Memo to Malaviya: Ditch the Dohle Doctrine and bring PRH into the 21st century

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From The New Publishing Standard:

Revenues up, profits down, workers laid off. The PRH H1 memo to employees paints a fuzzy and incomplete picture, but let’s be generous to newly installed CEO Nihar Malaviya as he sups from the PRH chalice poisoned by previous CEO Markus Dohle’s abortive bid to acquire Simon & Shuster last year.

By the time Dohle finally fell on his sword, the damage had been done. Many senior executives at PRH had jumped ship following the debacle in court where PRH operational policy (read guesswork and gambling) and real market share was laid bare, and the then CEO’s paranoia about subscription was laughably exposed.

Malaviya was left to pick up the pieces and rebuild PRH’s tarnished reputation.

Parent company Bertelsmann is unsurprisingly impressed by the revenue rise PRH clocked in H1, which as Porter Anderson at Publishing Perspectives headlines, saw a YoY rise of 9% to €2.1 billion. But in a report noteworthy for not once telling us how affable Nihar Malaviya is, Anderson neglects to mention that PRH profits for the same period were up less than 1%. Hardly an auspicious start for the new CEO.

Malaviya’s first H1 report presented inherent challenges to the new chief. He’s hardly had time to make an impact on his inheritance – most of the ups and downs can be firmly attributed to the Dohle era, as can the $200 million penalty and untold legal fees that arose from the acquisition fail, that no doubt goes some way to necessitating the redundancies programme Malaviya has been forced to roll out.

On the Court case, Malaviya has been tactfully silent, but did manage a dig at Dohle’s splash-the-cash record with a reference in the H1 report, smugly noting “we acquired several small companies during this year, furthering our ambitions to grow in audio, children’s, and data-driven publishing, as well as in local content, among others.”

That’s something the employee base needed to hear. Reassurance that Malaviya was not on a power and glory grab like his predecessor. But questions remain about Malaviya’s ability to connect with his workforce. Parts of the memo read more like a pitch to senior management and investors than to the team that do the company’s day to day grunt work.

Explained Malaviya: “Industry inflationary cost pressures and increased costs across our businesses have continued to impact us. We have already taken several steps to offset these pressures in some of our markets around the world and will continue to carefully navigate these industry and structural dynamics.”

That’s industry-speak for, we’ve got rid of some of you and more will have to go. 

Link to the rest at The New Publishing Standard

At times, the close followers of major US publishers remind PG of a cult. They’re fixated on every little change or word from inside the walls of Big-But-Getting-Smaller-Publishing.

PG always thought the Dohle play for Simon & Schuster was a stupid idea and bound to attract antitrust attention with a good possibility of litigation. It was an immense distraction for Dohle and, almost certainly, for the remainder of the executive ranks and a goodly number of the PRH peons as well.

Plus major antitrust litigation sucks up breathtaking amounts of money, money that would otherwise be available to fund large advances for any number of ghost-written celebrity books, perhaps even a couple more Barack and Michelle coffee table tomes.

The Mohn family, owns and controls (directly and indirectly) Bertelsmann SE & Co. KGaA, which, in turn, owns PRH plus a large collection of of other stuff, including stupendous bank accounts. PG doesn’t remember reading anything written about the adult Mohns of the twentieth and twenty-first century that doesn’t describe them as a collection of billionaires.

PG has never met an actual German billionaire, but he suspects they don’t like receiving bad financial news from their underlings. PG also suspects German billionaires loath the idea of truckloads of their money being paid to New York lawyers.

4 thoughts on “Memo to Malaviya: Ditch the Dohle Doctrine and bring PRH into the 21st century”

  1. PG isn’t wrong about the cultishness of corporate trade publishing and its followers (“books are special! We work in publishing! We are special!”). Some more evidence is that in a sector that has been stagnant for a generation numbers like 9% gross growth are seen as a positive in a year the US saw 10% inflation (from suitably massaged numbers) Europe saw 15-18% and the rest of the world saw double digit and even triple digit inflation, with a net of 1% which in the cuthroat supermarket business of 2-4% margins would be seen as catastrophic.

