Scholastic Corporation
Address:
555 Broadway
New York, New York 10012-3999
U.S.A.
Telephone: (212) 343-6100
Fax: (212) 343-6928
http://www.scholastic.com
Statistics:
Public Company
Incorporated: 1920
Employees: 4,500
Sales: $1.058 billion (1998)
Stock Exchanges: New York
Ticker Symbol: SCHL
NAIC: 51112 Periodical Publishers; 51113 Book Publishers; 51121 Software Publishers; 51211 Motion Picture & Video Production; 551112 Offices of Other Holding Companies
Company Perspectives:
During its seventy-eight years of serving schools, Scholastic has developed strong name recognition associated with quality and dedication to learning, has achieved a leading market position in the school-based distribution of children's books and magazines, and has developed the leading internet-based subscription service for schools. The Company has also used its proven system to develop successful children's books and then build these brands into multimedia assets.
Company History:
The Scholastic Corporation is one of the leading publishers and distributors of books, magazines, and other educational materials for children in the United States. In addition to printed materials, the company also produces educational software and videos and is involved in movies and children's television programming. Scholastic began as a newsletter for Pennsylvania high school students in the early 1920s, then struggled throughout its first three decades, finally gaining steady profits in the post-World War II years when it expanded its offerings and channels of distribution.
Scholastic was founded in 1920 by Maurice R. Robinson, whose experience in journalism was enhanced during his tenure as a staff member on the Dartmouth College student newspaper. Upon graduation from Dartmouth, Robinson returned to his hometown of Wilkinsburg, a suburb of Pittsburgh, and took a job at the Pittsburgh Chamber of Commerce. There he came across statistics indicating that the high school student population was expected to increase steadily throughout the decade, and he decided that a newspaper dedicated to students' interests would be a good prospect. The first edition of The Western Pennsylvania Scholastic provided articles on topics of general interest to students and was published on October 22, 1920. Robinson designed the four-page paper from a desk in his mother's sewing room, and he sold it for five cents a copy.
The following year, Robinson arranged for office space in Pittsburgh and hired a clerk to serve as office manager and assistant editor. To finance the publication of The Western Pennsylvania Scholastic, Robinson continued to work at various jobs in public relations. Although the paper did not turn a profit during the 1921--22 school year, its circulation reached 4,000.
Expansion But No Profits in the 1920s
In 1922 Robinson decided to widen the scope of his student newspaper. Over the summer he distributed a brochure describing his proposed publication, the Scholastic, to those present at the National Education Association convention in Boston. The publication's new format was to resemble that of a magazine and would include articles relevant to classroom work in English, social studies, science, and foreign languages. Preparing for increased business, Robinson hired a circulation manager and incorporated his venture as the Scholastic Publishing Company. The first issue of the Scholastic, which billed itself as "The National High School Bi-Weekly," was published on September 16, 1922 and sold for 15 cents per copy.
To stimulate circulation, sell advertising space, and generate copy of interest to students across the nation, Robinson assembled an advisory board of high school teachers and administrators and a staff to sell ads and push subscriptions to teachers and their students. Moreover, he began selling shares of Scholastic stock to raise funds. In 1924 Scholastic began to sponsor the Scholastic Creative Writing Awards as well as a contest to provide cover designs by high school art students, programs that proved extremely popular. As a result of these activities, circulation of the Scholastic reached 33,000 by the spring of 1925, a figure that would nearly double by the end of the decade. Despite the publication's popularity, Scholastic continued to struggle financially, never realizing a profit in the 1920s. Moreover, its seasonal distribution generated no income during the summer months.
In the early months of 1929, Robinson acquired a weekly social studies periodical, The World Review, for which he paid with Scholastic stock. When the stock market crashed in October, he was able to sell this property to a competitor, giving his company a much-needed infusion of cash. Shortly thereafter, Scholastic acquired the children's magazine St. Nicholas, and the company's name was changed to Scholastic-St. Nicholas Corporation.
Added Publications But Financial Problems Persisted in the 1930s and 1940s
Continued financial strains brought on by the Great Depression, however, prompted Robinson to seek the economic resources of another publishing firm. During the 1931--32 school year, Scholastic entered into a joint venture with competitor American Education Press, in which Scholastic gained control of four publications: The Magazine World, World News, Current Literature, and Looseleaf Current Topics. Temporarily bolstered by increased business, Scholastic opened offices on East 44th Street in New York and launched another new publication, Scholastic Coach.
