Borders' Punished: Not a Pretty Picture

After yesterday's announcement of their 'refinancing' package from current 18% shareholder Pershing Capital, Borders shares fell over 28% yesterday. The company began the day with a market cap over $400mm - and at that level a poor reflection of the value of the company - and ended the day at a value of $297mm.

On a day when the company could have touted the upswing in 4th quarter results as proof their strategic plan was on track they decided instead to concoct a deal that on the surface appears to have been conceived over pizza the night before. Even the analysts who remain closely familiar with the company questioned the immediate need for the capital infusion. Matthew Fastler from Goldman Sachs noted in reviewing their balance sheet he saw no cause for concern. "What's the urgency," he asked.

A believer in conspiracy theories might conclude this stock price has been beaten down to cheapen an acquisition price. A offer at the closing price on Wednesday would give shareholders a 40% premium on Thursdays close.

Barnes & Noble, who's stock has been heavily purchased by insiders (primarily Len Riggio) was up 8% yesterday. Even Books A Million was up 4%. On their conference call yesterday, B&N were asked whether they would be interested in buying Borders and while they said they haven't been contacted they did say it would be something they would consider. Of course they would take a look, they're a competitor! I maintain B&N would not want to be saddled with the headaches and would rather take share the old fashioned way; that is, better store merch, better store location, better negotiation and better logistics. The likely scenarios are: 1. Purchase by Pershing, 2. Purchase by unknown PE, 3. Purchase by competitor or 4. Purchase by a Canadian. 5. Purchase by an Australian (wouldn't it be funny if they offered to buy everything).

I've always thought that a far better combination all around would be Borders and Books A Million. (Borders A Million?) Another interesting combination would be Indigo Books and Borders. Indigo is the combination of the two largest book retailers in Canada and there were rumours of some cross border combination with either Borders or B&N. These have died down in recent years but the Borders Indigo combination could be interesting. The owner of Indigo is married to one of the richest men in Canada and money to acquire the business (at $300mm come on!) wouldn't be a problem.

Heck, I'm going to go out and play the lotto and when I win I might take a shot.

Borders Conference Call Update

After this morning’s conference call I was still as much in the dark as to the reasoning behind the rapid run for cash at Borders. In discussing the funding deal on the call both CEO Jones and CFO Wilhelm commented they saw business was falling off late in the fourth quarter which, coupled with the failure to sell the Australian/New Zealand operations led them to believe vendors (in particular) would be worried about their financial health. There is no reason to believe the latter would have happened. When asked directly they admitted this has not been a factor in their dealings with publishers. They also noted that there are other organizations interested in purchasing the Australian operations and they are confident that they will consummate a deal in the short term.

They spent a lot of time on the call congratulating themselves that the basic elements of their strategic plan is going according to plan such as STS have improved 2.1% at Borders and 1.2% at Walden. The international stores improved 7% - possibly partly due to currency.

So to recap: They think there is a little market slow down, they had a hiccup in realizing a $120mm asset sale but they mortgaged a quarter of the value of the company to gain some short term cash when it isn’t clear they needed it. The company plans to sell parts or all of itself to maximize shareholder value but there is no timetable set against that pledge (other than that tied to the loan conditions).

Jones did emphasize that they continue to operate in a highly promotion driven environment and this impacts gross margin. One analyst asked where the balance existed between continuing to drive top line revenues (comp store growth) and gross margin erosion. Jones said they do want to improve gross margins but they won’t be doing it via a reduction in promotion spend or a reduction in the rewards program. Perhaps holding back on some of this spending, further reducing their capital spending and slowing some of the web role out would have eliminated the need for the capital infusion.

Other items of interest from the call:

Jones announced the web site is set to launch May 3rd and the integration with stores - ‘cross brand strategy’ – will also roll out to in-store kiosks.

Aside from the financing they believe there exist other operational improvements that will lead to cash generation

EBITDA from Paperchase and the A/NZ operations is about $30mm

Asked whether Pershing is an insider, Wilhelm quickly said they have a representative on the board but did not affirm whether they should be considered an insider. They said they reviewed other financing options before setting on Pershing and the package had the approval of the board.

Asked about full year performance Wilhelm said they wouldn’t give guidance but that there were many opportunities available to them to improve results. He believes they will improve but perhaps not as fast as anticipated earlier in 2007.

Speaking about the margin Jones said that they were “absolutely paying attention to margin”. He noted favorable things happening in the sales mix: Paperchase, café, bargain books: Music falling but it is low margin. He said they are “still playing with promotional mix” and that the market very promotional.

Borders Seeks "Strategic Review"

The long wait is over. Borders has announced they are seeking advice from Merrill Lynch and J.P. Morgan to seek alternatives that will "maximize shareholder value." The company has been preparing itself for this moment for the past year or so since George Jones became CEO and began dismantling the international operations and conducting a wholesale review of the Borders and Walden operations. Over the past year, Pershing Capital Advisors, an investment firm, has purchased 18% of the shares of the company and with today's announcement they are also bailing out Borders with a loan of $42.5million to shore up the company's finances. Earlier this month, the company announced that they had failed to agree terms with Pacific Equity Partners to sell the Australian and New Zealand store operations. The sale was widely expected to generate over $100mm in purchase price.

This capital commitment comes at quite a price. Firstly, they will be paying 12.5% interest. Secondly, Borders has agreed to sell them the Paperchase and Australia and New Zealand operations and the 17% interest they hold in the UK operation if Borders is unsucessful in selling them to a third party. CEO Jones has been consistent in viewing Paperchase as important to the growth of Borders and a key component of their evolving merchandising strategy. To consider selling it appears a sign of desperation. As mentioned the A/NZ operations may have been worth $100mm but there was only one real buyer. Without competition how much is this operation worth? The UK interest is essentially worthless given the sale price of the whole business. If worse comes to worse and Pershing ends up buying these assets for $125mm they will appear to have gained a bargain since even Borders management state that they believe the value of the assets is far in excess of the $125mm. (If I read the press release correctly, on receiving the $125mm Borders immediately must pay back the $42.5mm loan: that nets to $82.5mm). Pershing is likely to prefer the whole company rather than the parts.

In addition to the capital commitment Pershing is also gaining warrants that equate to 19% of the company's shares. This amount plus the shares they already own (and Jones' shares) must mean they will effectively control the company once the deal is finalized on or before April 4th. (They would have to exercise the warrants).

Shares in the company closed just above $7 which values the company at $400mm. Pennies really considering managements belief in the value of the pledged assets (Paperchase etc.). Investors are expecting something to happen to the stock as it has ticked up $1 in pre-open trading.

The company also announced full year results with total consolidated sales from continuing operations of $3.8 billion for the full year 2007. On an operating basis, Borders Group posted full-year consolidated income from continuing operations of $9.2 million, or $0.16 per share, compared to $33.0 million, or $0.53 per share a year ago. The company has previously noted write-offs associated with the sale of the UK operation and non-operating investments in their web relaunch that total $125mm and $28mm respectively. On a GAAP basis the full year net income loss was $157.4mm.

Their fourth quarter numbers with revenue up almost 3% and net income flat with last year should give investors some belief that operating changes put in place by CEO Jones may be working. However, it is early in his term and he has only recently filled all his key executive positions. With a volatile economic situation it remains to be seen how successful the company will be over the medium to long term. Certainly operating outside the glare of the financial markets will help turn Border's around and it seems to me that that is where the company is headed.

More from the press release.

Bertelsmann Reports

Media giant Bertelsmann reported their annual results this morning with net income dropping significantly versus 2006 due to the performance of the Direct Media Group. CEO Ostrowski indicated that Bertelsman would concider selling the Direct group and indeed has taken the decision to dispose of the US segment of this business. Globally the unit operates book, DVD and music clubs as well as bookstores and online shops.

Top line revenues at Bertelsmann dropped nearly 3% due to the strong dollar and the sale of their Music publishing business. Total revenues were €18.8bill.

At Random House they noted the following:

• U.S.: more than 200 titles on New York Times bestseller lists
• Winner of Pulitzer Prize in four literary categories
• Record revenues generated by audio book "Harry Potter and the Deathly Hallows"
• U.K.: nearly one third of all titles on Sunday Times bestseller lists
• Germany: level of growth ahead of market (strong paperback book business)

RH revenues of €1,837mm fell 5.6% with organic revenue growth lower by 1.4%. Operating income was €173mm versus €182mm in 2006.

• At the Direct Group operating income fell from €110mm in 2006 to €10mm. They noted the following
• Western Europe: book clubs, book retail and Internet combined in several markets (multi-channel), positive stabilization of Club Germany, good earnings in France and Spain
• Eastern Europe: successful publishing operations
• North America: remaining shares of Bookspan acquired, result significantly impacted by decline of CD and DVD business
• Reorganization of operations: Direct Group (except North America) under F. Carro, North America operations under P. Olson

Link to their management discussion. In this document they discuss 'expanding the definition' of their markets so that they can exploit big business opportunities. This is essentially the strategy that the larger information and professional publishing companies have been following for several years. (I discussed this concept in a speech I gave last week).

