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.