Former leading New Zealand publisher and bookseller, and widely experienced judge of both the Commonwealth Writers Prize and the Montana New Zealand Book Awards, talks about what he is currently reading, what impresses him and what doesn't, along with chat about the international English language book scene, and links to sites of interest to booklovers.
Tuesday, February 28, 2012
Per the Trend, Penguin Sales Are Roughly Flat As Profits Rise
Pearson reported full-year results Monday,
in line with the "trading preview" offered in January, and
Penguin's results were consistent with the recent trendline for successful
trade houses: Sales of 1.045 billion pounds were up slightly on an
adjusted basis (and down slightly, by 8 million pounds, on a topline basis, due
to very modest strengthening in the pound versus the dollar), while margins
rose to another new record: 111 million pounds, up 5 percent overall and 8
percent on an underlying basis. That leaves them with a margin for the year of
a little under 11 percent, similar to that just reported by Simon &
Schuster (though every company allocates costs between the publishing division
and the parent company somewhat differently).
Penguin ceo John Makinson underscored that
the company continues to outperform the book market as a whole, and says that
"since 2008, we have increased our global market share from 13.2 percent
to 15.7 percent."
For the full year, ebook sales
"doubled on the previous year and accounted for 12 percent of Penguin
revenues" worldwide, and "more than 20 percent in the US" and
they "expect this percentage to increase significantly again in 2012."
(Consistent with other reports and the holiday tilt towards physical
books, that full-year percentage is lower than the 14 percent of worldwide
sales that ebooks comprised at the half-way point of the year.) While the
company does not currently breakout ebook sales in the UK, Makinson indicated
that using the released figures, "you can reverse into a UK number which
would be a little bit below 10 percent" of sales. He noted that because of
their product mix in the UK, which includes the resurgent DK and their
highly-visual nonfiction, Penguin's current ebook percentage may be lower than
that of houses with more of an emphasis on commercial fiction.
Alongside the "fantastic"
peformance at DK, Makinson said that children's publishing "was very
strong...around the world," and is "one of the few areas of the
market continuing to show very healthy trends." In the US, Penguin USA ceo
David Shanks added that their children's group "actually sold a lot more
books than they had the previous year, even without Borders" in the
Makinson noted that "we're going to
see some deflation" and observer should not "be too concerned if you
see some reduction in revenue levels" as lower-priced digital sales grow
and print sales decline. "We're very much focused on unit profitability
and spending a lot of time thinking about volume measures of performance, as
opposed to dollar measures of performance." Lower total sales
"doesn't mean necessarily that the business will become less
profitable," since the reduction of print means the company "will be
deploying a lot less capital" tied up in inventory. Makinson said that
"everybody in the digital economy has seen some benefit," with lower
prices for consumers, "a slightly higher margin" for publishers and
"a higher average royalty for authors," particularly as ebooks take
the place of mass-market paperbacks. He noted that publishers face "a rise
in fixed-cost per unit as physical demand reduces...but a lot of your
infrastructure costs remain," and argues that modest margin increases are
necessary as sales flatten or fall "to replenish our capital."
At the same time, publishers face constant
margin pressure from their retailers. In the UK in particular, Makinson said,
they face "an online customer that is growing and growing and very well
aware of its negotiating power as its position in the market increases"
along with "a number of physical retailers saying we need some help from
pubilshers to sustain our physical infrastructure." Indeed Penguin UK was
one of the first major houses to agree to Waterstone's revised discount
schedule, said to by others to be 60 percent. Makinson declined to comment on
terms, but said "we wanted to be quite early in reaching an arrangement
Looking out across 2012, Pearson indicates,
"Penguin has performed strongly in recent years in the context of rapid
structural change in the consumer publishing industry. We expect it to
perform in line with the overall industry this year, facing tough
conditions in the physical bookstore channel but helped by its strong position
That mimics results at Simon & Schuster
as reported early in February, where sales declined 1 percent to $787 million
and adjusted operating income rose to $85 million, and leaves both companies
with similar profits margins of a little under 11 percent.
Companywide, Pearson had
sales of 5.862 billion pounds, up 4 percent, with adjusted operating profit
of 942 million pounds (or 86.5 pence per share), up 7 percent on an underlying
basis and 10 percent overall.
eBooks As Percentage
of Worldwide Sales
Simon & Schuster 15.5 percent
22 percent (all digital)
10 percent (all digital; Q4