More from their full press release on Random House:

In the U.S., Random House published a record 230 New York Times bestsellers, including “Playing for Pizza” by John Grisham; “On Chesil Beach” by Ian McEwan; “Clapton” by Eric Clapton; “Giving” by Bill Clinton and Suze Orman’s “Women & Money”. Among other major bestsellers were the movie tie-in editions of “No Country for Old Men” by Cormac McCarthy, Robert Ludlum’s “The Bourne Ultimatum”; “The Golden Compass” by Philip Pullman and Ian McEwan’s “Atonement.” The Grammy-winning audio edition of “Harry Potter and the Deathly Hallows” by J. K. Rowling became the fastest-selling audiobook of all time. In the U.K., Random House Group U.K. outperformed all other publishers in the Sunday Times bestseller lists, accounting for nearly one-third of the year’s overall rankings. “Nigella Express” by Nigella Lawson has sold over one million copies in its hardcover edition. The Group acquired a majority stake in Virgin Books and established several new publishing ventures, such as Transworld Ireland, which is dedicated to Irish authors. In Germany, Verlagsgruppe Random House recorded significant growth in revenues and earnings, which were driven by the success of bestsellers by authors such as Leonie Swann, Dieter Hildebrandt and Eva-Maria Zurhorst, as well as its paperback program and its self-help and religion publishing. In Spain, “La Catedral del Mar” by Ildefonso Falcones, published by Random House Mondadori, continued to enjoy excellent sales. Random House expanded its online marketing capabilities in 2007, launching digital platforms with book-content search-and-browsing capabilities in the U.S., Canada, and Germany. Random House authors won many prestigious awards around the world in 2007: Doris Lessing, published by Random House in Germany and Spain, won the Nobel Prize for Literature, and Al Gore, who publishes with Random House in Germany, Japan, and Korea, received the Nobel Peace Prize. Four Random House, Inc. titles won Pulitzer Prizes, a record for a single year.

Golden Moment In The History Of TV News

There will be more no doubt, but imagine waking up Monday morning as Governor and going to bed on Wednesday as Citizen Schmuck. There again every cloud has a silver lining: waking up Monday morning as Citizen Afterthought and going to bed on Wednesday as Governor of New York ain't so bad.

Little noted was that the tri-state areas has hit the trifecta in disreputable governorship. In CT the past Governor is in jail, McGreevy in New Jersey resigned in disgrace as a "gay American" (every time I hear that it makes me laugh) and now Eliot Mess.

The whole wife thing continues to amaze me. My wife doesn't attend my business meetings and as Sam Bee on Comedy Central said last night if as wife you do attend one of your husbands meetings you might want to miss the one that is a festival of your own humiliation. She also said, if anything he should have brought the hooker to the conference after all that's who we all want to see.

Isn't it ironic that as the publishing world was navel gazing about the latest plagiarist, this story broke with a plot so outlandish that even Jeffery Archer couldn't have come up with it. Imagine an agent trying to sell this to a publisher; - No really, this is absolutely true. We've done all the checks. I know the guy. - They would be laughed out of the office - I think.

Presentation at Book Publishing Conference

I presented the following deck as part of a keynote panel discussion on Publishing in the Digital Age. Others on the panel included Mike Shatzkin (IdeaLogical), Carolyn Pittis (Harpercollins) John Morse (Merriam Webster) and Peter Osnos (Public Affairs).

View Upload your own

There are comments on each slide but can only be seen if the file is downloaded.

A podcast is now available here and my section for which the above presentation refers is Publishing in the Digital Age Part Four.

The Future Of Touch Screens

Apropos of nothing, but at a conference this week someone showed a video that shows an impressive future for touch screen interfaces.

Here is the link.

Wiley Post Large Gain

From the John Wiley conference call (transcript) yesterday, CEO Will Pesce summarized their results as follows:

Year-to-date revenue of $1.2 billion increased 47% over prior year. Excluding Blackwell year-to-date revenue increased 6% or 4% excluding favorable foreign exchange. EPS for the nine months of $2, exceeded prior year by 36%, excluding certain one-time tax benefits and Blackwell, adjusted EPS increased 9% for the nine months. The Blackwell acquisition contributed revenue of $115 million in the quarter and $347 million in the year-to-date period. The acquisition was accretive to EPS by $0.9 per share in the quarter and $0.18 per share in the year-to-date period excluding certain tax benefits. Wiley's top line growth continues to be driven primarily by Blackwell, Professional/Trade revenue increased modestly in the quarter, but year-to-date results remain well ahead prior year and industry performance. US scientific, technical and medical revenue increased slightly in the quarter while global revenue advanced 5%. Higher Education showed signs of recovery in the quarter, bringing year-to-date revenue essentially on par with prior year.

Reuters

Borders Australia Sale Off

Apparently after proceeding through several rounds of regulatory review, Pacific Equity Partners the owner of New Zealand retailer Whitcoulls and Australian retailer A&R has backed out of the deal to buy the Borders stores in Australia. It seems that PEP shareholders aren't comfortable with the part cash part equity deal that would have had them partner with Borders in a potentially larger retailing group. This seems to be a strange turn-around for Borders that they would be even negotiating an equity/cash deal with a potential purchaser when they have seemed intent on running for the hills from any international entanglements. Perhaps, Borders has a much more expansive notion of the value and prospects for the Australian & NZ Borders stores and their pricing was not reflected in all cash offers. This could have set them down the road to consider an equity and cash deal.

The Age notes Whitcoulls as saying they were "comfortable negotiations had reached a natural conclusion." I doubt that is the same sentiment in Ann Arbor where they have made international retrenchment a focus. The company releases their full year numbers in a week but here is what they said about the international operations in their most recent (holiday period) release:

Total International segment sales from continuing operations for the period, at $109.3 million, increased by 36.3% compared to last year. Excluding the impact of foreign currency translation, total segment sales from continuing operations would have increased by 26.9% over the same period last year. Comparable store sales for International increased by 10.8% over the same period last year driven by strong performance in Australia.

So far no word from Borders.

Espresso Book Machine Perks Up in Canada

John Mutter at Shelf-awareness has a great 'real-life' article about the implementation of the Espresso Book machine at the University of Alberta bookstore. From his article:

Although the cost has been significant, the University of Alberta Bookstore, Edmonton, Alberta, which installed an Espresso Book Machine last November, has found the POD machine to more than meet expectations, according to Todd Anderson, director of the Alberta Bookstore, who spoke at a seminar at the CAMEX show and National Association of College Stores meeting in San Antonio, Tex., last week.The benefits of the Espresso machine have been both tangible and intangible. "The machine is a symbol of change for a lot of our professors and students," Anderson said. "They are very excited."At the same time, the store printed more than 50 titles in the first three months of operation, saved students buying some of the textbooks significant amounts of money and has kept the machine humming. The production model that the Alberta store has is "a workhorse and just what we need," Anderson said. "We are running flat out."

The article goes on to endorse the use of the machine as a tourist attraction but more importantly as an important new tool for the bookseller. They do suggest there are some issues with the work-flow particularly the binding process but the store appears convinced that the machine will be an important part of their customer service delivery.

BTW: Todd Anderson was head of the Canadian Booksellers Association and is one of the best advocates for the retail book industry and an all around good guy.

Just Excepting The Facts Ma'Am

The fake memoir crime wave in the publishing ghetto would have kept Sgt. Joe Friday in business for years. Sadly, the system is still broken, the system did not 'work' when the perp was caught after publication and sadly the whole thing will be repeated in weeks or months or years from now.

Perhaps the dumbest thing said about the whole episode was that to fact check every book would cause no book to be profitable. If that's the case, the industry has some bigger issues.

There are several articles about fake memoirs this weekend. Here is a selection:

Mendelsohn in the NYTimes:

But then, we all like a good story. The cruelty of the fraudulent ones is that they will inevitably make us distrustful of the true ones — a result unbearable to think about when the Holocaust itself is increasingly dismissed by deniers as just another “amazing story.” Early on in my research for my book, another very old woman suddenly grew tired being interviewed. “Stories, stories,” she sighed wearily at the end of our time together. “There isn’t enough paper in the world to write the stories we can tell you.” She, of course, was talking about the true stories. How tragic if, because of the false ones, those amazing tales are never read — or believed.

