Frankfurt Supply Chain Meeting: Random House

Fionnuala Duggan spoke of RH's internet marketing efforts: "Web2.0 and the marketing mix" and 2005 to RH. She has experience in music, newspapers and publishing so offers a broad base of experience in web 2.0 applications. She introduced her discussion by commenting on how there has been a rapid increase in 'a different type of company'. She noted Myspace, facebook, ebay, photobucket and librarything. The central tenet of these social companies is that users are "choosing to interact" with them rather than having something imposed on them.

Fionnuala noted that attention and activity is now widely dispersed across the panoply of media choices. Media is vastly more fragmented than ever before and unless you as a publisher have a strategy to hit potential consumers in the locations where they are surfing then she concludes "you haven't got an internet strategy". You need to fish where the fish are and be present where the consumers are active. The object of internet marketers is to reach out into the internet and bring back the consumers to the RH site where they can interact/engage with them.

Vehicles used include email which if closely and accurately marketed can be an "extraordinarily powerful marketing tool and has been for RH." Most of traffic for RH comes from search and while a competitive market, search is a priority for RH in navigating traffic to RH. Google booksearch is also going to be an enormously important step in the growth of books. Books will now compete with all kinds of published works and the challenge for publishers is to make books relevant within the context of all other types of printed media. So, publishers need to be far more aware of the consumer experience, the content of books, the presentation of books, etc.

She reminded the audience however, that making books available is not the same as selling them and as an example she showed a music retailer named emusic. The company is a 'long tail' retailer of music content and has been able to create a strong viable content retail operation entirely through merchandising. The company has a catalog of over 2mm tracks and has "electrified and made interesting" the long tail of music retailing.

The Random House widget has been very successful for them and is an important aspect of their desire to seed social sites like Myspace and Facebook with Random House content. Other social applications she mentioned were iLike, iBook, Bebo and librarything. As book publishers they should be trying to infiltrate these sites with their content and also be prepared to engage the resulting consumers/users in social interactions.

Lastly, having an internet presence is a lot more than having a web site. It is far more than that and while important to front list, if done correctly their activities will have far more impact on the long tail of Random House titles which provides the excitement.

Frankfurt Supply Chain Meeting: Shatzkin & The Emergence of DADs

Mike Shatzkin of Idealogical company presented his research into Digital Asset Distributors in a speech entitled An Emerging Infrastructure of Digital Asset Distribution. Mike has presented this material on at least three occasions and I discussed it earlier this year here. He also has a copy of a similar speech from earlier this year on his web site here.

The publishing supply chain is changing and is no longer simple. In digital distribution even without ebooks they have more content to supply more trading formats, more trading partners and more customization. A lot of this content is about sales but also a lot about marketing. A little more than a year ago, Shatzkin saw a number of companies developing digital asset distribution (DAD) services who distribute content for digital asset producers (DAP) and pass the content to digital asset retailers (DAR). The role of a DAD is to get content delivered to a wide aray of content users. In his view there are more scale reasons for the development of DADs than there are/were for physical distribution which has been consolidating steadily for 40 years. Shatzkin went on to identify eight companies in the publishing arena he considers to be DADs: Biliovault, Bookbank, MPS Bookstore, Code Mantra, Ingram Digital, LibreDigital, Random House UK and ValueChain International. (These companies are also noted in the speech cited above).

In determining the need for a DAD a publisher should document all their use cases such as, files sent to printers including archiving and version control, files to merchants to support sale including covers, toc's etc., files sent for subrights reasons, files sent to websites and/or syndicators for pr reasons and files sent to online booksearch programs. Finally ebooks are the least important of the use cases as don't currently provide a lot of revenue but do provide promotional benefits. The objective of a publisher is to get a DAD that can support all their use cases and avoid retaining DADs that can only fulfill part of their use cases. New use cases arise all the time so the DAD also needs to be flexible.

In the long run Shatzkin believes that most DAD's will become industry resources for most publishers and publishers (with only a few exceptions) will forgo development of their own DAD capability.

There are a number of steps a publisher should take in beginning their DAD strategy.
Firstly, a publisher needs to develop a spreadsheet inventory of all their files, their locations and their formats. Secondly, the publisher needs to document all their use cases. Thirdly, understanding both the current costs of fulfillment and what is not getting done is also important. These three items are critical for the publisher to have a meaningful discussion with the potential DAD's about services and costs. If the publisher doesn't have the content in a form to distribute, the DAD will almost certainly work with them to transform the content for a fee.

Lastly no DAD is future proof and so you must get to know the provider not just the sales team. Be sure to build strict service level agreements into your contract which also includes an innovation clause enabling you as a customer to ensure the DAD continues to innovate and expand their services in line with your customer needs and requirements.

WH Smiths Beats Estimates

For some reason AOL Europe put this article at the top of their search results for WH Smith this morning. As the article is six months old you might want to look at more recent results here.

