Young Adult Best-Sellers Drive Penguin Random House Sales

For anyone keeping an eye on the Digital Book World Ebook Best-Seller List, it comes as no surprise that hit fiction titles like John Green’s The Fault in Our Stars played a big role in driving sales at Penguin Random House, whose parent company Bertelsmann reported earnings from the first half of 2014 today.

Green’s book sold 5.7 million units in the first six months of this year. Gayle Forman’s If I Stay and Where She Went were also top performers, alongside media tie-ins involving the Frozen and Lego: The Movie films.

Related: Penguin Random House Leads Ebook Publishers Power Rankings So Far in 2014

Penguin Random House reported €1.461 billion in revenue in the first half of 2014, up from €915 million during the same six-month period last year.

As Publishers Lunch points out, “It is the first time that the combined business has reported sales for the first six months of the year,” making it a bit more difficult than otherwise to compare the latest figures with those reported separately by Penguin and Random House before the companies’ July 2013 mergerPublishers Lunch has a preliminary analysis of the latest figures.

The Penguin Random House portion of the press release is below. The complete press release with charts and additional information on Bertelsmann’s other holdings is here.

[Press Release]

Bertelsmann Increases Half-Year Revenues to €7.8 billion – Highest Level in Seven Years

(Gütersloh, August 29, 2014) – The international media and services company Bertelsmann made significant progress in implementing its growth strategy in the first half of 2014, increasing both its revenues and Operating EBITDA.

  • Strategic transactions boost growth
  • Operating EBITDA rises to €1,015 million in first half of 2014
  • Net income at €254 million
  • Progress on all four strategic directions

Consolidated revenues from continuing operations increased by almost seven percent to €7.8 billion euros, the highest level in seven years (H1 2013: €7.4 billion). This revenue growth was driven, in particular, by the strategic transactions of the past 18 months. They include the combination of Penguin and Random House, Arvato’s acquisition of the financial services company Gothia and the e-commerce service provider Netrada, and the acquisition of full ownership in the BMG music rights company. Operating EBITDA, which included startup losses for new businesses and negative foreign exchange effects, was €1,015 million, slightly above the high level of the previous year (H1 2013: €1,011 million). The German and Dutch TV operations, the book publishing business, the music rights business and some of Arvato’s service businesses all grew their results. Operating EBITDA was negatively impacted by the performance of structurally declining businesses, the magazine business, and the weak market situation in France, where the operating EBITDA of Bertelsmann’s businesses declined by €33 million year-on-year. The EBITDA margin was 12.9 percent (H1 2013: 13.7 percent). At €254 million, the Group’s first-half net income was below the high level of the previous year (H1 2013: €419 million), which was influenced by positive special items. Earnings during this reporting period were negatively impacted by an €88 million impairment on RTL Group’s TV activities in Hungary, where the parliament recently approved a special tax on advertising.

Thomas Rabe, Chairman and CEO of Bertelsmann, said: “The first six months of 2014 went satisfactorily for Bertelsmann. The significant increase in revenues is a testament to the effectiveness of our strategy, and last year’s big investments are paying off. In the past few months, we have made significant progress in our four strategic directions: strengthening the core, digital transformation, expanding growth platforms, and our businesses in growth regions. We are well on our way to making Bertelsmann a faster-growing, more digital and more international company long-term. In the months and years ahead, we will focus on expanding our Education business, which will become a third mainstay of revenues alongside Media and Services.”

During the reporting period Bertelsmann made significant progress on all of the company’s strategic directions:

Strengthening the Core

In the past few months, Bertelsmann has systematically invested in strengthening its core businesses. For example, RTL Group expanded its family of channels in Germany, Croatia and South-East Asia; Penguin Random House acquired the Spanish- and Portuguese-language trade publisher Santillana Ediciones Generales. Meanwhile, structurally declining businesses were further downscaled or sold, as was the case with Brown Printing in the U.S.; Bertelsmann announced its plans to withdraw from the club business both in Germany and in Spain.