Tim Martin in The Telegraph:

Mis lit is, after all, literature's largest growth industry: W H Smith recently added to its Fiction and Biography shelfmarks a new one bearing the legend Tragic Life Stories, and the temptation to creative writing students must be great. Who says there's no future in fiction? Fake memoirs of the less pernicious kind, however, belong to a literary tradition that goes back through Defoe to Mandeville and beyond. It also comprehends some astonishing characters, particularly when the fakers were forced to appear in person.

The Los Angeles Times:

It should have been obvious, perhaps, but it wasn't. Certainly it never occurred to her publisher, Riverhead Books, to make even the most rudimentary check into her background, which would have quickly revealed Margaret Jones to be a character created by one Margaret Seltzer. Seltzer, who as Jones claimed to have entered the foster system after a sexual assault at age 5 and went so far as to invent an ethnicity for herself -- half Native American and half white -- is in fact all white and grew up with her biological family in Sherman Oaks.

Almond in The Trib:

But Seltzer became convinced that only by presenting the story as autobiography would anyone "listen to it." The sad truth is she's probably right. Over the past few years, publishers have responded to declining readership by developing an insatiable hunger for books that come with "author survivors" attached.Why? Because they know that such books are about 100 times more likely to get reviewed and featured on National Public Radio and anointed by Oprah. It's not enough anymore simply to offer besieged publishers a nuanced work of imagination. They need an inspirational figure the marketing people can dangle as interview bait. They need a pitch dramatic enough to resonate within the frantic metabolism of our perpetual news cycle.

I'd be willing to bet that if Seltzer (like Frey) had shopped her book as fiction, editors would have taken a pass. They might have even complained that the plot twists felt clichéd or unrealistic. But presented as a work of nonfiction, her editors knew they'd struck gold. They wanted to believe her story, so they did.

Lastly this one from NYTimes suggesting Kafka was lying

In a telephone interview, Mr. Kafka was contrite and tearful. “I know what I did was wrong,” he said. “I’m very alienated from myself, but that’s no excuse to lie. I took someone’s life and selfishly turned it into an enigmatic literary parable.”

Reed Business Information Sale

Various private equity firms are believed to be actively interested in the Reed Business Information group which was put on the block several weeks ago. If you recall Reed Elsevier announced the acquisition of Choicepoint at the same time. The list of firms interested includes Apax, Permira, Guardian Media, Candover, Cinven and Providence Equity Partners. According to several sources the sale price could exceed $2.obillion; however, this valuation may be too much for the debt markets to support. With several operating companies ruling themselves out, including United Business Media as the most notable, there are several interesting scenarios that may emerge.

Clearly one of the equity companies can buy the entire offering and at $2bill+ this would be an ideal outcome for Reed Elsevier. If the recent sale of EMAP's b2b division is anything to go by then the chances of a single buyer and a big price seems unlikely.

Apax and Guardian Media could combine an offer and seek to integrate the RBI titles into the existing businesses that each currently owns. When these companies agreed to buy the Emap titles there was some discussion of consolidation within the existing properties they own but they seem to have cooled to this strategy. Why that is may have something to do with the chance that they end up acquiring the RBI titles. Strategically Apax/GM could have significant repercussions because they would be in a position to collectively own the top 1 or 2 (or both) titles in numerous segments. They could subsequently discard any titles that don't fit that positioning and end up with a formidable trade publisher. Opportunities to consolidate across several market segments don't come up in bulk like this very often.

Reed Elsevier, in holding out for a high valuation, may also opt to retain an ownership position in one of the outcomes. If the scenario above holds up for example, Reed could end up owning 10% of a business with far better prospects than the trade business they already have and also get to pocket a lot of cash from the proceeds.

Once a deal is done (and my expectation is that there is no cherry picking to be had in advance of a sale), the acquirer will be looking to make some divestitures. Among the notable sales that could happen would be Variety which could gain a high price as a 'trophy' asset and the publishing titles Publisher's Weekly, LJ and SLJ. Bowker, Nielsen and several others would be interested in these titles so interest wouldn't be hard to find. New Scientist could also be considered a trophy title with Macmillan as a potential buyer.

Immediately after the announcement of the sale, there was some questions raised about the timing of the sale and whether anyone would be interested. It seems that these worries may have been pre-mature, but time will tell whether Reed Elsevier are as successful in selling these assets as they were selling their education division.

Sharing a Stage

Is it me or was it weird that B&N Chairman Len Riggio backed out of participating in yesterday's AAP annual meeting? Could it have had anything to do with Amazon's Steve Kessel also sharing the limelight? If there was something to this - and personally I never enjoyed participating in events with my competitors so I empathize - one wonders why the handlers didn't realize the possible problem and point it out a little further in advance of the meeting. No matter, George Jones, CEO of Borders seized the opportunity to speak to a room full (presumably) of publishers. According to Publisher's Lunch, he noted the initial success of the new store concept in Ann Arbor:

Borders CEO George Jones led off the APP's meeting this morning, saying that early indications from their new concept store are encouraging. Though the store carries twenty percent fewer titles than a typical superstore, "the number of titles selling has doubled" according to Jones, who calls the change "dramatic." The store has only been open two and half weeks, but Jones says "sales have been way better than expectations."

And according to people in attendance that was about it.

Laura Bush also spoke about the lack of reading in the US and specifically among the young. A particularly disingenuous speech given a) she said virtually the same thing in 2002, b) she was a librarian (of what level is suspiciously vague) and this shouldn't be a surprise and c) we are at a point where her administration can't do anything about it. (A little like Africa but on a smaller scale).

For the Supply Chain Guy Who Has Everything

So adaptable and cheap are RFID tags that supply chain gurus are mailing them to themselves. This is a pretty cool idea noted in Pop Science described as "mail that never gets lost". While the title is not entirely accurate - it can still get lost but you will eventually know where it has been - the use of this technology is really quite practical. Just slap one of these puppies in an envelop and you can analyze your entire supply chain. The chip enables analysts to trace the location and time spent at each step of your process thereby giving you valuable information about blockages and bottlenecks. It could become a standard management tool used to monitor supply chains.

From the article:

The technology lets users track a letter’s every move. A vibration- and tilt-sensitive motion detector determines whether the Logger was sitting idle, being sorted, or bumping along in a truck. This data syncs with the GPS locations via Google Earth, allowing officials to spot places where mail lingered too long.

Jones'n for Truth

At Least Bulworth Was Funny

Remember the Warren Beatty movie where his character ends up in South Central LA basking in some street cred as he attempts to avoid an assassination plot (which he instigated). Well that has nothing to do with the latest fiction posing as non-fiction but at least the fictional movie made some strong and resonate points about politics and media. If you read, as I did, the profile of author Margaret B. Jones in The NYTimes last week you will have been mesmerized by the story of her life as a human castaway adopted by a foster family in South Central, running drugs for the bloods, learning to sleep on the floor every night to dodge bullets and then emerging to actually complete college and then end up marrying an ex-gang member.

Turns out (and it's getting so that we will need to change the sections in the bookstore) it is all fake. She's but a simple, upper middle class 30 something writer, with a very vivid imagination. From the LATimes:

The author of "Love and Consequences," a critically acclaimed autobiography about growing up among gangbangers in South Los Angeles, acknowledged Monday that she made up everything in her just-published book."Jones" is actually Margaret Seltzer. Instead of being a half-white, half-Native American who grew up in a foster home and once sold drugs for the Bloods street gang, she is a white woman who was raised with her biological family in Sherman Oaks and graduated from Campbell Hall, an exclusive private school in the San Fernando Valley.

Even in the face of complete disaster and shame (perhaps she understands that redemption in America is always just around the corner), it is interesting that her reaction and that of her recent fact-starved compatriots blend self-righteousness and penance. At the outset these writers seemed to have weighed the consequences and decided that they'll make a name for themselves either way; they seem to know that any news is good news and that the notoriety is in itself valuable. From the NYTimes:

Ms. Seltzer, 33, who is known as Peggy, admitted that the personal story she told in the book was entirely fabricated. She insisted, though, that many of the details in the book were based on the experiences of close friends she had met over the years while working to reduce gang violence in Los Angeles. “For whatever reason, I was really torn and I thought it was my opportunity to put a voice to people who people don’t listen to,” Ms. Seltzer said. “I was in a position where at one point people said you should speak for us because nobody else is going to let us in to talk. Maybe it’s an ego thing — I don’t know. I just felt that there was good that I could do and there was no other way that someone would listen to it.”

Are all the books fakes? I'm going to start my memoir: In it I'm Howard Hughes, mixed with Archie Leach, Basil Fawlty, Biggles and Roy of the Rovers.

Barnes & Noble Launches Studio

Barnes & Noble announced the launch of a multimedia site on B&N.com that will feature a range of original content about books, readers and writers, and showcase web video series and other multimedia content about varied aspects of literature, complemented by user-generated material. Barnes & Noble Studio will launch with Barnes & Noble Tagged! and Book Obsessed as the first in a series of original productions and content initiatives.

