Sales and earnings both fell last year at Random House, a development parent company Bertelsmann attributed mainly to the weak dollar plus a slowing U.S. economy. Worldwide revenue at Random fell 5.6%, to 1.84 billion euros ($2.39 billion), and earnings before interest and taxes declined 4.9%, to 173 million euros ($225 million). In addition to currency fluctuations, Random head Peter Olson acknowledged in his letter to employees that the company “felt the absence of newly published megaseller hardcovers, which in today’s trade publishing business can mean the difference between a good fiscal year and a great one.”
Results in Bertelsmann’s other book-related unit, the Direct Group, were off significantly in the year and Bertelsmann chairman Hartmut Ostrowski said the company is “examining all strategic options, including the possible sale” of the group, which includes Bertelsmann Direct North America, home to the former Bookspan book club operation. In the year, the Direct Group incurred 123 million euros in integration and restructuring charges plus write-downs of 291 million euros directly related to the company’s North America club activities. Overall, Direct Group revenue fell 4.1%, to 2.55 billion euros, while EBIT plunged nearly 91%, to 10 million euros. While the weak dollar was responsible for some of the decline, Bertelsmann said the weak performance of the U.S. division where music, DVD and book club membership declined significantly and sales per member were off, was also an important factor in the disappointing performance.
Back at Random, Olson put the focus on prospects for the future. He wrote that despite economic uncertainties, the plunging dollar and competition for consumers’ attention, he believes Random can hit its “ambitious” corporate fiscal targets. He noted that the company already had several unexpected bestsellers, including Liberal Fascism, Beautiful Children and One Month to Live, the first NYT bestseller from Random’s WaterBrook religious imprint. The much needed megasellers could come from a number of titles, Olson said, including The Appeal, Barbara Walters’ Audition, The Snowball: Warren Buffett and the Business of Life, A Mercy by Toni Morrison, Jon Krakauer’s The Hero, plus books from Dean Koontz and Danielle Steel. Cookbooks by Martha Stewart, Gieda de Laurentiis, Ina Gartner and Rachael Ray are also expected to sell well and the company is expecting big things from Brisingr, the third volume in Christopher Paolini’s Inheritance series. Among the new authors Olson is high is Stieg Larsson, the Swedish author whose books have been big hits in Europe; Random will publish Larsson’s The Girl with the Dragon Tattoo in the fall. Larsson wrote a total of three books before he died in 2004.
Olson closed his letter by noting that trade publishing remains a core business for Bertelsmann and that Ostrowski understands “the challenging nature of our industry” while also having confidence in the future. “This is a fiscal year in which we will ask more of you than ever before,” Olson added. “But we long have been a company that performs well under pressure. I look forward to our working together to make 2008 very successful for all of us.”