In separate forums, executives at Pearson, Random House and Simon & Schuster all said they have modest expectations for the consumer book market in 2003 and 2004. In a trading update, Pearson chief executive Marjorie Scardino said she expects underlying sales—sales that can be compared directly year-to-year—to rise just 1% to 2% for the Penguin Group in 2003. In his annual letter to employees, Random chairman Peter Olson said the company's North American operation has a chance to equal 2002 results after a slow first half of the year, while S&S's Jack Romanos wrote to employees in his year-end note that S&S will have record revenues this year.

At Penguin, the company's growth will be led by the U.S. and Australia, which have benefited from strong frontlist sales. Backlist sales have been soft, particularly in the U.K. and at DK, Scardino said. As expected, Penguin USA has had a very strong second half of 2003 and, while that will drive growth, the release of a number of major titles in the fourth quarter will hurt the company's cash flow, since Penguin will not receive payment for those books until 2004.

Scardino said Penguin would outperform the consumer book market next year—which Scardino said would be flat—due to another strong publication schedule and the introduction of new imprints in the U.S., including Ann Godoff's Penguin Press and a new young adult imprint, Razorbill, which is being headed by Eloise Flood.

For Pearson Education, the company expects its school business to be "a little ahead" of 2002 this year. Tight state budgets resulted in soft market conditions in the school market, especially for spending on supplementary materials and curriculum software. Scardino said basal sales will be up by about 2% this year, but supplementary sales will be "disappointing." In the higher education segment, underlying sales are projected to finish the year with a 5%—7% gain.

In 2004, the higher education division is expected to exceed the growth for the overall market, with sales estimated to increase 4%—6% at the company. School sales will be down in 2004, as fewer adoption opportunities cut into basal sales. Scardino is hoping that supplementary and international sales will remain even with 2003. The company has signed new testing contracts worth about $300 million, but most of those agreements won't begin kicking in until late 2004 and in 2005. Like her competitors at Harcourt and McGraw-Hill, Scardino expects significant improvement in the school market in 2005 and 2006.

Asked by an analyst about succession plans at Pearson Education—division head Peter Jovanovich is on a medical leave of absence—Scardino said she has a successor "firmly in mind, if needed," but noted that she still expects Jovanovich to return soon.

Olson Satisfied, Optimistic

In his annual letter to employees, Olson said Random House is "in a position to close 2003 in North America with sales and bestseller performances that may rival last year's record results." Olson called the performance "a truly outstanding achievement," since the publisher has been operating in "the most challenging year in the book business" in five and a half years. The bookselling environment, Olson wrote, "has made sustaining and increasing the sales of established authors—let alone breaking out new ones—extremely difficult." The Random staff also had to deal with the company's own cost-management efforts.

Highlights of the year included The Da Vinci Code, which now has 5.1 million copies in print, and the audio edition of Harry Potter and the Order of the Phoenix. The children's group had an unexpected hit with Eragon, which now has 750,000 copies in print. Random had 175 New York Times bestsellers in 2003, down slightly from 182 in 2002, and several of its established authors, led by Danielle Steel and John Grisham, had strong years. Olson also pointed to Random's 115 New York Times Notable Books.

On the international front, Random's presence in Germany was expanded with the acquisition of Heyne, which was approved by regulators following the divestiture of Heyne's Econ/Ullstein/List divisions. And the Random House Kodansha joint venture published its first list of eight titles in Japanese last month.

Unlike last year, when Olson warned about a difficult 2003, he told employees, "I am very optimistic about 2004." Reasons for his optimism included promising hardcover and paperback programs, ongoing cost-containment efforts and signs of a rebound in book retailing.

Olson also used the letter to introduce a new personnel initiative, the Random House Sabbatical Program. The program will allow employees to take four weeks paid leave on their 10th anniversary and one additional week for every subsequent 10 years. Employees who have already reached one or more milestone anniversaries in 2004 will be able to take one retroactive sabbatical as soon as practical, but it must be completed before the end of 2006.

S&S Meets Challenges

Romanos echoed Olson's and Scardino's comments about the difficult retail environment in 2003, writing that S&S was able to overcome difficult market conditions due to improved efficiencies and strong publishing. The children's publishing group will have its most profitable year ever, Romanos said, led by bestsellers that included Good Night Sweet Butterflies and Olivia and the Missing Toy. Highlights in the adult group included the release of Living History (1.8 million copies in print) and The Ultimate Weight Solution (2.5 million copies in print). In all, S&S had 102 bestsellers this year, the most in the company's history.

Looking ahead, Romanos said that it has become clear that the reading tastes and buying habits of the public have shifted, and that "our core readership is undergoing a period of adjustment." While S&S will continue to publish major authors, Romanos noted that "going forward, our challenge is to use our publishing talent and art to expand the market, to include in greater number the fresh voices and topical titles that will help us to cultivate a new and growing generation of younger adult customers."