From the press release:

Barnes & Noble Tagged!, hosted by Molly Pesce, is a magazine-style weekly web series that takes an upbeat look at what’s happening in the book world. The five-minute weekly show will let book-loving viewers know what new titles to look out for and will reveal the stories behind recent book news. The show will also feature an interactive poll where viewers can cast their vote on the chosen topic of the week. Ms. Pesce is a book lover herself with a penchant for real-life adventure books. She is currently writing her own account of modern motherhood and will be familiar to viewers from her role as the host of shows on Animal Planet and NBC’s iVillage Live. The program is produced for Barnes & Noble by Allen/Nee Productions.

Book Obsessed takes a five-minute look at passionate readers and their world through the books they love. The first episode in the weekly documentary-style series spends a day at the home of Laurie Gold of Dallas, Texas, who loves romance novels – and only romance novels. The second episode features Joe Perlman, a man who has a mere 35,000 books in his Long Island home. The third features a married couple that met at a mystery novel convention. To complement these portraits of book aficionados, Barnes & Noble Studio will invite viewers to upload short videos about their own book obsessions for inclusion into the Book Obsessed channel. Submissions can be made starting March 10. Book Obsessed is produced for Barnes & Noble by City Lights Media and is shot on location around the USA.

The company states that at launch there will be approximately 700 video and audio pieces on the site and that the new slate of programming will join the already considerable content on the B&N site. This existing content includes interviews and live in-store presentations from stores around the country.

Pearson Post Record Results

Pearson shares fell this morning despite posting financial gains across the board. The company increased top line revenues by 6% to £4.2bn and adjusted operating profit by 14% to a record £634m. The profit increase was supported by all segments of the Pearson group with Pearson Education up 9%, Penguin up 20% and the FT Group up 30%. Press release.

Investors are concerned that Pearson's results are weighted to reliance on the US market both in education and advertising revenues and as a result the company's share price fell despite the results. Pearson is generally conservative about forecasting their full year revenues and profits and underplay the impact of their acquisitions. If past year's performance is any indication the underlying businesses will continue to drive growth in excess of competition and the recently acquired companies/operations will further support growth. This is particularly the case in Education where the company has spent heavily in recent years. Additionally, across the company, management continues to transform revenues from annual one-off sales to subscription (i.e. recurring) based models. This supports annual revenue, profit and cash generation growth.

Typically (in recent years), the company sets aside £500m for acquisitions which enables them to acquire without dilution. With markets depressed it will be interesting to see how they are able to stretch this number during 2008.

Other highlights:

• The company spent £472m for 2007 acquisitions which added £90m of sales and £13m of operating profit to 2007 results
• The Government Solutions business was sold to Veritas Capital for $560m in cash, $40m in preferred stock and a 10% interest in the company
• The newspaper Les Echos was sold to LVMH for €240m in cash
• A 50% stake in FT Deutschland to Gruner + Jahr was sold (no terms noted)
• The Data Management (Scanners) business to M & F Worldwide Corp for $225m in early 2008

Their outlook for 2008.

• Penguin (20% of sales; 12% of operating profit) expects to improve margins further and into double digits. Penguin's good publishing and trading performance has continued into the early part of 2008.
• Higher Ed will continue to build on operating efficiencies and beneficial recent acquisitions. As in recent years they expect to grow 1-2% better than the industry
• In School the company expects the integration of Harcourt to progressively build margin improvement with material benefit to show in 2009
• At the FT, the company expects to continue to broaden their revenue base and continue to reduce the reliance of advertising revenues. Ad revenue is 30% of group revenues versus 52% in 2000.

Marjorie Scardino, chief executive, said: "This is another record set of results and an excellent performance from every part of Pearson. We continue to reshape Pearson into a more digital, more international and more efficient company, and those changes make us confident that 2008 will be another good year."

Harlequin Improved

Harlequin revenues were flat for the full year 2007 versus 2006. Revenues of $462mm versus $471mm in the prior period were negatively impacted by foreign currency which accounted for almost the entire variance. EBITDA showed some improvement with 2007 results of $65mm versus $63mm. Excluding the impact of Forex EBITDA was $6.3mm better than 2007.
From their press release:

Excluding the impact of For Ex:

• Overall Book Publishing revenues were down $1.0 million in 2007
• North America Retail revenues were up $3.6 million
• North America Direct-To-Consumer revenues were down $5.0 million
• Overseas were up $0.4 million
  
• Overall Book Publishing operating profits were up $6.3 million
• North America Retail operating profit was up $5.8 million
• North America Direct-To-Consumer operating profit was up $2.2 million
• Overseas operating profit was down $1.7million

The company has spoken about their efforts to manage expenses in the North American business and they seem to have made some impact in that direction with the improved operating margins. Additionally, the company was not beset by any unforeseen operating issues that bedeviled them in prior years (like the bankruptcy of a distributor). The company also said that improved sales via the internet - primarily direct to home - price increases and lower (presumably more effective) promotional spending also supported the better margin performance.

It appears the company is focusing now on improving their international operations which appear problematic. The company recently announced an expansion of their efforts in Indian, which is not material in their current results, but they must also look to improve results in Japan and the UK. In both these countries there appears to be a shift in how consumers interact with Harelquin (Mills & Boon) with decreases in direct to home in the UK as an example. The company will look to use their experience in the US to improve the UK market. In Japan the company is experimenting with Manga versions and mobile phone distribution but as yet these efforts have not been significant to offset the decline in core sales.

Press Release

Of note also, is that Torstar the corporate entity that owns Harlequin also posted solid results especially in light of the declines in newspaper properties. Torstar revenue of $1,546.5 million grew 1% and EBITDA of $225million grew 11.5%. The company stated that all their primary operating units performed well.

Informa Posts Strong Results

Chairman Peter Rigby has ruled out bidding for the trade magazine division of Reed Elsevier (Reed Business Information) saying the advertising business is not one they are in. The company did however post strong financial results that were in line with the expectations set in mid-December. The acquisition of Datamonitor which at the time seemed an expensive deal looks to have been integrated well and already producing impressive results. From their press release here are their highlights:

• Revenue £1.13 billion – 9% pro forma growth
• Adjusted operating profit £261.0m – 19% pro forma growth
• Adjusted operating margin rises above 23%
• Strong trading across all three divisions (Academic & Scientific, Professional and Commercial) and all three business streams (Publishing, Performance Improvement and Events)
• Datamonitor delivers 22% pro forma revenue growth for the full year
• Adjusted cash conversion 110% of adjusted operating profit
• Total dividend increases 39%
• Confident of 2008 outlook
• Academic and Scientific division grows adjusted operating profit by 25% to achieve a 29% margin
• Strong yield increases and drop through from electronic delivery
• Professional division benefits from Performance Improvement extending global reach
• Non-US revenues increase by 29%
• Commercial division growth fuelled by extension of Large Scale Events portfolio and 38% increase in Dubai revenues

Chairman Rigby: "We have transformed Informa in recent years. We have built a business based on recurring revenue streams which provides strong defensive qualities, but not at the expense of continuing good growth. We are of course aware of the current uncertainty in the financial markets, but at this point the board sees no signs in our trading to alter its expectations that Informa will deliver another strong performance in 2008. Our confidence in the future of the business is reflected by a 39% increase in the dividend over 2006."

Wolters Kluwer Reports Results

Wolters Kluwer appear to have completed a strategic transformation of their business which began more than three years ago as the current CEO Nancy McKinstry took up her role. The company did not see significant top line improvement in 2007 - up 4% - but they have gained in operating margin to 20% and with a better product mix they should continue to see improvement. During 2007, the company divested their education division and booked a nice gain (similar to Reed and Thomson in that respect).

In her comments, McKinstry noted that over half the companies revenues come from online and electronic products and services, and she believes improved results will derive from this better product mix. As the company continues to invest in work-flow solutions and integrated products she went on to say "I am confident in our ability to leverage our superior market positions, our improved organic growth and more efficient operating structure to achieve enhanced value to our customers and shareholders."

Other highlights from their press release:

• Organic revenue growth was 4% (2006: 3%)
• Reported revenues of €3,413 million, grew 6% in constant currencies (2006: €3,377 million)
• Ordinary EBITA margin improved to 20% (2006: 17%)
• Ordinary EBITA of €667 million increased 27% in constant currencies (2006: €556 million)
• Diluted ordinary EPS increased 25% to €1.38 (2006: €1.10), 35% in constant currencies
  Free cash flow of €405 million (2006: €399 million, which included a €53 million one-time tax refund)
• Revenues from online and workflow solutions grew 9%
• Structural cost savings of €161 million, an increase of 26% (2006: €128 million)
• Divestment of Education: sales price €774 million; book profit €595 million; net proceeds €665 million
• Share buy-back program completed (€645 million returned to shareholders)
• Net profit for the full year was €918 million (compared to 2006: €322 million), supported by he divestiture of the Education division

Five Questions with Redroom.com

A few months ago, a website dedicated to authors named Redroom.com was launched and was noted by SF Chronicle.

