A review of the 2014 financial results of the five major trade publishers that make data publicly available found that there is still value in expanding through acquisitions. The only company that reported improved operating margins between 2013 and 2014 was HarperCollins, which completed its acquisition of Harlequin on Aug. 1, 2014. Penguin Random House margins were nearly flat, falling to 13.6% in 2014, from 13.7% in 2013. PRH’s merger with Penguin (completed July 1, 2013) and its July 1, 2014, acquisition of Santillana Ediciones Generales did lead to big gains in sales and earnings in 2014, compared to 2013. According to the annual report of PRH parent company Bertelsmann, organic growth accounted for 0.7% of PRH’s sales increase last year, the balance due to the additions of Penguin and Santillana (PRH’s results for 2013 do not include Penguin revenue for the first six months of that year).
Much of HC’s increase in 2014 was due to the Harlequin purchase, although parent company News Corp reported that even without Harlequin, HC’s revenues in the second half of 2014 were up about 3% over the final six months of 2013. HC benefitted from strong sales of the Divergent trilogy in the first part of 2014, and the publisher was able to offset slower sales of the trilogy in the second half of the year with sales of some big hits—such as Amy Poehler’s Yes Please—as well as robust backlist holiday sales. The company also received a boost in late December from sales of American Sniper. HC margins could improve more in 2015, as the company moves forward with its integration of Harlequin; News said it expects the combination of HC and Harlequin to cut costs by $20 million, the same amount HC saved with the acquisition and integration of Thomas Nelson.
Without any significant acquisitions, sales and earning fell at Simon & Schuster, Lagardere Publishing, and Houghton Mifflin Harcourt’s trade operation in 2014. The decline at S&S was due to strong sales of a number of surprise hits in 2013—including the Duck Dynasty titles—that weren’t repeated in 2014. The company was also hurt by a decline in sales of e-books, which tend to be more profitable than sales of print books. E-books accounted for 23.2% of S&S sales last year, down from 24.4% in 2013. Total digital revenue, which includes downloadable audio, generated 26.4% of revenue, down from 27.1% in 2013.
Soft e-book sales also contributed to a decline in sales at Lagardere Publishing, especially at its American subsidiary, Hachette Book Group. E-book sales at HBG, which were negatively affected by its long dispute with Amazon over sales terms, accounted for 26% of HBG trade revenue in 2014, down from 30% in 2013. Sales at Lagardere were also hurt by softness in other geographic areas, including in France, its biggest market.
E-book sales actually rose slightly at HMH trade, rising from $23 million in 2013 to $24 million last year. Still, total revenue fell as sales of both frontlist and backlist titles declined, while new titles were unable to match the strong performances in 2013 of The Hobbit and Life of Pi titles. The big drop in earnings was attributed in part to a change in product mix and an accounting change.
Led by its children’s group, which benefitted from sales of The Fault in Our Stars and books tied to the film Frozen, PRH’s U.S. business had an “outstanding” 2014 performance, Bertelsmann said. In addition to the solid results reported by its children’s unit, adult-group movie tie-ins (such as Gone Girl, by Gillian Flynn, and Unbroken, by Laura Hillenbrand) and television tie-ins (for A Song of Ice and Fire, by George R.R. Martin, and Outlander, by Diana Gabaldon) “all sold millions of copies in multiple formats,” Bertelsmann said. As a result of the strong performance, the American division accounted for 55.6% of PRH’s total revenue in 2014 (about $2.24 billion at year-end exchange rates), up from 53.4% in 2013. The U.K. was the second-largest market, accounting for 11.8% of 2014 sales, and Germany accounted for 8.4% of revenue. The annual report also noted that PRH derived 3.8% of its worldwide sales through its distribution businesses.
|Penguin Random House|
|Simon & Schuster|
|Houghton Mifflin Harcourt Trade|