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McGraw-Hill’s Kids Group Sets Sights on the Trade

Eleven years ago McGraw-Hill Inc. sacked more than 1,000 people and gutted its own infrastructure, shrinking its operating units from what had once been five, to three, and then two. Corporate vultures were regularly dive-bombing the company’s Sixth Avenue headquarters, girding for the last great hostile takeover opportunity left in publishing. And among other shut-downs, the company ordered lights out at its tiny general trade book division, leaving titles such as Shirley Temple’s bestselling tell-all Child Star for mere orphans on the firm’s freshly downsized doorstep.

What a difference a decade makes.

Now better known as the McGraw-Hill Companies, the $4.3 billion business is on the offensive — and switched back on an inbound track toward trade book publishing. In the last year, the company has set into motion what executives call “a major growth strategy” to take its educational products beyond the classroom and into the home, vowing to cultivate “a significant presence” in children’s literature. Capitalizing on the McGraw-Hill name — it has a 75% brand recognition among moms — company strategists are dusting off their current assets with a Quidditch broom, and meanwhile casting a wide net to snag acquisitions that will give an instant kick to budding trade lists.

They caught a whopper last September, of course, when McGraw-Hill completed its purchase of Tribune Education for a final cash outlay of $671.8 million. The group was among the “non-core assets” Tribune had jettisoned in the wake of its Times Mirror merger, unloaded as part of the ever-messianic quest for “shareholder value.” The buy, as everyone recognized, instantly rocketed McGraw-Hill to the top K–12 publisher slot in the US. But it also left open a slew of questions about how the company will proceed as it plots to capture a larger chunk of the competitive — but booming — kids’ book trade.

Bringing Home the Booty

What’s certain is that the McGraw-Hill Children’s Publishing unit is being maneuvered into place as a drawbridge that executives hope to lower directly into the Barnes & Nobles of the universe. “We are at this point the number one children’s educational publisher for the mass retail market,” says Jeanne Finestone, who recently came on board as vp marketing for the children’s group. “We’re definitely looking to increase our shelf space and our market share.” With some 70 trade titles on tap this year, the children’s division, headed by Vincent Douglas and headquartered in Columbus, Ohio, expects to turn in over $100 million in revenues. That figure includes sales from the educational dealer side of the group, which focuses primarily on the teacher market and is headed by George Bratton.

“Our goal is to create literary books in the traditional children’s area,” says Tracey Dils, trade publisher for the children’s group. For starters, she’s pocketed two of the Tribune imprints — Bedrick Books and Lowell House, both part of Tribune’s NTC/Contemporary trade unit — which include Bedrick’s “high class” reference and trade titles, plus booty from Lowell House that includes workbooks for gifted and talented students. The rest of Tribune’s NTC group, however, will be shunted into McGraw-Hill Professional’s Business/General Reference Group. All in all, Finestone says less than 10% of the children’s trade-side activity is coming from the Tribune acquisitions.

A larger share of the trade business involves pivoting McGraw-Hill’s school assets into the home. “Obviously much of our name recognition stems from children who are bringing home McGraw-Hill imprinted books from their classroom,” says Finestone. For example, a new series of first readers is in the works that will be illustrated by Mercer Mayer’s Little Critter characters, which according to Dils may be the first reader series based on a reading curriculum that’s used in the classroom — McGraw-Hill’s Open Court program. Then there’s the company’s Spectrum imprint, which Dils says is her strongest workbook line and has been “very successful” in the trade. New workbooks in the pipeline include the Read and Learn series, which is based on classic children’s stories, but comes with a handy reading comprehension pullout section.

The unit has also plunged into the battle for license-driven coloring, activity, and picture books. Among them is the Cricket imprint, which will kick off with three picture book series based on the Carus Publishing Company’s Cricket magazine brand, which is well-known in public schools and libraries. Other licenses include some Winnie the Pooh workbooks, and, says Finestone, “There will be more product coming your way out of our relationship with Disney.” There should also be more product shot ’round the globe. Last month Carole Mills was named managing director for the children’s group’s Cambridge, UK offices, where she’ll handle global expansion as the unit seeks to develop selling relationships in all world markets. “We have the ability to be a force in English as a second language,” says Finestone, adding that initial ESL efforts will kick off with workbook sales in Asia and Latin America.