Redroom.com, which premiered Dec. 21, is one of the more ambitious online communities for writers to date and perhaps the most timely, aiming to capitalize on the current potential for profitability of social-networking sites. It features 150 authors (with 400 more to come), ranging from Amy Tan and Salman Rushdie to Edinburgh Castle Pub owner Alan Black; Graham Leggatt, executive director of the San Francisco Film Society, who moonlights as a sci-fi writer; and local mystery writer Cara Black.

The site has been well funded and has a strong list of staff members all of whom are 29 yrs old. In addition to the brand name authors noted above, Redroom.com also received the endorsement of Barack Obama who, as an author, joined the community earlier this month.

Ivory Madison is the founder and CEO of the corporation and was kind enough to answer my five questions.


Question 1: There is a lot of background information about the genesis of your site but I am curious as to how you convince authors that they should belong to a social web site like RedRoom. How do you pitch this idea/concept to the big name authors like Salman Rushdie?

Big name authors are just like relatively unknown authors in that some of them are extremely friendly and helpful, and some are not. There’s a different story with every author. In the case of Salman Rushdie, one of the friendly and helpful ones, we made him aware of our interest in supporting public discussion of new books beyond just the best-sellers, which is a cause of his, too. Also, since he didn’t have a website, perhaps finally having an official home online was appealing—you know, some famous authors are frustrated by how much misinformation there is about them on the internet. Authors find it daunting to design and build a website, even if they can afford it, and they’d much rather be asked to join a community where all their friends are, and where the technology is so easy to use, now that there is one.

Question 2: What do you expect of the authors as they ‘socialize’ at Redroom. Thus far, has the interaction surprised you in any way with respect to the amount of participation or the (perhaps) different manner in which they use the site which you may not have anticipated?

I have been surprised and delighted at how positive and funny everyone is. I mean, everyone is so encouraging, and authors, not just readers, are posting fun comments on other authors’ pages. The culture has a life of its own. I’ve also been surprised how, every day, some authors take the time to write original, long, brilliant, fully edited essays for our homepage and as blog entries. Really amazing work on politics, on divorce, religion, media, philosophy…and it’s there for anyone to read, anywhere in the world, for free. So far, I’m in awe, because we’ve barely rolled out a small number of the features I envision us offering. The blogs are the hotspot. If you go to the central blog page at , http://www.redroom.com/blogs, you’ll see all the latest blogs, just posted. That’s everyone’s favorite page.

Question 3: In your PR material you indicate that you will soon reach a community of around 500 authors. Is this a managed level of do you see the site growing significantly larger beyond that size. Assuming you want to grow larger do you see any issues with the mix of ‘celebrity’ authors and those possibly less blessed?

We already have hit the 500 author mark, in less than 60 days of the site being live, and we have another 500 in moderation waiting to be approved. Every day, our developers work on scalability issues, trying to find an interim solution while building the long-term solution, to make the site user-friendly as we grow. We intend to be the starting point for finding authors, so we’ll keep growing rapidly. As for the celebrity issue, we already have more non-celebrity authors than celebrity authors, and they interact. Some of the busiest pages are those of lesser-known authors who are real community-builders, and so most the “stars” on our site are people you may have never heard of (although one of our most prolific bloggers is one of our most famous—Amy Tan). The platform gives unknown authors a chance to promote themselves and be part of a larger conversation with a larger audience.

Question 4: The SF Chronicle notes you are the MySpace for Authors. Is this moniker something you are comfortable with or not? Do you see yourself doing the same for lesser known authors as My Space has done with musicians?

We like when we’re called the “MySpace for Authors” because it’s quicker and people say, “ahh, I get it,” and I don’t have to explain much further. We’re different in many ways, of course. Our authors must apply and not all are approved, much of our content is pretty great—educational and entertaining, you don’t need to know anything about programming to make your Author Page look good, and most of our users are well-read and good writers. I agree that we’ll provide the same important service for lesser-known writers than MySpace did for bands; that’s a great analogy—one that one of our founding authors, Po Bronson, suggested to me when I was still sketching out the site on cocktail napkins.

Question 5: What about this community has surprised you since you launched the site? What can we expect next from Red room?

It surprised me that authors are so honest and revealing, sharing experiences such as the death of a loved one, or a miscarriage. It surprised me that authors showed up at my office with champagne, cakes, signed books, in gratitude for finding them new readers or just making them feel they finally had a home online. What can you expect next from redroom.com? Great question to finish up with: In just a few weeks, we’re rolling out Member Pages, which will be very similar to Author Pages, so that aspiring writers and avid readers can participate. Since you work with publishing professionals, keep watching Red Room through the rest of the year as we roll out Publisher Pages. With the Author Pages, we asked all the authors we knew what they wanted, now we’re asking publishing professionals what they want and we’d love to hear from them about what we could do to make them feel at home, too.

Proquest: In Case You Care

Proquest, hereafter referred to as Voyager Learning Company is for sale. The company announced they had retained Allan & Co. to determine strategic options for the company. So far has Voyager fallen, that this news barely caused a ripple of notice from industry outlets. No doubt the bank will already have done the rounds with all educational publishers to gin up some interest. As some will recall, the company has sold all saleable assets of the company over the past four years but it has also been embroiled in accounting irregularities, had its stock delisted and is also the target of copyright and shareholder lawsuits. This is pretty grim news for a company with such a long and illustrious history which included brands such as Bell & Howell, UMI and even R.R. Bowker. (If you are not paying attention they join CQ Press and Haights Cross as recently 'in-play' educational publishers).

The company finally produced their 2005 10K on August 31 last year and announced a few weeks ago that they would produce audited 2006 accounts by the end of first quarter 2008. The only good news about this appalling schedule is that they “anticipate much of the 2007 work will be done in parallel with the 2006 work” and thus may be almost caught up by April.

There have been a number of management changes as a result of the divestitures and the irregularities. The company is now run by Richard Surratt, Voyager Learning Company's President and CEO. The remaining business operations of the company are now in Dallas and Voyager has reduced to 11 the number of employees still in Ann Arbor. (Imagine the morale there). As the accounting becomes clearer so will the current net value of the business; further asset write downs are possible and whether these result in significant income statement charges which in turn result in transferable tax credits remains to be seen. The company did revalue goodwill as a result of their restatement resulting in a $180mm charge to the 2004 income statement.

The company appears to be performing satisfactorily and while they have completed a reinvestment of their core product line they operate in a very competitive marketplace in a down market. The company expects to have $75million to $85million in cash by year end which is lower than planned due to the loss of a copyright lawsuit ($7mm) and lower full year revenue expectations ($3mm).

The company faces a consolidated shareholder suit and the company expects discovery to start sometime in early 2008 and eventually go to trial in 12-24mths. They have lost one attempt to have the suit dismissed. The law issue complicates matters significantly not least because in reading some of the employee agreements (bolstered by stay bonuses) they expect a sale of the company within the next 12mths. Who will be around to defend the lawsuit and who will pay for that? The company also have a derivative law suit that "asserts claims for breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment." and "breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment" (10k). (Sounds like someone checked every box on the form).

The company combines Voyager Expanded Learning, ExploreLearning and Learning A to Z into the category “Voyager Operating”. The following is from their earnings conference call:

For the three quarters ending September 30, 2007, the Voyager Operating business had estimated and preliminary revenue of $87 million, Earnings from Continuing Operations before Interest and Income Tax, which is referred to here are as EBIT, of $10 million and EBITDA of $26 million. This compares to preliminary revenue of $94 million, EBIT of $13 million and EBITDA of $30 million for the same nine month period of 2006. Due to Q3 results coming in less than expected, we are adjusting our previously issued full year guidance to a range of $106 to $112 million in revenue versus previous guidance of $116 to $124 million. We project a resulting EBIT range of $7 to $10 million versus the original guidance of $10 to $13 million. And lastly we are updating our EBITDA guidance to a range of $29 to $32 million versus original guidance of $32 to $35 million.

Reviewing their 2005 10K shows how significantly the company has been transformed.

• Net sales of $545.9million versus $439.6mm in 2004
• EBITDA of $28.9mm versus $(149.1)mm in 2004 which included a goodwill impairment charge of $180mm
• Full year revenues for Proquest Education (Voyager Operations) were $91mm in 2005
• Proquest Information & Learning revenues were $271.4mm. This is the business unit sold to Cambridge Information Group for the bargain basement price of $218mm in February 2007. Operating income may be a loss of around $10mm - hard to say given the presentation.
• 2005 revenues for the automotive group were $183mm and this unit was sold for approximately $490mm. Go figure.