Digital Transformation

Bertelsmann significantly grew its digital businesses, organically and through acquisitions. For example, in the first half of 2014, RTL Group generated a total of 15.7 billion online video views – a year-on-year increase of 226 percent. In July, the group also secured a majority stake in SpotXchange, a marketer of online videos. Penguin Random House expanded its e-book portfolio to over 80,000 titles, extending its market leadership; Gruner + Jahr further strengthened its market position in digital marketing by acquiring the French online video marketer Advideum. Arvato continued to grow as a service provider for leading IT, high-tech, and e-commerce companies.

Expansion of growth platforms

During the reporting period, RTL Group acquired a majority stake in the TV production company 495 Productions. Arvato became a leading European service provider of e-commerce services to the fashion and lifestyle sector, following its acquisition of Netrada. BMG purchased the music publisher Talpa, as well as the Montana and Hal David rights catalogs. Bertelsmann also advanced the expansion of its education business as a strategic investor in the University Ventures II fund with a commitment to invest hundreds of millions.

Expansion in growth regions

Bertelsmann expanded in all of its three growth regions. The Bertelsmann Asia Investments fund increased its portfolio in China, achieving significant gains, for example, from its participation in Mushroom Street, a leading online shopping community for women. BMG entered the Chinese market. In India, Bertelsmann invested in the e-commerce platform Pepperfry, as well as in a digital fund. In addition, Bertelsmann teamed up with a Brazilian investment firm to found a new venture capital fund focusing on technologies in the Brazilian education sector.

Positive contributions during the reporting period came primarily from Mediengruppe RTL Deutschland, which achieved record results, and from RTL Nederland. Meanwhile, RTL Group’s results in France were negatively impacted by a weak advertising market. Penguin Random House increased its revenues to nearly €1.5 billion following its combination making it the world’s largest trade book publisher on 1 July 2013, and placed numerous titles prominently on the international bestseller lists. Gruner + Jahr continued its strategic transformation from traditional magazine publisher to creative house of content, but recorded lower revenues than in the same period last year due to the general downtrend in the magazine market, as well as portfolio adjustments. However, Gruner + Jahr’s revenues from digital activities increased in all countries. Growth drivers at Arvato included services for international customers in the Internet, high-tech, healthcare and automotive industries, and financial services. While revenues and operating EBITDA at Be Printers, the division that unites Bertelsmann’s gravure and international offset printers, declined due to the difficult market environment, revenues in the Corporate Investments division grew through business growth and the full consolidation of the music rights company BMG for the entire reporting period.

Judith Hartmann, Chief Financial Officer of Bertelsmann, added: “Bertelsmann is in excellent financial shape and operates at a high level of profitability. Our guidance for the full year is a significant increase in revenues and a stable operating EBITDA at a high level. Our net income will remain slightly below the previous year’s strong level, reflecting the impairment of our Hungarian TV activities. We will continue to invest significantly in implementing our strategy, always bearing in mind our clear investment criteria.”

As of June 30, 2014, Bertelsmann had 111,761 employees worldwide
(December 31, 2013: 111,099).

Divisions:

RTL Group

Highlights

  • RTL Group launches three new TV channels: RTL Kockica in Croatia, Geo Television in Germany and RTL CBS Extreme HD in Southeast Asia.
  • Fremantle Media buys 75 percent of shares in the reality-TV producer 495 Productions, expanding its presence in the US cable broadcasting market.
  • Fremantle Media and Vice Media launch “Munchies,” a new multichannel platform for digital content related to food and nutrition.

