Penguin CEO Denies Downward Spiral Following Poor Financial Report

3400054412_22719be339_oPenguin Random House reported a shockingly bad mid-year financial statement today, prompting the CEO, Markus Dohle, to defend his management decisions in a letter.

PRH reported a decline in revenues of 10.7% to 1.52 billion euros, while EBITDA dropped by 10.6%, to 185 million euros. The decline was blamed on lower ebook sales, and you can find the financial report here. (I'll be reporting on it later, in my usual round up post.)

Here's what The Bookseller quoted from Mr Dohle's letter.

Be sure to read the first paragraph.

“Much has been said about the new digital terms of sale and their impact on sales performance," he said. "As anticipated, our e-book revenues were lower year-on-year.  But our overall digital sales—which now include a significant upswing in audiobook downloads—are on a positive path forward.”

He added: “What’s also gratifying is the strength and stability of our physical book sales.  You will recall that we never bought in to the gloom and doom about the future of print.  Instead we said that print would always be important, even as digital became more so.  We made significant improvements in both, and the care we’ve taken with our physical supply chains, operations, and distribution centers is especially paying off now as consumer demand for physical remains robust.”

...

In the letter, Dohle also explained that there was “the absence of newly-published megasellers” for the company in the first six months of 2016, compared with big-hitting titles such as Paula Hawkins’ The Girl on the Train, and E L James’Grey during the same period in 2015, which were “key drovers of revenue”.

“Happily, however, our 2016 results so far have benefited from the continuing large multiterritorial sales of Paula Hawkins’s novel and Marie Kondo’s The Life Changing Magic of Tidying Up, as well as from the Jojo Moyes and Dr. Seuss backlists, and also from the breakout launches of When Breath Becomes Air (by Paul Kalanithi) and Joy, among others,” he said. “The heart of our business performance is—and will always be—the excellence and strength of our publishing.”

When I last wrote about Mr Dohle, I compared his company to Blockbuster.

That's not a good analogy; that retailer resisted innovation and consumer demands, yes, but Blockbuster  would be a better match for Borders or another bookstore chain that failed to move online as the market shifted.

Mr Dohle's Penguin Random House, on the other hand, is less like Blockbuster than a movie studio - one which prices its digital downloads higher than DVDs, and one whose head honcho insists consumers don't want streaming services.

Or we could compare PRH to a record label in the pre-iTunes era where consumers were already abandoning CDs but the major labels were still refusing to go digital.

That is the proper context for the current book publishing industry, so keep it in mind when you read any quotes atributed to Dohle or one of the other Big Five CEOs.

Or am I wrong?

image by postal67

About Nate Hoffelder (11587 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

7 Comments on Penguin CEO Denies Downward Spiral Following Poor Financial Report

  1. I read his comments as: “ebook sales are so bad we need to hide the numbers by adding in booming digital audio book revenue”.

    Thing is, as the last BPH to negotiate their ebook sales terms, PRH had already seen the effect of Agency Part Deux on Hachette and S&S…And went ahead anyway. Which makes the need to publicly defend the move more interesting: somebody is squawking. I wonder who…

  2. For some reason I go here everytime I’ve seen one of these letters that past couple of years:

    https://www.youtube.com/watch?v=zDAmPIq29ro

  3. I suspect it all goes deeper than just overpricing ebooks. That’s a symptom of a bureaucracy that has gotten so big it can’t deal with innovation. For some time most of the growth in these companies came from buying up smaller companies, not from building new audiences or serving them better. I can’t see what they really have to offer next generation of writers that is better than self-publishing. Sales are down because there are no more Fifty Shades of Grey sequels? They’re not likely to even be offered the next Fifty Shades of Grey.

    • At the Bookseller piece that Nate linked they pointed out that despite the decline in ebook sales and *lagging the UK market* in print sales, they still maintained their 12% profit margin “because of the merger”. In other words, they met their financial targets by firing staff.

      They also pointed out that their ebook unit sales in the UK declined over 16%. Easy to see the need to hide that when they drove away one sixth of their sales.

  4. Smart Debut Author // 31 August, 2016 at 6:31 pm // Reply

    Can you imagine if Dohle tried just being honest, instead?

    “Lousy management decisions caused PRH to shrink 10% in a year. Basically, we fucked up.”

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