. Leading the charge are companies such as Elsevier, Kluwer and West each of which are investing significant amounts in electronic delivery of content. This investment goes beyond simply digitizing and indexing their content to building applications, webservices and supplemental databases that materially improve the productivity of their clients work environments.

This weekend TimesOnline discussed the impact this strategy was having on Reed Elsevier with CEO Sir Crispin Davis:

Davis said that the shift, which has taken place in the past 18 months, was “a natural but important evolution from print to online and then from online to workflow solutions”, Where possible, Reed is linking its own online platforms with a firm’s intranet, joining them at the hip. It is no wonder, then, that contract retention has gone up from 88% to 97% in science and is almost as high in legal. To a certain extent, the shift maps Reuters’ move from selling share quotes and news to more graphical data and research. But Reed has gone even further. For small legal practices, it will more or less run the office, providing administrative software that can track billable hours and keep a diary of court appearances.

Integration and the corollary understanding of the clients workflow is only part of the story. Using their content as their spring board, these publishers have radically expanded their potential market. In the article, Davis notes that they could be limited to participating in a $18billion market but in adding applications and services their potential market could exceed $48billion. Interestingly, when we discuss the size of the publishing market in revenue terms the boundaries will start to be much less clear as integrated products take hold.

Elsevier's experience and strategy is no less important for other segments of the publishing community. Education is the next publishing segment to adopt a platform approach to learning and leading this transition is Pearson. As I have commented before, this company has systematically acquired companies that now enable it to supply a broad array of products and services to the education community. The lines between content supplier and solutions provider are blurred as Pearson can provide content, assessment, remediation, school management applications and community solutions to their clients. Admittedly the sales process is likely to be more complicated; however, the market for Pearson's products is now radically larger, seasonality can be mitigated and their products can now be embedded in workflow and infrastructure. Switching costs are raised for the customer as a direct result of 'embedded' solutions which, while an obvious benefit for the publisher, also enables the publisher to maintain a consistent level of customer directed investment.

While Pearson has led this move in education in the last several years, the privatization of Thomson and Houghton/Riverdeep will result in these companies rapidly making up for lost time in the development of similar solutions for education. Providers like Elsevier have already identified a large new market for their products/solutions which will enable them to post annual revenue gains as they deliver radical new productivity gains for their customers.

Mike Huckabee's Message to Iowa

Noted on Chris Matthews this morning. Too funny.

LA Times: A Dismal Year (or maybe not)

The LA Times takes a retrospective look at the year in publishing and concludes it was just like the year before the year before.

"Books are news that stay news," Freeman said. "And because there's so much published, they need to be sifted for the public, to see what matters."Overall, as the publishing world looks back on 2007, it's hard to reconcile the unease people feel about the business with the excitement they feel about the books themselves. When he goes to publishing dinners, bookseller Doug Dutton said, the conversation swings between lamenting the state of the business and exclaiming joy over a new novel or history."It's about as murky a picture as I've seen," said Dutton. Then he amended that slightly: "Sort of like last year and the year before."

The newspaper also manages to speak to a publisher other than Jane Friedman.

Louis XVI: Let them Pay Shipping

The court at Versailles has ruled that Amazon.com is not allowed to offer free shipping on book ordered by French shoppearrs. From the NYT:

The action, brought in January 2004 by the French Booksellers' Union (Syndicat de la librairie française), accused Amazon of offering illegal discounts on books and even of selling some books below cost.

Amazon.com had no comment but they will be required to pay a fine of $150,000 to the booksellers union and are also assessed a fine of $1500/day for each day they retain the free shipping. Now I'm thinking this is a rediculously low amount if the court really intends to penalize them and stop them from providing this service. One would think this is actually good and in the interests of French consumers, mais non.

Assuming they care, perhaps this will go to the European court. As the article notes, pricing is highly regulated in France especially on books.

Sony BMG: Demerge?

