Quebecor in Strife

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

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

From The Globe and Mail:

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

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

Cancelled: Lynne Spears Parenting Book!

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

Replacing Harry in 39 Steps

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

From the NYTimes:

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

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

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

Reed Elsevier: How to Expand a Market

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

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

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

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

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

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

Mike Huckabee's Message to Iowa

Noted on Chris Matthews this morning. Too funny.

LA Times: A Dismal Year (or maybe not)

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

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

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

Louis XVI: Let them Pay Shipping

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

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

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

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

Sony BMG: Demerge?

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

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

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

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

Reed Complete Harcourt Sale

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

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

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

Reuters

Borders Australia Decision Delayed

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

Prior PND report

Reuters

Technology In Publishing: An Overview

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

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

Thanks to Robert Baensch for asking.

Live Mocha: Social Language Learning

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

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

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

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

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

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

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