A Profitable Transition, So Far

With Random House reporting its results for 2010 last week, all five of the country's largest trade houses have now turned in their operating performances for last year. And those performances are encouraging, especially for an industry in the midst of a historic transition from print to digital. For all of the Sturm und Drang accompanying the change, publishing in 2010 was as profitable as it has ever been.

Penguin Group reported record earnings in 2010 and had an operating margin above 10%. Random House posted its largest sales increase since 2006 and its first gain in earnings since 2007, when EBIT (earnings before interest and taxes) was 173 million euros. Total Random House sales of 1.83 billion euros ($2.57 billion) matched revenue of 2005 when EBIT was 166 million euros. With strong sales in the U.S., America accounted for just below 55% of Random's worldwide revenue last year, about $1.42 billion at current exchange rates, compared to about $1.28 billion in 2009.

Simon & Schuster had a minor sales decline in 2010, but operating income jumped 43.3%, giving the company a much improved margin over 2009. Lagardère Publishing, home of the Hachette Book Group, had a decline in sales and earnings, due almost entirely (and entirely in the case of the U.S. subsidiary) to substantially fewer sales of Stephenie Meyer titles in 2010 compared to 2009. The operating performance is a little murkier at HarperCollins. Parent company News Corp. stopped breaking out HC's results at the end of fiscal 2010 on June 30. For the first six months of calendar 2010, HC registered improved sales and earnings, but for the second half of the year, News Corp. said in its SEC filings that sales—which were $691 million in the July–December 2009 period—were down. Profits were also down in the holiday period, News Corp. reported.

While the improvement in the economy helped all publishers in 2010, companies where profits improved all pointed to two main contributing factors—cost controls and skyrocketing e-book sales. E-book sales at Random jumped 250% in 2010 and accounted for 10% of sales in the U.S. (about $140 million). Penguin also had a big jump in e-book sales, 182%, which generated 6% of Penguin's worldwide sales, or 63 million pounds ($101 million at current exchange rates). Simon & Schuster's e-book sales rose 122% last year, helping to offset a decline in book sales in the adult group, and e-books represented 8% of revenue, roughly $63 million. Hachette Book Group had strong e-book sales gains in 2010, the format accounting for 10% of HBG's sales last year.

To be sure, the publishing and bookselling landscape is changing almost daily and more disruptions lie ahead, but at least in 2010 the largest publishers were able to harness their resources to get book content to readers in the format they want.

Operating Results of the Top Five Houses, 2009–2010
(in millions)

For six month period ended June 30, 2010