Torstar Corp.'s David HollandMARK BLINCH
The romance with e-reader technology is heating up for book publishers, and Toronto-based Harlequin Enterprises Ltd. is no exception. The book publishing division of Torstar Corp. saw digital sales surge early this year, more than making up for losses in print book sales.
But the core business at Torstar is still struggling with a soft print advertising market, pushing its earnings down in the first three months of the year.
The owner of the Toronto Star and a slew of community newspapers and websites announced it will boost its dividend to 12.5 cents a share from 9.25 cents as of June 30. But investors reacted badly to lower-than-expected earnings and sent the stock down 9.5 per cent on Wednesday.
Chief executive officer David Holland told analysts that this will be a year of "building from within" for Torstar, especially to expand its digital presence, which will mean investments of $5-million to $10-million over the course of 2011.
At Harlequin, the popularity of e-readers such as the Amazon Kindle and the Barnes & Noble Nook has pushed up its digital sales. Slightly more than 13 per cent of its total sales worldwide are now e-books, a huge jump from last year when they accounted for 5.9 per cent of sales.
"It's not a surprise that digital has been growing really well for us and for the industry, but a surprise in that they're growing even more than we anticipated," Harlequin CEO Donna Hayes said in an interview.
The gains are mirrored at other publishers; Simon and Schuster Inc. and Hachette Book Group both reported gains in e-book sales this week.
"We're going to see a decline in the price of e-readers. We've seen a decline in the price they're charging for an e-book. So what this means is, we're going to see a transformation away from print, toward digital," said Albert Greco, a professor of marketing in the Gabelli School of Business at Fordham University in New York, who researches the publishing industry. He predicts the trade e-book industry in the U.S. will be worth at least $1.2-billion (U.S.) this year, roughly double what it was in 2010.
Harlequin focuses on less expensive, mass-market paperbacks rather than pricey hard-cover books, which are marked down aggressively in digital form. According to Ms. Hayes, Harlequin's digital books are typically 10 per cent less expensive than physical ones, meaning that as e-book sales ramp up, the company has kept a balance in making up for any lost print sales.
The company reported profit of $15.4-million or 20 cents a share in the quarter ended March 31, compared with year-ago earnings of $16.6-million or 21 cents.
Revenue for the quarter totalled $351.4-million, up 4.9 per cent from $335-million a year earlier.