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Good news for UK book retail this morning in the results for WH Smith's. Annual revenues and profits were higher versus last year on the back of better results in their railway and airport stores. City center stores continue to plague the business and revenues were off 6% versus last year; however, the company indicated that market conditions are masked in this result as they continue to realign their store product mix.

Highlights from the company press release:

Profit before tax and exceptional items up 29% to £66m (2006: £51m). Profits from trading operations are:
• High Street profit up 5% to £44m (2006: £42m)
• Travel profit up 16% to £36m (2006: £31m)
• Total Group profit before tax of £76m (2006: £44m).
• Like-for-like (LFL) sales down 4% reflecting our strategy to rebalance the mix of our High Street business towards our core categories.
• High Street LFL sales down 6%, with total sales down 6%
• Travel LFL sales up 2%, with total sales up 6%
• Gross margin has improved by 230 basis points year on year.
• Cost savings of £10m, with £3m delivered ahead of plan; further incremental cost savings of £11m identified.
• Strong free cash flow of £81m (2006: £68m).
• Underlying earnings per share2 up 26% to 29.3p (2006: 23.3p).
• Basic earnings per share up 82% to 33.1p (2006: 18.2p)3.
• Final dividend proposed of 8.1p, up 31% on the prior year. Total dividend per share of 11.8p
up 27% on prior year4.

Specific to books the company stated:

Books LFL (like for like) sales were up 1% as we continued to focus on rebuilding our authority as a popular book specialist and maximising profitability. Excluding the Harry Potter release in the second half, LFL sales for the year were flat, with gross margin slightly down including Harry Potter and up excluding Harry Potter. We maintained our strong performance versus the general high street, a trend which has continued for over 2 years now. We are particularly pleased to have maintained this performance during the second half of the year in the face of very strong competition on Harry Potter. During the year, we saw strong shares in some of the front list books, both over the key Christmas period on titles like Peter Kay, The Sound of Laughter, and then with further strong shares on key summer titles such as Cook Yourself Thin and the Richard & Judy Summer Read. Improvements to category planning and management have delivered good results, notably through improved ranges, innovative promotions and a focus on specific genres, such as Kids.

The High street revival is part store remix (DVD and CD sales are rapidly declining) and also based on the integration of post office concessions. The company has announced plans to integrate these concessions in 71 of its 544 high street stores and while operationally complex they have said they are on plan to achieve their goals. Currently they have 23 concessions in operation. The company has previously said the object of installing the concessions in the stores is to provide increase foot traffic and in prior interviews Kate Swann (CEO) has said their assumptions of the impact of this strategy is being borne out.

The company is naturally guarded about the coming year and warns that the marker should not expect too much by way of a rapid turn-around in the High Street stores. Regardless, shareholders and the publishing community generally should be relieved at these results which show significant performance improvement.

Reuters

Borders' UK New Investor

There was a profile of Luke Johnson in the Wednesday Evening Standard which I read wedged into seat 26a coming home. Even thought he is only 45, Johnson has a long history of both entrepreneurial activities and private equity investing. He is currently Chairman of Channel 4 which was one of the early commercial UK broadcasters but if there is a theme to his business history it is in retail customer management. He believes that the Borders UK operations have a lot to offer and,

"It's like gold to us." Come on, there's a Borders near me, and while it's great wandering round the basement listening to the CDs, I'm also aware I'm often the only one down there. "In music retailing, life is tough," Johnson says. "HMV and Virgin have shown that. Borders needs reshaping. "When the internet came along, people said it would transform retailing -- it's taken until now for it to really make an impact. It's not just CDs -- travel agents, cameras shops, video rental, they all face a difficult future. But Borders doesn't just sell CDs, its main business is selling books and the good thing about them is that their sales are still growing. Millions of people want to browse in bookshops. Did you know the average dwell time in a Borders is one hour?"

Article

Macomber appointed President & CEO Wolters Kluwer Health

Wolters Kluwer Health, a division of Wolters Kluwer, a leading provider of information and business intelligence for students, professionals, and institutions in medicine, nursing, allied health, pharmacy and the pharmaceutical industry, announced today the appointment of Gordon Macomber as President & CEO of its Professional & Education business unit, with responsibility for the Lippincott Williams & Wilkins product lines.

For the past four years, Macomber had been President of Thomson Gale Reference in Farmington Hills, MI.

"The appointment of Gordon Macomber brings us extensive publishing experience as well as the leadership skills and business proficiency to take our books and journals business into the next era of content-in-context," said Jeff McCaulley, President & CEO of Wolters Kluwer Health. "We could not be more thrilled to have Gordon join our leadership team."

Press Release

Borders Down Under

As reported before, final bids are due by the end of the month for the Borders store operations in NZ and Australia. Bids are expected to be in the A$80-100mm range with Private Equity Partners the owner of Angus & Robertson the presumed front runner. Some serious contenders are already reviewing the books and according to this article from the New Zealand Herald there may be more than one or two candidates. Already mentioned were PEP and Berkelouw Books (a small book company), and now Dymocks the other large bookseller in the marketplace has confirmed it is looking to make a bid. Additionally, Woolworths and Paper Plus, a PaperChase like franchise operation, may also join in. This additional interest must be good news to Border's US who need to get a high price for these operations to mitigate the disappointing sale of the UK operations. Also noted in the article is a suggestion that Borders Australian management may have backed off a management buyout in order to align themselves with one of the purchasers most likely PEP.

