A Profitable Year for Trade Publishers

Profits rose in 2018 over 2017 at four of the five major trade publishers that report their financial information—and the one company at which earnings were down, Lagardère Publishing, reported an increase in profits at its U.S. subsidiary, Hachette Book Group. Operating margins fell at Lagardère and slipped by a 10th of a percentage point at Penguin Random House but rose at the three other companies. Solid backlist sales and strong sales of digital audio were cited by four of the five publishers as key revenue drivers in the year, though sales of e-books were down.

PRH parent company Bertelsmann was the last of the major trade publishers to report results, announcing last week that revenue at PRH rose 1.9% in 2018 over 2017 and earnings increased 1.3%. Total revenue was €3.42 billion ($3.87 billion at current exchange rates), up from €3.36 billion in 2017, while earnings before interest, taxes, depreciation, and amortization (EBITDA) rose to €528 million from €521 million.

Bertelsmann said “organic growth” at PRH was 1.3%, while acquisitions added 4.6% to the revenue gain. Acquisitions in the year included the purchase of the Rodale Books group by PRH US at the beginning of 2018. The negative effect of interest rates trimmed revenue by 4.2%. Organic growth was spurred by a “strong bestseller performance,” Bertelsmann said, led by seven-million-copy sales in the year of Becoming (the Michelle Obama memoir has sold three million more copies since the start of 2019) and by digital audio, which Bertelsmann said “grew substantially in all core markets.”

Bertelsmann did not break down U.S. sales, but its annual report showed that the U.S. accounted for 57.4% of all PRH revenue (about $2.2 billion at current exchange rates), up from 56.3% in 2017. In addition to benefitting from frontlist bestsellers, PRH was helped by sales of more than 11 million copies of children’s books by Dr. Seuss in the U.S.

Based on sales in the first two months of 2019, “we are already on a growth trajectory,” wrote PRH CEO Markus Dohle in a letter to employees. His goal in the coming years, Dohle added, is “to grow above the market averages—organically and through acquisitions—particularly in categories that are expanding, such as audio and children’s books—and of course benefit from great frontlist publishing and the growth of our rich backlist—in both fiction and nonfiction.” (Last Wednesday, PRH bought the U.K.-based children’s book publisher Little Tiger Group.)

HarperCollins had the best overall performance among the five large publicly traded publishers and had a particularly strong gain in profits, which jumped 33.7% in 2018 over 2017. HC was helped by a $28 million licensing deal for J.R.R. Tolkien’s Lord of the Rings trilogy, most of which went to the bottom line. Strong backlist sales also contributed to the revenue and earnings gain, as did a number of Christian titles and two books by Joanna Gaines—Magnolia Table and Homebody. With the double-digit growth of digital audio offsetting declines in e-books, sales of digital content represented about 20% of overall revenue at HC last year.

Although sales and earnings fell at Lagardère Publishing in 2018, revenue at HBG increased 3.7% over 2017 and earnings rose by an unspecified amount. HBG CEO Michael Pietsch attributed the profit increase to “superb publishing across our divisions, solid revenue growth, a continued rise in downloadable audio sales, and a strong backlist performance.” HBG’s results also reflected a small contribution from Worthy Publishing, which it acquired last September. Overall, the U.S. and Canada accounted for 29% of Lagardère Publishing’s total revenue in 2018 (about $736 million at today’s exchange rate), up from 27% in 2017.

Though profits were up in the U.S., Lagardère attributed its overall earnings decline primarily to a “sharp fall” in education results in France, Spain, and the U.K. The company reported that sales of digital audio rose 30% across its publishing operations and accounted for 2.7% of total revenue, up from 2% a year ago. E-book sales fell in the U.S. and U.K. but still represented 7.9% of revenue, level with 2017’s sales.

At Simon & Schuster, operating income rose 5.9% despite a slight decline in revenue. The fastest-growing division at S&S was its audio group, where sales gains were well into double digits, CEO Carolyn Reidy said. The audio increase offset e-book declines, and digital content’s contribution to S&S’s total sales rose by half a percentage point in the year. “Backlist sales comprised a higher portion of our revenue than at any time in memory” last year, Reidy said, noting that it was an important element in improving profits. One factor hurting overall sales for 2018 was a soft fourth quarter, due in part to printing capacity issues around Christmas. Lack of printing capacity was a concern for all publishers late in the year.

Houghton Mifflin Harcourt’s trade group turned a profit in 2018—after losing $2 million in 2017—as sales rose 10.6%. The increase was primarily due to licensing revenue from new agreements for George Orwell’s 1984 and Animal Farm. HMH Trade also benefited from solid sales of the Little Blue Truck series, Instant Pot Miracle, and the Whole30 series. Partially offsetting higher print sales was a decrease in e-book sales. In early 2019, HMH announced that it was jumping on the digital audio bandwagon by creating HMH Audio, which will publish about 75 titles annually.

Operating Performance, 2017–2018

(in millions)