Random House CEO Dohle Addresses Performance in Letter

The privately held Bertelsmann AG, which owns Random House, announced its corporate and divisional half-year results Thursday, reportedly earning 284 million euros (US$546.3 million) from January to June, compared to a loss of 51 million euros (US$74.9 million) a year earlier.

In a letter dated August 28, Markus Dohle, who took over as chairman and CEO of Random House on June 1, addressed his colleagues regarding Random House’s performance. He reported decreased operating revenue and profits from the previous year, due in part to the weak U.S. dollar and British pound, and increased freight and paper costs. He also noted that e-book revenue in the U.S. for the first six months of 2008 is double the company’s e-book revenue for all of 2008.

Here is the full text of Dohle’s letter:

Dear Random House Colleagues,
Bertelsmann’s announcement today of the operating results for the first six months of our 2008 fiscal year is the right moment for my first worldwide letter as Random House CEO. I’d like you to have a better understanding of how we are performing globally by giving you some of the facts behind our mid-year numbers. I want you to have a sense of what we have to accomplish together before the fiscal year ends. I also want you to know how much I truly value your efforts in these difficult economic times.

Even with promising semi-annual results from some of our companies, I am sorry to report that our operating revenue and profits for this period fell worldwide from the prior year.

There are several reasons for this decline: We were hit hard by the weak U.S. dollar and the British pound, the currencies which account for 80 percent of our sales revenue, against the euro, the currency for Bertelsmann’s fiscal-year reporting. In North America, we also faced higher publishing and operational costs for freight and paper. There is also no avoiding the reality that in this declining worldwide economy, consumer spending overall is decreasing.

The last four months of the fiscal year, which include the holiday sales season, are usually the stronger ones for Random House. This year, we have much catching up to do from September through December to reach our ambitious targets. To do so, we will need every sale from our books—and a little bit more—for the last four months.

Here are a brief business overview and bestseller highlights from our Random House companies worldwide for the half-year and a preview of some of their highly anticipated books for the fall.

Random House North America
Our overall U.S. book revenues for this half-year matched our sales for the first half of 2007, which was not easy to achieve in this economic environment.

From January to June, we placed 161 of our titles on the New York Times and 56 titles on the national Toronto Globe and Mail bestseller lists. Our biggest hardcovers for this period were John Grisham’s “The Appeal,” a two-million-plus-copy book, and “Audition” by television legend Barbara Walters, with one million copies in print. Demand for Barack Obama’s two memoirs continues to be enormous. We shipped almost 1.2 million trade paperback and hardcover copies of “Dreams From My Father” and “The Audacity of Hope” since January.

Senator Obama is also the author of the Foreword for “Change We Can Believe In,” written by the staff of Obama for America, which we will publish next month. For the fall, we also have four blockbuster cookbooks from Giada De Laurentiis, Ina Garten, Rachael Ray and Martha Stewart; a memoir from television’s Bill O’Reilly; and “The Snowball: Warren Buffett and the Business of Life” by Alice Schroeder. In fiction, we will publish “A Mercy” by Nobel laureate Toni Morrison; new hardcovers and paperback reprints from our No. 1 bestselling Jonathan Kellerman, Dean Koontz and Danielle Steel; and the multi-million-copy paperback editions of John Grisham’s “The Appeal.” In Canada, there is great anticipation for the novel “The Flying Troutmans” by Miriam Toews, and “Don Cherry’s Hockey Stories and Stuff.”

Random House Group U.K.
Although they faced ongoing retailer consolidation and felt the impact of the slowdown in consumer spending, the London-based Group once again outperformed their marketplace and increased their market share. They hold a 30-percent share of the Sunday Times bestseller lists, and their books reached No. 1 75 times through late June. Among the latter were “Delia’s How to Cheat at Cooking” by Delia Smith, “On Chesil Beach” by Ian McEwan, “Jordan: Pushed to the Limit” by Katie Price, and “7th Heaven,” the first title in their James Patterson publishing program.

The U.K. Group’s potential biggest fall titles include “Nigella Christmas: Food, Family, Friends, Festivities” by Nigella Lawson, “Business Stripped Bare” by Richard Branson, and memoirs by Dawn French, Jonathan Ross and Paul O’Grady.

