SCHOLASTIC ANNOUNCES FISCAL 2008 RESULTS AND FISCAL 2009 OUTLOOK

From the company's press release:

New York, NY (July 24, 2008) -- Scholastic Corporation (NASDAQ: SCHL), the global children’s publishing, education and media company, today reported its results for the fiscal 2008 fourth quarter and full year and its outlook for fiscal 2009. It also announced that its Board of Directors has declared a quarterly dividend of $0.075 per share to be paid on September 15, 2008 to shareholders of record on August 4, 2008.

“Given our track record of strong free cash flow, generating $188 million in fiscal 2008, and low debt levels, we repurchased $220 million in stock last year while continuing to invest in strategic growth opportunities,” stated Richard Robinson, Chairman, CEO and President. “Initiating a regular dividend allows us to return additional cash to Scholastic shareholders.”

For the fiscal year ended May 31, 2008, the Company had revenue from continuing operations of $2,205.6 million, up 15% from the prior year. Earnings from continuing operations rose to $2.82 per diluted share from $1.70 per diluted share in fiscal 2007. Fiscal 2008 results benefited significantly from the publication of the seventh and final book in the Harry Potter® series.

Revenue from continuing operations in the fourth quarter of fiscal 2008 declined 2% to $536.1 million. Earnings from continuing operations were $0.75 per diluted share compared to $1.04 per diluted share in the fourth quarter of fiscal 2007, primarily reflecting continued investment in the Company’s growth initiatives.

The Company reported that negotiations for the sale of its direct-to-home continuities business, which it previously announced it would exit, moved forward during the quarter, and that it expected to finalize terms in the first quarter of fiscal 2009. Scholastic also announced that it shut down its school-based continuities business effective May 31, 2008. As a result, both businesses have been classified for accounting purposes as discontinued operations in current and prior periods.

In fiscal 2008 the loss from discontinued operations, net of tax, was $3.39 per diluted share, compared to a net loss of $0.29 per diluted share in fiscal 2007. In the fourth quarter the loss from discontinued operations, net of tax, was $1.09 per diluted share compared to a net loss of $0.11 per diluted share in the prior year period. The greater loss in the current year and quarter primarily reflects non-cash asset write-downs, net of tax, of $2.62 and $0.79 per diluted share, respectively, recorded following the decisions to exit these businesses. In the current year and quarter, the net loss associated with direct-to-home continuities was $0.61 and $0.21 per diluted share, respectively, and with school-based continuities the net loss was $0.16 and $0.09 per diluted share, respectively.

Including continuing and discontinued operations, the fiscal 2008 net loss was $0.57 per diluted share compared to net earnings of $1.42 per diluted share in fiscal 2007. In the fiscal 2008 fourth quarter, the net loss was $0.34 per diluted share compared to net earnings of $0.93 per diluted share in the prior year period.

“Scholastic made important investments in fiscal 2008 to achieve ongoing revenue and profit growth and to reach 9 to 10% operating margins in 2010,” Mr. Robinson added. “These initiatives include:
1. Building and testing a second generation, online selling platform for School Book Clubs to launch in fiscal 2009, which improves on our online system that already handles 60% of Club orders;
2. Expanding the use of point-of-sale equipment and online tools in School Book Fairs, to improve merchandising and the book fair experience;
3. Developing new publishing and online properties, like the innovative multi-platform adventure series The 39 Clues™, which combines books, collectible cards, online games and an interactive website;
4. Investing in a stronger sales and service organization for Scholastic Education and in new technology products like System 44™, a prequel to our top-selling reading-intervention program READ 180®;
5. Accelerating investment in China and Southeast Asia to serve the growing market for English-language books and learning, where Scholastic’s business expanded by more than 20% in fiscal 2008.

In fiscal 2009 we also have plans to reduce costs by $25 to $35 million, through reductions in headcount and other spending areas. Based on these elements, this year’s plan delivers profit and margin growth (excluding Harry Potter) and moves us toward our goal of 9 to 10% operating margins in fiscal 2010.”

