Dorling Kindersley Holdings plc

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Dorling Kindersley Holdings plc

9 Henrietta Street
Covent Garden
London WC2E 8PS
United Kingdom
44 171 836 5411
Fax: 44 171 836 7570
Web site: http://www.dk.com

Public Company
Founded: 1974
Employees: 1,157
Sales: £174.4 million (US$270.9 million)
Stock Exchanges: London
SICs: 2741 Miscellaneous Publishing; 7812 Motion Picture & Video Production; 2721 Periodicals; 2731 Book Publishing

For nearly a quarter-century, Dorling Kindersley Holdings pic (DK) has focused on creating an enduring catalog of over 900 reference and nonfiction titles. By the mid-1990s, it ranked as the most prolific publisher of multimedia products in Europe. Its reference and nonfiction books are sold in more than 80 nations worldwide and have been translated into three dozen languages. In fiscal 1996 alone, the company sold 40 million books. Other products include CD-ROMS, calendars, stickers, and videos. While other publishing houses might float more titles per year than DK has in its entire history, few can boast, as DK can, that 90 percent of its catalog—including the first book produced under its own imprint—is still in print. The company has also enjoyed constancy of ownership and leadership; co-founder, chairman, and CEO Peter Kindersley and his family retained a 35.5 percent stake in the house through the mid-1990s.

By 1996, operations included DK Adult books, constituting 48 percent of sales; DK Children’s books, generating 33 percent of revenues; DK Multimedia products, with 12 percent of revenues; DK Direct sales, at five percent of revenues, and DK Vision (television and video production), with two percent of sales. Widely recognized titles—many of which have been produced in multiple formats (book, CD-ROM, video)—include: Ultimate Sex Guide, Incredible Cross Sections, Royal Horticultural Society Encyclopedia of Gardening, The Children’s Illustrated Encyclopedia, and the Eyewitness Series.

Home-Based Business Founded in 1970s

The publisher is named for its two founders, Christopher Dorling and Peter Kindersley, both of whom were working for British publisher Mitchell Beazley in the early 1970s. Dorling was a cartographer-turned-salesman, while Kindersley had abandoned a career in painting to become art director at Mitchell Beazley. It was there that Kindersley first envisioned his unique brand of reference works: top-quality books that combined copious graphics with concise text to convey universally popular subject areas like arts and crafts, health, and nature. When Kindersley’s managers at Mitchell Beazley balked at the costly concept, he decided to strike out on his own, inviting Dorling to handle the day-to-day operations while he worked on the creative side. Pooling £10,000 in savings between them, the duo founded their business in 1974 in Kindersley’s London home.

Realizing that the publishing business required a much larger initial investment than they were prepared to risk, Dorling and Kindersley started out as “book packagers,” creating, laying out, and editing works, then licensing them to larger publishers in exchange for royalties on sales. Though this strategy reduced the partners’ profit potential, it also reduced the risk of printing thousands of books that could go unsold. Their first contract went to America’s Alfred A. Knopf Inc., which purchased a license for three references. Two of these sold just enough to break even, but John Hedgecoe’s The Book of Photography, published in 1976, would go on to sell a million copies and was still in print in the late 1990s. Other well-known DK titles from the 1970s include Baby & Child (1976) and Success with Houseplants (1979), selling a combined total of 4.5 million copies by the mid-1990s.

Launch of DK Imprint in Early 1980s

By the early 1980s, the design formula that would become Dorling Kindersley’s hallmark was well-established. Unlike most British publishers, who compiled a large, rather scattershot list of books each year, DK concentrated exclusively on reference and nonfiction, initially targeted solely toward the adult market. The house’s easily-recognized style—dubbed “lexigraphic” by creator Kindersley—included bright, full-color, sharply defined photos, drawings, and graphics on a white background with “extended captions” as text. As Kindersley told Business Week’s Heidi Dawley in 1996, “the information leaps off the pages.” Extensive use of color illustrations and high-quality papers often pushed per-page costs to an average of over £1,000. Besides being visually attractive, DK’s use of minimal text and widely popular subject matter also facilitated easy translation into languages other than the core English. By the mid-1990s, over 40 percent of the publisher’s sales were made outside the U.S. and U.K. This global reach—initially achieved through licensing—helped mitigate the publishing house’s high design costs through efficiencies of scale.

To further ensure sales, the editors often commissioned a well-known expert on a subject to act as author or garnered endorsements from trusted authorities. DK’s first self-published work, The First Aid Manual (1982), carried the imprimatur of the British Red Cross. That year also saw the launch of DK’s all-time-bestselling Family Medical Guide under an endorsement from The American Medical Association. By the mid-1990s, successive editions of this title had sold a cumulative six million copies and had been translated into 15 languages.

Late 1980s Expansion Into Children’s Reference

When Christopher Dorling elected to retire in 1987, he sold his 50 percent stake in the venture that bore his name back to the company. With a view to forging an alliance with a major publisher and generating growth funds, DK sold the half interest to the Readers Digest Association Inc. for £1.3 million that same year. This cash infusion was invested in the development of a children’s division, launched in 1987 with the Windows on the World series. The publisher inaugurated its most successful children’s series in 1988 with the first edition of David Macaulay’s The Way Things Work. DK also formed a 50/50 joint venture with France’s Editions Gallimard to publish the first book in the Eyewitness series that same year. Eyewitness Bird and 54 other volumes in the ongoing series would go on to sell a cumulative 18 million copies in 39 languages in just eight years.

