Bye Buy Books, Hello Digital!

Recently, I published an article about the trend toward digital reading -- be it e-readers, e-books, or iPads -- and this got me thinking: With bookselling companies like Borders declaring bankruptcy, and others like Barnes & Noble (NYSE: BKS  ) and Books-A-Million (Nasdaq: BAMM  ) struggling to stay relevant, how is the publishing industry fairing?

The little penguin that could
A look at the numbers shows that Pearson (NYSE: PSO  ) , one of the largest worldwide publishers, is doing well. Although it's been publishing paper books since 1844, it saw the writing on the wall and made strong strides toward going digital by focusing on making its products available in digital format. Since 2008, Pearson has grown its digital revenue by 7%, and has grown its net margin by 1.6%. Additionally, Penguin, a Pearson publisher and one of the leading English publishers, continues to grow in overall sales, with e-book sales accounting for 6.2% of that total in 2010. Just check out the charts below:

Pearson

2010

2009

2008

 
Digital Revenue (% of total sales) 29% 25% 22%  

Source: Company financial statements.

Pearson's Penguin

2010

2009

2008

Sales (in millions) $1,719 $1,636 $1,475
Sales Growth 5.1% 1.1% 6.7%
E-Book Sales 6.2% 2.3% 0.5%

With Pearson's digital revenue continuing to grow as a percentage of overall sales, it's clear that Pearson has embraced, and is thriving, in the digital age. In addition, you can see clearly that e-book sales have grown steadily over the last three years.

Smart or lucky?
It looks like John Wiley & Sons (NYSE: JW-A  ) read its own book Smart or Lucky?: How Technology Leaders Turn Chance into Success, and put that advice to work. With journal subscriptions totaling 64% of revenue, in June 2010, Wiley launched its "Wiley Online Library," making almost all its journals available online. In addition to this, Wiley has more than 11,000 e-books available through Kindle and had grown its e-book revenue by 93% in the last year. Although Wiley's sales dropped in 2009, it still had a good net margin, and as you can see from the chart, in 2010 it grew both:

John Wiley & Sons

2010

2009

2008

Sales (millions) $1,699 $1,611 $1,673
Sales Growth 5.5% (3.7%) 35.6%
Net Margin 8.4% 8% 8.8%

Source: Yahoo! Finance.

How to survive a tenuous year
2009 was a difficult year for almost every media or publishing company, and that was especially so for Scholastic (Nasdaq: SCHL  ) , which saw its sales plummet by about 15%. But let's look a some possible bright spots: The company was able to decrease its debt that year by about $35 million, it grew its net margin by 3.5%, and also increased its free cash flow. Additionally, it plans to invest $20 million this year in digital publishing and e-commerce in order to keep up with the transformation taking place within the industry.

By looking at the chart below, you'll see that even though Scholastic's not out of the woods, it's headed in the right direction:

Scholastic

2010

2009

2008

Sales (million) $1,912 $1,849 $2,159
Sales Growth 3.4% (14.4%) 12.4%
Net Margin 2.9% (0.70%) (0.80%)

Source: Yahoo! Finance.

Bring on the digital, baby!
With the trend toward digital, publishers have had to rethink how they do business, and if not already, they are starting to make the digital transition. Yes, Scholastic has further to go than the others, but with its plans of moving into the digital age in the next year, hopefully it too will have a bright future.

Want to keep up with these publishers?

Fool contributor Katie Spence is dancing to the digital beat and does not own shares of any company listed.

Motley Fool newsletter services have recommended buying shares of John Wiley & Sons. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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