Publishers Lunch

Macmillan Voluntarily Adopts Their Version of Agency Lite, But Declines to Settle; Library eBooks Are Coming Soon

With trademark candor, Macmillan ceo John Sargent's year-end letter to authors, illustrators and agents presents more than the usual amount of updates. Counteracting any year-end punditry, Sargent says they "have completed the court-ordered mediation process with the DOJ without any progress toward settlement" and will proceed to trial. He held his letter after Penguin's settlement was filed yesterday, but :after some long thought, I'm sending you the letter I wrote unchanged. That is because our position has not changed."

Sargent forsees another suit coming, saying that "now even our friends in Canada are taking a look," and clarifies that their settlement in the EU "will not materially affect the market there for us." (A spokesperson for the country's Competition Bureau told us they could not comment on the matter or even "confirm whether the Bureau has received any complaints on this subject," since by law they are "obliged to conduct investigations confidentially.")

Macmillan has already negotiated new contracts with retailers for the sale of ebooks, however, in their own variation of Agency Lite. In fact, they decided to do so "shortly after the suit was filed" and Sargent believes "all the new contracts are compliant with the government's requests in their complaint." They have eliminated MFN clauses--as was required of the Settlers--and any price limits. While the new agreements do not allow discounting of ebooks to the extent required of the Settlers, they do "allow 10 percent discounting on individual books priced at $13.99 and above." It does appear to limit what the government might expect or require of Macmillan if they prevail in their lawsuit. In the meantime, Sargent writes, "the legal bills look like the unit sales numbers for 50 Shades of Grey."

In new frontiers, Sargent confirms that "in early 2013 we will launch library lending of e-books...for a limited part of our list" for the first time. As for their DRM-free experiment at Tor, "it is still too early to tell the outcome, but initial results suggest there was no increase in piracy."

For the year digital product has comprised 26 percent of Macmillan's sales. "Just as in 2011, the percentage of e-book sales has remained consistent week by week through the year for the most part," with ebook sales "softer of late, particularly for the last few weeks."

On the consolidation of big publishers, Sargent again confirms that operating expectation: "I do know that we are not in discussions, with anyone. This will leave us where we have always been, the smallest of the big publishers. It has never hurt us in the past, and I expect it will not hurt us in the future.... You need a certain level of capital and infrastructure, but that does not require being a behemoth. We will be more than fine in the land of the giants."

At the same time, he observes, "I think the Random/Penguin merger is based on financial engineering, and as such is good for the financial statements of the two companies. I think others have the same sort of opportunity, but I have no idea if they are talking."
Sargent's letter

Scholastic Sales and Profits Fall, As Forecasted

Scholastic reported results for the second quarter ending November 30, and as the company warned a month ago, overall sales fell 10 percent to $616.2 million, and profits declined further. The company reported a net profit of $61.8 million (or $1.89 a share) as compared to $82.8 million (or $2.62 a share) a year ago, in part because of declining Hunger Games trilogy sales as well as declining book club revenues and lower sales of higher margin educational technology products.

Revenue in the children's book publishing and distribution division was also down almost 11 percent to $350.1 million, and trade book sales of $51.1 million were down 26 percent from a year ago. The sharp sales dropoff in Hunger Games books offset by "a strong frontlist and backlist [that] performed well" including Maggie Stiefaver's THE RAVEN BOYS and Dav Pilkey's latest Captain Underpants title. Unlike the previous quarter, the division did turn a profit of $68.9 million, but that too was down from $108.7 million a year ago as a result of "lower revenue and higher spending on ecommerce and ebooks initiatives," including the recently launched Storia ebook/app platform.

Scholastic ceo Dick Robinson said he was pleased by a November "uplift" in trade sales and "the pace of Storia ereader app downloads over the quarter," though he added that the company is "implementing cost savings initiatives and expect these actions to result in savings in the range of $20 million to $30 million in the remainder of this fiscal year." Looking ahead, Scholastic expects total revenue of approximately $1.8 billion to $1.9 billion and earnings per diluted share from continuing operations in the range of $1.40 to $1.60 a share.
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