London All The Time

An interesting Art/Photography installation on London's South Bank.

"A circular photo gallery on London's Southbank is capturing images every five seconds for three days. Gabby Shawcross and Jason Bruges designed the memory project, which is touring the UK."

Link

WH Smiths

UK High street retailer reported half year profit increased 8% on the strength of motorway, airport and train station outlets. Same stores sales slipped 2% however. Kate Swann, group chief executive said: “The economic environment remains uncertain and, whilst we continue to be cautious, we are confident in the outcome for the full year”.

From the TimesOnline:

WH Smith today gave a cautiously optimistic forecast for the rest of the year despite falling sales elsewhere on the high street after the 215-year old newspaper and stationary retailer reported profits above expectations and lifted its interim dividend by 24 per cent. Shares in the company rose 5.25p to 371p in early trading after it revealed pre-tax profits rose by 8 per cent to £64 million for the six months to February 29. City analysts had expected profits between £59 million and £63 million for the period.

From the Press Release:

KEY POINTS
• Group profit before tax up 8% to £64m (2007: £59m). Profits from trading operations are £50m1 in High Street and £17m1 in Travel.
• Group total sales up 2%, with like-for-like (LFL) sales down 2%, reflecting our strategy to
rebalance the mix of our High Street business towards our core categories:
• Travel total sales up 14%, with LFL sales up 1% (excluding tobacco, LFL sales up 3%)
• High Street total sales down 2%, with LFL sales down 3%
• Gross margin improved by 70 basis points year on year.
• First half High Street cost savings of £4m delivered, in line with plan.
• Good progress with return of £90m of cash to shareholders through a special dividend and on market share buyback programme.
• Strong free cash flow of £61m.
• Underlying2 earnings per share of 26.9p (2007: 25.8p).
• Basic earnings per share of 28.3p (2007: 26.7p).
• Interim dividend of 4.6p, up 24% on last year.

Commenting on the results, Kate Swann, Group Chief Executive said:
“We have delivered another period of good profit growth, with Group profits3 up 8%. We have seen further strong performance from Travel with substantial progress in new business development in the hospital, air and motorway channels. In the High Street, we successfully continue to deliver our strategy to rebuild our authority in our core categories."

Borders 10K Report

I still don't get it. Borders appears to have mortgaged its immediate future with a short term loan that on the surface appears questionable. The company had cash on hand at the end of 2007 of $61mm versus $108.6mm in 2006; however, they also spent $123mm (versus $153.8mm in the prior period) in capital expenditures, technology improvements and new stores. Any of this could have been slowed to under $100mm if they believed they had a brewing problem. The company has announced for 2008 they will hold cap ex under $100mm and have also suspended their quarterly dividend (approx. $20mm). Importantly, the company has managed to effectively manage inventory and payables which has had a material impact in bridging the operating income stortfall to free cash. On inventory it looks like they have gained almost $120mm in cash from 2005-2007. A decent amount of good news. (Borders10k)

To the extent the company has operating issues they appear to have managed their way into them. The high costs of the Borders rewards program and the increasing costs of store occupancy costs are having a significant impact. Again, however the negative result of both of these items derive from management decisions on strategy. Pulling back on the promotions would enable the company to improve gross margin. Occupancy is a little more complicated and I suspect this is the real nub of the company's problem. The company has lost $113mm in gross margin between 2006-2008 (3%pts). In retail that is a lot to give up. Difficult to understand is whether the cost of the added bonus program has been covered in revenue growth. Revenues have gone up but the report doesn't tie one to the other directly.

Occupancy costs are also included in gross margin and the company has many long term lease obligations. It is likely that revenues are not growing fast enough to cover the rent escalations and this situation will grow worse over time. Borders has 435/509 store leases with terms that expire after 2014. If Borders can't aggressively grow top line revenues faster than these fixed occupancy costs they will continue to erode gross margin. Walden is in slightly better position with the majority of store leases expiring within 10 years. Borders can and is closing Walden stores because the leases are coming due.

The short and long of this evolving story is that we will know the fate of Borders by year end.

Here are some other highlights from the 10K:

• Opened 18 new stores in 2007
• $228/avg sales per sq ft
• Avg sales per superstore $8.6mm
• 541 Superstores (US-509, Oz-22, NZ-5, PR-3, Sing-1)
• 490 Walden stores
• 112 Paperchase stores
• Avg store sq ft is 7% less than their existing average (no explanation)
• Plan 14 concept stores in 2008
• Walden Avg sales/sq.ft: $299
• Walden avg sales/store: $1.1mm
• International: avg sales/sqft $381
• International: sales/store $8.3mm
• Closing 1 of 3 distribution locations in TN and expanding OH
• Interest expense up $13.2mm to $42.9mm in 2007
• Consolidated sales up $8.1mm due to new openings. Comp stores sales down 2.2% due to book sales decline
• Walden comp down 7.1%
• International comp up 0.1%
• Net cash from continuing operations 2007-$101.5mm, 2006-$38.7mm, 2005-$161.2
• Net cash used for investing: 2007-$123.1, 2006-$153.8mm, 2005-$57mm
• Borders retains some off balance sheet items related to leases for their sold UK store operation
• L/T liabilities to $350mm from $313.2mm

Authonomy From Harpercollins

Via Eoin Purcell an update on the Harpercollins web site to support writers and booklovers. They have launched a blog. I mentioned Authonomy last year.

Making Information Pay

The following is a reminder from the Book Industry Study Group about the upcoming Making Information Pay conference.


