Half way through 2011, at least four of the major trade publishers continue to find ways to profitably publish despite the challenges posed by the digital transition and the collapse of Borders. Random House turned in the most impressive performance of the four large houses that report results, with profits jumping 72.5%, to €69 million. The keys to growth at Random, according to chairman Markus Dohle, were a strong bestseller performance, a 200% increase in e-book sales, and operational efficiencies. The profit improvement at Random came despite flat revenue (down slightly on a reported basis, up slightly excluding currency fluctuations); as a result its operating margin improved to 8.8% from 5.0% in the first six months of 2010. Results were led by Random’s U.S. subsidiary, where digital sales accounted for more than 20% of total sales.

Digital sales accounted for 21% of sales at Hachette Book Group (with e-books alone accounting for 20% of sales) in the first six months of the year, but e-book sales gains of 115% were not enough to make up for the sales of Stephenie Meyer’s Twilight series in the previous year, and sales and earnings at parent company Lagardère Publishing fell 7.7% and 29.7%, respectively. Sales in the U.S. fell 18%, but were flat excluding the Meyer comparison. HBG expects to post improved numbers in the second half of 2011 as the Meyer comps ease dramatically.

Lagardère was the only one of the four major publishers whose operating margin fell in the period. Earlier this summer, Penguin Group and Simon & Schuster both reported improved margins despite basically flat sales (excluding currency fluctuations in the case of Penguin).

The operating environment for the major trade publishers, at least in the near term, seems clear: profit improvement will need to come from improved efficiencies since any meaningful sales increase is unlikely.

Six Month Operating Results (in millions)

RANDOM HOUSE 2010 2011 % Change
Sales €791.0 €787.0 -0.5%
EBIT 40.0 69.0 72.5
Operating Margin 5.0% 8.8% -
PENGUIN GROUP 2010 2011 % Change
Sales £493.0 £457.0 -7.3%
Operating Income 44.0 42.0 -4.5
Operating Margin 8.9% 9.2% -
SIMON & SCHUSTER 2010 2011 % Change
Sales $341.0 $338.0 -0.9%
Operating Profit 17.0 22.0 29.4
Operating Margin 5.0% 6.5% -
Sales €975.0 €900.0 -7.7%
Operating Profit 101.0 71.0 -29.7%
Operating Margin 10.3% 7.9% -