Following the pattern set earlier this month by Simon & Schuster, Penguin Group reported a slight decline in total revenue for 2011, but an increase in earnings. On a reported basis, sales fell 1%, to £1.04 billion, but adjusted operating profit rose 5%, to £111 million. The increase was led by Penguin Group USA which had increases in sales, profits and operating margins. The U.S. performance in turn was driven by gains in e-book sales which more than doubled in the year and accounted for about 20% of total Penguin Group USA sales in the year. Overall, e-book sales at Penguin worldwide rose 106% and accounted for 12% of revenue.
Penguin Group CEO John Makinson said that given the difficult conditions in its largest markets, he was very pleased with the performance of the group. The bankruptcy of the REDGroup in Australia gave that country most difficult conditions, and the decline in print books without an compensating gain in e-book sales resulted in a soft U.K. market. The U.S., while relatively healthy, had its own challenges with the closing of Borders and managing the transition from print to digital. DK has a solid year, Makinson said.
Penguin Group USA CEO David Shanks noted that the gains in e-book sales started to help defray some of the costs of physical book returns in 2011, but said that with print books continuing to represent 80% of sales, Penguin still needs to retain “most of our infrastructure.” In 2011, sales were up in all divisions as Penguin was able to adjust to the collapse of Borders by moving most of Borders’ sales to other accounts. The children’s group, Shanks noted, sold “a lot more books” in 2011 than in the prior year even without Borders. Keeping the brick-and-mortar stores healthy is an ongoing priority, Shanks said, and the company is conducting different tests with Barnes & Noble and independent booksellers to create new programs. He said Penguin’s objective is to make sure existing bookstores don’t diversify their product lines so much that they become unrecognizable as a bookstore.
Digital growth will likely slow in 2012, Shanks said, but the company will press ahead with various initiatives. He said Penguin’s amplified editions and eSpecials are real business that are profitable, but acknowledged that “the jury is still out” on whether the app market can be profitable for publishers. Makinson noted that as the Kindle and iBookstore platforms become more technological sophisticated, Penguin can develop e-books that have more interactivity for those areas rather than creating apps. InterMix, Penguin’s e-book only imprint that launched in January, is off to a good start, Shanks said, adding that Penguin will follow through on its plan to turn hot e-book titles into print books. Overall, e-book sold well acrros a range of categories with e-book sales of the company's mega-selling The Help selling five times as much last year as in 2010.
Asked about the two hot-button issues of the moments, library e-book lending and Amazon, Shanks said, Penguin continues to talk to the ALA and libraries and hopes to work out a business model that is acceptable to all parties, but admitted “we are not there yet.” As for Amazon, Shanks said the entire market is helped by maintaining as many accounts and channels as possible and that is Penguin’s overall goal. “Amazon is a very important customer and someone we like to have a good relationship with,” Shanks said.
Both Makinson and parent company Pearson see Penguin continuing to operate much as it did in 2011—in line with industry averages with gains in digital sales helping to offset declines in print. Makinson noted he was very proud of the consistency in earnings Penguin has produced throughout the digital transition and unsettled economies and looks forward to more of the same in 2012.
