by Steve Laube

Today’s Cinco de Mayo celebration should be renamed Cinco de Grande. Last week’s news that HarperCollins is buying Harlequin caused quite a stir in the industry.

It had long been wondered if current owner Torstar, a Canadian media company that owns a number of properties, would do something with Harlequin. The primary reason is that each of the past four years has seen a percentage decline in Harlequin sales revenue.

Coming on the heels of last month’s announcement that the Baker Publishing Group was buying Regal Books has some wondering if the sky is falling. Or, as is more likely, is this just “normal” business consolidation?

Let me address each purchase in order and bring an agent’s perspective to the news.

HarperCollins and Harlequin

I’ll admit, this caught me by surprise, but it shouldn’t have. There are a few economic factors that drove the wisdom of this acquisition.

1) The price was right. Harlequin has been owned for 39 years by the Canadian company that also owns many prominent Canadian newspapers.  The newspaper group is deeply in debt and so the sale was as much about generating cash to reduce that debt.

The price for the company is $455 million Canadian…and the Canadian dollar has been the weakest it has been in several years compared to the US Dollar and also the British Pound.  Put all these things together and it works for everyone. The conversion rate puts the purchase price at $415 million US.

When Newscorp, the parent company of HarperCollins, separated the financials of the publishing division from the rest of the corporation in their annual reporting, it meant that segment’s performance became visible to investors. Consequently that division needs to grow dramatically and visibly. [Thank you Dan Balow for this analysis.]

2) HarperCollins needs to grow to compete. After Penguin and Random House merged last year the new PenguinRandomHouse company has about 40% of the traditional publishing market. That is sizeable competition.

Stockholders like to see growth in revenue and bottom line dollars. The pressure in this regard is enormous. Harlequin generates about $350 million a year in sales which will add 20% to the HarperCollins annual revenue stream – now projected to be $1.7 billion. By comparison Penguin Random House is pegged at around $4 billion in revenue.

2) Publishers see the need for direct to consumer business. Harlequin currently publishes 110 new titles per month. That is over 1,300 new books per year. A large part of their sales is through their direct to consumer mailing programs. This has what made them unique in the industry. No one does it better. While some titles make it to the shelves, they stay in the retail environment for only a month until the next books in the line take their place. We jokingly say that some Harlequin titles have the shelf-life of a banana.

But the direct business is lucrative in that there are limited discounts necessary and the books are not returned…a guaranteed sale. While it is very expensive to administrate the club programs they are still a profitable venture.

If HarperCollins can tap into the secrets that make this kind of program work and leverage their own significant group of authors and backlist titles, the sky is the limit.

Others have also mentioned the International sales that Harlequin generates. It could be that those sales channels can help open up sales for HarperCollins which currently has a very U.S.-centric sales focus.

What Does This Mean for Authors

Harlequin’s Love Inspired and Heartsong lines publish 20 new romance novels each month in the contemporary, suspense, and historical categories. Since they recently expanded my numbers may be a little off, but you get the general idea. 240 new titles per year written with the Christian reader in mind. This is significant. It makes them the single largest publisher of Christian fiction in the industry by sheer number of annual titles. But, as mentioned above, most are sold via the direct to consumer clubs and not in the retail environment per se. We have 29 authors who currently write or have written for the Harlequin lines.

The press releases indicate that nothing will change, at least initially. And I can believe that from an editorial perspective. For now the plans will remain stable. The efficiencies usually sought in a sale are in back-room functions like accounting and production. But with the sheer number of titles being produced I suspect the HarperCollins management will be reluctant to make wholesale changes initially.

One area suggested to change is warehouse distribution. In the past years HarperCollins has been systematically reducing warehouse space and instead have partnered with their printer for such functions. This may or may not be something easily shifted because of the direct-t0-consumer element of Harlequin’s operations.

For now I suggest authors wait and see. We agents wonder if the contract terms will eventually change as well as other areas of difference between the Harlequin and HarperCollins business practices.

Baker Publishing Group and Regal Books

On a much smaller scale Baker has bought all the assets of Regal Books. This means all the book titles, inventory, and their accompanying contracts. Instead of adding Regal to the list of Baker imprints, the Regal name will just go away. Every one of the 600+ titles in the sale will be placed with a Baker imprint that best fits the content of the book and that imprint’s focus. None of those assignments have been announced and will not be until the sale is finalized this Summer. For example, Regal Books that have a stronger Charismatic flavor to them would best fit with Baker’s “Chosen Books” imprint.

What Does This Mean for Authors?

As always it is a wait and see. It was no secret that Regal was having some economic challenges these past few years when the economy tanked. Having the resources of The Baker Publishing Group behind the books should make a huge difference.

In addition Baker has shown considerable acumen in increasing the sales of their backlist using ebook strategies. This should begin making an impact in 2015 and beyond.

The downside is that none of the staff at Regal will be retained. And we lose yet another place to sell our author’s books. We will miss working with Stan Jantz and Kim Bangs and the rest of the Regal staff.

Feel free to ask any questions related to these events in the comments below. I will try to answer them if possible.