At a time when the book industry has made a parlor game of finding euphemisms for poor sales—think "challenging market" and "disappointing sell-through"—children's publishers have a happier story to tell.
Through October, children's hardcover sales were up by 41.5% compared with the first 10 months of 2002, according to the Association of American Publishers. While Harry Potter and the Order of the Phoenix obviously took a big share of those sales, the huge success of other hardcover titles—from The Slippery Slope, volume 10 in Lemony Snicket's Series of Unfortunate Events for HarperCollins (one million copies in print) to Knopf's Eragon by Christopher Paolini (more than 750,000 copies sold as of early December)—prove it isn't a one-hit market. That hike in hardcover more than offset a 7.3% decline in sales of paperback children's books through October. By contrast, the major adult book formats—paperback, hardcover and mass market—all showed single-digit year-over-year declines for the first 10 months in 2003, according to the AAP.
"We're up nicely over last year," says Doug Whiteman, president of Penguin Books for Young Readers. "It isn't a huge increase, but given the state of the economy and the state budgets, I can't complain." Whiteman is typical of his counterparts at other large houses, projecting that when all the numbers are in for 2003, his division will show mid-single-digit sales growth over the previous year. Also typical is how he got to that growth—sluggish backlist sales were more than offset by robust frontlist business. "If the backlist hadn't fallen off the table, we would be ecstatic," he says.
So goes the children's book business as the old year fades into 2004. PW spoke with the largest children's publishers and found that the market, at least from their perspective, is generally healthy. Most of the major children's publishers report sales growth in the mid-single digits or higher for 2003. But it's an uneven business, with some formats, channels and types of books performing unusually well, providing a cushion against weakness in other areas. As picture book sales sag, hardcover series shine. Libraries have been buying less, but a vigorous mass market softens the hit. And stagnant backlist sales feel less painful with frontlist books selling at formerly unheard-of numbers.
"You have to think about the fact that our business is extremely diverse, and I think it helps us," says Rick Richter, president of Simon & Schuster's children's division.
Looking Ahead
Marching into the New Year, children's publishers may have even more reason to be upbeat. The Book Industry Study Group is projecting children's publishers will net domestic sales of $1.98 billion in 2004, an 11.2% increase over 2002. By 2007, the BISG predicts those sales will rise to $2.04 billion. Beyond those projections, publishers see promising signs, including an improving economy that publishers hope will result in more generous school and library budgets. At the same time, many of the factors that have been driving growth—marketing by other media that spills over into related children's books, the popularity of higher priced hardcover series, Internet promotion and selling, and mass merchandisers' increasing focus on books—are poised to become even stronger.
That isn't to say children's publishers can afford to relax. The same market forces that are sparking growth are compelling publishers to re-examine their programs and make changes to compete. And "compete" is the key word. While overall sales may be rising, it's still a game of grabbing market share from rival companies. Against that backdrop, children's publishers are compelled to be more aggressive. "With the economic arrangements, how we market [authors] and certainly the revenue, I feel like children's publishing has finally come to the adults' table," says Susan Katz, president and publisher of HarperCollins Children's Books. "More and more, we are taking risks at levels that are commensurate with our adult counterparts," Richter agrees. "When that pays off, it's a beautiful thing, and when it doesn't, it can be a complicated thing."
New Role for Older Books
Among the changes with which children's publishers must contend are sales trends that call into question the traditional role of the backlist. Whiteman says the backlist typically makes up about two-thirds of his sales, but accounted for only 52% this year.
He attributed the shift in part to shrinking school and library budgets, which were slashed as states and municipalities dealt with deficits. A survey conducted by the American Library Association in early 2003 found that state funding for libraries had been cut or remained flat with the previous year in all but four states. In some cases the reduction was drastic. Colorado, for example, had its funding cut in half.
At the same time, retailers "are being very cautious with the amount of inventory they are holding, particularly with backlist," says Barbara Marcus, president of Scholastic's Book Publishing and Distribution Division. "I think they are focused on having the new, hot thing consumers can't live without." Even as the economy improves, presumably allowing more money to flow into schools and library budgets, and making booksellers less cautious, some publishers speculate that backlist will continue to lose prominence.
