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Penguin in trouble

7 March 2005

The Penguin Group worldwide suffered a 41 per cent fall in profits in 2004. Its parent company Pearson saw an improvement in results both for the Financial Times and for its core educational business, fuelling probably unfounded rumours that Pearson might be looking to sell the 70-year-old publisher.

Penguin’s 2004 results show why new management has taken over at the publisher and large-scale cuts and redundancies are now under way. But the extraordinary thing is that the problem does not really seem to be in the UK arm of the company at all, although undoubtedly Dorling Kindersley is still struggling to reinvent itself in the midst of a difficult international illustrated book market.

At first sight the disastrous new warehouse saga looks like the main reason for the profit downturn, but in fact that is only a relatively minor factor. It has been estimated as costing Penguin £9 million ($17.3 million), although many booksellers and authors in the UK know to their cost that it has had a very adverse effect on backlist sales, and on authors’ royalties.

Perhaps surprisingly, Penguin UK’s 2004 sales have been level with those of the previous year. The publisher has had 49 titles in the top 20 bestsellers, suggesting that the frontlist has performed well. Although the intention is now to concentrate more strongly on commercial fiction, in fact the results look quite good.

Penguin’s real problem has been in the US, where 70% of its revenues are generated. The dollar has gone down substantially, which makes a big difference for a UK company which reports in sterling. But even more important than that, and a significant trend for the book business in general, is that US mass market fiction sales fell abruptly during the autumn of 2004. The Association of US Publishers said there was a decline of 17% in November and 33% in December. This will have hit Penguin and other large US publishers badly, and is symptomatic of a long-term decline in this area of the market.

But it is a decline which is not reflected in the UK, where paperback fiction sales, fuelled by the Richard & Judy Book Club and heavy promotional activity, have continued strongly. Margins may be very tight and discounts fierce, but at least the publishers' and bookselling chains’ competition seems to have lead to healthy popular fiction sales in the UK