In April 1932 Scholastic bought out American Education Press and, two months later, the company's name was changed to Scholastic Corporation, as plans were made to sell St. Nicholas before the end of the year. By the fall of 1932, circulation of the company's publications had dropped sharply and salary cuts for all staff members at Scholastic were necessary. Focusing on the potential of its original publication, the Scholastic, Robinson cut costs by doing away with its expensive cover art and printing the entire magazine on less expensive paper. Hoping to increase revenues, he also put the Scholastic on a weekly publication schedule.
Scholastic reported slight gains in circulation in 1934 and 1935, and the following year the company reported its first annual profit ever, $2,400. A magazine for junior high school readers, entitled Junior Scholastic, was introduced during this time, and the company's underpaid staff received salary increases. By the spring of 1938, however, the circulation of the mainstay Scholastic (which eventually became known as Senior Scholastic to distinguish it from its junior counterpart) had dropped precipitously, and projections for the success of Junior Scholastic proved overly optimistic. Consequently, Robinson was forced to suspend payment of his staff for a month. The losses were attributed, in part, to the fact that many Scholastic publications came under the scrutiny of disapproving parents and politicians during this time. Facing charges that the material was unsuitable for young people, some schools were forced to ban Scholastic magazines. In two widely publicized cases, in Washington, D.C. in 1936 and in Topeka, Kansas in 1938, Senior Scholastic was accused of promoting communism.
In the early 1940s Scholastic's two principal stockholders, hoping to recoup their investment, sought a buyer for the company. When no suitable offers were forthcoming, they brought in an outside management consultant to evaluate Scholastic's operations. The study was completed in 1941 and recommended that the company either be liquidated or that Robinson be replaced as its head. Instead, however, Scholastic's backers agreed to finance the company on a long-term basis, provided some economizing measures were taken.
At the onset of World War II, Scholastic introduced a new magazine devoted to current events. World Week, first published in September 1942, was promoted as "The New All Social Studies Classroom Magazine Graded to Meet Your Wartime Teaching Requirements." When wartime rationing of paper went into effect on January 1, 1943, however, Scholastic was forced to produce thinner publications and turn down subscribers.
After the war, Scholastic moved to expand its circulation and the number of titles it offered. In 1946 Scholastic Teacher, Practical English, and Prep were introduced. Two years later, Literary Cavalcade for high school English classes was added to the fold as was the Teen Age Book Club, a joint endeavor with Pocket Books formed to market newly available paperback books to young people in school. It marked Scholastic's entry into the highly successful book club business, which grew over the next 50 years to include 11 book clubs serving preschool through junior high school students. To boost circulation, company executives divided up their sales territory into 180 "Scholastic Districts," hiring part-time sales staff, referred to as Resident Representatives, to work on commission in each district. By 1951, Scholastic was able to pay a dividend on its stock for the first time.
Political Controversies Continued To Affect Scholastic's Reputation in the 1950s
Problems concerning the political views reflected in Scholastic publications resurfaced in the late 1940s and 1950s. In 1948 the city of Birmingham, Alabama, issued a ban on Senior Scholastic, finding articles advocating racial equality unacceptable; this ban was lifted three years later. Perhaps the most widespread controversy surrounding Scholastic publications developed when Senator Joseph McCarthy and others serving on the House Committee on Un-American Activities began a program of accusing American citizens of communist affiliations. In 1952 a Scholastic editor was ordered to explain his involvement 20 years prior with a short-lived youth magazine under suspicion of promoting Communist sympathies. While he did so satisfactorily and was exonerated, several similar charges were leveled against Scholastic over the next few years.
By the end of the decade, Scholastic had added several new publications to its roster, including Practical Home Economics, acquired in 1952, and JAC/Junior American Citizen, which was renamed Newstime. Student book clubs were proving successful, and Scholastic added two new book clubs, the Arrow Book Club for younger students grades 4--6 and the Campus Book Club. The growth of Scholastic's student book club operations created the need for a warehouse to hold goods for shipping. In 1959 the company completed construction of such a facility in Englewood Cliffs, New Jersey.
Explored New Markets in the 1960s
During the 1960s, Scholastic explored new markets, introducing two book clubs for young children, Lucky and See-Saw, and adding 13 new periodicals to its line. Furthermore, the company began publishing various instructional materials and books, including a series of books adapted for different age levels intended to develop reading skills and introduce young people to the short story and poetry. In 1962 the World Affairs Multi-Text series was offered for use in social studies classes, and a series of arithmetic booklets were promoted for individual study at home.
The company expanded internationally during the 1960s after opening its first international subsidiary, Scholastic Canada, in 1957. Scholastic United Kingdom and Scholastic New Zealand were established in 1964, followed by Scholastic Australia in 1968.
