Richard Alan Dickson is a friend that I often turn to to check out my calculations on any business deal, or to talk with about the business of publishing. The reason is because he’s been in business, at the top of large businesses, and he knows what he’s talking about.
Rick sent me a short bio for this article that says he’s an author, a Divemaster, and a private pilot. Prior to becoming a full-time fiction writer, he spent over twenty years in international reinsurance, including ten as a corporate consultant specializing in liquidation, arbitration, work flow, and cash flow issue.
He worked nearly every desk in corporate finance, from accounting assistant to Vice President of Finance and Acting CFO of a Fortune 500 affiliate. Richard said he developed a rather unique view of financial statements and corporate interactions.
His writings range from traditional science fiction novels, like G-Blade and Gateway: Left Behind, to the more whimsical Love, Venusian Style and the Cat Patrol Delta series. He also writes stories for young adult in novels such as Mister Majestor’s Magnificent Menagerie and Diver Down!
You can find more about him at www.RichardAlanDickson.com.
The following article by Rick was actually sent to a private writers email list a couple of mornings ago. The moment I read it I asked him if I could put it here, and Kris also quoted from it in her blog. It’s not often you get the former CFO of a Fortune 500 company talking about the real meaning of a press release about publishing.
So read what Richard Alan Dickson has to say. Trust me, you will find it worth the read.
A few of you probably saw the article PW ran this morning:
“Random House Profit Increases as Bertelsmann Plans To Reshape Company In Next 5-10 Years.”
The article mentions that Bertelsmann released its earnings statement for 2011. If you skimmed it, there were a few interesting things toward the end of the article that you might have seen.
Basically, Random House screwed up when it made Bertelsmann stop what it was doing and take notice of its business model. In business, that is ALWAYS a bad idea. Don’t do it.
Bertelsmann is not pleased. It seems that the gloves are off and another war is coming. Random House will feel pain, and so will we.
I have to admit that I didn’t notice when the Chairman and CEO of Bertelsmann was replaced in January. (It didn’t pass the WIBBOW test.) PW ran a quote from the new man regarding his “long-term reshaping plan:”
“Our primary goal is to grow the company faster, and to make it more digital and international. We plan to achieve this with four strategic approaches: First, by further consolidating and strengthening our portfolio. Second, by accelerating the transformation to digital of our core businesses. Third, by establishing new growth platforms. And fourth, by expanding into new geographic growth regions. On this basis, we will reshape Bertelsmann over the next five to ten years.”
Remember that this one simple statement was polished for weeks. They didn’t want to alarm their employees or their investors (status quo, rosy outlook, a brighter tomorrow, etc.), but they needed to put management on notice. That’s the way it’s always done.
Also remember that this is a new leader, which basically means that the old one either didn’t have the strength to climb yet another mountain, or that he argued against the need to even go there. (And keep in mind this leader runs the company that owns Random House, as well as a few other publishing houses out there.)
FWIW, here are my opinions of the spin (and they’re only my opinions):
Point #1) There’s still too much expensive overhead. Too much buck for the bang. Expect continued mergers and downsizing of the office space, along with a trend of moving out of those high-priced offices. This is a pretty clear message of, “There’s still too much waste. You said you’ve done all you can to stop it, but it isn’t enough. We’ll help. Step aside, little boy. We’ll show you how it’s done.” (Old leadership may have been satisfied. New leadership is not.)
Point #2) A big percentage of the readers may continue to read print books, but the infrastructure will no longer be driven by it. Things that NY feels are important, Bertelsmann does not. The core business model will turn its back to all of those long-term labor, shipping, and warehousing contracts that a few people on this list have mentioned. (Bertelsmann sees the coming of the Mass Market POD presses, too. The economies of scale may become upset in the near future. NY is being told to get with the program and get ready to bail out.)
Point #3) FOR THOSE OF YOU SKIMMING… STOP HERE.
When all those writers conceded all those e-book rights to NY, Bertelsmann noticed the profit margin. Boy, did they notice!
NY may have told them why they can’t have more rights. The old leadership may have said the same thing. It doesn’t matter. Bertelsmann is not listening.
Bertelsmann is shocked by the money pouring in from the e-book “platform.” They see all the years that the money was NOT pouring in. They have no confidence that NY isn’t missing many other opportunities on many other “platforms.” There’s gold in them thar hills, and plenty of writers who’ve proven willing to sign it over.
Expect contracts to get even more convoluted, with rights grabs into more areas. (Audio will be low-hanging fruit. Others will certainly follow.)
Point #4) New “Growth Regions.”
Yeah, okay, they could be talking about opening book stores in Tibet, but I wouldn’t expect that kind of thing to be mentioned in the bullet point of a strategic statement.
NY already failed by not capitalizing on the untapped e-book profits (the owner’s way of thinking). The Big B (not to be confused with the “Big 6″) now questions every other certainty that NY has ever presented.
More regions mean more rights. I would expect that international and foreign translation will be the low-hanging fruit here, although they would most likely combine point #4 with point #3. (I can see them smiling at the thought of getting the dominant piece of the action for that new Swedish board game based on your book.)
So, anyway, it was an interesting article. Remember, these are just my opinions regarding the new leader’s statement. It might be an hour of wasted typing. I’ve been out of international finance for a while, but once upon a time I did play the game. Having said that, I do know that some of you play it more often and better, but I also know that others might have missed a few things in the press release.
Oh, one more thing: In UNRELATED NEWS, PW mentions that Bertelsmann will be changing from a closely-held private company (AG) to a strict limited liability company (KGaA) by June. (Bertelsmann has always been a family business, but the change basically means that only the money that each family member keeps in the company remains at risk.)
I’ll let you draw your own opinions about whether or not Bertelsmann expects things to get ugly. I’ve probably talked long enough.
Dean here: Thanks, Rick for letting me publish your opinions. Very much appreciated.
I’ll be back here with a new blog of opinions myself early next week after this workshop gets finished and these writers let me stop reading damn fine stories they keep writing.