Gaming the Library

Big, Stuffy, Parental New York Public Library is counter to expectation a big gamer. A recent article in the NYT tells how the library is far more with it and in tune with a segment of its target audience than we might otherwise believe.

Under the Beaux-Arts arches of Astor Hall at the New York Public Library’s flagship building on Fifth Avenue and 42nd Street, thumping hard-rock beats mixed with tennis-ball thwacks and the screech of burning tires late Friday afternoon, as the library showed off the latest addition to its collections of books, films, music and maps: video games. Beneath the engraved names of august benefactors like John Jacob Astor and Simon Guggenheim, several hundred children, young adults and the people who love them virtually jumped, drove, battled and rocked out as the library celebrated its burgeoning “Game On @ the Library!” initiative.

The library has been loaning out games since 2006, but they are expanding the program in a big way. It is all to reach out to that illusive audience that in the words of one attendee "you don’t see too many kids my age in a place like this to check out a book." He's fifteen.

Borders UK

There seems to be a revolving door at the offices of Borders UK. Last week the company announced that Commercial Director David Kohn, who was bought in from W H Smith at the end of 2006 would leave the company in April. Kohn's had responsibility for buying and marketing and hence this is possibly a more critical loss than the loss several weeks ago of the CEO David Roche.

Borders UK was purchased last year (from Borders US) by ex-Pizza Express founder Luke Johnson. Johnson is also currently chairman of UK's Channel four television. It is probable that philosophical differences with the Chairman on store merchandising, negotiation and store closings have had something to do with both departures.

Bertelsmann Is Cautious

The Times Online takes a critical view of Bertelsmann's strategic vision but does note that since they are a family owned business maybe the criticism doesn't matter:

All this is a far cry from the swashbuckling days of Thomas Middelhoff, the Anglophile chief executive who was booted out after thinking that he might persuade the Mohns to float. Mr Middelhoff bought Random House, did the deals that made RTL, now the best business, and made a ridiculous sum, $7 billion, on a half-share of AOL Europe. Now, there is a cosier approach, where keeping the family happy matters too much. Remarkably, there is almost no Asian business and not much internet to talk about, although Hartmut Ostrowski, the new chief executive, talks about changing that. Yet a limited appetite for risk is already being seen in limited rewards, with profits up by only 3.4 per cent last year.

Google Print Integration

I always wondered at my own immediate need for 10,000 e-book titles available on things like the Kindle and Sony e-Reader. Give me an e-Book library of my librarything.com titles then I might be interested. The idea that I could browse the full text of my collection on librarything has far more relevance for me than a e-Book catalog that's just BIG. And what do you know? We are almost there because librarything.com announced an integration with Google Book Search several weeks ago and on the site a user can link to the text of many of the titles in their collection. The links aren't universal but as a taste of what is surely inevitable it is a great step forward.

Other companies are jumping on the API bandwagon. ExLibris announced they have integrated a link to 'About this Book' pages on Google Book Search. From their press release:

Using a new “viewability” application programming interface (API) supported by Google Book Search, library patrons can now enhance their findings with Google Book Search features such as full text, book previews, cover thumbnails, and a mashup from Google Maps linking pages in a book describing a specific place to its location on the world map. Use of this “viewability” API has been added to the Ex Libris Primo® discovery and delivery solution, SFX® context-sensitive link resolver, and the Aleph® and Voyager® integrated library systems.

In the ILS world everyone plays follow the leader so the links should start appearing in all the other vendors products if they haven't already. Libraries have long had the ability to gather content in a similar manner (not full text) from Amazon.com. Many have done this successfully to augment (prettify) their catalogs, but the Google option will prove to be compelling both because of the potential breadth of content in the 'About the Book' package but also the limited commercial nature of the Google Book Program. The Google Book Program could become the primary distribution mechanism for publishers into libraries: Imagine every ILS using the Google API and publishers making their titles available via a subscription/lending module. All of this at very low capital expense for publishers.

The other interesting aspect of the Exlibris implementation is the integration with the SFX link resolver. How this will develop could also be interesting for the discovery of journals and articles.

Over on Exact Editions, Adam had some related thoughts on this.

Also, I had an additional thought that it may be Microsoft that has the better Publisher workbench/toolkit for managing access to their content from what I saw at their presentations last year. Where they are in their relationships to library intermediaries is anyone's guess however.

Book Expo America

I have been shanghaied into arranging a panel discussion at Book Expo in LA. It will be interesting and I am looking for several more panelists. Please let me know if you would like to participate and or if you have any recommendations as to who I could ask to participate.

The following is a draft of the panel discription:

Digital Bundling: Considerations, Combinations & Costs
Most publishers are committed to allowing consumers access to electronic versions of their books whether on their own account or via programs such as the Google Book program. Some publishers are going a step further and are allowing consumers to interact with and create their own products using the publisher’s content. As publisher’s build their content databases, digital bundling will become a significant part of the product mix and will change the concept of the customer – from bookstore to consumer - and the concept of the product – from book to service. Rapid improvements in technology will enable ‘mass customization’ of publishing products and will fundamentally change the relationship with customers.
While many publishers are still tentative in their e-book experiments others are already experimenting with digital bundling. As these publishers experiment, what are their experiences, what are the issues and what costs exist as these publishers engage their customers in new and revolutionary ways? Hear from publishers who are experimenting or are contemplating launching making their content available to consumers for new and exciting products.

Moderator: Michael Cairns, Information Media Partners
Thursday May 29th: 11am - 12pm
Panelists:

Penguin Redux

Email subscribers may not have been able to view the Penguin newstory from Reuters that I noted last week.

Here is the link:

http://www.reuters.com/resources/flash/includevideo.swf?edition=US&videoId=78374

Penguin On the March

Penguin continue to innovate and experiment. Last year they launched wiki-novel idea "A Million Penguins" which generated over 85,000 visitors and this week they announced a collaboration project between authors and game producers. This Video from Reuters explains all.



Thanks to April for the link.

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.