Documents:

Allan & Co. Press Release

10K

Times Online Notes E-Book Opportunity

The Times Online looks at Cookery books and notes this:

This enduring power of the cookery book is worth bearing in mind when Sony and Amazon, and doubtless others, eventually inflict their electronic book readers on the British public. Their arrival, probably this year, undoubtedly will be accompanied by excitable speculation about the death of the book, predictions about the inevitabilty of digital domination and the expectation of hard times that lie ahead for publishers. Ideally, all this discussion will appear in physical newspapers and magazines before the writer turns, later that day, to reading their hardback/paperback tome of the moment. Never mind, it is easy to overvalue the impact of new techology (those with long memories may recall an excitable discussion about virtual reality a decade and half ago).

They go on to make a point I have raised:

That means a consumer really has to want to buy a digital book reader. It might cost twice the annual book bill. So the only way that electronic readers will take hold among consumers is if they become a good way of reading other printed products, such as newspapers or magazines.

Couldn't have said it better myself... (Link)

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.

Links of Interest

The Dallas DA has released boxes of material relating to the assination of JFK. The Dallas Morning news has launched a crowdsourcing effort to classify and identify the documents. Link. Tip o' hat to Brantley).

I wasn't aware Apple has an iTunes site dedicated to selling educational content to universities and students. Link

Larry Lesig may run for Congress and has launched a Change Congress initiative. (Tip to Hodgkin).

Stephen Fry has launched his Podgrams and also has an enjoyable post about digital cameras.

"Just about everybody who needs a camera has one. What is wrong with that Ixus I bought three years ago? That old Pentax Optio will see me through to my old age, don’t it? No! No, you crazed enemy of freedom, you wild-eyed anti-capitalist, you deranged luddite. Haven’t you heard of Face Detection Technology? Smile Capture? Best Shot Automatic YouTube Uploading?

WorldCat has a blog all to its own.

Shatzkin on horizontal to vertical redux.

Apax is already sniffing around Reed Business Information. Link

Tell this to Harpercollins. Link

Charkin Returns

Just as the opening credits role in High Plains Drifter, we discern the image of the returning fighter but its not Eastwood it's Charkin returning from the blogging wilderness to post a brief effort on Eoin Purcell's site.

Sales of some novels are spectacular but even the most spectacular compare in revenue and terms very unfavourably with, for example, a drug, a car, an airline, or an oilfield. As an industry we should be very grateful for all the attention (and I am) but why this journalistic obsession with the economics of books and fiction in particular?

Still no news about his permanent return.

Mills & Boon in India

The BBC takes up the story of Mills & Boon (Harlequin) entering the Indian market which I noted a few weeks ago. Link

Although Mills and Boon - which has nearly three-quarters of the romantic market in its home country of the UK - is only now launching in India, their books are already popular in the country because they have been unofficially introduced from abroad.
Many in the reading group describe themselves as long-time readers.

Reading groups members acknowledge the stories are fanciful. Rachana Srivastava, for example, says that she grew up on a "staple diet" of the publisher's works, which have moulded her perception of the ideal man.

My post: Hold on to your Sari (I really only note it because I was particularly proud of my headline).

More Reed Elsevier

Reed announced preliminary results yesterday which were somewhat overshadowed by the announcement of the Choicepoint acquisition and the proposed divestiture of the Reed Business Information division.

In the earnings presentation CEO Davis noted that their revenue growth is ahead of the market, their operating margin continues to improve year over year and the company is delivering good cash generation and EPS growth. Over the past four years underlying revenue has grown between 3-6% per year but it is operating profit which has seen annual growth expand from 3% in 2004 to 10% in 2007. Operating profit growth has improved faster than revenue due to the changing sales mix toward on-line revenues as well as corporate wide initiatives on costs reduction and consolidation.

In discussing the proposed divestiture of the RBI business, Davis used justification similar to the comments used to explain the Harcourt divesture but it boils down to several things. First, the online component of RBI is not growing fast enough to keep up with Elsevier, LexisNexis and Martindale. This will dampen long term revenue growth for RE. Second, the timing and investment required to speed the process could be significant and Third, the payback is not obvious in so far as online ad based 'magazine-type' content has yet to establish itself as a business that can replace revenues from print based subscription and advertising. Davis's comments reflect forward thinking regarding the strategic growth of RE as a platform based content solutions provider: Financially the current position of RBI is quite strong versus their segment. Indeed their performance supports the suggestion that Davis will not rush to sell RBI and is open to various scenarios.

In 2007, RBI revenues were £906m up 3% and operating income was £119m up 8% over the prior year. Offline revenues account for 70% of total revenues. Despite the long term concerns of Davis, this appears to make RBI a £300m online trade magazine/business information publisher which will prove a strong selling point for investors when they come to kick the tires. (Online revenues were up 20%). Currently, RBI includes Reed Exhibitions which the company has decided to retain. According to the company, Reed Exhibitions has continued to grow aggressively and perhaps, there are more business opportunities across the RE properties which management believe can be leveraged. Additionally, management may be considering expanding Exhibitions through acquisition. Exhibitions revenues were up 12% in 2007 and operating income up 8%.

It will be interesting to see how this divesture plays out. The division has some brand-name assets including Variety and Publishers' Weekly but it may be the more mundane titles that have been driving the online growth and investors may be more impressed with these units than the bigger brands. That could lead the way to a break-up strategy with some of big brand properties going to separate buyers and a strategic buyer purchasing the balance of the company. For example, I could see Variety going to Zuckerman or Wasserstein.

Note: Reed also noted the sale of Harcourt generated total proceeds of $4.95bn which was a 3.0x multiple of 2006 revenue and a 20.8x multiple of 2006 adjusted operating profit. The divestiture generated a substantial disposal gain.

Reed Preliminary Results presentation.

Reed Elsevier Acquire Choicepoint

In my predictions for 2008 I noted that we would see increased activity in the insurance business information space. In my view, this space is ripe for the type of consolidation seen in law, tax and business information that results in dedicated and must have information platforms for practitioners and analysts. Both Thomson and Reed dominate the law and tax segments and it looks like Reed is taking the first step to dominate and create a platform application for the insurance industry. Reed announced this morning that they will by Choicepoint for $3.5bill and assume $600mm in debt.

Commenting on the acquisition, Sir Crispin Davis Reed Elsevier's Chief Executive Officer, said: "The acquisition of ChoicePoint represents a major further step in the building of our risk management business and in the development of Reed Elsevier's online workflow solutions strategy. The market growth in risk information and analytics is highly attractive and ChoicePoint brings important assets and market positions that fit well with our existing business and, in combination, can be leveraged to very good effect.

The new unit will be combined with existing risk management revenues in the Lexis business unit that will result in a business unit with over $1.5billion in revenue.

Other points from the press release:

• ChoicePoint has a leading position in providing unique data and analytics to the attractive insurance sector (over 50% of Choicepoint's $982 million revenue and 80% of its business operating income from continuing operations in 2007) and highly complementary products and new capabilities in the screening, authentication and public records areas.
• The combination of ChoicePoint's highly regarded data and analytics assets with LexisNexis's market leading technology can be leveraged to create greater opportunities in addressing the growing risk information and analytics needs in insurance, financial, legal, screening, law enforcement, public safety, healthcare and other sectors.
• The combination will improve top line growth and deliver considerable synergy benefits through the application of powerful technology, increased scale and integration of resources.
• The acquisition will accelerate Reed Elsevier's revenue and profit growth; is accretive to adjusted earnings from the first year; and is expected to deliver a post-tax return on capital in excess of Reed Elsevier's cost of capital by the third year, with returns continuing to climb thereafter.
• Consideration of $50 per share in cash; unanimous recommendation of the ChoicePoint board; subject to ChoicePoint shareholder and regulatory approvals. Acquisition to be financed from committed new bank facilities.
• The acquisition significantly enhances Reed Elsevier's portfolio through expansion in these attractive long term growth markets, and accelerates Reed Elsevier's progress in providing online solutions embedded into customer workflows.

The strategic importance of this acquisition for RE is noted in the last bullet where the company emphasizes the importance of workflow solutions for their customers. Information is not a commodity, but is only a component of a broad market offering. A company offering monolithic data products; that is the online equivalent of a printed database, will continue to face market challenges in competition with more integrated offerings where content is a component in a larger holistic workflow tool.

In a closely related story, Reed also announced that they will sell the Reed Business Information unit. This sale has long been rumoured and analysts have suggested that Reed should have vacated the space long ago; however, Reed were progressing through a logical strategic revamp which has culminated in the acquisition of Choicepoint, the divestiture of Harcourt and now the sale of RBI. The company says the divestiture will reduce exposure to the cyclical advertising markets, which of course was as true today as it was five years ago. Best guess would be private equity.