Making Information Pay Conference 2008: Experimentation and Innovation in the Digital Age is just weeks away. As an added value to this year’s conference we’ve put together 10 in-depth case studies based on recent publishing experiments in sales, marketing, and digital publishing.

Attendees of Making Information Pay 2008 will receive a free printed copy of the complete set of case studies and hear many of the experimenters discuss what they’ve learned and answer questions about how it affects your business.

To reserve your copy, register now at: http://www.bisg.org/conferences/mip5.html

Michael Healy
Executive Director
Book Industry Study Group


FROM: Hachette Book Group’s “Light DRM” on Audiobooks

Based on an interview with Neil DeYoung, Director of Digital Media, and David Stack,
Senior Manager, Digital Media, Hachette Book Group USA

Neil DeYoung and David Stack face a complex strategic challenge. Like other publishers with extensive audiobook lists, Hachette sees a distribution supply chain limited to two retailers (iTunes and Audible) that support the consumer-favorite iPod device with copy-protection digital rights management (DRM). There is real incentive to figure out how to diversify the distribution channels and give the consumers what they want.

Distributing digital audiobooks in MP3 format without copy-protection DRM would allow consumers to play audiobooks on the iPod and any other device, and open the door for additional distribution channels, but it carries the risk of piracy or rampant unpaid re-use. Hachette’s senior management is very concerned about piracy and felt it necessary to evaluate the risks of distribution without copy protection. HBGUSA is conducting a test, which hasn’t been simple and isn’t cheap. But the results so far have been encouraging and although they are not definitive, they support the idea that distribution without copy protection might not lead to widespread piracy of audiobooks.

For the full text of this and 9 other case studies of recent publishing experiments, register for Making Information Pay 2008 today!

Georgia State Sued For Copyright Infringement

The migration to digital delivery of course pack and text material is inexorable in today's educational environment. Unfortunately students, administrators and academics are taking matters into their own hands and digitizing publisher content without permission and without compensation. Over the past (at least) five years, AAP has taken corrective action against schools and universities that have facilitated the ability of students to access this content, and behind the scenes have been able to help institute policies that protect the rights of publishers. In egregious cases, academics have scanned entire works for all reading material required for their courses, placed this material on their intranet course websites and then broadcast the availability of this material to their students. Often they have noted 'you (the student) don't have to pay for your course material'

Many will admit that the educational publishers as a group are not moving fast enough to replace their print versions with electronic databases but fear of entering the 'valley of death' prevails. The 'valley of death' is the graphic depiction of what will happen to your revenue line as you proactively make a transition from print to digital. If you are lucky, after 3-4yrs you will regain the revenue you had in the year before you attempted to transform your business. Ultimately, the business becomes stronger and more flexible in the manner in which the publisher can seek new markets and business development. It's just that the valley looks so horrible (and no one will make their bonus) that discourages the publisher. This is the transition we went through at Bowker in the early 2000's with the added benefit that we actually had a business at the end of it.

Three publishers (and notably not AAP) have sued Georgia State for allowing course material to be made available to students that goes beyond 'fair use'. In the NYT article Brewster Kahle is looking for "innovation" but this is just plain steeling. Simply because the materials are not available in the form they want gives them no right to scan it and place it on a network. This case is no different than the Kinko's xeroxing case almost 20 yrs ago. All institutions have it in their power to set standards and policies that protect the rights of publishers. After all, many of these infractions occur on the university's computer networks. Too many universities appear to disparage the property rights of others and with not much more than a 'nod and a wink' regarding 'fair use policy' to facilitate this activity.

Harry Potter and the Rule of Law (1)

Collegues and I were having a conversation online about the J.K. Rowling lawsuit. Someone had asked about why some had refered to this as a 'Disney-like' lawsuit. I'm not completely sure but I speculate:

I can’t help thinking that to a great extent our perception of the merits of this case are clouded by the fact we know JKR is a mega-bazillionaire. Afterall we conclude, hasn’t she made enough already? Even their front page Daily News today basically called her a whiny cry-baby. I think this is entirely unfair. Regardless of how much she has made she still has the legitimate right to claim infringement and no one should begrudge her that right because of the size of her bank account. And we shouldn't root for the underdog because they are battling the odds either. This particular case is murky for a number of reasons not least of which she appears to have approved of the web site (from which the lexicon is to derive) although it seems to me that she was only encouraging a fan.

Disney has always been known as aggressive in defense of their intellectual property and characters. They are the gold standard representatives of the theory that aggressive defense is the only form of maintaining and retaining copyright. JKR will say the lexicon is both a copy of her work AND of crap quality but like Disney she is ensuring any future defense of her copyright. After all, something much bigger may come up and she is preparing for that possibility by killing this one off. Even if she looses she is establishing a track record of defense. If she allows third parties to use her property without attempting to stop them it is easier for future judges to point at this inactivity and side with the 'infringing party'.

Also mentioned in the 'conversation' was a post from Print Is Dead guy Jeff Gomez (Admittedly his title might be better than mine). This is part of what he said but you should read the whole post:

In Rowling’s case, her books are going to sell no matter what. But if she’s allowed to succeed in stopping RDR, think about all of the books about books (not to mention books about movies and plays and music) that won’t get written as a result

I believe Jeff is off the mark here. There are numerous ways in which a copyright holder like JKR can loose a case and a third party can create 'a separate and new work' which can be used by adoring fans everywhere. There are also ways to do this by avoiding the threat of the law entirely. In this case there appears to be a question of quality and plagiarism although the Judge will decide.