Verlagsgruppe Random House
Our colleagues in Germany achieved growth across all their paperback divisions in a flat-sales marketplace. Our #1 paperback for the half year was “Die Letzte Spur” by Charlotte Link, which has sold more than one million copies, and “Wer Bin Ich—und wenn ja, wie viele?” by Richard David Precht was our biggest-selling hardcover.

Verlagsgruppe Random House has big expectations for the fall’s “Der Katalane,” the long-awaited novel from Noah Gordon, and “Ausser Dienst,” the memoirs of former German Chancellor Helmut Schmidt.

Random House Mondadori
Sales and profitability at our Spanish-language company are up significantly over the same period last year with record profitability results and increasing market share in both the hardcover and paperback markets. They have sold more than one million copies of the Ken Follett hardcover “Un Mundo Sin Fin” since January in Spain and Latin America. The company also dominated the national paperback bestseller lists for many weeks of the half year.

They recently acquired world Spanish-language rights for John Grisham’s backlist and will publish “La Apelaclîn” this fall. They are also planning a major holiday marketing campaign for their edition of Randy Pausch’s “The Last Lecture” and for Pulitzer Prize winner Junot D’az’s “The Brief Wondrous Life OF Oscar Wao.”

Random House Asia
Results were mixed for our Asian company, with profit improvement for Random House Korea, but not for the Tokyo-based Random House Kodansha. Both marketplaces have also been affected by difficult economic conditions. “An Inconvenient Truth” by Al Gore and “The Last Lecture” have been top sellers for us in Japan, and in both companies, we have been successful and expect to continue to do well with several self-help and instructional titles by local authors.

Digital Publishing and Portfolio Growth
Our significant investments in the digital future are beginning to see results. Thanks to the successful introduction of the Amazon Kindle and continuing support for the Sony Reader, our e-book revenue in the United States for the first six months of 2008 is double our e-book revenue for all of 2007. It is still a tiny source of revenue for us, but it will grow quickly as we continue to make more of our titles available for downloading and more people adopt the new reading devices. Our e-book publishing program is well underway in Germany and Canada and will debut in the United Kingdom next month, timed to the launch there of the Sony Reader.

We have strengthened our publishing portfolio with acquisitions and start-ups since January. In the United States, we acquired The Monacelli Press, a leading visual arts publisher, and Watson-Guptill Publications, a leading publisher of art instruction and craft titles. In Germany, we welcomed Hugendubel Verlage, the prominent publisher of self-help books, and Prestel Verlag, renowned for art books in German and English. The U.K. Group achieved significant organic growth with the launch of Transworld Ireland and six new imprints, including Preface and Bodley Head.

The Best Is Yet to Come
Despite the gloom over the economy and the uncertainty about its improvement, there are good reasons for us to think positively.

In an encouraging beginning to the second half-year, our sales numbers in the United States and Germany were up in July over the prior year. In the opinion of our booksellers around the world, Random House has a large group of very commercial titles for autumn.

On September 20 in North America, the United Kingdom, and Australasia, and on October 25 in Germany, we will launch our biggest book and audio of the year: “Brisingr,” the third novel by Christopher Paolini in his “Inheritance” cycle. First printing for the United States and Canada alone is 2.5 million copies—the largest initial print run for a title this fall from any publisher. “Brisingr” will be published by our Children’s divisions, and as with Christopher’s previous novels, “Eragon” and “Eldest,” the additional sales from adult readers will be enormous.

But even for our biggest books, in this retail environment there are no guaranteed successes. We will have to work harder for every sale.

As I complete my first three months as chairman and CEO of our great company, I can assure you of the continuing strong support for Random House and its people from our shareholders, our Bertelsmann CEO Hartmut Ostrowski, and the entire Executive Board. Their confidence in our company’s long-term profitability and growth potential is great.

With our biggest sales season about to begin, I thank you for your support, your teamwork and your commitment to our books and to our financial goals. I know you join me in our determination to outperform the marketplace for a strong finish to our fiscal year.

Yours,
Markus Dohle
Chairman and Chief Executive Officer
Member of the Executive Board of Bertelsmann AG