Fiscal 2009 Outlook

The Company expects total revenue from continuing operations in fiscal 2009 of approximately $2.0 to $2.1 billion, and earnings per diluted share from continuing operations in the range of $1.75 to $2.10. This guidance reflects growth in revenue of approximately 3 to 5%, and in earnings per diluted share of approximately 10 to 25%, excluding the benefit of Harry Potter in fiscal 2008. Free cash flow is expected to be approximately $90 to $100 million.

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Kindle Sex

Sillicon Alley Insider (via Booktwo)notes that Amazon is being characteristically coy about the level of porn on sale via the kindle. They note that Amazon is prepared to offer sales rank for most titles but similar ranks are suspiciously lacking for erotic titles. They don't explain how they came about this research but a review of this series of pages on Amazons web site shows no erotica. And this is what you get if you try one of the sales tracking services linked to Amazon services. What are they afraid of?

I may have mentioned that a "sex books in print" is a noted but under served market segment but this list throws up a few more interesting items. Subscriptions to NYTimes and WSJ are in the top 20 (and probably run at a more sustained level than the other titles). With respect to the NYTimes this and the iPhone must spell the death knell for the Times Reader, that mediocre electronic newspaper reader the Times brought out a few years ago. Also of note, is that the title mix includes both adult and young adult titles.

Readers should be aware that battery life is limited.

Tivo And Amazon

The NYTimes is reporting this morning that Amazon and TiVo has signed an agreement that will allow TiVo users to purchase via an on-screen menu some of the products mentioned in shows like The Daily Show, Letterman and Tonight. From the article:

In the months ahead, TiVo plans to begin offering this feature to advertisers and programmers, so that the chance to buy products and have them delivered will be presented to viewers during commercials and even alongside product placements during live shows. The move highlights TiVo’s attempt to shift from being a creator of set-top boxes, competing with copycat devices, to being an advertising innovator that is trying to develop advertising technologies for the television industry.

I have two TiVo's neither of which I can use in satellite-less PND Towers. And we are not happy about it.

McGraw Hill Plotting to Buy RBI

The Telegraph handicaps some of the interest in the sale of Reed Business information and offers the intreging notion that MGH would purchase the Reed titles. What they don't discuss is what would happen afterwards. As I have speculated, some assets are likely to be sold after a sales of RBI and this article compares the 'overlap' between the RBI titles and those currently owned by MGH.

The McGraw Hill Companies, owner of Standard & Poor's credit rating agency, has titles which overlap with RBI in aviation and construction. McGraw publishes aviation Week and a collection of architectural and engineering titles, while RBI has a large portfolio of construction titles including Construction News and Professional Builder.

And:

The sale of Reed Business Information (RBI), whose titles include film industry bible Variety, Flight International and New Scientist, began last week when information was sent to prospective bidders. If RBI fetches the asking price, it would be the biggest media takeover since the sale of Emap at the end of last year.

MediaWeek (Vol 1 No 29):

Amazon.com speaks to the NYTimes about cloud computing.

Customers of Amazon’s new store will be able to start watching any of 40,000 movies and television programs immediately after ordering them because they stream, just like programs on a cable video-on-demand service. That is different
from most Internet video stores, like Apple iTunes and the original incarnation of Amazon’s video store, which require users to download files to their hard drives

Christian book retailing is either treading water and just surviving or being destroyed depending on who you listen to. Here the Washington Post looks at the business.

Meeting customers where they are has become the mantra of the Christian retail industry as its stores face stiff competition from big-box chains and online retailers. With more stores closing than opening each year, industry layoffs and a key publisher staying away from this week's annual International Christian Retail Show in Orlando, retailers and publishers say innovation is key to thriving.

The Bookseller notes that Lonely Planet got their books into the Apple Store in quick order.

John French announced to staffers through an internal memo that he was stepping down as CEO of Penton Media. Speculation about who will replace him included Mike Marchesano currently at JEGI. Folio.

The AP reports on a new book from Mitch Ablom which is being offered exclusively through Amazon.com. The book is actually an eBook version of a commencement speech the author gave this spring.

More on the civil war between the UK office of Hachette Book Group and Amazon.com over pricing. Times Online.

The online bookseller has imposed extraordinary sanctions against the publisher, ... It is listing Hachette books but preventing the public from purchasing them by removing the “buy new” button from its websites.

