In a year punctuated by integration issues that included a sales force consolidation, repositioning of imprints and major personnel departures, Random House chairman Peter Olson said he was pleasantly surprised to find that all of the company's publishing programs finished ahead of both expectations and historical performances for the fiscal year ended June 30, 1999.
Sales were up "across the board,"Olson said, although he acknowledged that while the mass market paperback segment had a solid year, its growth rate was not as fast as that of some other formats. The company also experienced growth across all distribution channels, and Olson noted that for the first time in some years, sales through traditional book channels kept pace with the growth rate at nontraditional outlets.
Sales through the Internet represented the fastest growth area, of course; Olson estimated that sales through e-retailers accounted for about 4% of total revenues. He told PW he would be happy if Internet sales rose at a 50% rate in the current fiscal year, adding that Random has "no plans"to start selling books over its own Web site.
Although Olson declined to discuss details of sales, sources said the company had worldwide revenues in excess of $1.6 billion last year, with North America accounting for approximately 80% of all sales. The company's ROA (return on assets) was close to the 15% expected by Bertelsmann.
Olson attributed the success in fiscal 1999 in part to the company's ability to maintain the distinction of its publishing programs despite the formation of such new groups as Bantam Dell and Doubleday Broadway. Random is seeing the "same number of submissions"from agents as in the past, and, as promised when the Random-Bantam Doubleday Dell merger was announced, the different imprints of the company are competing for the same title as long as another publisher is bidding for the book. And in spite of the perception by some that Random is shying away from expensive deals, Olson said that one of the first things he did as chairman was to "significantly increase"the level at which an editor could make an offer to an author before seeking approval from his office.
The freedom for editors to sign authors as well as for publishers to run their own publishing programs are examples of the decentralized approach the company has taken in its different divisions. Centralization is limited to the company's support services and back-office functions. While the corporate office gives a great deal of independence to its publishing divisions, Bertelsmann gives Random management wide latitude in running the company. Olson described Random's corporate parents in Gutersloh as "rich and remote"; he noted that Bertelsmann executives are interested in long-term results and do not overemphasize results for a single year.
Some of the ongoing initiatives at Random include the expansion of its Westminster, Md., distribution center. The company is in the midst of moving inventory from BDD's Illinois warehouse and Ballantine's distribution center in Tennessee into Westminster, a process that should be finished within 12 months, according to Random COO Erik Engstrom.
Random House is also experimenting with different forms of short-run printing in a bid to increase backlist sales, which currently account for about 40% of revenues. Olson speculated that by adapting new printing technologies, Random House could triple the size of its backlist, which now stands at some 21,000 titles. The installation of the SAP computer system throughout the company, which will allow all parts of Random House to communicate with each other, is almost finished. The company has no plans to acquire another large trade house, but it will consider buying niche publishers that fill particular needs, such as its recent acquisition of Listening Library (News, July 12). Internal growth moves include the expansion of its large-print operations, and the company is looking at expanding in such areas as religion, regional publishing and consumer reference.
Although Olson said he is optimistic about prospects for fiscal 2000, he is concerned that the growth of marketing channels "proceeds in nondisruptive ways."Another constant concern is Random's ability to attract top authors and publishing talent, especially in noneditorial areas such as operations and IT, where young people are often attracted to high-tech startups that offer stock options and other incentives. Engstrom noted that Random has addressed the traditional low pay given to entry-level employees and has increased its starting salaries over the last few years.