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Sales Down 4 Percent at Random As Profits Are Hit Harder

August 31, 2009
By Michael Cader

Sales fell in the first six months of the fiscal year at Random House by 4 percent, declining 32 million euros to 734 million euros, as operating EBIT dropped even more at just 20 million euros for the period (down from 31 million euros a year ago.) The company blamed the decline on “the continued distressed economic environment and the reduction in inventory levels by major bookstores in the US.” And they say that “an extensive, international cost-saving initiative and the restructuring of the US publishing groups put in place last year partially offset this development.”

In a letter to employees, Random House ceo Markus Dohle acknowledges that “this six-month period was very tough for us.  With the decline in consumer spending we had to fight harder for every sale, as did our competitors. Our customers implemented tighter inventory controls, resulting in significantly higher returns and fewer copies ordered, on both initials and reorders, which hurt frontlist as well as backlist sales.” But he cites “the current big turn in the right direction for our business — our strong sales performance overall during June, July, and August” and says that “our monthly numbers are rising.”

The slimmed-down Direct Group suffered as well, with revenues of 581 million euros down 12 percent and a loss of 10 million euros. “While operations in the French-speaking countries remained largely stable, the German Club suffered from shrinking membership levels and a decline in direct marketing activities. Membership numbers fell perceptibly in Southern Europe, which has been especially hard hit by the economic crisis.”

Companywide sales fell 6.5 percent for Bertelsmann at 7.2 billion euros as operating ebit declined by almost a third at 475 million euros, with a net loss of 368 million euros. The company took 474 million euros in writedowns. CFO Thomas Rabe says in the results: “Financially, Bertelsmann is on safe ground. Our solid financial management has paid off in the first half: we have good liquidity and adequate credit lines available to us. For the full year, Bertelsmann continues to forecast a decline in revenues and operating profit. The extent of year-on-year change will be determined by the severity and duration of the cyclical downturn.”
Release
Dohle letter

Separately, in two pieces in the Financial Times, Hachette chief executive Arnaud Nourry says that more consolidation will be necessary among the biggest publishers to counterbalance the growing power of the likes of Amazon and Google. “We are at the beginning of the process of transformation where size and the capacity to impose viable business models will be essential,” he says. Though Hachette Livre does over 2 billion euros in business throughout the world, in the US “we are still small,” he notes. “Our market share is only 5 or 6 per cent and that is not very big when you have to talk with Amazon, Barnes & Noble, perhaps one day Google. It also means we lack a diversity of brands to cover the entire market. We are very strong in commercial fiction, but less strong in non-fiction. From that point of view, strengthening our position in the US would make a lot of sense.”

While Hachette is a known potential acquirer of other large publishers, Nourry says they are willing to wait for the right price: “In the next five years, partly because of digitization, there will be consolidation in the US market. For us to make acquisitions, people have to be selling and at a reasonable price, not far-fetched values. So it could take three or five years.” He also indicates the company is “looking to move into Russia, by acquiring a local publisher, and China, where it is in ‘advanced’ negotiations to set up a joint venture with one of the biggest Chinese houses.” In a shorter companion piece, Nourry says publishers are “very hostile” to Amazon’s e-book pricing.
FT

And in actual acquisitions, this morning Disney announced that they are acquiring Marvel Entertainment for approximately $4 billion.
Announcement

Filed Under: Earnings Reports, Free, Publishers

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