    The whole “everything is awesome” establishment narrative is well past “drinking the kool aid”, past delusionsal, into hallucinatory by now. The world they see bears no resemblance to the world they actually exist in. A proper comparison of their relative importance in the global entertainment industries suggests their proper ranking is somerwhere between ” also ran” and “irrelevant”. PRH is more of a Koi goldfish than the shark the establishment paints it and, frankly, their overlord billionaires are not particularly noticeable in the bilionaire ranks.

    As noted by Forbes:

    In an age of 2600+ billionaires and 126 Germans, the Bertlesmann crowd isn’t worth mention. They might compare to a star basketball player or singer, I suppose.

    They are stuck in a 20th century mindset of self importance in a 21st century world leaving then behind ever faster. And no amount of staff “redundancies” or business model tweaks, even a (theoretical) belated full embrace of digital, will do much to restore their relevance.

    The puffery is mildly amusing, in a Dr. Evil “one.million.dollars!!!” way.

    • Felix, I would note that the OP doesn’t say a 1% margin – it says that profit rose by 1%. (Whether that is gross, or net, or net after tax, it does not specify – and I’m too tired to dig right now.)

      But you are certainly right, that is a terrible number. To translate from the RAH income formula for the working man to the billionaire – they’ve lost at least one mega-yacht, perhaps as much as two.

      (RAH noted that to get a real feel for incomes, one must figure out what that income can purchase, not how big the number is. He used loaves of bread, or the local equivalent, as his measure.)

      • Their previous margin was mid-low single digits. Given the trial revelations and the losses from “Dohle’s Folly” 1% seemed reasonable. (mea culpa)

        Your point stands: we don’t need accurate numbers to see their business’s cash cow (narrative fiction, to be precise) as structured, is unsustainable in the mid term, to say nothing of the long term. They can’t shrink their way to real growth and busineses that don’t grow wither away. Not tomorrow or next year but their cashflow hinges on legacy Big Names, the perennial backlist, and trendy oneshots. And the latter are rarer by the year without the bandwagon effect. The Legacy’s will be retiring soon enough and the clock will start ticking on their IP control.

        All that was before the pandemic, before deglobalization kicked in, and inflation kicked in. As they say, print costs are ballooning, employees are asking for NYC “livable wages”, their prices are printed on the covers, and Indie, Inc isn’t going away.

        Indies can easily raise prices 20-30% without losing much if any sales but the BPHs can’t afford even half that. $40 list prices? Even going full digital at $20 isn’t going to float them for long. The economic trends don’t line up with their low margin volume driven model.

        And to top it all, they act as if books are the entirety of their competition. People have new ways to get their entertainment, most cheaper and more immersive.

        Never mind movies or TV, The interactive fiction market (aka video games) is exploding and sucking up some of the best new writers. Like, one reason Martin is so late on WINDS OF WINTER is he was writing the “bible” for THE ELDEN RING RPG, 20M copies ($1B+gross) in its first year. And that was no outlier. The 13 year old SKYRIM has sold 60M and is still selling. Sales in that category are generlly tallied in the millions and chars ter driven narratives are now integral to most of the top sellers, whether CALL OF DUTY, HALO, or THE LAST OF US. The last two and FALLOUT have been adapted for streaming. GEARS OF WAR is next.

        Nothing should scare the BPHs as much as this, the modern version of an illuminated manuscript. In more ways than one:

        Available for digital natives (millenials and zoomers) for $20 or half that on a month of a subscription service. There will be followers.

        The BPHs are being sandwiched between Indies and narrative fiction games. Doesn’t leave much room.

  2. Keep in mind, too, that as a KGaA, the only stockholders who need to be buttered up by management are the Mohns. Try to imagine, for the moment, that News Corp. had no public shareholders… or that entire “Paramount Empire” was 100% Redstone-owned.

    What this says about the controlling family’s skill at choosing forward-looking senior managers (internal to the family or otherwise) will be left for another time. As to all three of them.

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