Excited and terrified

Coincidentally, on the day I start thinking about adding Bloomsbury, which is predominantly a book publisher, to the Thrifty 30 portfolio two news items catch my attention. The first is, an experiment by Google to create a Tardis-like online bookcase, tied in, naturally, to its eBook store. The second is a blog from the Frankfurt Book fair quoting Philip Downer, erstwhile head of defunct Borders UK warning publishers they must 'repurpose' or face the same fate booksellers have.

Bloomsbury agrees, quoting Darwin in its annual report earlier this year:

It is not the strongest of the species, nor the most intelligent that survives. It is the one that is the most adaptable to change.

In March, Bloomsbury switched from operating in geographical divisions to six global divisions, four tackling discrete markets, Academic and Professional, Information, Adult books, and Children's and Educational books and the other two providing production and marketing support. Founder and chief executive Nigel Newton says the new structure is already enabling the group to profit from the globalisation of the book market.

Other than that, the annual report doesn't say much about what the company is doing as technological change renders, by its own admission, the traditional publishing business model redundant. The chairman hands over to the chief executive to talk about Bloomsbury's adaptation to meet the needs of e-readers, but he doesn't, much. Bloomsbury has established Bloomsbury Reader to republish out of print but in copyright books.

It's exciting that Bloomsbury is embracing change, but it's also telling this profitable, cash-rich company, with a list of home-grown successes topped by Harry Potter and venerable publishing acquisitions (some of which are listed on its corporate history page), is talking about survival.

I'm fearful because I'm a Kindleista, so's my wife, and my Mum. My eldest son says he'd read more if I bought him a Kindle, a likely story, and even my Dad, who doesn't read books much, is thinking of buying one. I'm as convinced as Bloomsbury the industry faces fundamental change.

Having successfully dodged investments in booksellers, computer game retailers, and newspapers, companies that looked great value but have failed in their responses to earlier waves of the digital onslaught, I'm now tempted by a company that could be in the next wave.

Some initial thoughts:

Recession aside, Bloomsbury’s professional, academic and information divisions ought to be in a reasonably strong position. Most of the publications are probably already digitised and universities, for example, have been buying access to databases for years. That part of the market embraced electronic publishing earlier, and has evolved relatively gradually.

The big shift now is the move by consumers to eBooks. Since consumer titles are a bigger part of Bloomsbury’s business (68% by revenue last year) it's vulnerable. Sales are growing fast, but still amount to little more than 2% of sales from its book divisions.

The digital switch is worrying because we don't yet know how it will impact our consumption of books. In some ways we're forced to buy more, on Amazon's platform at least, because digital rights management makes it difficult or impossible to share. But the ability to download the beginning of books before you buy them means I read more of the books I buy.

More worrying is the emergence of technology companies as publishers. Authors can design, publish and market their books on the Amazon platform, circumventing the need for a publisher. Google is digitising out of copyright texts that compete with the lists Bloomsbury is still acquiring. Classic novels, available free from both Google and Amazon and many other sites, compete with modern blockbusters.

Mum hasn't bought an eBook yet, she's too busy reading George Elliot.

I’ve worked in publishing for seventeen years, yet I’ve rarely owned shares in publishing companies, manual publisher Haynes being the exception that proves the rule.

Family owned Haynes has a strong position in a niche businesses, and those two factors give me some comfort. Its acquisition of Vivid, an electronic publisher of motor manuals also gives it a toe-hold in the future.

Perhaps the "buy what you know mantra" should be revised to "buy what you know as long as the industry is not facing potentially ruinous competition from technology companies."

So why am I still tempted by Bloomsbury?

The interims to be published in just over a weeks time will give a more up to date picture but, in February, Bloomsbury's high quality tangible assets (mostly cash and receivables) net of all liabilities were worth ''73m and It's market value is also ''73m.

In other words, the market says all those intellectual property rights it is still collecting, titles dating back hundreds of years, they're worth nothing (JK Rowling retains the digital rights to Harry Potter so they're not worth anything to Bloomsbury). The knowledgeable well connected staff. They're worth nothing. Wisden, A&C Black, etc.. Worth nothing.

I find that so hard to believe.

The trouble is, I might be kidding myself.

I don't want to believe it.