Emerging markets to write new chapter in Penguin

This story appeared in the Times newspaper in the UK last Friday, 19th September.

Book publishing has, traditionally, been a sleepy, easygoing business, operating at the pace of Jane Austen rather than Elmore Leonard. Yet, John Makinson, the chief executive of Penguin, which publishes both authors, believes that globalisation is changing the rules of the game.

Penguin, owned by Pearson, is one of four major publishers of works in the English language, second in America to Random House and third in the UK behind Hachette and Random House. Given that books have been around for 500 years, it is safe to say that the business is mature.

“Publishing has grown slightly ahead of GDP in the UK, at about 4 per cent a year, and slightly behind in the US, at about 2.5 per cent,” Mr Makinson says.

That is the recipe for a steady but unexciting profit generator - Penguin earned £74 million on sales of £846 million last year. The company has been cautious about buying smaller publishing houses - and is reluctant to offer substantial advances, although paying Alan Greenspan $8 million for the rights to The Age of Turbulence was a clear exception.

However, the book, by the former Chairman of the Federal Reserve, was a moneyspinner even before the release of the paperback this month. More than one million hardback copies, priced at about $35 (£19), have been shipped in the English version. Penguin's cut, before costs and royalties, would be half.

“It's been a very good investment. We bought the worldwide rights and thought there would be a significant additional market in Asia and in other foreign languages. Those were rights we could immediately sell on,” Mr Makinson says.

However, the economic crisis in America and Britain - induced partly by Mr Greenspan's willingness to prolong the credit boom by slashing interest rates - is a reminder that in developed economies the books business is a mature one, the dynamics of which do not change.

Which is why Mr Makinson, a former journalist at the Financial Times, is keen to launch Penguin in Pakistan, although in the light of recent political turmoil in the country he concedes that “it may not be the best time to launch a business [there]”.

The point is to harness the potential of emerging markets, where literacy rates are rising and where Penguin is willing to break from English. In India, where the company has been operating for 20 years, the publisher is moving into Hindi, Marathi and Urdu. Penguin India publishes 300 titles a year.

Mr Makinson, 53, believes that Penguin can generate 10 per cent of its sales from emerging markets, which amounts to £100 million a year. The operation in India grew by 25 per cent last year, boosting turnover by £15 million and should, Mr Makinson says, generate 5 per cent of revenues in five years.

That fuels a belief that Penguin's growth can be boosted, although Mr Makinson points out that the business “has hardly let the side [Pearson] down - profits have grown in double digits in 2005, 2006, 2007 and is expected to again in 2008”.

Globalisation also represents a far larger opportunity, in Mr Makinson's view, than digital books. The arrival of Sony's Reader in the UK has generated some excitement about the prospect of digital, and Penguin is making many of its titles available digitally. But Mr Makinson thinks digital books will make up only 1 per cent of sales by 2010, even if he expects fivefold growth this year. Penguin is exploring other digital opportunities but they are not expected to be big contributors.

The chief executive says that he “defers to the judgment of editors” when signing up a book, although he confesses to buying the international rights to Wolf Totem after offering Jiang Rong, the author, $100,000 while on a trip to Beijing. It was a publishing success.

With that kind of good fortune, could Mr Makinson end up taking over from Dame Majorie Scardino running Pearson? “What can I say? I'm happy doing what I am doing now.”