Much as he did six months ago as part of the road show before News Corp. split into two companies, HarperCollins CEO Brian Murray spoke at the 41st UBS Global Media and Communications Conference Wednesday morning to stress the positive tailwinds benefitting both HC and consumer book publishing.
Book publishing, he emphasized repeatedly, is not going the way of the music or magazine businesses, where digital alternatives took away huge chunks of revenue. This far into the digital transition in books, Murray, said, the industry would have already seen a severe revenue erosion, if there was going to be one. He noted that increases in e-book sales have largely offset declines in print, resulting in flat or moderate top line growth. Profits, however, have improved, as higher sales of digital books have removed numerous costs from the print supply chain.
Murray sees the twin drivers of growth as digital and international. He pointed to a PricewaterhouseCoopers study which predicts that, by 2017, 54% of e-books sales will be overseas. Murray said that, looking at what's happening within HC, he agrees with that assessment. Murray then showed a slide that broke down HC’s e-book sales by the company's major segments. In the first quarter of fiscal 2014 ended in September, e-books comprised 35% of sales in the U.S. general books group, compared to only 14% in the U.S. children’s division. E-book sales in its Christian publishing group accounted for 14% of sales. E-book sales for the "rest of the world" accounted for 18% of revenue, but Murray predicted that overseas markets will catch up in consumer adoption of e-books, in part, because, at HC, they think global e-book store fronts will double in the next year, to around 150.
In addition to international expansion, Murray sees e-book growth coming from HC’s backlist, noting that in the first quarter, e-book sales of backlist titles rose 40%, faster than the overall company increase, and accounted for 21% of backlist revenue, up from 16% in the first quarter of fiscal 2013. Bundling could be another growth opportunity, Murray said, noting that HC was one of the first publishers to get involved with Amazon’s Kindle MatchBook program, and is also experimenting with other types of bundling.
The emergence of Apple, Google, and Kobo, along with Barnes & Noble, to challenge Amazon gives him more confidence than he had a few years ago that the e-book market will remain diverse and competitive, despite Amazon’s dominance. He called Amazon a “"renemy," noting that HC and the retailer are a “terrific partner.” Murray then added that Amazon can be “very difficult to negotiate with.” He said that, ultimately, HC works closely with Amazon, but also monitors the company closely.
He downplayed threats posed by self-publishing, observing that no major author has yet left HC to publisher on their own. Although he acknowledged an author could leave to self-publish, HC’s more frequent experience is in bringing self-published authors into the fold. Murray also noted that all authors have benefitted from higher e-book sales. Murray then pointed to a chart featuring a book with a wholesale price of $5. Murray said that, if you combine the average amount an author earns on all print formats, you get what he called a “blended” print royalty of about 17%. This blended royalty yields an author 85 cents per print book sold. Given that the standard digital royalty is 25%, Murray went on, the author of the book on the chart would receive more for each e-book sold, earning $1.25 on each of these sales.
Murray said HC has seen no material effect on its business since it settled with the Department of Justice over e-book price-fixing charges.
He also touted the benefits HC has had since completing the Thomas Nelson merger with Zondervan. He said HC has found 10% more cost savings than it had originally expected in the merger and while he deflected a question about future consolidation he said the Nelson deal proved that efficiencies can still be found.
Moonves Loves S&S
Murray was the only publishing CEO to speak at UBS, but Les Moonves, CEO of Simon & Schuster parent company CBS, delivered one of the conference keynotes. He said he liked being in the publishing business, and that he “loves” S&S. S&S (which has been seen by some as an HC merger partner) has a nice profit, Moonves said, and has made a smooth digital transition.