Business

Houghton Mifflin writes a new future for itself

Chief technology officer Brook Colangelo (top right) meets with Paul Donovan, a senior vice president, in the technology group.
Dina Rudick/Globe Staff
Chief technology officer Brook Colangelo (top right) meets with Paul Donovan, a senior vice president, in the technology group.

Linda Zecher wants to put Carmen Sandiego and Curious George to work.

Zecher, the chief executive at Houghton Mifflin Harcourt Co., is pushing the Boston textbook publisher beyond the classroom and into people’s homes by mining a treasure trove of curious monkeys, hairy-toed hobbits, and other characters from the company’s small, but venerable trade book division. Since joining the company from Microsoft Corp. four years ago, Zecher has targeted the consumer education market, developing a range of digital products to reach children and parents.

This fall, Houghton launches a new version of its Curious World website and app, in which parents of young kids can pay $10 a month for access to educational games, videos, and e-books. A new app to help kids chase the fictional villain Carmen Sandiego to learn geography will be released by January. And last month, Houghton inked a deal with public television station WGBH to develop a TV program based on the popular children’s book series “Gossie & Friends,” about the adventures of a group of goslings.

Advertisement

“Parents want content from brands they can trust,” said Zecher, 62, the publisher’s first female chief executive. “Houghton Mifflin has these incredible name brands. So why can’t we leverage those brands and make educational content that we can sell directly to consumers?”

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Houghton Mifflin Harcourt is trying to write a new chapter in its 183-year-history as textbook sales stagnate and educational technology firms, offering innovative products and learning methods, cut into the industry’s traditional markets.

Houghton’s revenues, about $1.4 billion in 2014, have remained essentially flat over the past four years, while overall US textbook sales are projected to shrink about 2 percent this year to about $8.6 billion, according to Simba Information of Stamford, Conn., which tracks the publishing industry.

The consumer education business, meanwhile, offers tremendous potential for Houghton, the nation’s largest textbook publisher for kids, and its traditional rivals such as PearsonPLC of London and McGraw-Hill Education Inc. of New York. Simba estimates the US market for consumer educational products at nearly $3.6 billion this year and expects it to grow 13 percent over the next two years. Billions of dollars more are at stake in the market for adult learners.

Houghton Mifflin Harcourt’s CEO Linda Zecher has driven the company to rethink how it publishes and develops material in a digital-first fashion.
Dina Rudick/Globe Staff
Houghton Mifflin Harcourt’s CEO Linda Zecher has driven the company to rethink how it publishes and develops material in a digital-first fashion.

Consumer sales still represent only a tiny fraction of Houghton’s revenues — the company declined to break out those figures. But Zecher told analysts after releasing quarterly earnings in August that sales generated through the company’s redesigned flagship website and e-commerce portal,
hmhco.com , rose nearly 60 percent in the first six months of the year compared with the same period in 2014. Zecher also cited a redesign in July of cliffsnotes.com, the digital version of the classic CliffsNotes study guides, where Houghton generates revenues from advertising.

Advertisement

“The ways people learn are changing,” Zecher said. “It’s no longer inside the brick-and-mortar school, from 8 to 3.”

Change is nothing new for Houghton Mifflin Harcourt, which traces its roots back to 1832, when a small book publisher opened at the corner of Washington and School streets. The company, which then operated under a different name, grew as the publisher of literary greats such as Henry Wadsworth Longfellow, Ralph Waldo Emerson, Nathaniel Hawthorne, and Henry David Thoreau; it published Thoreau’s “Walden” in 1854. In the 20th century, Houghton published US editions of J.R.R. Tolkien’s “Lord of the Rings” and the American Heritage Dictionary.

But much of the 21st century has been a tumultuous period for the company. It changed owners three times in the last decade, acquiring the education and trade business of Harcourt Brace Jovanovich and piling on billions of dollars in debt before filing for bankruptcy in 2012. A restructured company that shed most of its debt emerged quickly from the bankruptcy process and launched an initial public offering in 2013, raising about $250 million for the private investment firms that backed Houghton.

Its stock is trading at about $22 a share, up nearly 40 percent from its closing price on its first day of trading, just under $16.

The company, which next year will move its headquarters to the Financial District from the Back Bay, employs 4,200 people worldwide, including about 700 in Boston. It has not reported an annual profit in at least four years, losing about $111 million in 2014, according to financial filings.

Technology group staff members Sandeep Pulijala (left) and Sudhakar Gaddam discussed a project.
Dina Rudick/Globe Staff
Technology group staff members Sandeep Pulijala (left) and Sudhakar Gaddam discussed a project.
Advertisement

Zecher, who spent eight years at Microsoft, has driven the company to rethink how it publishes and develops material in a digital-first fashion, with the goal of deriving most of the company’s revenue through digital sales. Some of Zecher’s top hires came from the software world, including chief content officer Mary Cullinane,who arrived from Microsoft in 2013, and chief marketing officer John Dragoon, who was recruited from Novell, now part of the British software company Micro Focus InternationalPLC.

Zecher has bolstered the strategy with the acquisition of CliffsNotes and other reference titles from John Wiley & Sons of Hoboken, N.J., in 2012 for an undisclosed amount; Scholastic’s educational technology business earlier this year for $575 million ; and several small digital game developers. Houghton last year launched its first major digital product line designed for the consumer market, Go Math Academy, an online learning tool that combines math problems and tutorial videos with games.

Analysts said Houghton’s trade division, which accounts for about 10 percent of revenues, gives the company an advantage over competitors as it moves into consumer markets. The division, which publishes children’s and other mass market books, provides well-known characters and stories that can be integrated into educational products.

“We’ve created this content that kids have been using in schools for 180 years,” said CJ Kettler, Houghton’s chief of consumer brands. “We can take that understanding and now create products for the home.”

Jeff Silber, an analyst at Canadian investment bank BMO Capital Markets, said Houghton is further ahead in the broader switch to digital formats as well as its expansion in the consumer markets than its rivals. Given the discretionary income in consumers’ hands, he said, traditional educational publishers are eager to pursue more of those dollars.

Houghton Mifflin Harcourt became the largest player in the K-12 textbook market, in part because of its relationships with the people who buy books on behalf of school systems. That name recognition helps, he said, but it only goes so far: Pursuing a mass market requires a bigger attention to advertising to build the brand’s awareness.

“They probably have the most penetration in terms of recognized brands that parents and children know,” Silber said. “When you’re selling to parents, it’s a much different sale than when you’re selling to a school district. . . . [But] it’s a pretty sizable market, if you can position yourself as the brand name [with] the best quality products.”

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.