Declining E-book Sales Hit Home

Lower e-book sales were a big factor in the weak financial performance at HarperCollins and limiting gains at Simon & Schuster in the quarter ended Sept. 30, 2015. At HC, EBITDA fell 23.6% relative to the similar period in 2014, dropping to $42 million from $55 million. Total revenue rose by less than 1%, but without the benefit of the August 2014 purchase of Harlequin, revenue would have been down about 2% and EBITDA off 33%.

Parent company News Corp blamed the weak sales performance on lower Divergent sales and lower e-book sales. Digital sales, which include both e-book and digital audio sales, accounted for 20% of revenue in the most recent quarter (about $82 million), down from 23% of sales ($93 million) in the comparable period a year ago. With digital audio sales generally performing well across the industry, the 11.8% decline in digital sales is most likely due to a drop in e-book sales. A bright spot at HC was the U.S. general-books segment, which benefitted from more than three million units sold of Go Set a Watchman by Harper Lee.

In a conference call discussing the quarterly results, News chief executive Robert Thomson said the company is “watching closely” the softening e-book sales trend in the U.S.

S&S was able to offset a drop in e-book sales in the same quarter with a strong performance in digital audio and higher sales in its children’s division. Overall, sales at S&S rose 2%, and operating income increased 2.4%.

While digital audio sales had a solid third-quarter performance, total digital sales fell from 28.3% of total S&S revenue (about $56 million) in last year’s third quarter to 24.8% of sales in the most recent period ($50 million). E-book sales are estimated to have declined about 17% in the quarter. Sales of digital audio, meanwhile, are up about 40% in the first nine months of 2015 compared to last year.

S&S CEO Carolyn Reidy said she is not too worried about the decline—yet. She said there are lots of factors behind the e-book sales decline, including a change in product between last year’s third quarter and the most recent period. Reidy said S&S has seen little evidence to suggest that higher e-book prices are behind the e-book sales slump and noted she wouldn’t be surprised if e-book sales started to rise again.

Houghton Mifflin Harcourt did not break out digital results in its trade group in the third quarter. During the period, revenue in the trade division fell 6.5% compared to last year’s the third quarter, and net income dropped to $164,000, from $3.5 million last year. Sales declined to $43.3 million, from $46.3 million. Adjusted EBITDA fell to $3.8 million, from $7.2 million a year ago. HMH attributed the decline to strong prior year sales of titles such as The Giver and What If? partially offset by strong sales of frontlist cookbooks such as The Whole 30, The Real Paleo Diet Cookbook, and Cake My Day.

Slowing e-book sales also came up in the conference call with Heather Reisman, CEO of Indigo Books & Music, in her discussion of the chain’s second-quarter performance. The retailer posted solid results in the period ended Sept. 26, 2015, with revenue up 8.8%, to C$205.7 million, relative to the same period last year. The Canadian chain also cut its net loss to C$1.8 million from C$8.5 million.

Comparable sales increases at stores led the gain at Indigo, as the retailer operated two fewer superstores in the quarter and four fewer small format stores. Comps at the superstores were up 13.6%, and sales through the small format stores rose 12.9%. Online sales increased 14.2%.

Reisman said she was particularly pleased that “at the heart of the growth, which is really satisfying, is our core book business. We believe people are recognizing that books are a part of our lives that we will keep a part of our lives.” She also noted that e-book sales have leveled off. “I think what people are saying is e-reading is not going away—we continue to participate in that market—but increasingly, people are using it for certain things, like when they’re flying, or when they can’t carry books around. Other than that, people seem to be happy reading their print books.”

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Estimated Third-quarter Digital Sales, 2014-2015

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