James Murdoch seems to be moving closer to Big Boss. MediaGuardian. Notes on other Media bosses.

Sadly, Publishing News in the UK is closing down their magazine operation. PN But before they go they note a HarperCollins implant at Amazon.co.uk.

Conde Nast's Portfolio takes a look at HarperStudio. (Briefly).

John Makinson thinks outsides aren't welcome in the publishing world. The Bookseller.

All the Pretty Things

Now I am a sucker for a pretty face as much as the next guy and I probably wouldn't have looked at this short article in the NYTimes this morning if it didn't feature the visage of Kelly Wearstler. The short is about her interest in design books and in particular her favorite bookseller in LA:

Her favorite design bookstore in Los Angeles is Potterton Books, tucked inside the Pacific Design Center. (There’s also one in Midtown Manhattan, on Third Avenue near 59th Street.) “I can always find a book that is amazing that I probably haven’t heard of,” she said. Other shops she loves: the Strand in New York and Hennessey and Ingalls Art and Architecture Books in Santa Monica, Calif.

That's the good part - nothing wrong with that.

There is also an 'interactive' link to some selected photos of books. You could be forgiven for thinking that the intimate nature of the book purchase process described by Kelly would be evident in the slide show as well. Not so. In the small catalog of interesting design titles the NYT supplies links to your favorite - far from intimate - on-line bookseller only one of which is Potterton. Huh? Since Kelly mentions other stores why not use them; especially the Strand, which for the record has a huge selection of design and architecture titles.

JibJab: A Time For Some Campaignin'

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Rack Jobbing The EBook

A change, equivalent to the launch of the mass market paperback just took place but did you notice? Months in advance of the expected release of the new iPhone thoughts ran wild on the potential for an Apple iBooks store as much for its potential impact on sales as for its counter point to Amazon.com. With the launch of the 3G iPhone publishers have been found wanting, sadly waiting for the market to be gifted to us rather than proactively setting out to define it. This post from Kassia Krozer sums it up perfectly:

On a weekend when headlines were there for the grabbing and customers were searching for both toys and content, the publishing industry, perhaps practicing summer hours, was curiously silent. Not a single major initiative, announcement, horns-blaring call to check out these great offerings on iTunes.Call me crazy, but I’d expect an industry that salivates over moving 150,000 units to be all over the potential for reaching seven million “mobile is the future” customers. Are you not out there, listening to readers, gauging their interest? They want, you have, and you’re still hiding the goods. I get this isn’t the largest market you have, but is that an excuse to sit on the sidelines?

Publishers are again about to have a market dictated even as they continue to complain about the market power of the online retailers. Now $9.99 may become a defacto RRP for eBooks and as volume increases via the prodigious iPhone apps store publishers won't know whether to laugh or cry. When mass market paper backs gained market acceptance at Woolworths in the 1930s publishers gained access to a market they never would have developed on their own. Books were suddenly available for a dime and as publishers stood on the sidelines it wasn't until years later that they entered the market directly or bought up the main suppliers. Will history repeat itself with publishers buying ebook apps suppliers like Fictionwise or build their own applications? Hopefully, at least one or the other.

Traditionally, we think of distribution and content development as separate disciplines within publishing companies but in the e-Publishing world they co-mingle. Content optimization becomes the normative state where the end-user builds their own product out of a content repository created by the publisher without limitation on how the end product is rendered. The 'distance' between publisher and end-user (where distribution as a function currently sits) is wide but becomes virtually non-existent in the future state.

To bring us back to the iPhone circumstance, as long as publishers continue to think in terms of traditional functional silos and roles and responsibilities they limit themselves in their ability to leverage their assets. In contrast witness Amazon which has never considered any aspect of the publishing value chain to be off limits and more publishers need to think in this manner if they want to redress some of the advantages Amazon and others retain (or new competitors develop) in the marketplace.

Some other views on a similar theme:

Teleread
Adam Hodgkin
Shimenewa
theDigitalist

The Beatles on IPOD?

A report in Rolling Stone says that Bloomingdales (of all people) will be selling a limited edition IPOD with every Beatles tune on it. Many have speculated that the Beatles catalog would be available on the IPOD but who would have thought Bloomies would be the one to bring it to us. RS is saying there will only be 100. If the mock-up is any thing to go by that is one ugly IPOD. I suggested that the front and back of the special Beatles IPOD when and if it came would be suggestive of the center label on all vinyl albums: the green apple on one side and the cut-away inside the apple view on the back.

