The major trade publishers do not appear in imminent danger of fading away. With Random House’s release of 2011 financial results late last month, the four large trade houses that report results all posted operating margins that topped 10%. Although the four companies—Lagardère Publishing (parent company of Hachette Book Group), Random House, Penguin Group, and Simon & Schuster—all use slightly different ways to measure operating earnings, the uniformity of margins was remarkably close: two companies had margins of 10.8% and two others had a 10.6% margin.
Margins rose at all publishers except for Lagardère between 2010 and 2011, and Lagardère noted that with the Stephenie Meyer effect waning its operations are returning to “normal profits.” (Lagardère’s Meyer-inspired margins peaked at 13.2% in 2009; in the two prior years its margins were 11.2% in 2007 and 11.4% in 2008.) The U.S. accounted for 20% of total Lagardère revenue in 2011. In addition to lower sales of Meyer titles, Lagardère attributed the profit decline to sluggish world economic conditions and the collapse of Borders in the U.S. and the RedGroup in Australia.
A fifth large publisher, HarperCollins, also had higher earnings on lower sales in calendar 2011. Although parent company News Corp. no longer breaks out HC results, a source said the publisher had slightly higher profits last year despite a decline in sales.
Random, Penguin, and S&S all cited the growth in e-book sales with helping to boost profits in 2011 despite slight revenue declines. E-book sales ranged from 6% of Lagardère’s total sales (14% of “general literature” sales and 20% of HBG’s adult sales) to 17% at S&S (which includes digital audio). In addition to higher e-book sales, lower returns have contributed to higher profits, and with the collapse of Borders behind them, publishers think returns will stay lower than they have in the past, something reflected in the Association of American Publishers’ January statistics.
The financial performances of the four publishers did have a difference in 2011 compared to 2010; between 2009 and 2010, as the economy was coming out of the depths of the recession, Random House and Penguin posted sales gains, unlike 2011 when sales fell at all four publishers. While lower costs drove up profits in 2011, a continuing sales decline will certainly force publishers to make changes in the way they manage their businesses for the long-term.