The same press release also notes their full year 2007, results with underlying revenue growth of 6% supported by online information and workflow solutions. Topline reported revenue was £4,584m up 2%. The company also saw operating margin improve as a result of favorable product mix with underlying margin up over 100 basis pts. Adjust EPS was up 12% in constant currency. The company noted that adverse exchange rates materially impacted the results. More in the press release.

Lulu Publishes 4,000 Titles per Week

The Guardian takes a look at the US self-publishing market and notes some impressive statistics fron Lulu.com.

Lulu says it publishes 4,000 new titles each week and already has a catalogue of 232,000 books. "Our success is that each week we publish between 10 and 20,000 titles; one at a time," said , the senior vice president of operations at the company, Andrew Pate.

The company is only five years old and says it is doubling in size every year. Earlier this year, I noted the growth of Blurb.com which published 80,000 titles during 2007.

The Guardian also discusses Booksurge.com and AuthorHouse as variations on the theme and notes the recent new relationship between Borders and Lulu. More from the article:

It is not only business people who want to self-publish. Lulu's Pate says an ageing population, with more money, more life experience and more time on their hands to write will combine with the new and improving technologies to help drive the self-publish business. The ubiquitous use of Microsoft Word together with desktop publishing software, digital printing technologies and workflow solutions linked to the internet and "bang, you have got a whole new market that could not exist without each of those pieces together".

Cengage Reports Second Quarter

Second quarter revenues and EBITDA were negatively impacted by a change in accounting for deferred revenue and as a result Cengage reported slightly lower (1.2%) revenues versus their prior period. Revenues were $496mm and $502mm for 2008 and 2007 respectively. The impact of the change in deferred revenue accounting had a 100% flow-through impact and as a result EBITDA was 7% lower than the period last year ($148mm versus $160mm).

The company recorded a strong first quarter and despite the account change year to date revenue and EBITDA were 2.3% and 3.0% higher respectively. Year to date revenues were $1,146mm and EBITDA was $409mm. Margin is holding steady at a healthy 35.7%.

Other highlights:

• Academic and Professional YTD revenues and EBITDA are up 4.9% and 5.6% respectively. YTD revenues and EBITDA are $791mm and $347mm
• Gale YTD revenues were lower by 4% but EBITDA was up 2.1%. YTD revenues and EBITDA were $167mm and $63mm
• International YTD revenues were higher by 7% but EBITDA was lower than prior year by 4%.

The company indicated that their plans are ahead of schedule on cash flow, cost savings initiatives and projected EBITDA.

Cengage

Defections

Another big name author has followed the money and moved from his long term publisher. Richard Ford has moved from Knopf to Ecco after 17 years, and he follows Tom Wolfe who earlier in the year moved from FSG to Little Brown. Who can blame them? This is not a trend, as authors do move around periodically (and take their editors with them). It will have little impact on traditional publishing. The mid-market and specialty author is not suddenly going to be in a better competitive position vis-a-vis the publishing houses. What strikes me as curious, though, is that we haven't seen incursions by web companies such as Google, Microsoft, Amazon and Ebay into the original content business. Yet.

It seems so logical that one or a few of these companies will experiment in some way with branded authors. We all know the author brand is primary and we also know that some authors have become aggressive in expanding their brand - Patterson as the prime example. It may be inevitable that a major author(s) signs a three book deal with Google or Amazon. According to Publisher's Lunch, Wolfe received between $5mm and $7mm (these numbers from several sources) for his deal. It is a sad reflection on the publishing industry that these figures represent little more than gas money for the larger internet companies. Skills in book production, design, marketing and promotion, etc. are readily available and would not represent an impediment to success. It is really the expanded catalog of skills and expertise that an internet company could bring to bear that could be really interesting for authors and consumers.

Launching Major Author X via 'GooglePub' or similar would transcend the traditional publishing model and, perhaps, return it to something more like the publishing of the late 18oos where serialization (blogging) and direct reader involvement (social networking) were fundamental elements of trade publishing. (Remember Doyle trying to kill off Holmes, resulting in near riots from readers?) One of the most interesting aspects of the Radiohead experiment was that they finished their album only two weeks before it was available for download. In the world of publishing, the length of time from finished manuscript to bookstore can be years. Not only would consumer access be much faster in a 'GooglePub' world but the engagement with the author and the authors' work could be far more intense (and positive) for both author and reader.

Imagine the author maintaining an ongoing rapport with readers as the book is written. The author blogs about the process, posts excerpts, background material relevant to the story, and plot and character notes. The author publishes finished excerpts (ie. serialization), as development continues. Perhaps derivative titles or sequels are also initiated. Audio, Podcasts and video is made available. At the launch of the title, the book will have been exposed to millions of readers - perhaps all of the title has been published in parts or not - but the excitement will be significant. During this time, site traffic will also have grown and perhaps an advertising revenue share for the author will also augment their annual guarantees.

As in the Radiohead example, a physical version will be produced but, even here, the model could change. Perhaps 'GooglePub' strikes separate deals with B&N, Borders or others who produce their own versions of the titles by selecting from the wealth of content available as a direct result of the content created during the process. Basically, the author and 'GooglePub' leave it up to the physical publisher to create the physical product and just take a (painless) cut of revenues.

Publishers can't compete with this model. By the same token, the process could give rise to a new caste of publishing staffers who are familiar with the web-publishing model, social networking and engagement and who become required assets as authors migrate their brands to the internet. An interesting scenario: How prepared are large trade houses if their top-ten branded authors defect to 'GooglePub'?

Livemocha in NYTimes

I have commented on the language learning provider Livemocha and they were profiled in the NY Times over the weekend:

LiveMocha introduced its Web site in late September 2007, said Shirish Nadkarni,
chief executive of the company, which is based in Bellevue, Wash. Since then, he said, about 200,000 users from more than 200 countries have joined. “It’s a community of like-minded learners who can leverage their native language proficiency to help one another,” he said. The name “LiveMocha” is meant to evoke the relaxed atmosphere of a coffee shop. The site is still in beta, or testing, phase, Mr. Nadkarni said. Advertising will soon be added, as well as charges for some premium content and services.

The company recently closed on $6mm in additional funding.

San Francisco

I spent most of last week in San Francisco. While NYC received its first appreciable snow (and then heavy rain to wash it all away), I was wandering around in almost 70 degree weather and havinig a lovely time. I did do some work as well.






Created with Admarket's flickrSLiDR.

Click on each image to see brief descriptions of the image.

175,000 First Chapter Excerpts (And Counting)

I wasn't excessively clear in my description of the Dial-a-Book model and Mr. Greenfield has rapped me on the knuckles and asked me to correct the article. Obviously, he is quite correct to ensure we understand his business model. From Stanley,

You write:

"The idea of building a business (let alone expanding as he continues to do) on the precept that he will scan and re-key the first chapter of a book so that the content can be distributed as merchandising material in this day of e-content seems anachronistic. No telling how long it will continue to go on and many (including me) have expected publishers to take this over themselves and obviate the need for Dial-a-Book. Yet, he continues to flourish."

Michael, were this the case Dial-A-Book would not exist.

Most of the major publishers do create there own excerpts which they mount on their own sites .... and send to us for reformatting and distribution.
Our value is not that we create excerpts but rather that every excerpt we distribute is automatically mounted by

Barnes & Noble, Baker & Taylor, Ingram, EBSCO, Books-in-Print,
Buy.com, OCLC .... if they handle the books

… and by more than 1,600 library OPACs (e.g. San Francisco, Cleveland,
Seattle Public Libraries) if they hold the books in their collections.

Moreover we are the exclusive excerpt providers to all of the above, with the exception of Barnes & Noble. None of the others will mount any except unless it comes from Dial-A-Book. Every excerpt in any on-line public access catalog (OPAC) in the US is a Dial-A-Book excerpt.

The reason is that we provide an AGGREGATION function.

They would rather pay our modest charges to recieve 50,000 excerpts a year, in two deliveries a month, in a consistent format, which they can algorithmically access, or enter into their systems and servers, than receive 300 Random House excepts on a Monday, 200 Harper Collins on a Tuesday, 150 Simon & Shuster on a Friday, etc, in a variety of formats..

Dial-A-Book delivers an essential service for publishers, web sites and OPACs by the aggregation function it performs. Its unique data base contains 185,000 first chapter excerpts prepared and distributed with the permission of more than 1,400 imprints/publishers.
I would greatly appreciate your rectifying this matter for the readers of Persona Non Data lest they believe the need for Dial-A-Book can be obviated.