The European Court of Justice could be on the cusp of upholding a lower court ruling that the 2004 merger between Sony Music Group and BMG should have been rejected. Guardian

"The Court of First Instance rightly held that there had been a failure to state reasons and a manifest error of appraisal in the Commission's decision", said Juliane Kokott of Germany, an advocate general for the European Court of Justice.
There is no date set for the ruling by the court. It follows the advice of its advocate general in a majority of cases.

The merger has actually gained approval twice - Sony-BMG returned a second time and won approval again last October - and this ruling effects the first approval. It is unclear whether the Court will have any say over the subsequent 10/07 approval but the plaintiff (Impala) may decide to appeal this second ruling as well. Aside from taking up significant legal time and expense the impact of this process has not been felt on the business. It is unknown what potential remedies would be required if the merger is ruled uncompetitive and not in consumers interests.

The impact on the European competition commission maybe more profound since the court is likely to question the process and objectivity of the commission in evaluating mergers. The lower court noted that significant issues were raised by the commission in the early stages of their review but they approved the merger anyway and left unresolved some of the key issues they themselves had raised. Perhaps the court will request specific changes in the operations of the commission to ensure that this situation is not repeated although these requests are unlikely to be binding. The role of the commission is to uphold consumers interests but it is also to help ensure that deals like these don't end up in court.

Reed Complete Harcourt Sale

Reed outlined its plans for a special shareholder dividend to distribute the proceeds from the sale of the Harcourt education unit. From Reuters:

Reed Elsevier shareholders will receive 82 pence per share while Reed Elsevier NV shareholders will get 1.767 euros per share. This will be accompanied by a share consolidation, which has already been approved, on the basis of 58 new ordinary shares for every 67 existing ordinary shares.

According to ABN AMRO analyst Paul Gooden (also quoted by Reuters) this is good news because some analysts were worried the deal could collapse. Post-sale, the consensus is that share performance will improve as the impact of Reed Elsevier's electronic publishing is more readily apparent. It was generally believed that Harcourt was a drag on the overall business.

Reuters

Borders Australia Decision Delayed

A few weeks ago the Australian competition commission asked for more feedback from the marketplace regarding the sale of Borders Australia. Given the length and specificity of the questions it is not surprising that they have now decided to give them selves extra time to review the responses. The anticipated delivery of their report is now January 30th rather than the previously announced December 19th.

Prior PND report

Reuters

Technology In Publishing: An Overview

I was asked to present an overview of current (and future) technology in the publishing industry of some visiting Chinese students participating in NYU's publishing executive management program. Bare in mind I only had 30mins! Naturally, without my riveting voice over the content may be difficult to follow but let me know your comments. If I forgot something remember it is an OVERVIEW.

NYU Publishing Program: Overview of Technology in Publishing from Michael Cairns

Thanks to Robert Baensch for asking.

Live Mocha: Social Language Learning

Live Mocha is a relatively new social networking web site that won 'best in show' at a recently innovators conference. The premise of their site is that people can learn a foreign language by being connected to native speakers and other learners. It is an interesting application of the social networking concept.

The founders of this product have done their homework and thought a great deal about features, content and the subscription model. Their adviser's include language learning experts to ensure that supplemental content is created with true pedagogical foundations but it is curious that they have elected to create educational material themselves rather than license it from an existing publisher. As their needs grow perhaps this will change but at the very least they should consider including dictionaries and learning aids such as games. (These could be used as premiums).

Established players such as Berlitz and Rosetta Stone don't appear to be playing in this segment. While Berlitz (and possibly Rosetta) have the financial resources they are both either conservative or strictly wedded to their existing content delivery models. As a result, competition is most likely to come from new entrants (Mango, italki.com, Virtualingo.com, Huitalk.com, Kantalk.com, Welang.com) but based research into these, there doesn’t appear to be any immediate direct competitor to LiveMocha that combines online delivery of language learning with all the benefits that social networking can offer.

In a research context some universities have experimented with learning using a social context but, as yet, these don’t appear to have become commercial operations. There is a great deal of interest in applying social networking in an education setting. It is likely that research will be ongoing and that eventually a commercial program will develop. Moodle.org is a course management platform on which an experimental pilot study was based to teach a five week German course at the Open University (search ‘language’). The University of Manchester (UK) used Macromedia Breeze to test voice, video, chat to teach Spanish (link). In my view, the LiveMocha model could be used as a platform for other subjects beyond language learning.