On another related Beatles note, fellow traveller Joe Esposito has a look back at the Beatles and how their touring lead to popularity and record sales but the model ultimately broke down when the band stopped going on the road.

A peculiar fate befell the Beatles, however, in that they, like a very small number of other musicians, found it impossible to continue the touring to promote their records. Touring became dangerous and, playing in huge stadiums to screaming teenage girls, artistically unrewarding. The Beatles thus left the road, risking their business model, as the essential relationship between live performance and the sale of records was broken. Famously, the Beatles responded by inventing a “live” audience: the first thing we hear on “Sergeant Pepper’s Lonely Hearts Club Band” is the sound of the invented audience. The imaginary audience did not contribute to the Beatles’ economy, however. That economy continued to be based on the sale of records. It was the Beatles’ good fortune that their fame was such that they no longer had to go on the road to promote the sale of their intellectual property. Perhaps it was just as well: when asked about the relative benefits of a live performance over a recording, John Lennon remarked, “Well, I’m a record man myself.”

He suggests the time of their break-up coincided with the "apotheosis of a particular business model for the media industry, the now-derided practice of creating copyrighted works and selling them, copy by copy, for profit." Read the whole article.

MediaWeek (Vol 1, No 28)

Some headlines from this past weeks publishing and media actitivity. The Canadian Publishing industry sees a slight decline from the prior year: A report from the government agency released Thursday said operating revenues from the book publishing industry in Canada edged down 1.2% in 2006 to $2.1 billion. NationalPost. The NZ Herald reports that New Zealand sees an increase in booksales but is the future ominous? Last year, the New Zealand consumer spend on books and similar merchandise topped $1 billion for the first time - capping off a trend of phenomenal growth that seems, for the moment, immune to the speed wobbles hitting other retailers. Informa Deal News: At a function held by private equity investor Alpinvest Partners in London last week, dealmakers from Permira, KKR, and Blackstone all talked openly about how they could come up with an offer for Informa to rival the 506p-per-share approach submitted by Providence, Carlyle and Hellman & Friedman. Telegraph TimesOnline reports on a lost Shakespear portfolio that has turned up in suspicious circumstances: The folio, printed in 1623 and valued at up to £3 million, was among a number of valuable books and manuscripts taken from the Durham University Library in December 1998. Last night a middle-aged book dealer was being questioned by police after the discovery of other historic manuscripts at his house in Washington, Tyne and Wear. There is a curious tie in with this story in the TimesOnline about Hemingways House in Havana. I think there is a connection and I wonder if the gent "helping the police with their enquiries" has even visited Havanna. PW reports that Susan Driscoll is taking a senior role at Wolters Kluwer. Wiley has purchased some titles from Cengage as part of Cengage's need to divest titles as part of their deal agreement with JD. The acquisition provides Wiley entry into the Introduction to Business course area, with a market-leading title, Contemporary Business,12th edition (13th edition to publish early in 2009), by Louis E. Boone and David E. Kurtz. These titles serve the first business course and offer Wiley an excellent opportunity to showcase its other business titles. The acquisition also will leverage Wiley Higher Education's language program, which is currently centered on Spanish, transforming Wiley into a more full-service provider to college and university language departments by offering learning materials in Introductory and Intermediate Italian and French, German grammar, and Business French. Business Week reports on actions to limit the influence of ratings sevices like Moody's and Standard & Poors and also argues why these firms are still needed. With investors' losses topping the hundreds of billions as many once highly rated securities have tumbled, ratings agencies have come under withering criticism for issuing scores that have proven far too optimistic. Already, under rising pressure to rethink their roles, New York Attorney General Andrew Cuomo has announced a deal with the three largest ratings agencies to reform the way they collect fees from debt issuers. Now, the Securities & Exchange Commission is moving to lessen investors' reliance on the scores. Reuters also report on the ratings services: Many financial companies, including banks and lenders, have been sued following the housing market bust; but the cases against ratings agencies may be among the most closely watched. As reported on earlier in the week, USAToday looks at textbook pricing but more specifically 'open' online textbooks. Frank [ex-Pearson] and his business partner, Jeff Shelstad, in January plan to launch Flat World Knowledge, the first commercial open textbook publisher. It will offer free online textbooks that can be printed and bound, for about $25 for black and white and $35-$39 for full-color copies. The average price of a traditional textbook varies by subject; many new textbooks cost about $150, Allen [director of the Make Textbooks Affordable campaign by Student Public Interest Research Groups] says. Comments are interesting. CNN Money looks at the Indian Educational market and estimate it to be worth over $120bill. US publishers are jockying for position in this market. Technopak, a Delhi-based investment consultancy, estimates that the current private-education market is worth $40 billion a year, and that this could roughly triple to $110-120 billion in ten years’ time. The potential is attracting foreign companies such as Pearson Education (PSO), part of the UK-based publishing group, and McGraw-Hill (MHP), as well as private equity firms that include Blackstone (BX), New Vernon, and Deutsche Securities, part of Deutsche Bank (DB). Reuters reports Bertelsmann has sold its US book club business. TimesOnline notes that ReedElsevier is starting a search for the successor to Crispin Davis. The will look internally and externally. PDN prediction: it will be a current employee. Guardian picks up PaidContent parent company (for reported $30mm). WSJ on textbook pricing. PND