In 1965 Scholastic introduced its hardcover book publishing division, the Four Winds Press. This unit eventually became central to Scholastic's Library and Trade Division, which marketed publications to libraries and book wholesalers and distributed a new line of Scholastic/Folkways Records, the company's first audio offerings. By 1968, a series of short films, entitled Toute la Bande, had been designed for instruction in the French language. That same year the company opened a book distribution facility in Jefferson City, Missouri that would become its national distribution center with 2,000 employees and 1.5 million square feet of warehouse and office space.
Financial Growth as a Public Company in the 1970s
The company continued to expand its audiovisual offerings in the early 1970s, introducing Enrichment Records; Art & Man Filmstrips, which supplemented a Scholastic periodical published under the direction of the National Gallery of Art; Bill Russell's Basketball Films; Clifford Filmstrips; and Margaret Court Instructional Films.
Another area of concentration at Scholastic during this time reflected the country's increased awareness of the need for remedial reading instruction at all age levels. For those students regarded as slow learners, Scholastic offered several textbook programs and magazines, some of which featured easy-to-read articles and stories that would appeal to older students. In addition to exploiting a new and growing market, such material helped offset the declining popularity of Senior Scholastic.
Scholastic stock was first offered to the public through the New York Stock Exchange in 1969, and the 1970s began a period of steady financial growth at Scholastic. With the scope and complexity of its operations expanding, the company underwent several corporate reorganizations in the 1970s. In 1971 a School Division was created to oversee operations involving the company's book clubs and magazines. This division was headed by M. Richard Robinson, Jr., son of the company's founder, and four years later Robinson took over as president of the company, initiating another period of reorganization. Richard "Dick" Robinson would continue to lead the company for the next several decades after being named chief executive officer (CEO) in 1975 and chairman in 1982.
Foundations Laid for Diversification into New Media in the 1980s
Scholastic Productions was formed in 1978 to provide the company with the capability of producing children's television series, feature films, home videos, and multimedia products based on its popular book characters. Renamed Scholastic Entertainment in 1998, the division would be an important source of revenue during the 1990s. In 1982 the New Media division was launched to focus on educational software.
By 1980, budget cuts and declining school enrollment rates posed a challenge to Scholastic. Unable to raise prices to meet the rapidly increasing costs of publishing books and periodicals, the company saw its revenues decline. To offset this trend, the company decided to invest more than $5 million to enter the highly competitive textbook market, building on the instructional materials it first offered in 1961. Within two years, however, the venture had failed to provide the expected returns, and the company resumed its focus on supplementary educational materials.
The company entered the book fair business by acquiring California School Book Fairs in 1981. Book fairs were typically run by parents and teachers in schools and offered Scholastic another distribution channel. They proved so successful that Scholastic went national by acquiring Great American Book Fairs in 1983. By the 1990s Scholastic Book Fairs was the largest children's book fair operation in the United States.
During the 1980s Scholastic also explored the burgeoning market for educational material related to computers, introducing Electronic Learning and Teaching and Computers magazine to help teachers with new technologies in the classroom. The company also launched its first consumer magazine, Family Computing, a line of software for children entitled Wizware, and a magazine on disk, called Microzine.
By May 1984, however, these new ventures had resulted in losses of $13.8 million, and the company's stock price plummeted. When new management and reorganizations failed to alleviate the financial burden, Robinson decided to take Scholastic private. In 1986 he reestablished control over the company by creating SI Holdings Inc., which maintained a 51 percent share of the company's stock. In July 1987, SI Holdings paid $84 million for the remaining Scholastic shares.
In 1986 two important children's book series were launched that would provide Scholastic with revenues over the next decade not only from book sales, but also from related merchandise and television programming. One was The Magic School Bus series, written by Joanna Cole and illustrated by Bruce Degen. By the late 1990s it had ten original titles with more than 2.4 million copies in print. It also ran as a successful children's television series on Public Broadcasting Stations (PBS). The other series was The Baby-sitters Book Club book series, written by Ann Martin for young girls ages eight to 12. By the late 1990s it had 335 titles and more than 172 million copies in print, with 12 new titles published each year. It resulted in a television series, home videos, CD-ROMs, and consumer products, as well as its own Web site and fan club. The Baby-sitters Club Movie was released in 1995 and then on video in 1996.
Growth Outpaced Book Industry in the 1990s
Once the company was back on solid financial ground, it again went public, offering $90 million worth of stock in February 1992. Scholastic went public with shares selling for $26. A year later the stock was trading at $36 a share. In July 1992 R.L. Stine's popular Goosebumps series debuted. For 1992--93 (fiscal 1993 ending May 31, 1993), Scholastic reported revenues of $552 million and net income of $28 million. Book publishing contributed 66 percent of revenue and 91 percent of net income. Sales of the company's 28 school magazines were growing at a slower pace. The company's payroll grew 20 percent to 3,700 employees at a time when many other media companies were downsizing.