LiveMocha has not implemented a pricing model yet. Berlitz group lessons run about $250 for 10 sessions and Rosetta Stone's self-teaching products start around $200. I would anticipate LiveMocha using these price points as guides but LiveMocha may be considered a ‘supplemental’ approach to language learning which means consumers may not be willing to pay at this level. More importantly though, I think LiveMocha will want to encourage users to stay with them for an extended period because more users represent more of a community and therefore more of a learning environment. Effective pricing is an important element of that strategy. If the community is in constant flux: one week you have three friends and next week they are all different, this is will undercut one of the core advantages of learning language in a social network. Establishing a price mechanism that encourages users to stay with the service/community for 12-18mths could be more financially rewarding than having them come in for 3mths and leave. The social network will be more robust and stable thereby encouraging new community members and existing ones to stay longer.

This is an interesting social web site and it will be interesting to see how it develops and whether some of the more traditional players follow with their own applications.

(Thanks to the anon person for pointing out a major erroneous assumption in the earlier draft).

On the Hudson

EMAP Dispose of Consumer Titles

After a half year process that at times appeared confused, EMAP announced this morning that they have agreed to sell their consumer magazine and radio business to Heinrich Bauer Verlag KG for £1.14 billion in cash. It appears to represent an excellent deal for shareholders who will receive a special dividend of the proceeds. From the announcement:

Emap has entered into agreements with Heinrich Bauer Verlag KG ("Bauer") to sell Emap Consumer Media and Emap Radio for a total consideration of £1.14 billion on a cash free, debt free basis. This represents a multiple of 2.2x pro forma 2007 revenue and 11.2x pro forma 2007 operating profit and offers a compelling opportunity for Emap shareholders to crystallise value from the two divisions.

Following the sale, the company states that they will refocus intently on their B2B business as a stand alone business. The affirmed that they have terminated any on-going discussions they had with potential acquirers. Clearly, they were not seeing the value here from the prospective purchasers and have decided to carry the unit for the foreseeable time. Some analysts have suggested the advertising outlook for 2008 could be dim and therefore forward financial projections were probably muted.

While Bauer is already big - 166 magazines in 14 countries on three continents and nearly E2.0Billion in revenues - this represents an important expansion for the company. They will immediately gain a substantial position in broader consumer content and english language publishing.

Alun Cathcart, Executive Chairman of Emap, said:

“We are pleased to have achieved a successful outcome in the review of Emap’s Group structure. The price achieved for Emap Consumer Media and Emap Radio fully reflects the value of the two divisions. Emap will now be a focused B2B company with strong market positions, strong cash flow and a proven management team and track record in delivering value and growth.”

Press release

Kindle: An e-platform for the masses?

In mid 1998 I had an audience with Jeff Bezos together with several French publishers. During the meeting the conversation moved to a discussion about what Amazon.com was going to be when it grew up. The supposed genius in the group (me) volunteered that Amazon would remain true to its book retail focus and not become some type of on-line mall. At the time, Amazon remained very close mouthed about their plans but in retrospect it's my suspicion they had every intention of becoming the emporium we now know them to be; moreover, they knew exactly how they were going to get there. Since the launch of Kindle, I have thought a lot about this meeting in 1998 because I don't believe anyone has a clue what Amazon sees as the future of this device.

Tim O'Reilly blogs about the relationship between ebook pricing and attention. There is obviously more to the post than that and the comments are worth a read as well. His article argues a salient point: Because reading is an 'active' past-time there is only a certain amount we can read given the time we have available. Raising or lowering prices will not (de)increase the "supply of time" dedicated to reading. In other words, I can only read one book a week and even if book two were free it wouldn't mean I could somehow read two.