"I think the frontlist will become a greater percentage of overall revenue for a lot of reasons," Katz says. "First of all, books that are tied to television and movies are taking up a larger portion of children's publishing revenue. And there are big series that are being published, from the United States and the U.K., so they'll take up more and more of the market."
Whiteman agrees that cultural changes may force publishers to put an even more aggressive focus on frontlist publishing in the future. "I do feel that we're in a society that is demanding more and more novel, trendy sorts of thing to keep the consumer excited," he says.
But don't be too quick to underestimate backlist's place in the future, says Chip Gibson, president of Random House Children's Books. Gibson says he's just beginning to excavate the treasures his company acquired when it bought the assets of the twice-bankrupt Golden Books in 2001. "The Golden backlist is proving to be extraordinary, formidable," he says.
Just as some cultural factors favor the new, others favor characters who have been around for years. "There's a nostalgia, so things like the Care Bears, Strawberry Shortcake and My Little Pony are having a great resurgence," Gibson says. Random House played to baby-boomer nostalgia in the spring and summer of 2003, re-releasing four titles in the Trixie Belden mystery series, which made its debut in 1948. The new editions have sold a combined 250,000 copies to date, and RH plans to reissue more installments from the series.
Hardcover Series to the Rescue
Since backlist has always been the most profitable part of the business, a continued shift to frontlist could smack publishers hard on the bottom line. Not to worry, says Katz. "The number of customers buying hardcover [series] books for children has ratcheted up so much that it has allowed us to stay at the same profit margins or improve them," she says. HarperCollins has worked that strategy very well, with bestselling hardcover series that include the Series of Unfortunate Events (13 million copies in print), as well as hard/soft series like Meg Cabot's The Princess Diaries (three million copies) and Louise Rennison's Georgia Nicolson books (1.3 million copies).
As with so much in children's publishing, one can trace much of this recent success to Harry Potter. "I would like to think people got excited about their children reading a book that has weight," says Marcus. "Harry started it, but it now has a life of its own."
The willingness to shell out more for a title sent consumer spending on books for children under the age of 14 up to $840 million during the first half of 2003, a 10% increase over the comparable period in 2002, according to BookTrends, a service from market research firm Ipsos-NPD. At the same time, the number of books purchased fell by 6%, to 188 million. Not only did consumers buy fewer books per shopping trip, the percentage of households buying books for children declined, from 24% during the first half of 2002 to 22% during the first six months in 2003.
As consumers spend more, but put their money into fewer books, publishers are signing up multiple titles, in hopes they'll be the ones to discover the next—if not Harry Potter, then maybe Artemis Fowl. In a sign of its commitment to series publishing, Penguin plans to launch the Razorbill imprint in fall 2004, which will feature hardcover and paperback series. In September, HC bought the U.S. rights to a six-book hardcover series, The Chronicles of Ancient Darkness, by U.K. writer Michelle Paver. HC signed the series, which will debut in 2005, on the strength of a partial manuscript. It's the kind of chance publishers are willing to take now, says Katz, who pointed out that readers' affinity for hardcover series is only a boon "as long as you're one of the companies that has a series that wins."
Less Than Picture Perfect
While hardcover novels are becoming more popular, picture books are in a slump. Consumers spent $226.8 million on picture books during the first half of 2003, compared with $241 million during the comparable period the previous year, according to BookTrends. The full extent of the fall-off in demand for the format is probably much greater, because BookTrends doesn't track institutional sales.
Publishers blame a number of factors, including a reduction in the number of books purchased by teachers and librarians and the inability of booksellers to effectively showcase and sell picture books.
"I think they are hard to display," Marcus says, referring to paperback picture books. "And some of the retailers haven't figured it out." With hardcover, publishers blame price, including changes in chain store policies. "The scaling-back of discounting on picture books has really hurt us," Marcus notes. It seems consumers have gotten over their aversion to paying more for fiction, but not for picture books. "Somehow we haven't done a very good job of communicating that $15 for a picture book is a good value," says Lisa Holton, publisher of Global Children's Books for Disney Publishing Worldwide. She adds that she hopes current trends don't reduce publishers' commitment to this still very significant portion of the market. "To a certain degree, we are a bit too lemming-like," she says. "I fear a year from now everyone's list is going to be all fiction, and everyone is going to pare down their picture book list."
