Stirring Things Up

HarperCollins and Simon & Schuster had a busy few days last week: the two companies announced their quarterly earnings, received words of encouragement from their corporate owners, and made changes in their Canadian operations.

HC had the more active week, particularly in Canada, where the publisher will be moving its fulfillment operations to R.R. Donnelley by next summer and exiting the distribution business. As a result, HC’s Toronto warehouse will close and David Kent, longtime president and CEO of HC Canada, will depart at the end of 2014.

The switch to Donnelley’s Plainfield, Ind., facility is part of a process to streamline HC’s North American distribution and fulfillment operations that began in 2011, when the company moved its U.S. trade book fulfillment function to Indiana. HC CEO Brian Murray said that despite Kent’s departure and the changes in fulfillment and distribution, HC remains committed to maintaining an active Canadian publishing program. “There is no pulling back on our Canadian publishing activities,” Murray noted. “We have the same level of commitment and expectations for growth.”

The company has promoted Iris Tupholme, who has been at HC Canada for more than 20 years, to senior v-p and executive publisher. Leo MacDonald has also been promoted, moving up to senior v-p, marketing and sales. Together, they will oversee the business in Canada, with Tupholme reporting to Michael Morrison, president and publisher of U.S. General Books and Canada, and MacDonald reporting to Josh Marwell, HC’s president of sales.

While the consolidation of the Canadian fulfillment operation has nothing to do with the purchase of Harlequin (the Harlequin warehouse in Buffalo is remaining open), HC did move forward on the integration of Harlequin. On Thursday afternoon, HC announced that it was moving all Harlequin nonfiction titles acquired for publication in August 2015 and beyond to its William Morrow imprint. As part of the process, three Harlequin editors are joining the Morrow staff in New York, including Deborah Brody, who joined Harlequin in 2007 to spearhead its nonfiction efforts.

Harlequin and HC are certain to integrate even more in the coming months. In a conference call discussing quarterly results for the period ended Sept. 30, 2014, Bedi Ajay Singh, CFO of News Corp (HC’s parent company), said that the company expects to find $20 million in savings by absorbing Harlequin into HC, which is how much it saved when Zondervan and Thomas Nelson were combined to form HarperCollins Christian Publishing. “While it’s early in the integration with Harlequin, we’ve been very pleased with the progress to date,” Singh said. On the revenue side, HC is looking for ways to monetize Harlequin’s backlist, he added.

Earlier in the conference call, CEO Robert Thomson called HC one of News Corp’s “core pillars,” on which the company can build a profitable future. Indeed, HC posted another robust quarter for the period ended September 30, with total sales up 23.8% over the same period last year, and EBITDA increasing 28%. These results include two months of Harlequin sales—the purchase was officially completed on August 1. Excluding Harlequin’s figures, HC revenue was still ahead 6%, and EBITDA was up about 23%. The Divergent series led sales at HC, selling 3.5 million units in the quarter. Total e-book sales rose 28%, and e-book sales accounted for 22% of revenue. Singh alerted analysts to the fact that HC will face some difficult financial comparisons in fiscal 2015 (which ends next June), since the majority of Divergent sales occurred in the second and third quarters of fiscal 2014 (October 2013–March 2014).

At S&S, sales in the third quarter fell 11.1% and OIBDA held even at $43 million. CEO Carolyn Reidy said the decline was as much a matter of timing as anything else, observing that Doctor Sleep, S&S’s big Stephen King book last year, was released in the third quarter, and King’s latest title, Revival, is set for release this month. Still, Reidy acknowledged that e-book sales were relatively flat in the quarter and that the market, especially on the adult side, has been a little soft. With a number of strong titles set for the fourth quarter, Reidy is hopeful that the recent trend during holiday seasons, in which print books get a boost, will be repeated again this year.

During the conference call discussing quarterly results, Les Moonves, CEO of S&S parent company CBS, praised S&S executives for reaching an agreement with Amazon over sale terms. Moonves said the agreement was a “terrific” deal for S&S and its authors.

Meanwhile, Simon & Schuster Canada confirmed that editorial director Martha Sharpe and associate publisher Alison Clark left S&S Canada after less than a year on the job. Kevin Hanson, president and publisher of S&S Canada, said the company remains committed to an active Canadian program, and an S&S spokesperson said the publisher plans to find replacements for both women.

There were fewer fireworks at Houghton Mifflin Harcourt last week when it released its third-quarter report. Sales in HMH’s trade segment rose 1.5% compared to last year’s third quarter. Adjusted EBITDA dropped 16.3%, to $7.2 million. The increase in revenue was due to strong sales of The Giver, which was recently released as a film, and higher frontlist sales led by What If? Serious Scientific Answers to Absurd Hypothetical Questions. The drop in EBITDA was attributed to a higher reserve for returns and higher royalty costs.

Third-Quarter Results, 2013–2014

(in millions)