The price of the Kindle is approximately $300. I would argue, rather than reducing ebook prices to $5.99 (versus print prices of $20) the pricing for the device should be similar to the razor blade/razor model. Even then I am not sure the model would work. Why? Because most readers don't read that many books. Most of the readers of publishing blogs like this one, O'Reilly Radar and those with a publishing audience represent a skewed view of the appeal of reading. We all love it and we all do a lot of it. Regrettably, the rest of America is not like us and on average the average book buyer will read less than 3 books per year. (Research studies note that even 'book buyers' are a small group).

So aside from early adopters and techno-fadists who flocked to acquire the first Kindles who will buy the next batch? If the average reader buys three books a year for a total of $90-100, why would they buy an ebook reader for $300 even if those three books were free? Your average consumer is not a dummy and can do the math.

So what of Amazon? They absolutely have the best information available about purchases so perhaps they believe they can sell enough Kindles to the small segment that reads over 10 (or 'x') books per year: I wonder about that. It would seem to me that on the basis of ebook sales alone for use on the Kindle, the device will be a failure. I believe the Kindle represents the first generation e-platform rather than a pure ebook reader. Amazon has a much broader view of how and what content will migrate to the Kindle.

There has been much discussion, argument and commentary about the Kindle and what it means but one thing is clear to me. Amazon has a plan that most likely exceeds our expectation about the positioning of this device. What that is I can only speculate but I suspect as an e-platform they will aggressively start establishing content relationships with all kinds of publishers, content providers, service providers and broadcasters to build out this device beyond the book world. Just like Amazon.com, books may represent the strong footings of the business but it won't be all they do on the Kindle. Any discussion about pricing ebook versions of paper books likely misses the point in terms of their long term strategy.

Reading Stutters

Some time contributor to this blog Andrew Grabois writes about the recent reports on reading over at beneaththecover.com. He discusses the results of the recent National Endowment for the Arts study and the Progress in International Reading study:

Now, on the heels of the NEA’s gloomy assessment, comes the Progress in International Reading Literacy Study (PIRLS). Based on tests given to 215,000 10-year-olds from 45 countries and provinces, and data gleaned from background surveys of pupils, their parents and teachers, the findings tell the same sad story. Since 2001, the U.S. dropped from 4th place to 18th place; the U.K., from 3rd to 19th. The average scores for U.S. and U.K. students did not drop as much as their places on the new list would suggest, but they didn’t make any progress compared with the spectacular improvement shown by 10-year-olds in Russia, some Canadian provinces, Hong Kong, and Singapore. The best that can be said is that the average scores for children from the world’s two largest book markets were above the international mean. So far, there’s been no official response to our relatively poor showing.

Here is the link.

Beware: Your truck may not fit!

With the advent of Amazon.com, the publishing community rapidly understood the value of deeper descriptive information necessary to merchandise products in the virtual world. Initially, we were concerned with provision of cover images and marketing blurbs, then author bios and tables of content and on everafter. Our experience is not unique and in all industries and product segments deeper more descriptive information is now being sought to enable web browsers, service providers and consumers to make better more informed decisions.

There are many examples but I was immediately struck in this article about satellite navigation and driving instructions in the UK. The article (NYTimes) focuses on the negative impact of computerized driving instructions and how they can sometimes be too literal. It is no longer a matter of simply providing a geographic description and route map between two points. As more and more people and vehicles rely on these systems, the data elements required to build a viable route that doesn't create some of the issues mentioned in this article will need to include items such as road width, (tight) turnings, bridge weight limits, speed limits, hill length, season variations - like snow or ice conditions - and the list could go on and on. From the article:

“Foreign drivers very much depend on sat nav systems when they’re coming to a different country, and they are following them rather more blindly than they ought to,” Mr. Dossetter said. Last month, a Slovakian truck driver arrived in Dover, bound for Wales with 22 tons of paper. But, directed off the highway and onto increasingly narrow roads by his navigation system, he ended up wedged on a tiny lane between two houses in Mereworth, a village in Kent, whereupon he had a panic attack, jumped out of his truck, and burst into tears. “He got back in his lorry and tried to maneuver his way out, but he was starting to scrape against the front walls,” Mark Siggers, a resident, told a local newspaper. He also knocked down the village’s power cables, cutting off the electricity. It took the authorities several days to remove his mangled truck.

