Harlequin Enterprises: the Mira Decisions
The primary issue facing Harlequin is the “steady loss of share in a growing women’s fiction market”, due to the growing popularity of single-title novels. With the volume sales dependence that is inherent in series publishing, the unit sales stalling that occurred in the late 80’s and early 90’s acted as a warning signal to Harlequin. A change in pricing strategies enabled revenues to continue to rise, but this was a short-term solution and Mira has the potential to become a long-term solution. However, there are a number of issues surrounding the launch of Mira.
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As the world’s largest publisher of romance fiction, Harlequin has a strong global foothold in series publishing with a presence in more than 100 international markets and 23 languages. Indeed, Harlequin has been able to create high barriers to entry in the series market through the development of brand loyalty and excellence in product quality and supply chain management. Brand loyalty comprises a strong readership base, which has been cultivated through brand recognition, trust, and long-term relationships.
This is evidenced by the direct-to-reader Book Club, which currently provides 3/8 of US Sales at significantly higher margins than indirect sales. The low-price, consistent, high-quality product is well packaged and positioned ideally to take advantage of customer expectations, supported by a large and capable author/editor base. Standardization has enabled Harlequin to take advantage of significant economies of scale in printing, distribution and advertising; and simplifies retailers’ positioning and marketing strategies.
While standing order distribution enables Harlequin to more accurately predict sales and returns, and therefore benefit from predictable cost-based accounting practices to achieve better margins. However, with limited diversification, Harlequin has little expertise in the broader realm of women’s fiction outside of the romance genre, which may limit their abilities to select and develop successful authors and titles, as was the case with the 1987 Worldwide Library failure. Although, the Worldwide experience gives Harlequin a true appreciation of their strengths and provides a strong foundation from which to avoid future mistakes.
Harlequin’s inferior presence in traditional retail environments for single-title novels and limited advertising portfolio centred on print media somewhat restricts their sales to their existing, or stereotypical, customer base. Existing distribution partnerships are unlikely to resolve this issue and may force Harlequin to seek out new partnerships and/or mechanisms. According to the market research, “customers were reading as many single-title romance and women’s fiction books as series romances. This implies that there is significant overlap with other subject areas and market segments within Harlequin’s existing readership base and it should be possible for Harlequin to cultivate their customer loyalty and translate it to direct-to-reader sales in other genres. Mira also provides the opportunity for authors to develop beyond the series format without moving to another publisher, and still remain available to the Harlequin series genre. This promotes employee loyalty and job satisfaction, while allowing Harlequin to invest in promoting individual authors and benefit from the cross-segment marketing.
The overheads that Mira would incur, although substantial, would remain competitive with other publishers and would benefit from Harlequin’s global infrastructure. Foreign language markets, in particular, would be accessible to Mira through the use of existing translation services, distribution networks and retail relationships. Mira would also provide Harlequin the opportunity to create economies of scale through the centralization of rights acquisition activities already being undertaken in some international subsidiaries.
Conversely, Mira represents an extremely high risk undertaking for Harlequin with significantly higher costs for production, distribution and marketing. A single-title novel is a unique product, which requires a publisher to generate higher per-unit sales volumes; create individual design, marketing and promotion campaigns; and provide higher returns to authors and third parties. Production changes, at least in terms of product dimensions, could have significant unforeseen impacts on the economies of scale currently enjoyed within the production and distribution supply chains.
If Mira is to compete with existing single-title publishers, long-term author contracts, royalties and advances could put extreme financial pressure on Harlequin and represent a significant level of investment, which may or may not be realizable in the long-term. Therefore, the failure of a single-title novel to achieve break-even sales targets has far-reaching consequences; and can seriously damage reputations upon which future sales would depend. Nevertheless, the most significant threat to the success of Mira is its potential in the US market.
The truce with Simon & Schuster achieved at the end of the Romance Wars may not be sustainable, if Harlequin launches Mira in direct competition with S&S in single-title publishing. This situation would be especially difficult given that Harlequin is entirely dependent on S&S for distribution of its series titles within the US market, and its lack of experience with mainstream retailing avenues. By pursuing Mira, Harlequin risks losing a highly efficient and profitable relationship with S&S and having to completely redevelop its distribution chain within the US.
Upon consideration, Harlequin has the resources and capabilities it needs in order to succeed with Mira. Although the company currently has a different business model, it has the same basic components and critical resources necessary to create and manufacture the product. The author/editor base that Harlequin has at its disposal represents a considerable asset, and somewhat mitigates the risk of talent selection and development that can be associated with single-title novels. Historic market positioning and the reputation of Harlequin as a romance eries publisher may overshadow attempts to create the Mira brand; but Harlequin has reached the point where it must expand beyond the romance genre. The direct-to-reader sales, marketing and distribution mechanisms would require few adjustments or adaptations, and would provide Harlequin with an ideal test market from which to make the leap into the mainstream. Existing production and distribution expertise would sustain development of Mira, while Harlequin spends time putting mainstream distribution mechanisms and publicity expertise into place.
It is conceivable that successful single-title authors who published their early works with Harlequin could be convinced to return to Harlequin, depending on the financial incentives; but, this is a long-term question, governed by authors’ contractual obligations and the success of Mira in the short-term. However, the back-list of novels created by successful authors who published their early works with Harlequin comprises an easily marketable, cost-effective and potentially profitable resource, that would enable Mira to capitalize on established reputations and in-direct publicity.
The downside is that Mira may risk alienating or offending fans of established authors, by publishing works that did not meet reader expectations because of their quality or adherence to Harlequin conventions. Therefore, I would recommend that Harlequin perform a limited launch of Mira by re-developing titles in their back-list and generating direct-to-reader sales through the Book Club, while it explores global distribution and marketing relationships. References: Richard Ivey School of Business Case Harlequin Enterprises: The MIRA Decision #9B03M007