The leading European entertainment network generated revenues of €2.7 billion in the first half of 2014 (H1 2013: €2.8 billion). This slight decline in revenues is primarily due to difficult market conditions in France and the decline in revenues at Fremantle Media. However, operations in the Netherlands in particular showed positive developments. RTL Group’s operating EBITDA totaled €612 million (H1 2013: €631 million) and was particularly affected by the market-related drop in earnings at Groupe M6 and RTL Radio in France, and by Fremantle Media. However, Mediengruppe RTL Deutschland achieved record earnings and RTL Nederland was able to significantly increase operating profits. Due to the introduction of a new tax on advertising revenue by the Hungarian parliament, an impairment of €-88 million was made to the TV operations in Hungary. As a special item, this has no impact on RTL Group’s operating EBITDA. RTL Group was largely able to maintain its leading audience positions in its core territories, even though the soccer World Cup in June was broadcast by competitors. Mediengruppe RTL Deutschland’s audience share in its main target group was slightly down year on year to 29.2 percent (H1 2013: 31.2 percent). However, RTL Television was still the clear number one among 14- to 59-year-old audiences. RTL Nitro, the channel launched in 2012, almost doubled its audience share in the first half of 2014 to 1.5 percent (H1 2013: 0.8 percent). In France, the Groupe M6 family of channels registered a slight decrease in audience share. The new channel 6ter, launched in December 2012, developed positively. The audience share of the Dutch family of channels around RTL 4 was also slightly below the level of the first half of 2013. In the digital domain, RTL Group continued to show dynamic growth thanks to its online platforms, mobile applications and YouTube activities. 15.7 billion online video views were generated in the first six months of the year – a 226 percent increase compared to the first half of 2013. Online video advertising revenues also increased significantly during the reporting period.

Penguin Random House

Highlights

  • John Green’s #1 bestselling “The Fault in Our Stars” sells more than 5.7 million copies published by Penguin Random House imprints, January–June.
  • Penguin Random House’s publishing presence in Spain and Latin America greatly expands with the acquisition of Santillana Ediciones Generales’s trade publishers on July 1, 2014.
  • Penguin Random House’s new corporate logo and brand-identity system, featuring the imprint logos, is introduced worldwide.

The world’s largest trade publishing group’s results for the first half of 2014 were driven by strong bestseller performances, especially from its children’s divisions worldwide. Achievement of key milestones for the integration of the Penguin and Random House businesses continues on track in all territories. Bertelsmann owns 53 percent of shares in Penguin Random House, which was established by merger on July 1, 2013; Pearson owns 47 percent. The group generated revenues of €1.5 billion in the reporting period, including the publishing businesses of Random House in Germany, which are fully owned by Bertelsmann, thus representing a 60 percent increase over Random House’s revenues in the first half of 2013 (€915 million). Operating EBITDA was €159 million (H1 2013: €131 million). In the United States, Penguin Random House placed 430 titles on the “New York Times” bestseller lists in the first six months of 2014. The half-year top-selling title was John Green’s young adult novel “The Fault in Our Stars,” which sold more than four million copies in print and e-book formats in North America. Other children’s and young adult books in high demand include the multimillion-copy-selling tie-ins with the movie “Frozen,” “Wonder” by R. J. Palacio and “The Book Thief” by Markus Zusak. Among the largest-selling adult titles were “The Invention of Wings” by Sue Monk Kidd, “Duty” by Robert Gates and the paperback editions of Dan Brown’s “Inferno” and “Gone Girl” by Gillian Flynn. In the UK, Penguin Random House commanded 45 percent of the “Sunday Times” bestseller list. “The Fault in Our Stars” was also this division’s biggest seller, with Jeff Kinney’s “Diary of a Wimpy Kid: Hard Luck” a major success as well. At Penguin Random House Grupo Editorial, positive results in the Latin American territories offset the impact of the ongoing challenging market conditions in Spain. In March, Penguin Random House reached an agreement to acquire the Spanish- and Portuguese-language trade publishing companies of Santillana Ediciones Generales, including the Brazilian publisher Objetiva. The transaction involving the Spanish-language businesses was completed on July 1, 2014. Verlagsgruppe Random House in Germany grew its sales of e-books and audiobooks, placing 231 titles on the “Der Spiegel” bestseller lists. Penguin Random House invested across its divisions in extending the reach of its digital content and expanding its digital marketing, as well as introducing new web verticals and apps. Several of the group’s authors won major literary awards, including Dan Fagin, who won the US Pulitzer Prize for General Nonfiction for “Toms River.”

[Click here to read the rest of the release.]

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