Harlequin 2006 Year End Figures

On Wednesday, Torstar--the parent of Harlequin--reported on the year ending 12/31/06. You can see the press release here.

I'm going to focus only on the Harlequin results, ignoring Torstar's other holdings. Harlequin's women's fiction operation has three divisions: (1) North American retail, (2) North American Direct-to-Consumer (the famous book clubs), and
(3) Overseas.

Harlequin reported sales of 131 million books in 2006.

All dollars reported are Canadian, and all quotes not from my previous blogs are from the Torstar press release.

"Book Publishing revenues were up $9.4 million in 2006 excluding the impact of foreign exchange. North America Retail was up $9.9 million, North America Direct-To-Consumer was down $5.7 million and Overseas was up $5.2 million."

Excluding the impact of foreign exchange, overall operating profits for 2006 were down $2.5 million. This breaks down to:
(1) North American Retail up $2.7 million; (2) Direct-to-Consumer down $6.5 million and (3) Overseas up $1.3 million.

On October 5th, I reported that Torstar was restructuring Harlequin's workforce. They were expected to eliminate about forty jobs or 4% of their worldwide workforce in the latter half of 2006. Torstar expected the restructuring to save $3,000,000.

"North America Retail increased book sales in 2006 after stabilizing in 2005. Significant efficiency improvements were made to the series business in 2006 as fewer books were printed and distributed and more books were sold. Sales of single title books also increased in 2006."

That last statement is huge, which is why I bolded it. In a post on August 31, 2006, I said: "I still think the biggest obstacle Harlequin has to overcome is its corporate insistence on formulaic guidelines. Cookie cutter romance is getting old. Readers want fresh material, not the same old stuff recycled every month in a different location with different eye colors and shades of hair. Break out, Harlequin! Be bold! Be different! Think about joining a twelve-step program for your addiction to formulas. Please."

It sounds as though someone up there in Canada agreed with me. Fewer series books (read "formula") and more single titles are exactly the directions they need to go.

And that wasn't the only pleasant surprise for me in the recent press release.

Over multiple quarters, Torstar has offered numerous reasons for the continuing decline in its North American Direct-To-Consumer (book club) revenue. This time they blamed it on "fewer shipments of a children's direct-to-home continuity program and from shipping disruptions experienced early in the year associated with the bankruptcy of a key supplier."

Back on August 31, 2006, talking about Harlequin, I said: "Their book club revenues are down. Why should readers pay for unknown category romances selected by Harlequin (plus shipping) that arrive once a month when they can as easily go to the computer and select the specific book they're interested in reading WHEN they want to read it and download it in about two minutes?"

For the first time, Torstar comes close to admitting the truth with one little phrase slipped into all the verbiage about the book clubs: "While the lower revenue in the children's direct-to-home continuity program did not impact operating profit, the shipping disruptions, in conjunction with the long-term decline in the customer base and higher product costs contributed to the year over year decline in earnings. Improved sales through the Internet channel partially offset this decline."

The fact that they're finally admitting that Harlequin is steadily losing book club customers is a HUGE step. As people in the addictions business say, "The first step toward recovery is being willing to admit there's a problem."

The book clubs were the backbone of Harlequin's success for many years. However, those days are gone. The comfortable world they once knew is rapidly disappearing. Harlequin is being forced to scramble to reposition itself in the digital age. And the company has made some excellent progress in updating its website, in providing more e-book choices, and in expanding manga lines.

However, the move away from book clubs and formulas will be the crucial test. Anyone who has watched Harlequin for a few years is accustomed to hearing big announcements about planned changes in imprints . . . and seeing nothing change. Like a giant sea-going vessel, Harlequin seemed to have difficulty turning in a new direction.

But now, for the first time, I have some optimism that they might actually do it. After all, they're admitting they need to do it.

Keep it up, guys. I'm pulling for you.