Imagine the poor guy having to report back to head office that he got their truck wedged between two buildings. Just exactly how these navigation systems will incorporate this deeper (metagraphic?) data into their systems so mistakes like these don't happen could represent a monumental task. It is a problem perhaps perfectly placed for the application of social networking. The truck driver above should be able to wipe away the tears and document his experience in some manner that will improve the navigation for the next European truck driver.

The lesson of Amazon.com is that the development of better descriptive information is an on going struggle; Amazon hasn't stopped improving merchandising and has always recognized the more data elements the better. I suspect that many other industries are and will embark on data collection efforts (and seek data from their vendors and customers) that improves the service or products they provide.

Cengage Swoop on HM College Division

Cengage announced they have reached a definitive agreement to acquire the College publishing assets of Houghton Mifflin for $750mm in cash. The companies also announced that on closing they would work together to expand the distribution of Cengage’s college textbooks and related materials into the U.S. high school market, with particular emphasis on Advanced Placement and Honors programs. From the press release:

“We’re very pleased to acquire the well-respected assets of HM College, which are highly complementary to our existing business,” said Ronald Dunn, President and CEO of Cengage Learning. “We look forward to combining the people, products and publishing programs of HM College and Cengage Learning to expand and enhance our range of services for students, instructors and institutions in the higher education market.”

The divestiture will enable Houghton Mifflin to focus on its K-12 education products but it will undoubtedly strengthen Cengage's position in College. How valuable the marketing agreement will be is unknown although selling College text into the high school market has been growing over the past five years.

Importantly, Cengage has demonstrated that despite the huge price paid for the business they are able to go back to the well (bankers) to make this acquisition. Their investors recognise that the base business is doing well and this acquisition represents an opportunity to strengthen their market position. Perhaps this is at the expense of Houghton Mifflin whos banks announced last week that they could not sell their loan syndication.

On a related note, Cengage presented a brief overview of their first quarter performance and they reported consolidated revenues of $650.1mm up 5.1% versus the same period last year. Operating Income of $247.1mm was up 10% (before allocations and amortization). Higher ed and International delivered strong performance with revenues up 7% and 13% respectively. The library division (Gale) under performed with revenues and operating income off 5.9%. During the conference call CEO Ron Dunn listed several areas where the company is focusing their attention. These include establishing their new leadership team, driving revenue growth, reorganization of international and merging higher ed and professional publishing.

ACAP is Implemented

At a conference in New York yesterday, World Association of Newspapers President Gavin O'Reilly updated the content community on the status of the ACAP initiative. ACAP is a technology that updates the manner in which web search robots search and index material on the web. The ACAP protocol aims to create a more balanced approach to gathering web content and enabling content owners to 'publish' specific rights information applicable to their content which can then be read by the search tool. Rather than limit the amount of free content available to web users, content owners participating in this initiative believe the ultimate outcome will be to make more content available by bringing content from behind subscription walls.

All content owners are being encouraged to implement version 1 of the protocol and Times Online announced that they have implemented ACAP on their site. From the Associated Press:

The proposal, unveiled by a consortium of publishers at the global headquarters of The Associated Press, seeks to have those extra commands — and more — apply across the board. Sites, for instance, could try to limit how long search engines may retain copies in their indexes, or tell the crawler not to follow any of the links that appear within a Web page. The current system doesn't give sites "enough flexibility to express our terms and conditions on access and use of content," said Angela Mills Wade, executive director of the European Publishers Council, one of the organizations behind the proposal. "That is not surprising. It was invented in the 1990s and things move on."

Personally, I was initially skeptical about this initiative but they have delivered on their time table, retained their broad support and even have some in the search community actively supporting the initiative.

ACAP organizers tested their system with French search engine Exalead Inc. but had only informal discussions with others. Google, Yahoo and Microsoft Corp. sent representatives to the announcement, and O'Reilly said their "lack of public endorsement has not meant any lack of involvement by them." Danny Sullivan, editor in chief of the industry Web site Search Engine Land, said robots.txt "certainly is long overdue for some improvements."

