Wizards and Web Sites: Diversified Scholastic Thriving

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Walking into the headquarters of the children's publishing giant Scholastic Inc. in the trendy SoHo neighborhood here, a visitor should not be surprised to encounter the mayor of New York City or a giant toy dog riding an elevator.

One day last week, Mayor Michael R. Bloomberg was visiting the Scholastic Store, a retail outlet on the ground floor of the building, for a "Junior Journalist" press conference amid displays for hot Scholastic book series such as Harry Potter or Captain Underpants.

Nearby, a man carried an enormous stuffed version of Clifford the Big Red Dog, another of the publisher's popular characters, into the narrow 10-story building designed by the late Italian architect Aldo Rossi.

High above all this in the executive suite, Richard Robinson, Scholastic's chairman, president, and chief executive officer, reflected on how the company started by his father 82 years ago has grown into a powerhouse of children's and educational publishing.

"Education is a big house, and we are in a lot of the rooms in that house," said Mr. Robinson. His $2 billion-a-year company is known for classroom magazines and other supplementary educational materials, school book clubs and fairs, TV and Internet ventures, and U.S. children's book publishing that includes a character by the name of Harry Potter.

Scholastic is one of only two major educational publishers that remain American-owned. After a buying spree by European-based media conglomerates in recent years, the only other sizable U.S. educational publisher is McGraw-Hill.

"Do I think it's a great long-term thing? Maybe not," Mr. Robinson said of the offshore ownership. But to the average educator, he suggests, it may matter little that big publishers such as Harcourt Inc., now owned by the Anglo-Dutch company Reed Elsevier, or Houghton Mifflin Co., now owned by Paris-based Vivendi Universal, are foreign-owned because their American operations have changed relatively little.

Scholastic Inc.

Founded: 1920

Headquarters: New York City

2001 Revenues: $1.96 billion

Stock Range:
$34.12 to $55.10

March 20 Closing
Stock Price:

Principal Business: Children's book publishing (Harry Potter, Clifford the Big Red Dog, Captain Underpants); educational publishing (supplementary texts, classroom magazines); Scholastic Entertainment television arm ("The Magic School Bus," "Animorphs"); Web sites for teachers and parents.

"I think the schools are correct in saying, let me see what you've got rather than where you are from," Mr. Robinson said.

Scholastic made a strategic decision about a year ago that it was not going to stay in the business of publishing basal reading textbooks. It said last April that it would not update its Scholastic Literacy Place K-6 reading program.

Mr. Robinson said that as the trend in reading instruction took a turn toward phonics, Literacy Place's literature- based approach kept it from winning adoption in California and elsewhere. Scholastic still sells the program, and it has built a following. But the company decided to devote its development resources to other priorities.

"We decided that based on who we are, we would focus most of our attention on the developing reader," he said.

The new federal "No Child Left Behind" Act, with its strong emphasis on research-based reading programs, is expected to be a boon to publishers such as Scholastic, however.

"Reading has been a focus for schools for a long time," said Margery Mayer, the president of Scholastic's education division. "We think it is just going to get better for us."

The company's technology-based Read 180 program, designed to aid underachieving readers, is being used in 25 urban districts and was recently approved as a supplemental learning material by the state of California. Scholastic is preparing to launch a version for high schools, while also working on professional-development programs to help all types of teachers advance students' reading abilities, Ms. Mayer said.

But perhaps Scholastic's greatest contribution to the reading movement has been as the U.S. publisher of British author J.K. Rowling's phenomenal Harry Potter series.

The novels about a boy wizard contributed $200 million in revenue to Scholastic in its 2001 fiscal year. Peter P. Appert, an analyst who tracks educational publishers for the investment bank Deutsche Banc Alex. Brown, estimates the series will contribute $70 million in the current fiscal year, which ends May 31 and did not include a new release. Scholastic had no financial interest in the Harry Potter movie released last year, but the related hoopla did drive further book sales.

Still unresolved is the "Harry Book Five" question, as one investment analyst put it in a conference call this month. Scholastic has not yet secured the rights to the fifth or later volumes of the planned seven-book series. Wall Street is a bit anxious over this, since a switch to another publisher would mean a major loss of future revenue for Scholastic. Ms. Rowling is completing the fifth book, which could be published this summer but has no definitive release date.

"It's sort of a nonevent that has caused a lot of curiosity," Mr. Robinson said of the question of whether Scholastic would secure the rights. "We've done a great job with this book [series]. No one would doubt that."

Ms. Rowling still refers to Scholastic as her U.S. publisher, he pointed out, and "we are putting [the fifth book] into our fiscal year 2003 plan."

New Magazines

Across the street from its headquarters building, Scholastic's Internet operations are housed in a less glamorous building whose offices have the aspect of a technology startup.

Scholastic made an early entrance into online marketing and services, with a subscription site for teachers on America Online, later moving to a free Web-based service.

Donna Iucalano, the president of the company's Internet group, came from the Web retailer 1-800-Flowers.com. Scholastic offers a bouquet of services on its Web sites, with online ordering of book club selections, a news update site for its many classroom newsmagazines, and calendars and classroom- management tools for schools.

"Scholastic's strength has always been communicating directly to teachers," Ms. Iucalano said. The company has just launched an online store for teachers as a one-stop-shopping site for professional books, classroom reproducibles, and the like.

Scholastic was founded in 1920 by M.R. "Robbie" Robinson and was for years best known as the publisher of magazines such as Junior Scholastic. Recent extraordinary news events such as the disputed presidential election and the attacks on the World Trade Center and the Pentagon have heightened the role of its classroom news publications.

But Scholastic faces competition both old and new from Weekly Reader and Time Inc.'s Time for Kids.

"I think the competition has been good overall for the field," said David Goddy, a Scholastic vice president and editor in chief of its magazine group. "Our business has done much better since they got into the marketplace."

Scholastic upgraded its main high school news publication by partnering with The New York Times for what is now called Upfront.

But the company's newest magazine is aimed at a much younger set. In Scholastic's first title for preschool children, the publisher has tapped one of its literary stars for the theme.

No, not infant superhero Captain Underpants. The new title is Scholastic News presents Clifford the Big Red Dog.

Vol. 21, Issue 28, Page 8

Published in Print: March 27, 2002, as Wizards and Web Sites: Diversified Scholastic Thriving
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