Whiteman, however, notes the cyclical nature of children's publishing, which is often driven by demographic shifts and fluctuations in state budgets. "I believe that two or three years from now, we are going to be gearing up for our picture book program," he says. "Right now that's a soft market for us."
Given the tough state of the current picture book market, publishers' devotion to the celebrity-turned-children's-author stands to only grow more ardent. Critics may complain about catalogues that read like an issue of People magazine—but publishers are too busy counting their money to listen. Penguin, for example, scored instant bestsellers with Madonna's two picture books for Callaway Editions, The English Roses and Mr. Peabody's Apples.
Richter, whose company has recently published titles by John Lithgow, Sarah Ferguson and Lynne Cheney, acknowledges that not every star-penned picture book has the literary quality of, say, Olivia, but he defended publishing them.
"Here's what I like about celebrity books—celebrity books bring readers to books who might never have found them," he said. "Not everyone knows what a Caldecott is." This spring, S&S will publish Jay Leno's first children's book, If Roast Beef Could Fly. It will go head-to-head against the picture book debut of another comedian, Billy Crystal. That title, I Already Know I Love You, will be published by HarperCollins, whose past lists have included picture books by Sting, Dolly Parton, Emeril and Dr. Laura.
All Marketing, All the Time
Though they're hardly new, two interrelated trends are on the upswing—an emphasis on licensed characters and the power of marketing for other media properties to move books.
"There is a growth in movie and television-driven characters, without a doubt," says John Sargent, president of Holtzbrinck USA. He is quick to add, though, "There are a lot of hardcover children's books with no media affiliation that have sold better than ever." Publishers also point out that a movie tie-in is far from a sure thing—you could go shopping for the next Spider-Man and end up with a Hulk.
"If a movie stinks, it doesn't drive sales, it just drives distribution and returns," says Gibson. Well, maybe. Plenty of critics said, in so many words, that The Cat in the Hat movie stunk, but that didn't keep the film from sending the classic 1957 title, which RH publishes, to the top of bestseller lists.
There's no denying that movie and television promotion looms larger than ever over the book industry. And The Cat in the Hat may provide the best illustration yet of why. Universal Pictures signed deals to cross-promote the movie with everything from Pop-Tarts to cleaning products, making it impossible for parents and children to turn on the television, visit a supermarket or even mail a package without being bombarded with reminders of The Cat in the Hat.
Given that even comparatively low-key movies have a big effect on book sales—"just the exposure from the Disney [Channel] movie has sent The Cheetah Girls back onto the bestseller list," says Holton—these ever more massive marketing efforts have important implications for the book industry. They may render books with movie tie-ins even more lucrative, while making it increasingly difficult for other titles to compete. "What kids want is what they see—either it's marketed to them on TV or it's marketed to them in the movies," Katz says. "That's something you have to deal with, that there's very aggressive marketing to young children." HC's movie-related licenses include Spider-Man, Hulk, Freaky Friday and Spy Kids 3-D.
The increased focus on licensed publishing at HC as well as at other houses goes beyond movie properties to all sorts of tried-and-true characters that provide a shortcut to filling out a frontlist. "When you're seeing backlist tail off and you need to increase your frontlist presence, licensing is the natural place publishers turn because it's quick," says Whiteman. Scholastic is using what Marcus calls "a lot of hot new licenses, as well as some older stuff," to make its first major push into the coloring and activity books market this spring. "This is an area we did not [previously] publish into," she says. "We saw an opportunity in the market." Among the properties gracing the books will be Scholastic's own Clifford, as well as Shrek 2, Spider-Man 2, Rubba-Dubbers and Boobah.
The Internet: Growing but Limited Sales Promise
It may never be as influential as movies, but the Internet is emerging as a powerful force in children's books. Though Web retailers still capture only a small portion of children's sales, they are slowly gaining market share. In the first half of 2003, they took in 2.6% of the dollars consumers spent on books for children under 14, according to BookTrends. That's up from 2% during the first half of 2002 and 1.8% for the comparable period in 2001. Harry Potter sales and pre-orders skewed those numbers somewhat, but other children's books have sold briskly on the Internet, including Eragon, The Slippery Slope and Inkheart by Cornelia Funke (Scholastic/ Chicken House), author of the bestselling The Thief Lord.