Associated Press

Riverdeep Syndication Gone Awry

As mentioned a few weeks ago, Riverdeeps banks (Credit Suisse, Lehman Brothers and Citigroup) conducted a roadshow to sell the debt associated with the Riverdeep acquisition of Harcourt. According to the Irish Times, the banks have suspended this process and will hang on tooth and nail to the debt themselves until the markets improve.

This will have limited impact on the operations of Riverdeep/Houghton Mifflin and while this is not positive news it could only reflect a desire for the banks to maintain a decent margin on the syndication rather than judgements about the risk of the underlying loans. At least that's what I would be saying if I were Riverdeep.

Books A Million Reports

BAM reported comp store revenues up 2% for the quarter and up 6.3% to $117.7mm over all. The Company reported a net loss of $0.5mm, or $0.03 per diluted share, for the third quarter of fiscal 2008, compared with a net loss of $0.2mm. YTD revenues are up 6% to $366.8mm and net income of $4.7mm is up $0.9mm versus the same period last year.

From the press release commenting on the results, Sandra B. Cochran, President and Chief Executive Officer, said,

“We were very pleased with our sales results for the quarter; however, operating costs for the period, driven primarily by an increase in heath care expense, exceeded our plan. Looking forward, our fourth quarter best seller lineup is solid, and we are focused on executing our merchandising and marketing plans for the holiday season.”

The closely held company also announced that its Board of directors approved a quarterly cash dividend of $0.09 per share. The quarterly dividend is payable on December 26, 2007, to stockholders of record at the close of business on December 11, 2007.

Borders Australia

The Australian Competition Commission anticipates making a final decision on the merger between Angus & Robertson and Borders Australia by December 19. In the meantime they have requested additional comments and specific requests related to several items.

The commission suggests that the reduction in competition could result in decreased discounting and notes that Borders promotions are 'particularly innovative' with 'weekly discounts' and 3/2 offers. (Gosh!) The ACC invites comments that counter or support its' contention that a reduction in competitive tension would reduce discounting to a wide range of titles.(The commisson is also asking to what degree loyalty programs are important in supporting discounts.)

The merged entity will concentrate more than 25% of all retail revenue for the industry and they are looking for comment regarding how A&R/Borders may weild this power. Principally will the retailer be able to negotiate more agressively for better discounts and will this influence publication plans by publishers? With respect to this item the commission is interested in consumer research regarding purchasing behavior. (Good luck.)

Lastly, the commission requests information about local market competition even explicitly asking what the impact has been of the entry of Borders into the Australian market. They remain interested in the impact of smaller local markets of the entry of 'large format' retail stores.

There doesn't appear to be too much consideration on the impact of international web retailing such as amazon.com or b&n.com. Both of these retailers are well known to book buyers in this market. (While they note the merged entity will represent more than 25% of the market it is unlikely that they have any idea how much retail business is off-shore, and it is likely to be considerable especially given territory rights issues that can limit selection and the weak US dollar).

It looks like this merger will be approved: Whether there will be any constraints placed on the merged entity remains to be seen.

Broadcasters Unite!

What if CBS, NBC and ABC launched a joint web-based broadcast portal? Highly unlikely you say? Well, in the UK pundits might also have dismissed out of hand the notion that the BBC, ITV and Channel 4 could ever agree on anything let alone jointly developing a web portal for distribution of their content. Today these three companies announced they would launch such a web site in the early part of 2008. All three have existing web content portals and both BBC and ITV intend to keep theirs going in the short term. Earlier in 2007, the BBC launched their i-player client which has not been as successful as the hype that presaged its launch would have suggested. Residents outside the UK are unable to use the i-player and it is assumed the tri-company web site will be off-limits to non-UK users.

The web activities of BBC and ITV place them significantly ahead of the network broadcasters in the US. One aspect of their business model which has made their experimentation with web distribution possible is that the UK companies generally own the content they broadcast. This is not the case in the US although in recent years the networks have built production capability.

