Olson Says Random Expects Difficult Year

In his annual year-end letter to employees, Random House chairman Peter Olson congratulated employees for weathering "a truly difficult year," and advised them that "it won't get any easier in 2002."

Olson said that despite placing more than 200 books on the New York Times bestseller list in 2001 and having a strong backlist, "our publishing programs are not immune to the overall downturn in book sales nationwide." He acknowledged that "we are selling fewer copies of our bestselling titles than in previous years. Christmas sell-through, at best, looks to be just moderate compared to last year and the year before. This decline follows three-plus years of almost uninterrupted increases in sales."

Random House, along with all Bertelsmann companies, will report results on a calendar basis beginning January 1, 2002, rather than operating on a fiscal year ending June 30. Olson said that in the new fiscal year "we will be challenged to meet our corporate performance targets." With sales growth opportunities in 2002 limited by a recession that Olson said may last well into the year, the "essential overall goal" in 2002 is to reduce expenses throughout the company. He asked employees to be vigilant in cooperating with corporate cost containment efforts.

Olson provided no details about what cost-saving initiatives were in the works. Spokesperson Stuart Applebaum said the heads of the publishing groups are free to reduce costs in any way they see fit, but there is no CEO mandate to cut jobs or titles. The heads of at least two publishing groups have chosen to use headcount reductions to reduce costs. A spokesperson for Ballantine confirmed that executive editor Peter Borland and nonfiction editor Jeremie-Ruby Strauss were laid off, but wouldn't comment on reports that a couple of publicity people were let go. Doubleday Broadway editor Amy Schiebe was also laid off, and there were unconfirmed reports of the elimination of several other positions in the group. A source said additional layoffs are possible, but that no extensive downsizing is planned.

Earlier this year, Random House scaled back operations in its Fodor's.com and dictionary operations, which resulted in the elimination of 13 and eight positions, respectively. Other cost-savings measures included the folding of AtRandom, the scuttling of a deal to buy Total Sports and the decision to hold the winter sales conference via electronic means rather than travel to Florida.

North American Sales: $1.31 Billion

In its recently released annual report, Bertelsmann broke out revenues for Random House Inc. by geographic segment for the first time. According to the report, North America accounted for 70.6% of Random House Inc.'s total revenues of approximately $1.85 billion for the fiscal year ended June 30, 2001. The 70.6% revenue share for Random North America, which comprises the U.S. and Canada, translates into sales for the group of about $1.31 billion, a figure that is lower than many in the industry had estimated.

Random House's second largest market is the U.K., Australia, New Zealand and South African segment, which accounted for 14% of sales, or $259 million. Operations in Germany, Austria and Switzerland represented 8.9% of sales, generating $165 million. Spanish-language publishing represented 4.6% of revenues, or $85 million. The remaining 1.9% of sales, $35 million, came from other regions.

In other notes from the annual report, Web losses amounted to some $790 million, $444 million of which came from club operations and other e-commerce. The smallest losses were attributed to the global Random House group and Bertelsmann's specialized press.

In all, Bertelsmann estimated its losses since the inception of Internet activity in the mid-1990s at some $1.95 billion, and this would not include recent advances made to Napster in an attempt to find a legal way for the American startup to go about its business. Now the group is taking steps to wind down Internet-related investments across the board.

Random House Sales by Geographic Segment ($ in Millions)