Hodder Headline, the U.K. publisher owned by WH Smith, will launch Hodder Headline USA with the help of Simon & Schuster. The two companies reached an agreement last week through which S&S will provide Hodder with distribution, sales, marketing, manufacturing and production services as well as office space for Hodder's American venture. Hodder will build its own editorial, public relations and marketing staff.
Martin Neild, managing director of HH trade publishing, said the company has been looking to enter the American market for some time and believes the S&S agreement is the "right structure" to launch the initiative. The deal "means we don't have to do a total startup or make an expensive acquisition," Neild said. "The agreement gives us sales and marketing muscle and allows us to focus on editorial." Neild acknowledged that the American book market is sluggish, but observed "there's never a perfect time" to start a new venture.
The soft sales, which has led to steady work force cutbacks in the industry, could help HH achieve its first goal—hiring a CEO and two "high-profile" publishers from the ranks of U.S. publishers. "We want people who have a deep understanding of the American market," Neild said. Neild, HH's point man in launching HH USA, hopes to announce the company's first appointments in late spring or early summer.
HH USA will initially comprise the John Murray imprint, which will be home to literary fiction and nonfiction works, and Hodder Headline, which will publish commercial fiction and nonfiction titles. The first list of hardcover and trade paperback titles is slated to be released in fall 2004, and Neild expects to start a mass market paperback arm in 2005. He stressed that HH USA is being established "not to make worldwide rights deals, but to find books that are appropriate for America."
Neild said that while HH USA will start small, the company has "ambitious plans" to grow the new operation. The deal with S&S appears to rule out the U.K. company as a suitor for the AOL Time Warner Book Group. Neild said that while the startup "doesn't preclude us from acquisitions down the road," its focus for 2003 will be launching HH USA.
For S&S, the deal adds a company that "over time should become a valuable distribution client," said S&S CEO Jack Romanos.
Earnings Turnaround at S&S
Simon & Schuster reversed two years of declining earnings in 2002 by posting a 20% gain in operating income in the year. Sales are estimated to have increased by about 3%, to an estimated $670 million.
Romanos attributed the profit turnaround to "the completion of a number of initiatives that replaced the loss of scale" that S&S suffered when its professional and educational divisions were sold. An important part of that strategy was to build the company's distribution business, and its distribution operation had a solid year, Romanos said. And despite the addition of Hodder, Romanos said S&S is still interested in adding more clients to its distribution business.
In terms of sales in 2002, Romanos said the children's division had "an exceptionally good year," while the adult trade division and audio unit had good years. Sales were strongest in the first half of the year, but Romanos said he was pleased with the fourth quarter performance given the difficult retail environment. Results overseas were mixed. Its Australian division is dealing with currency issues, and while Romanos said he is happy with S&S UK's publishing program, the operation is still in turnaround mode. Romanos said he was excited about the prospects for the Canadian market following S&S's purchase of its Canadian distributor, Distican, late last year.
Romanos declined to offer a prediction for 2003, but noted that the company will likely publish fewer titles than in 2002. "We'll be fine-tuning," Romanos said. "In this [economic] environment you need to constantly evaluate your publishing program." He also wouldn't rule out an acquisition. "If an acquisition makes sense, we'll do it," Romanos said. He had no comment on the prospects of S&S buying the AOL Time Warner Book Group.