In 1993--94 Scholastic was moving toward multimedia and interactive products as well as television programming. It spent $20 million to develop its first animated television series, The Magic School Bus, which debuted on PBS in fall 1994. In September 1993 the company started Scholastic Network, an educational online computer service available on America Online (AOL).
At this time book clubs were Scholastic's largest distribution channel, accounting for approximately half of its domestic book publishing revenue of $428 million. By 1995 trade distribution had surpassed book clubs as Scholastic's largest distribution channel, due largely to the popularity of Goosebumps, which helped Scholastic realize a 21 percent jump in domestic book publishing sales to $516.8 million in 1994--95. Scholastic was releasing one Goosebumps title a month, usually with a first printing of 600,000 copies. Overall revenues reached $749.8 million, and net income increased 17.3 percent, from $32.9 million to $38.6 million.
The company also was focused on building its educational publishing, with several states adopting its new instructional programs. The multimedia (books, videos, and software) Scholastic Science Place program for grades K-2 generated sales of $19 million. It was expanded to cover grades K-6 and was supplemented by Scholastic Math Place, launched in April 1994; in 1995 Scholastic introduced Scholastic Literacy Place in English and Spanish-language versions. This elementary language arts core curriculum program was adopted by many major school districts and endorsed for use by U.S. Department of Defense Schools.
Movie and television projects were becoming a growing part of Scholastic. Scholastic licensed some 40 consumer products related to The Magic School Bus series, ranging from clothing to toys, to partners such as Hasbro and Sega. The company co-produced the movie, The Indian in the Cupboard, which was released by Paramount in the summer of 1995, as was The Baby-sitters Club Movie. The Goosebumps series was launched on Fox television in the fall of 1995. As a result, the company's best-performing division of 1995--96 was Scholastic Productions, whose sales rose 104 percent to $39.8 million. Overall the company reported a 24 percent increase in revenues to $928.6 million. Net income declined to $31.9 million in fiscal 1996; it was affected by an after-tax charge of $14.9 million due to a change in accounting standards and other factors.
Between 1992 and 1996 Scholastic had enjoyed tremendous sales and income growth, with sales increasing 439 percent and net income rising 147 percent. By 1996--97 the growth had slowed, and the company found it necessary to make staff reductions and eliminate some operations to achieve a profitable fiscal 1998. Net income for fiscal 1997 (ending May 31) was only $361,000 on sales of $966 million.
The company undertook several cost-cutting and restructuring measures. More than 400 positions were eliminated as part of a $25 million cost-cutting program. In addition, the company closed unprofitable magazines and its French operation, improved productivity at its Jefferson City, Missouri, distribution facility, and began subleasing 40,000 square feet of office space in New York City. It also consolidated four instructional units into one division.
For 1996--97 declining sales from the Goosebumps series resulted in a decrease in retail sales. With 103 Goosebumps titles in the market and 200 million copies in print, Scholastic was trying to lessen its dependence on the series. It recently had launched two new series, Animorphs and Dear America. Licensing revenues from Goosebumps made Scholastic Productions highly profitable. Fox Network ordered another 24 episodes for 1997--98. For 1998, 13 episodes of The Magic School Bus series would be completed for a total of 52 shows. Animorphs was being adapted for television, with 13 shows set to air on Nickelodeon during 1998.
In September 1996 Scholastic acquired the New York-based Lectorum Publications, the largest U.S. distributor of Spanish-language books to schools and libraries. In January 1997 it acquired Red House Books Ltd., a British children's book distributor and book club operator, making Scholastic the largest children's book publisher and distributor in the United Kingdom. Scholastic also was exploring emerging markets through its subsidiaries in Mexico, India, and Hong Kong.
After announcing it would extend its agreement with Parachute Press to publish and manage licensing of Goosebumps, Scholastic became involved in a legal dispute with Parachute Press. In another legal matter, three class action suits relating to the sharp downturn in the company's stock in 1997 were consolidated into one lawsuit. The plaintiffs charged that the company made misleading statements about its earnings before announcing on February 20, 1997 that it would have a huge loss in the third quarter. Following the announcement, the company's stock lost about half its market value, falling from around $69 a share to between $30 and $36 a share.
