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
Sargent's letter
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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