Publishers predict that as parents become more comfortable shopping online, more children's book sales will migrate to the Web. Not all children's titles, though, are well suited for online shopping. The Web may be fine for YA novels or pre-pub orders for the latest installment of a blockbuster series. But the majority of children's books beckon to parents with attributes—an enchanting turn of phrase, beguiling illustrations, tactile appeal—that can't shine through a computer monitor.
"Internet sales are growing a little bit," says Marcus. "I wouldn't say there's a big story here. I think we will still see the Internet as a place to buy books, not to shop for books."
More than as a channel for sales, the Internet's value lies in its ability to reach young readers. "When you're talking about YA or middle readers, it's huge," says Gibson. In addition to a "teens@random.com" Web site, RH uses mini-sites and e-newsletters to communicate with middle-grade readers.
The Web has become an integral part of Disney's marketing machine. The company often uses online contests to promote book-and-movie properties such as Artemis Fowl and Lizzie McGuire, says Holton. In December, Disney launched a Web site to stir up buzz for a book series, W.I.T.C.H, that makes its U.S. debut in May. W.I.T.C.H., an acronym derived from the initials of five girls' names, is based on a popular monthly comic book series that started in Italy and is published in almost 40 countries. If the Web marketing does what it's supposed to, middle school girls will be wild about W.I.T.C.H. long before the series reaches U.S. bookstores.
Changing Channels
Publishers are quick to point out that traditional bookstores are still their key market, and they say the chains had a particularly good 2003. "That business, taken as a whole, was up significantly for us," says Richter. Independents had a more mixed year, publishers report, with the heavy discounting of Harry Potter at the chains and a drop-off in sales to teachers, who rely on local booksellers' recommendations. Nevertheless, BookTrends shows bookstores (a category that includes chains and independents) gaining market share in the first half of 2003. They sold 19.8% of all children's books purchased by consumers during the six-month period, up from 16.3% the previous year. In dollar terms, the channel's share of sales increased from 24.5% in the first half of 2002 to 26% during the comparable period in 2003.
Despite the channel's strength, publishers consider bookstores largely a "mature" market with limited growth potential. As children's publishers pursue ever-higher sales, the greatest promise and biggest challenge may lie in nontraditional book channels. Publishers have already responded to the rising importance of Wal-Mart, Target and the warehouse clubs by beefing up their mass market publishing. Scholastic's new coloring and activity program, for example, is aimed straight for the shelves of mass merchandisers. Those low-price, high-volume retailers stand out as one of the more resilient channels in 2003, keeping revenue pumping in when sales to libraries were anemic, publishers say.
And there's more good news, says Richter, who sees nontraditional book channels such as grocery stores becoming increasingly interested in planogramming. Planogramming is an approach to merchandise display that Wal-Mart, Kmart and Target already use for books. The key is that chosen titles stay on display for four full months, giving them a better chance at sell-through. "Planogram displays have a fraction of the returns of floor displays," says Richter. "That's very good news for us."
But some other nontraditional outlets are in trouble, namely those owned by FAO Inc.—that includes FAO Schwarz, Zany Brainy (which two years ago bought out rival Noodle Kidoodle) and Right Start. In early December, FAO disclosed plans to file for Chapter 11 bankruptcy. As part of its plan to stay in business, it will close all 89 Zany Brainy stores. It also hopes to sell the rest of the company. FAO, which gets about 10% of its sales from books, entered into an agreement last August in which Borders would manage its books department.
It's too soon to say what effect the closing of these stores will have on publishers' bottom lines this year or in the future. What is clear is that those outlets are evaporating just as children's publishers are prying into every nook of the retail market for new ways to get their books in customers' paths. "I think the market is endlessly expandable," says Gibson. Not that it's easy, he adds. There are terms to work out, details of display and distribution to consider. Still, millions of parents pass through supermarkets and drug stores every day, suggesting opportunities for growth-hungry publishers. "Our year-to-year growth has been substantial," Gibson says, "and I'm certainly planning on that growth to continue."
