A #Harlequin update #carinapress

I almost didn’t write this short update because it sounds an awful lot like crowing but, then again, business and economic analysts do it all the time, so why not?

In the post about Carina Press that I wrote at the end of February, I said:

If Carina Press is dropping prices (and so precipitously and with such flagrant disregard for the length of its released works) then all I can think is that they’ve been sent a message from upper management to increase the profits…or else.

And, wouldn’t you know it, Harlequin’s earnings were made public a week later, on 6 March, and it wasn’t good news. From Digital Book World:

“Declines in print revenue more than offsetting digital revenue growth,” wrote Harlequin parent Torstar’s management in a discussion of the company’s financial performance for 2012. The company blamed a “competitor’s best-seller” (see: Fifty Shades of Grey) and higher digital royalties for its performance.

So, there was a decline in revenue and profit. It was only a 4.2% drop this year, but illustrates a worrying trend for investors. You see, earnings were $2.74 a share in 2011, but dropped to $1.30 a share in 2012, which is quite substantial. (Earnings don’t exactly parallel the company’s overall spreadsheet, but are decided upon based on a spate of factors (of which profit is only one), which is why a 4.2% drop in overall profit can lead to a 52.6% drop in earnings.)

If I was an investor — and remember, most investors nowadays are institutions (not individuals, like you or I) who own significant blocks of shares and depend on the earnings for their own bottom lines — I would be screaming blue murder by now.

With this in mind, the blame is being thrown around gaily (“It’s the fault of Fifty Shades!”, “It’s the fault of those greedy authors with digital releases!”).

Now, isn’t that interesting? Let’s isolate that:

[Decline was blamed on]…higher digital royalties

That’s a kind of a bastard move, don’t you think, blaming your content producers for a lack of profit? We all know that Harlequin contracts are as close to non-negotiable as publishing contracts get, that the deck is stacked, that the rights grab is all-encompassing, that they use their Swiss company to halve potential royalties and yet, they still blame authors’ digital royalties for declining profit. (I also think it’s pretty weak blaming “Fifty Shades”. You’d think there were no other blockbuster romance books released over recent years.)

And it’s not as if Harlequin only moved into ebooks, say, last year. If there’s one thing I can say about the romance industry, it’s that it’s always been at the forefront of technological advance in publishing (even more so than the SF publishers, ironically). Carina Press was not the first attempt at digital publishing that Harlequin attempted although, to me, it appears the most coherent. Or, to put it in a nutshell, Harlequin has been in this game for a while.

So there you go. What prompted the pricing restructure? Is Carina Press being innovative? Is it taking the lessons of the self-publishers to heart? Or did it get a kick-down email from Harlequin management? Speculate to your heart’s content. I have.

UPDATE: Tom Simon from Bondwine Books points out that the massive 2011 earnings figure was due to Torstar buying CTV, and the effects of that sale. Torstar doesn’t look like it held onto CTV for long and sold it in 2011. Discounting the “CTV Effect”, EPS y/y 2011/2012 now looks like $1.80 down to $1.30, a drop of “only” 27.8%. As Tom points out, it’s a “smaller dose of dismal”.

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