The collaboration in the UK will be watched closely and while it may be spun as a consumer bonus - having one location to access the content from the nations' primary broadcasters - the reality could be more prosaic. The costs of building and maintaining a portal for this content could be extreme and each would ultimately be in a race to augment their content with content from other providers. Why not join forces, pool resources and reduce the market for third (fourth) party content? It makes a lot of sense especially in a market that isn't that large to begin with.

In the early 1990's Sky beat the traditional broadcasters into new distribution territory and the broadcasters had no solution. As a result, they lost out on a vast expansion of the consumer broadcast market (satellite). In developing this new collective content portal they could be setting themselves up to be meaningful players in a potentially much larger market place for distributed content.

When Newscorp launched Sky these players were warming the bench but this announcement may enable them to have a role in the future of television.

Not OK Computer

My trusty laptop committed suicide over the weekend. There will be a brief interruption to our service as I decide what my options are. Sadly my life seems to revolve around the machine and with its loss I seem at times to be entirely untethered to temporal life. The machine holds my calendar of course but the daily rhythm of email - and there is one - has been disrupted as well and as a result I feel I like a prisoner on being suddenly set free finds the lack of regimentation impossible to deal with. This is a very sad situation and the sooner I get a replacement the better. Help.

Quebecor Share Debacle

Quebecor the big printing rival to RH Donnelly cancelled a $250mm share sale and a related $500mm debt issue yesterday after the offers received less than full participation from the markets. From the Globe and Mail:

Shares dropped from $5.10 to $2.80 in the past seven days - this was a $40 stock five short years ago. Much of the drop over the past week can be traced to short sellers who sold, with the intention of buying back Quebecor World shares by participating in the equity or debenture sale. If these same short sellers own the convertible preferred shares, they have even more to gain from a lower stock price, as they will get more equity when they swap the preferred shares for common. Long-time Quebecor World shareholders seemed unwilling to step in and support the stock over the past seven days, which should be a cause for some soul-searching at head office.

According to the newspaper, the company will now have to completely rethink how they refinance this company which is debt ridden despite selling their loss making European operations earlier this year. The performance of Quebcor compares unfavorably with the performance of RH Donnelly who appear to have weathered fundamental changes in the printing industry and intense competition from Asia to post consistently good results. Donnelly has also spent the summer successfully recapitalizing the company.

Barnes & Noble Report 3rd Quarter

Barnes & Noble reported a solid same store sales increase of 2.6% and a 14.5% increase in dot com revenues for the third quarter. Gross revenues exceeded $1.2billion which reflected a 5.7% increase over the same period last year. Net income for the period was $4.4million or $0.07 per share but reflected an after tax benefit of $6.2million ($0.09/share). Excluding the one time effect, the company had a third quarter loss of $1.8milion or $0.03/share which was was "better than guidance of a loss of $0.06 to $0.10 per share."

From the press release:

“The company’s sales continued to perform at the higher end of expectations, due in part to strong sales of new releases and bestsellers, which combined with a better than expected gross margin rate enabled the company to outperform its third quarter earnings expectations,” said Steve Riggio, chief executive officer of Barnes & Noble, Inc. “In addition, we are encouraged by the sales trends at Barnes & Noble.com that began earlier this year and continued through the third quarter, in which we launched a newly designed website.”

The company also raised guidance for the full year (which should be anticipated given this and the second quarter performance). The company now expects full-year GAAP earnings per share to be in a range of $1.91 to $2.09, compared to previous guidance of $1.69 to $1.87.

B&N's stock price has fluctuated over the past six months from a mid-year high of $43 to its current $36. On the basis of these reported results the share price jumped on Tuesday. In contrast to Borders share performance and market cap ($715million), B&N has a market cap of over $2.4billion. Looking at that comparison with Borders may well make some private equity bankers sweat in anticipation.

Press release

Not Your Ordinary Publishing Contest

There has been a veritable explosion of publishing contests in the past two years, all with the intention of seeking that needle in the hay barn, the next great book. In contrast this contest announced by Scholastic and Coldwell Banker of all people seems to have little point -at least as far as its relevance to publishing. Perhaps I am missing something but it does seem to stretch the logic of strategic alliances very thin.