Faced with a need to improve profitability, Scholastic rebounded in fiscal 1998. Net income rose to a respectable $23.6 million. Book publishing revenues rose substantially from $645.9 million to $728.5 million, and revenues from international operations increased from $178.9 million to $195.9 million. For the first time Scholastic surpassed the $1 billion mark in revenue with $1.058 billion, a 9.5 percent increase over fiscal 1997.
In January 1998 Scholastic sold its SOHO Group (Small Office and Home Office) of business publications for $20 million. The sale included Home Office Computing and Small Business Computing, along with an online site and a custom publishing division. Scholastic's management deemed these to be noncore assets.
Later in 1998 Scholastic purchased the assets of Pages Book Fairs, the second largest book fair operator, for $10.5 million. With the acquisition Scholastic planned to increase the number of parent-teacher-run book fairs as early as fall 1998. It also acquired The Electronic Bookshelf (EBS) in April 1998. EBS is a technology-based reading motivation, management, and assessment system designed for use in schools. It utilized computer-based tests on popular, high-quality books and provided a method of recognizing and rewarding students for reading achievement.
The company showed continued revenue growth and profitability in early 1999. It introduced two new products to improve literacy, Scholastic READ 180 and Scholastic Reading Counts!. Scholastic improved its marketing muscle with the January 1999 acquisition of QED (Quality Education Data) from Peterson's, an International Thomson Publishing company.
Scholastic's future growth will be fueled by the so-called Millennial Generation, some 70 million children under the age of 18. This demographic surpasses even the 65 million members of the Baby Boom generation born after World War II. As a result, educational spending by government was growing significantly for the first time since the 1960s. Parents also were spending more for their children's educational materials, while children themselves were spending money on entertainment. Scholastic was positioned to reach these children in school, on the Internet, through television and movies, and at home.
Principal Subsidiaries: Scholastic Inc.; Scholastic Entertainment, Inc.; Scholastic Book Clubs, Inc.; SE Distribution Inc.; Lectorum Publications, Inc.; The Electronic Bookshelf, Inc.; Red House Book Clubs Ltd. (England); Scholastic Canada Ltd.; Scholastic Publications Ltd. (England); Scholastic Australia Pty. Ltd.; Scholastic New Zealand Ltd.; Scholastic Mexico S.A. de C.V.
Further Reading:
Block, Valerie, "A Hard Lesson: Scholastic Recovers After Horror Story," Crain's New York Business, October 19, 1998, p. 1.
Cassidy, Neil, "Scholastic Sheds Biz Books," Folio: The Magazine for Magazine Management, January 1998, p. 13.
Kelly, Keith J., "New York Publishers Scholastic Corp. Sells Two Computer Magazines," Knight-Ridder/Tribune Business News, December 15, 1997.
Kindel, Stephen, "When Girls Put Down Their Barbies: Hit Products, Great Demographics and Education Reform Make Staid Scholastic a Hot Publisher," Financial World, April 13, 1993, p. 52.
Lippert, Jack, Scholastic: A Publishing Adventure, New York: Scholastic Book Services, 1979.
"Milestones: A Concise Look at Scholastic Inc.'s History," at http://www.scholastic.com/aboutscholastic/info/milestones.htm.
Milliot, Jim, "Big Drop at Retail Hurts Scholastic in Fiscal '97," Publishers Weekly, September 8, 1997, p. 11.
----, "Scholastic Has Small Profit on 4% Sales Gain, to $966 Million," Publishers Weekly, July 21, 1997, p. 108.
----, "Scholastic Plans Consolidation After 'Overexpansion,"' Publishers Weekly, May 5, 1997, p. 10.
----, "Scholastic Sales Up 24% But Charges Hurt Earnings," Publishers Weekly, July 29, 1996, p. 11.
----, "Scholastic Says Its Turnaround Is on Track," Publishers Weekly, December 22, 1997, p. 15.
"Scholastic Acquires Assets of Pages Book Fairs for $10.5 Million," company press release, June 25, 1998, at http://www.scholastic .com/aboutscholastic/invrel/press/980625.htm
"Scholastic Acquires The Electronic Bookshelf," company press release, April 20, 1998, at http://www.scholastic.com/aboutscholastic/invrel/press/98april20.htm
"Scholastic Agrees To Buy Red House," company press release, November 19, 1996, at http://www.scholastic.com/aboutscholastic/invrel/press/96nov19.htm
"Scholastic Inc. Acquires QED, One of the Country's Leading Education Technology Market Research and Database Firms," company press release, January 21, 1999, at http://www.scholastic.com/aboutscholastic/invrel/press/1.21.99.htm
"Scholastic Slapped with More Suits," Publishers Weekly, June 16, 1997, p. 19.
Source: International Directory of Company Histories, Vol. 29. St. James Press, 1999.