Penguin and The Generational Chasm

I wrote about the Generational Chasm between the current book reader generation and the youth market in a post several weeks ago. (Happily it has proven quite popular). In that article I stressed that the old publishing model is not transferable simply because the content is available in e-book form. I noted that Harpercollins is exploring different ways to build new content and interaction with their younger consumer base and news comes now of a similar effort by Penguin to tap this market in a new way. The following is a report on the Penguin blog site about Spinebreakers:

The site is an online community created by teens, for teens as a platform where they can share their love of reading and other creative mediums. The site showcases some of the most unique stories, poetry, songs and videos, all in an attempt to unite and encourage youths to read more and stand tall in their belief that reading is cool. I personally think such a site is much needed and is a breath of fresh air, especially when England has fast become a place for teen violence and crime, and using one’s imagination in a positive manner has now been replaced with the ease of picking a fight. Spinebreakers is going offline at an up and coming road-show at the Roundhouse Studios in Chalk Farm, on the 25th of July. I have been fortunate enough to work on this event which will be inviting sixty teens to sign up and participate in three brilliant workshops which will include learning to use film equipment and creating a mini film on the day with Anton Saunders.

Also of note on the Spinebreakers site (and there is a lot), you might want to avoid Bath in September when there will be hordes of teenagers descending on the old Roman city to engage in a festival about Books. It could be violent, there could be some agro but old folks better leave town:

At this year’s Bath Festival of Children's Literature, Penguin Books are teaming up with young people in Bath to create a groundbreaking event run for – and by – teenagers. From poster design to the layout of the venue, this is an event where YOU call the shots. Opportunities for you include:
Working with top-name teen authors Meg Rosoff and Marcus Sedgewick
Deciding the format of the event, eg live music, food, DJs
Choosing the venue, eg theatre, coffee shop, out on the street (!)
Deciding how the event is promoted with a real budget to organise the event
Free books
A chance to work with Penguin, the UK’s leading publisher and a real opportunity to have YOUR voice heard
To get involved, you will need to be oozing with enthusiasm, available to attend 2-3 creative meetings in Bath between now and September and be prepared to create the most cutting-edge event at this year’s festival

Well done to the Penguin folk.
(Hat tip to Brantley - again).

Paid Content Snapped Up By Guardian Media

Guardian News & Media has bought ContentNext, the parent company of digital business website PaidContent, as part of its US expansion. The company was founded in April 2002 by business journalist Rafat Ali, a former managing editor of Silicon Alley Insider and reporter on Inside.com. From the press release:

Guardian News & Media today announces a significant expansion of its US presence with the acquisition of ContentNext Media, the leading B2B media company which covers digital media, the entertainment and technology sectors, and publishes the influential paidContent.org. Its founder and editor Rafat Ali, and CEO, Nathan Richardson, will continue to run the company as a stand-alone business.

Here is the full story.