Harlequin Enterprises has been able to capture 80% of the series romance market. Our great existing strategy (see exhibit 1) has allowed us to be the biggest player in the series romance market. Now we face the opportunity to capture a rapidly growing market of single-title women’s fiction novels. I recommend that Harlequin aggressively pursue the single-title market, using its extensive back list collection to reissue novels by best-selling authors.
Even though the consistent, well defined product, combined with an optimized supply chain and distribution in the series market has provided valuable margins, the stagnant growth in the series market is insufficient to meet company growth objectives. Operating income is currently projected to grow at 3% for next 5 years (see exhibit 2). With the launch of MIRA, Harlequin can add an incremental $10MM in the next year, and $57MM in the next 5 years. This is 16%-19% incremental profit (see exhibit 3).
We will have to focus on the women’s romance fiction segment of the market. At Harlequin, we have cost efficient printing resources, which allow us the flexibility to print single title. We will need to switch from same format printing, to match the need of each individual title. We also have great editor-author relationships. Using the backlist of best-selling authors will save the company $45MM in the next 5 years in author advances (see exhibit 3). Each unit is more profitable without an author advance. (exhibit 3). We will have to abandon our current process of front-list printing only. Coincidently, our editors will need to cultivate existing series authors into single-title authors, who ensure quality content to maintain our reader’s trust. Our editors will have to adapt the editing criteria to the strengths of each individual author.
Harlequin will have to rely on single title solicitation, and no longer our standard order procedures. We will utilize our existing wide distribution network, but we will have to reduce our distribution to mass merchandisers while increasing our penetration in bookstores to significantly greater than 55% (exhibit 4). Offering greater distribution margins than our series novels will help us grow our volume, and our distribution partnerships, while still maintaining healthy margins. We will allocate and spend marketing funds to promote each individual book and author, rather than the just the Harlequin brand. We will use our existing large customer base, but promote with MIRA branded covers to build brand identity and loyalty, as we aim to become a strong player in the single-title romance novel market. We will create an order system for the direct to reader channel, and eventually, we will need to implement a system to be able to forecast demand to optimize supply and profitability.
If within the first two years, Harlequin does not capture atleast 5% of the unit volume sales from the market using existing back-list collection, we will invest in current best-selling authors. Even after paying the large advances, we will be able to gain an incremental $12MM in profit in the next 5 years (see exhibit 6).