Riverdeep Rumor and Reed Elsevier "Buy"

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

Borders CEO Jones Buys 50,000 shares

Nothing speaks to committment than dipping into your own pocket and putting your money where your mouth is and that's exactly what Borders' CEO George Jones has done with his purchase of 50,000 shares. While Borders' hit a long term low after their recent earnings announcement this endorsement may both shore up the share price and let investors know that senior management believes the future looks good for Borders. This purchase was one of the largest single purchases of Borders' stock in recent years. The purchase cost over $660,000 and as a result, Jones owns over 121,000 shares.

In related news, the company also annouced a fulfillment agreement with Baker&Taylor for support of the to be launced Borders.com retail site.

"We selected Baker & Taylor as our primary fulfillment partner because of their excellent track record with consumer-direct fulfillment of all of the product types we'll offer at Borders.com, and their ability to serve our customers in the superior manner they deserve," said Kevin Ertell, vice president of e-business for Borders Group.

"We are delighted to be Borders' fulfillment partner for book and entertainment products" said Richard Willis, CEO, Baker & Taylor, Inc. "We look forward to working closely with Borders on this exciting initiative and providing their customers with the world-class fulfillment services that are a standard of B&T."

In the same announcement, the company formally annouced the beta for the new retail site with some description of the site's features.

One such feature is the Magic Shelf(TM), which Borders has been testing on the beta site for over four weeks. The Magic Shelf is Borders' unique online version of the warm and engaging shopping experience that takes place in its bookstores every day. When arriving at the site's home page, customers see a realistic looking, three-dimensional shelf of actual book covers displayed as they would be in a Borders store. For details on each title, customers simply click on a book that interests them, much the way they pick up books that catch their eye in Borders stores. Over time, as customers shop at the future Borders.com, the Magic Shelf will become personalized for the shopper based on past purchases and will display books that the customer may be particularly interested in exploring. On the beta site, there is a related Magic Shelf feature called "Picked for You." Customers simply indicate the subjects in which they have an interest, and Borders will stock the "Picked for You" shelf with books on those subjects.

Penguin Lives in Whyville

Mediapost has an interesting post about the virtual world whyville and how the site is being leveraged by Virgin, Penguin and the University of Texas Health Science Center. The virtual world has over 2.4mm active users between the ages of 8-15 and is billed as place where children can gain an understanding and appreciation for math and science. It is also a place where companies can advertise there products as long as the advertising is 'active brain advertising'.

Here is what Mediapost said about Penguin's activity:

For Penguin Books' kid-friendly adaptation of Al Gore's "An Inconvenient Truth," Whyville created an entire Global Warming program--complete with in-world climate changes and tropical storms. Kids were able to band together for community clean-up activities after a storm trashed the Whyville beach, and take CO2 and temperature readings of the island at the Penguin-sponsored Climate Center. Almost 400,000 members visited the Climate Center within months of its launch at the end of June.

Foreword Magazine

Foreword magazine asked me to blog for the which I have been doing for the past four weeks. Most of what has appeared there is content from PND but Competitive Writing is something new. You may also like the new Foreword website recently redesigned.

Media Deals Keep Getting Better

The Jordan, Edmiston Group released their quarterly press notice on media deals and the results keep getting better and better - if you are selling. Amidst general worries about personal retirement accounts (mine) and decreased real estate valuations (my ex-neighbor but they deserve it) here we have our industry's bell weather shooting through the roof. JEGI tracked 637 deals and $95billion in value for the first three quarters of 2007 and they say deal value has already far outstripped the total value for all 2006.

JEGI tracks 11 industry segments and the leading segments were Marketing and Interactive Services and Online Media. In both segments the number of deals were up over 50% and the valuations were also up over at least 50% versus 2006. While there were a lot of deals in these segments they were 'small' compared to education where several very large deals resulted in a valuation increase from $387mm in 2006 to $14,239mm this year. There was a similar increase in Information Services.

Laggards in value included Business to Business media, consumer books and Directory and Reference Publishing.

You can read the entire release here.

EBAY Takes Charge

It was obvious to me in December that EBAY had either not purchased the right company or they had and had failed to execute with the acquisition of Skype. That's why in my (self indulgent) predictions for 2007, I suggested that EBAY would sell the unit. However, things are worse than that. With EABY's listings listless and core revenues a concern to business analysts, the company annouced yesterday that they made a mistake and overpaid for Skype and would take a $1.4billion charge in the third quarter. The purchased the company in 2005 for $2.6billion. Talk about dialing the wrong number.

There is still time for T-Mobile to step in.