Back in the States, the children’s group plies the spectrum of sales channels — booksellers, mass merchants, educational dealers, and direct-to-consumers. The group’s test prep materials have done “exceptionally well” in both Barnes & Noble and Borders, driven by the increasing reliance on standardized testing, which Dils says has boosted the trade line across the board. And kiddies have been tossing tons of the unit’s products into the shopping cart at Sam’s Club. This June a postcard mailing will hit a list of Sam’s Club clients who have purchased education-oriented products, to promote books that will be stocked in the warehouse club during the back-to-school frenzy. Also watch for a promo blitz at Borders later this year, and keep an eye open for a “major ad campaign” launching in the next few weeks that will lend a helping hand to children’s group vendors, aiming to drive in-store traffic.

Mission: Profitable

So far, so good for parent division McGraw-Hill Education, which turned in an operating profit of $308 million last year on revenues of nearly $2 billion — up almost 15% from 1999. (That revenue included $86.4 million from Tribune Education.) Much of this growth is based on bullish textbook adoption cycles, where McGraw-Hill has scored big in the classrooms of California, Texas, and Florida. Nonetheless, “Children’s Publishing will experience the biggest impact from the Tribune Education acquisition,” according to a company statement. “The greatly expanded division will publish in higher-end, more profitable categories of children’s publishing: education, supplementary materials, religious, picture book, and nonfiction.” Sales to the trade in the children’s group “increased substantially,” McGraw-Hill recently told its shareholders, “comparing favorably to the overall children’s retail book market growth rate of 12%.”

By contrast, the other bastion of the company’s trade activity — the McGraw-Hill Professional division — turned in results that were nearly flat with the prior year, while “all three major imprints experienced difficulty in achieving growth,” according to the company. The Business/General Reference group was seriously affected by the year-to-year fall-off in its Electronic Day Trader series, which didn’t stand a chance of being recouped even by Joan Lunden’s bestselling Wake-Up Calls. The company blamed fierce competition for retail shelf space and a glut of business books devoted to e-commerce.

For its part, the children’s group has taken a cautious line on Internet initiatives. “They’re not huge revenue generators for us, but they’re a powerful marketing tool,” says Finestone, adding that 92% of visitors to the children’s site (www.mhkids.com) buy products at retail. A B-to-B site will launch soon, servicing the group’s vendors. But it’s an understated online play, given the bravura of other company divisions. For example, McGraw-Hill unfurled AccessScience.com, a subscription database with 7,000 articles from the McGraw-Hill Encyclopedia of Science and Technology. Elsewhere, 50,000 professors have registered to use the company’s PageOut software program, which is distributed free when professors buy textbooks for classes. And the children’s group has only been peripherally involved in the McGraw-Hill Learning Network (www.mhln.com), an “online classroom” for parents, teachers, and students.

The company’s grand vision can occasionally seem unsteady. There’s the fitful jostling of division titles: McGraw-Hill Education was renamed last year from Educational and Professional Publishing (a move to bolster brand recognition), and “Consumer Products” was ditched in lieu of “Children’s Publishing” (indicating a more refined market focus). The company’s shares also slipped in February, on news that fourth-quarter net was down 12%. But who knows? Now that the nation’s school-age population has topped 49 million — the highest number since the baby-boom peak of 1972 — anything’s possible. “We’re already broadly based in children’s publishing,” as Dils explains. “Now we’re really going to blossom in children’s literature.” You can at least buy a lot of corporate seedlings with the proceeds from a $4.3 billion empire: “The next time a viable, available company comes on the boards,” Finestone adds, “we will certainly take a serious look at it.”