Coldwell Banker Real Estate Llc Announces The Launch Of Its Third "my Home: The American Dream" Contest. In Collaboration With Scholastic, The Global Children's Publishing, Education And Media Company, Coldwell Banker® Invites Students In Kindergarten Through Eighth Grade To Tell Their Personal Stories, Through Images And Words, About How Their Houses, Apartments, Or Condominiums Are Not Just Places They Live, But Homes Where Dreams Are Shared And Memories Are Made.

(Mrs PND would be going crazy with all the caps in that press release).

I'm not really a fan of similar competitions but this one appears to be pure publicity stunt and the advantage for Scholastic escapes me.

Borders Reports Improvement

While the sale of their Australia and New Zealand operations is still unconfirmed despite spurious reports to the contary, their most likely acquirer has cleared regulatory approval in New Zealand. Pacific Equity Partners has recieved clearance from the Commerce Commission indicating that they do not believe a combination of Whitcoulls and Borders would decrease competition in the NZ book market. Next up is Australia's Competition commission which may rule in early December. An announcement on the sale is expected any day.

Borders announced third-quarter results after the market close yesterday reporting a revenue increase of 5.3% to $805.2 million from $771 million a year earlier. Analysts' consensus estimates were expecting higher revenues ($831million) and better operating performance so we will see how the stock does on Wednesday. Their net income loss for the period included the previously announced one time charge for the sale of their UK operations ($116.5million) and thus the loss for the quarter was $161.1million or $2.74 per share. This compares with a loss in the same period last year of $32.9million or $0.54 per share. Excluding the one-time charge, the company reported an operating loss of $39.1million or $0.66 per share.

Comparable store sales increased in all business segments for the second consecutive quarter. At Borders domestic superstores, same-store sales increased by 1.1% driven largely by a continued increase in traffic as the company further leveraged its 22-million-member Borders Rewards database, among other initiatives. Comparable store sales increased by 3.6% in the Waldenbooks Specialty Retail segment led by growth in traffic and transaction size. In the International segment, comparable store sales increased by 7.8% as a result of strong performance in Asia Pacific stores

Borders' gross margin is eroding as they expand their Border's Reward program. More customers are visiting the stores but they are also recieving discounts and these redemptions are exceeding rate (by design) that occured last year. For the quarter, the company lost almost 1% on gross margin and this on top of the actual expense for promoting and expanding the new rewards plan. Clearly the company needs to invest in new customer acqusition and retention programs but Analysts will watching this program closely for its effectiveness in driving store metrics closer to those achieved by B&N.

Troubling will be the doubling of the operating loss at the US Borders super stores where the company reported a $30.8million loss compared to a loss of $16.7million. This negative performance was blamed on the member program and rapidly declining DVD/Music sales. Books were up 3% but clearly considerably less than the revenue required to cover the investment. George Jones commented on these results:

"Profitability in the Borders domestic superstore segment was negatively impacted by investments we are making now -- in efforts such as our upcoming e-commerce site and concept store development -- that are currently not providing returns, but will drive contributions in the long term," Jones said. "We have also been experimenting with our promotions and discount structure to gain a solid understanding of the levers that drive traffic and sales in our stores. Our Borders Rewards program has proven that it clearly and consistently works to achieve both. Now, we need to fine-tune our approach further so that we better balance the bottom-line impact with our top-line growth," he added.

The Borders share price has fallen from a mid-year high of $24 to its current $12. Correspondingly, the company's market cap is now below $715mm which in my estimation makes it a cheap acquisition candidate.

Full press release

Kindle

I was contemplating listing some of the articles and posts related to the Amazon news this week but thankfully Eoin Purcell has done it for me.

Here.

In some strange way I feel some appear to be rooting for Kindle versus Sony (or Apple) as if it is a contest that in earlier years would have pitted Donnelly against Quebecor.

Videologblog: Writers Strike (Colbert Report writers)

There has been a serious lack of humor in the PND household over the past two weeks. This goes a short way in alleviating the monotony of Nature and Antiques Roadshow. There really is nothing worth watching.