Whether it’s figures from the Association of American Publishers or financial reports from individual companies, it is becoming clear that in the early years of the digital transition publishers are finding ways to improve earnings and margins despite slight declines in total revenue as the increase in digital sales is not enough to offset print sales declines.
Print sales for the houses that report figures to the AAP’s monthly sales report fell 17.1% in 2011, and while e-book sales jumped 117.3%, the gain was not enough to make up for the falloff in print. In the AAP report, the combination of print and digital sales fell 5.8% last year from participating companies.
The hardest hit print segment last year was mass market paperback, with sales falling 35.9%, to $431.5 million, at the seven houses (including all the major mass market publishers) that reported results. The drop in mass market paperback sales compared to the rise in e-book sales has been stunning. Between 2010 and 2011, the segment went from having about $220 million more in sales than e-books, to having e-book sales more than double mass market sales in 2011 at the publishers that report to AAP.
The experiences of three major houses that have reported their own sales for 2011 mirror to a large extent the trends seen by AAP. Print sales for Penguin Group’s worldwide operation fell 7% in 2011, while print sales were down 10% at both Simon & Schuster and Harlequin. With digital sales roughly doubling at all three companies, however, the total sales decline was marginal at the three publishers. It is also important to note that Penguin and Harlequin figures include substantial sales outside of the U.S. (the U.S. accounted for 49% of Harlequin’s revenue in 2011), so the impact of digital sales on those two companies is less than at S&S. At S&S, digital sales accounted for 17% of total revenue last year, and represented 15.5% and 12% of worldwide sales at Harlequin and Penguin, respectively.
The importance of digital sales to publishers’ financial health was touched on by Penguin Group CEO John Makinson in discussing worldwide results for 2011. Although Penguin does not break out sales by subsidiary, Makinson noted that one reason the U.S. did well (with increases in sales, profits, and margins) was the vibrancy of the e-book business compared to its other markets. In the U.K., for example, the increase in e-book sales was not big enough to offset the decline in print sales, Makinson said. He attributed the slower growth of e-book sales in Britain in part to the 20% VAT on e-books that brings the price close to that of print books, plus the lack of a significant alternative to Amazon, which dominates the U.K. e-book market.
E-book sales have also been good for Penguin’s bottom line. Despite a small slip in sales in 2011, Penguin’s earnings rose about 5%; between 2009 and 2011, profits rose 32.1% on a 4.3% sales increase. Penguin Group USA’s CEO, David Shanks, noted that not everything is working in the digital space. While Amplified Editions and eSpecials have established themselves, Shanks said “the jury is still out” on whether apps can be a real business. And he stressed that despite the good digital performance, about 80% of Penguin USA’s sales in the year came from print books, making it important that bricks-and-mortar stores continue to stock physical titles.
On a reported basis, Harlequin’s sales and earnings dipped in the year, but while revenue was still down when excluding the impact of foreign exchange, earnings would have been up in the year if not for a roughly C$6 million hit for currency fluctuations. While digital sales accounted for 15.5% of Harlequin’s revenue for the year, the format represented 17.7% of sales in the fourth quarter, a period when the publisher had a better showing than for the entire year. Boosted by higher e-book sales, operating profit rose from C$16.9 million in the fourth quarter of 2010, to C$20.2 million, even with the negative impact of foreign exchange, on a C$2 million decline in sales.