50 Shades Drives "Record Operating Profits" At Random House


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As expected, sales of the 50 Shades of Grey trilogy--selling more than 30 million units in the reported period in English--powered Random House to "record operating profits" for the first six months of the year and made the book division a standout performer for Bertelsmann as well.
Random House's sales for the reported period grew 160 million euros, or 20 percent, to €947 million for the period, and operating EBIT increased to €113 million, up 64 percent from €69 million a year ago. The company notes that "favorable currency exchange rates also contributed to its positive performance." (The weakened euro helps the European conglomerates with substantial interests in the US and the UK, since those revenues are "worth" more when converted into euros.) In a letter to staff, Random House ceo Markus Dohle notes that "our first-half momentum continued through July and August." Digital revenues accounted for 22 percent of Random House's overall sales worldwide, and 27 percent of the US division's sales. Dohle wrote that "growth in our e-book sales, which continued to rise significantly in each of our divisions, was complemented by our increasing market share among physical retailers. The special programs and services we have created for them have led to their enthusiastic sell-through of Random House books."
Just how much of that performance did 50 Shades drive? Bertelsmann does not break out the number, but with sales running roughly equal between print and ebooks, by our rough calculation the three books accounted for about 170 million euros in sales--driving all of the gain, and then some. Dohle remarked that "creating and fulfilling the unequalled demand for the novels has mobilized an ongoing Random House publishing effort of unprecedented scale and teamwork within and across our international divisions."
Companywide, sales from continuing operations at Bertelsmann rose to 7.572 billion euros, up from 7.209 million euros a year ago, and "operating EBIT from continuing operations almost reached the prior year's high level," at €731 million. (meaning, in plain English, that they declined, slightly). CEO Thomas Rabe reminded investors of their "four strategic approaches to gradually reshape Bertelsmann over the next few years. The first of these strategic thrusts is strengthening our core businesses; second the transformation to digital of our businesses; third the development and expansion of growth platforms; and fourth expansion into growth regions, especially in Asia and South America." At a press conference, Rabe said that "acquisitions will play a role, next to organic growth, in the implementation of our growth strategy. We are also looking at the opportunities resulting from the takeover of EMI's publishing business by Sony and the recorded media business by Universal Music" (which may sell some music labels to satisfy regulators).
Separately, as predicted earlier in the week, 47-year-old Christopher Mohn will take over as head of Bertelsmann's supervisory board in January, as former chief executive Gunter Thielen retires from that position. And Gruner + Jahr chief executive Bernd Buchholz resigned from the board earlier this week "in an apparent protest about strategy", the FT reports, just days after Bertelsmann dropped hints about taking over the 25 percent stake in G+J still controlled by the Jahr family.
Results

What you can say about Lagardere Publishing's reported sales for the first half of the year is, it could have been worse. Even with "a substantial market contraction in all countries in which the division operates"--from a 2.9 percent decline in French results to a 4 percent drop in US sales and a 7.6 percent decline in the UK--totals sales of 905 million euros were actually up, by a slim 0.5 percent on a reported basis, compared to 900 million euros a year ago. (Apparently "a complex accounting adjustment linked to reserves for returns in education" helped balance out those reported declines, along with gains in Japan helped outweigh the drops in major territories.)
Even on a like-for-like basis,  which excludes a 30-million-euro currency exchange gain, results were down 2.4 percent. Similarly, EBIT declined to 57 million euros, down from 71 million euros a year ago. Conditions clearly worsened in the second quarter, since HBG USA was up 2.8 percent in the first quarter and even the UK division was down by only 0.4 percent.
The company says "prospects are positive" for the second half of the year and "profitability in the second half will be significantly higher than in the first half, due to a seasonal effect" (no doubt thanks in part to JK Rowling's first novel for adults THE CASUAL VACANCY, as well as the French translation of FIFTY SHADES OF GREY).
eBooks accounted for 27 percent of US revenues and 23 percent of UK sales (compared to 28 percent  and 25 percent respectively after the first quarter.) Consistent with other reports we have highlighted--the even more so at HBG USA than some other houses--ebook growth slowed considerably, gaining just 20 percent over the same period a year ago. Overall, ebooks comprised 8.4 percent (or 76 million euros) of all Lagardere Publishing revenues.
Release

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