Harlequin, which had a poor first quarter, also had a difficult time in the second period, parent company Torstar reported last week. Sales at the publisher fell 6.3%, to C$136.1 million ($102 million), and operating profit tumbled 22.6%, to C$22.9 million ($17 million). Results were "below plan," said Torstar president Bob Prichard.

Prichard said the "central factor" for the decline in Harlequin sales was "a tough mass market paperback marketplace"; industry sales in the U.S. are down by about 5%. The soft marketplace, Prichard told analysts in a conference call, was "magnified" by several factors, including the rise of "mega-bestsellers that is soaking up dollars and reading time and drawing customers away from mass market books." Harlequin's direct-mail business was also hurt by the lack of availability of new mailing lists, Prichard said.

Sales were down in all three of Harlequin's operations, with sales in the North American retail market down C$6.2 million as sales of book series and single titles declined and returns rose. Direct-to-consumer sales fell C$2.7 million in the quarter, as a reduction in mailing lists shrunk the customer base. Overseas sales were down C$3.4 million, due mainly to problems in the U.K.

Torstar executives said it was "way premature to say the world has turned upside down," although they acknowledged that "lots of dollars are going into segments that are not our segments." The changes in the marketplace illustrate the importance of Harlequin's efforts to diversify its line by building new authors and adding new imprints, executives said. Its newest imprint, HQN, will debut this month.

Harlequin's prospects for the remainder of 2004, however, remain poor. Torstar's Bob Steacy said the company "is more bearish on the numbers" than it was in May. Prichard said he expects the third quarter to be soft, "with the aim to be flat in Q4. We know we have work to do to achieve that goal."

For the first six months of the year, operating profits fell 16.9%, to C$50 million, while revenue declined 7.5%, to C$273.2 million.