The original post as follows:

My friend Stanley Greenfield tells me he now has an astounding 175,000 first chapter excerpts and to think I knew him when he had less than 5,000. The idea of building a business (let alone expanding as he continues to do) on the precept that he will scan and re-key the first chapter of a book so that the content can be distributed as merchandising material in this day of e-content seems anachronistic. No telling how long it will continue to go on and many (including me) have expected publishers to take this over themselves and obviate the need for Dial-a-Book. Yet, he continues to flourish.

Here is more material from Dial-a-Book:

During 2007 Dial-A-Book continued to drive book sales and library readership as it delivered more than fifty thousand new first chapter text excerpts to its partners, e-commerce sites, media, bibliographic services, library on-line public access catalogs. The Dial-A-Book data base now contains excerpts from 175,000 ISBNs. All excerpts are produced and distributed with the permission of 1,400 imprints/publishers. The DAB Chapter One program is the exclusive excerpt provider for Baker & Taylor, Ingram, Books-in-Print, OCLC, EBSCO, Buy.com, Diesel e-books, and library on-line public access catalogs. Every excerpt appearing in any US library-on-line public access catalog (OPAC) is provided by DAB. In our continuing effort to support our partners we have enhanced our systems with a new mobile platform. The platform will allow more than five millions iPhone, iTouch and Windows Mobile users to browse our 175,000 book excerpts. Software development continues to extend the use of excerpts to other devices.

The Dial-A-Book Publishes Portal™ was successfully launched in 2007. It has been promoted by the International Publishers Association (PMA), Independent Publishers Group (IPG), Midpoint Trade Books and author services companies like AuthorHouse, Lulu.com and Infinity Publishing. Publishers Portal guarantees the display of book first chapters by the web sites and library on-line public access catalogs for which Dial-A-Book is the exclusive excerpt provider, if they handle the books or hold them in their collections. Our thanks to all our partners whose cooperation made this progress possible. Text excerpts are being increasingly displayed. This is testimony that CONTENT SELLS. We invite inquiries about how you can derive the greatest benefit from participation in Publishers Portal and Chapter One.

To learn more about Dial-a-Book contact Stanley Greenfield at 718 432 0014 or email:
srg@dialabook.net

Death of a Magazine Redux

Earlier this week MediaPost noted the almost 20% decrease in newstand sales of Time magazine for the second half 2007 versus the same period in 2006. Adding the bad news, subscription sales also fell 17%. From their article:

In November 2006, Time cut its rate base 18.8% to 3.25 million, so the decline in subscriptions may be due partly to a purge of "junk" circulation, including automatically renewed subscriptions. But it's hard to put a good spin on the steep drop in newsstand sales, which advertisers often view as an indicator of audience engagement. Ironically, the declines follow a major redesign that was intended to make the magazine appeal to a mass audience. Introduced in March 2007, the new look delivers less visual clutter for a cleaner, streamlined appearance. There is lots of clear "white" space, fewer, more eye-catching images, and interesting text formats.

MediaPost go on to note similar declines at Newsweek and US News/Report. On the flip side, The Economist inproved their numbers significantly with total circ up 12%. Time is a long way from closing down, but in my predictions for 2008 I did note that we will see some high profile magazines shut down. I think these numbers reflect wider changes in consumption patterns. (And no its not about people reading less).

Borders' Concept Store Opens

Short of visiting Ann Arbor to look over the store myself the nice people at Ann Arbor News got to preview the store opening yesterday and have written a detailed review. I hope to get out there myself in the next few months in the meantime here are some notable items from the AA News article:

The store, in the Waters Place plaza near Kohl's in Pittsfield Township, is the first of 14 concept stores the struggling retailer will open this year. Borders is striving to restructure and brand itself as a center for "knowledge and entertainment," increase sales and differentiate its 520 U.S. stores from its chief rival, Barnes & Noble
Inc.

The music section has been downsized, and in its place is Borders' digital center. The circular, oversized kiosk features several computer stations where customers can burn music CDs, download music and audiobooks onto MP3 players, create digital photo albums, learn how to self-publish and research family genealogy.

Jones said the amount of floor space dedicated to books has remained consistent in the new store, but the company decreased the number of titles it offers to make better use of space. Now, Borders stacks more books so the cover, rather than the spine, faces the customer. The new Borders also sells some digital cameras, memory cards, and more toys and gift items. Still, the selection doesn't overwhelm the main attraction - books.

There is a video in the article as well.

It might be more interesting to see how this concept store evovles as they get direct feedback from consumers. Borders' deserve credit for expanding the idea of what a bookstore is; how their ideas resonate with book buyers is obviously the point of the concept. My only negative comment is that they get points off for utilizing The Long Pen autographing system: taking autographing to the network level just eliminates all the fun.

Shocking Result: Borders Australia Sale Approved

Despite the suggestion that the consolidation of Borders and Angus & Robertson's would lead to higher prices the Australian Competition Commission will allow the sale of Borders stores to Pacific Equity Partners. The resulting combination will be considerably larger in number of outlets than Dymocks which is the only other national chain.

A&R is likely to reassess their entire chain and perhaps close some of the non-performing stores. They may also look to consolidate more retail traffic by opening larger Border's branded superstores in both urban and suburman locations. Thus far, PEP has not indicated how they will present the two brands (and Whitcouls in New Zealand) but it is probable that PEP will operate two types of stores similar to a B Dalton/B&N arrangement. Many of the existing A&R retail outlets I have been in are somewhat down-market and some look more like discount retailers than full service book retailers. Look for PEP to expand and accelerate the opening of larger Borders stores and consolidate some of the A&R business.

No official word on the price but it is estimated to exceed A$120mm. Whether this is a good number from Border's US perspective remains to be seen given the amount they have invested in the international operations.

Dymocks will also be forced to make some changes; however, their ability to do so across the entire range of stores is complicated due to franchising. With half the chain owner managed Dymocks have traditionally had difficulty (and resistance) pushing out corporate mandated initiatives. Regardless, the existence of a well funded, large and well branded competitor may help galvanize the Dymocks faithful. Dymocks could also embark on their own superstore expansion although where they would get the funding for this is anyone's guess.

The Age

NetGalley and Publisher's Weekly Launch eMarketing Platform

Publishers Weekly officially announced a partnership with Rosetta Solutions, Inc. to implement netGalley, an innovative online application. The platform is designed to help publishers better connect with both traditional and new media communities through electronic distribution and tracking of galleys, press materials, title metadata, and promotional plans. PW will use the netGalley application to capture information at the point of submission of Galleys for their reviews process. One of the key benefits of netGalley to participating publishers will be the ability to upload vital book and promotional information that will enable multiple and varied use by channel partners.

I profiled NetGalley several months ago (link).

The Bulletin: Death of a Magazine

As a newsie, I used to carry the The Bulletin on my route every week. I never understood why it came out on Wednesday; even Women's Weekly came out at the beginning of the week, but therein lay some of the failed logic that evidenced the slow and eventually rapid death of The Bulletin. Most will never have heard of this "newspaper" but it was iconic in Australia. Read as ardently in the clubs of Melbourne as it was on the station in Walla Walla, it represented the voice of Australia - both good and quite bad.

As an isolationist, white Australia and republican voice, the newspaper, established in 1880, tried hard to be confrontational and controversial. At the same time, the "Bushman's Bible” published some of the best Australia had to offer from poets, writers and journalists. They included Henry Lawson (known by every Australian school child), Breaker Morant, Banjo Patterson (Waltzing Matilda) and Miles Franklin (now the name of the leading Australian literary prize).

During the early 20th century the newspaper moderated its' views but even when it was purchased by Sir Frank Packer in 1961, he had to remove the 'Australia for the white man' from the masthead. Packer and his son Kerry built a large, influential media empire that included newspapers, television and eventually gambling. The Bulletin was always a 'trophy' property within the empire ensuring the eventual demise.

Kerry Packer's directive to his serial editorial hires, was to "make 'em talk about it." It wasn't about making money and it wasn't - eventually - about transitioning to the Internet. When any business (in this case a publication) is protected from financial reality, what motivation exists for innovation and logical strategic planning? On the death of his father, James Packer inherited the business in December 2005 and he took the long view that his fortune lay in gambling. He sold the media business to private equity and in their review of operations they shut The Bulletin several weeks ago.

The Bulletin still garner's 50,000+ weekly readers and it is hard to believe someone couldn't make a go of it at this level. The Economist only gets 20,000 in Australia and has launched a (reputed) A$500K marketing program to convert old Bulletin readers. While it is a always sad to see a media 'institution' go under, in this case it was inevitable. There hasn't been too much interest in resurrecting the newspaper from any third party and perhaps the investment required to digitize their content and production processes is too much. The real crime is the loss Australia faces from both the voice of The Bulletin and the potential to farm the content for future generations. Had The Bulletin been owned by a commercial publisher during the mid-1990s then the future may have been quite different.