These new references were not only big sellers, but also made a major splash in publishing circles. According to a 1996 Publishers Weekly article by Sally Lodge, “no fewer than six children’s publishers discussing the course the genre has run in the ’90s refer to the ’DK revolution’ as a milestone that changed the orientation and design of children’s reference.” The addition of the children’s division also had a tremendous impact on DK’s bottom line. Sales compounded 60 percent each year from 1988 to 1992, and profits multiplied 124 percent annually during that period.

Diversifications Continue in the 1990s

Though DK would continue to produce works in cooperation with Reader’s Digest, the latter company sold back its stake in the former for £5 million in 1991. Seeking a new corporate partner—and some fresh growth funds—Peter Kindersley approached Microsoft founder Bill Gates with a proposal to form a joint multimedia venture wherein DK would furnish the content and Microsoft would contribute the software know-how. After a face-to-face meeting in Seattle, Gates agreed to purchase a 26 percent share of DK for £2.3 million. Bolstered by an additional £2 million loan, the British publisher established DK Multimedia in 1991 and soon launched its first CD-ROM, Musical Instruments.

While some industry observers surmised that Microsoft’s stake in DK was a precursor to acquisition, that theory was blown out of the water in 1992. DK went public that year, raising £23.5 million on the sale of 19 million shares. At that time, Microsoft took the opportunity to reduce its stake to 18 percent, selling its remaining shares to institutional investors in 1995. The investment performed well over the period, rising from 165p to 213p in its first day, then multiplying to more than 500p per share by the time of the Microsoft divestment.

In the meantime, DK also embarked on several new ventures. DK Inc. (later renamed DK Publishing Inc.) was created to bring U.S. publishing in-house, marking an ongoing shift in strategy from licensing international book rights to other publishers to self-publishing, a move that would retain more profits in-house. The DK Vision division was founded to create complimentary video and television programs. Some of these were produced in cooperation with the BBC and aired on public television in the U.S. and Great Britain, including an “Eyewitness” spin-off, “Dig and Dug,” and “Hullabaloo.” A cartography division was established in the early 1990s to parlay DK’s travel guide and atlas operations into a larger competitor. A foray into educational publishing was aborted after 18 months due to shrinking public school budgets in the U.S. and U.K.

Company Perspectives:

We believe that more and more people around the world are rediscovering learning, and that being a self-educator can bring great benefits. To meet this growing market, DK is making relevant learning tools for people at all stages of their lives—from early childhood, through the school years, to work, hobbies, and retirement. By providing such quality learning tools, we believe that DK can really make a difference in people’s lives.

DK launched a direct sales division in 1989 under the moniker DK Family Library (since changed to DK Family Learning). This operation used Tupperware-style home parties to sell books on a strict commission basis. Though items sold at a substantial discount to retail, this division had the potential to generate significantly higher profit margins than wholesale sales and helped to reduce the company’s reliance on retail chains. By the end of 1996, DK had 20,000 sales representatives— dubbed “presenters” by the company—in the U.K., U.S., Russia, and Australia, and plans to launch the operation in a new nation each year, likely starting with South Africa and India in 1997. DK Family Learning contributed £16.5 million (US$26.4 million), or nine percent, of the publisher’s total revenues in fiscal 1996 (ended June 30).

This new marketing scheme was not welcomed by some of DK’s retailing clients, however. Some bookstore owners took offense upon finding their territories invaded by DK presenters, fearing that they would lose customers to sales parties, noting especially the 10 percent to 30 percent discounts offered at the home-based events. DK attempted to reassure retailers that the new marketing method would not cannibalize sales by developing a separate catalog of direct sale books and by noting that most potential customers who attended party sales were not traditional bookstore shoppers. John Sargent, CEO of DK’s U.S. subsidiary, told Publishers Weekly’s M.P. Dunleavey that “This is not a competitive thing. In fact, bookstore sales are going up because we’re creating new customers.” Management Today’s Anita van de Vliet concurred, noting in a December 1996 piece that “Encouragingly, DKFL turnover in 1996 of £16.5 million (up 76 percent) was achieved without hitting trade sales, thus genuinely widening the market.”

Strategies for the Mid-1990s and Beyond

The multimedia market was expected to be a key to DK’s growth in the mid- to late-1990s. The company launched its first generation of multimedia versions of the now-classic The Way Things Work series in 1994 and introduced CD-ROMS featuring links to “members-only” web sites. By the end of 1997, DK expected to have a total of 20 CD-ROMS on the market. In fiscal 1996, the division contributed 12 percent of sales, amounting to £21.2 million, up from £13.1 million in the previous fiscal year. Though fruitful, the multimedia industry was fraught with hazards, including heavy competition. Some industry observers predicted that leading companies, among which DK did not rank, would sacrifice profits to maintain market share. Peter Kindersley addressed this issue in the company’s 1996 annual report, noting that “Although the U.S. retail environment for multimedia is currently in a state of flux and more challenging than in the past, we believe that a stable market will emerge in due course. The Directors remain confident of the strength of DK’s various businesses.”

Acquisitions in the mid- to late-1990s allowed DK to buy into specialty segments of the publishing business. In 1995, it acquired the U.K.’s Henderson Publishing for £5.4 million. The new subsidiary specialized in low-priced, mass market books for children known in the field as “pester purchase” or “pocket-money” books. The following year saw the £1.2 million cash acquisition of Hugo Language Books.

Dorling Kindersley’s sales mushroomed from £70.9 million in fiscal 1992 to £174.4 million (US$279 million) in fiscal 1996, while pretax net income ballooned from £7.5 million to £17.4 million during the period. In his 1996 statement, Chairman and CEO Peter Kindersley assured shareholders that growth would continue for’the publisher that was “poised to raise its profile to brand-name status.”