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Pearson Book Sales Topped $3 Billion in 1999
Jim Milliot &Calvin Reid -- 3/13/00
Penguin sales rise 5%, while the education group records a 9% gain and strikes deal with AOL

Pearson reported last week that its book publishing sales totaled $3.66 billion in 1999, with operating profit hitting $530 million. The results represent a 9% increase in revenues to $2.74 billion at Pearson Education, and a 5% increase to $909 million at the Penguin Group. Operating profit in the education group jumped 167% to $425 million, while earnings at Penguin rose 23% to $105 million. Results at Pearson Education reflect the first full year of sales and earnings from the educational and professional group acquired from Simon & Schuster in November 1998.

Sales and profits at Penguin Putnam rose at about the same rate as they did for the entire consumer publishing group, David Wan, president of the Penguin Group, told PW, noting that approximately two-thirds of Penguin's revenues come from its U.S. subsidiary. Penguin Putnam CEO Phyllis Grann said she was satisfied with the 5% sales growth, particularly since 1999 was "a non-Clancy year." The company's adult hardcover operations did extremely well last year, with both Viking and Dutton showing signs of a turnaround, according to Grann, and there was good growth in the trade paperback operation. Without a major movie tie-in last year, sales were up only slightly in the children's division. Sales in the mass market paperback division were flat; Grann said she is hopeful that greater exposure at superstores for major mass market titles will keep sales in the format from eroding further. Results in 1999 were also helped by the purchase of the Avery Publishing Group, and there are rumors that Penguin is soon to announce another niche acquisition.

Sales through online bookstores doubled last year, accounting for 5% of Penguin's revenues, although Grann added that she d sn't "think online sales have yet proven to be incremental." Similarly, Wan observed that while Penguin is increasing its efforts with regard to on-demand printing, he d s not believe print on-demand "will move the sales needle" in 2000.

Thanks in part to economies of scale realized from the acquisition of Putnam, the operating margin at Penguin increased to 14% from 12% in 1998. And there is still room for improvement as the company irons out the last glitches remaining from the integration of its warehousing operations. Grann commented that any inventory backlog should be corrected by the end of March.

Room with a View of BEA

Penguin Putnam has been the lone major American publishing company not to return to BookExpo America; Grann told PW that while Penguin will still not have a major presence at the show, the company is taking a meeting room off the exhibit floor this year. Grann said that during the last few years, Penguin has been running a "major co-op advertising program with independent booksellers" to promote special titles. The program, while expensive, has proven "very successful, and that's where I'd rather spend my money," Grann explained.

Online Education Network

Looking to expand its educational publishing further into new media channels, last week Pearson announced a "preliminary agreement" with America Online to begin to develop a joint working relationship. Roy Winnick, a Pearson spokesperson, told PW that the company was "not prepared to go into the details" of the agreement just yet. "They are working on a concrete plan." Winnick noted that the agreement was "very broad" and would encompass everything from home-schooling and career training to prep school and college courses--using America Online's proprietary and Web-based services to deliver it. "Half of Pearson's business is education," Winnick pointed out. "This deal will be hugely important."

Pearson also announced a string of Web-based equity investments and alliances intended to bolster the development of its "online education network." Pearson has taken a $20 million stake in Score! (www.escore.com), an online after-school learning center and subsidiary of Kaplan Inc. Pearson has also taken a 10% stake in the Copernicus Education Gateway (www.edgate.com), an online k-12 customizable online educational resource. The firm also announced a partnership and undisclosed investment in Blackboard Inc. (www.blackboard.com), a software platform for online distance-learning programs.

Pearson spokeperson Wendy Speigal told PW the AOL deal is "an extension of our traditional core competencies into new media. We're a major content provider, and AOL is a major delivery system. It's a natural alliance."

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