Harry Potter publisher stumbles amid trouble on high street for booksellers

To book aficionados, the profit warning from Bloomsbury will have come as no surprise. A quick glance at the latest top-50 best-seller list tells the tale that the company was so reluctant to flesh out yesterday: there is not one title from the publishing house. Harry Potter, who for nearly a decade has cast his spell over the group's profits, was notable by his absence.

Despite pouring millions of pounds into the hunt for authors to fill the void left when JK Rowling finishes the seventh and final instalment in the series about the boy wizard next year, Nigel Newton, Bloomsbury's chairman and chief executive, has found himself with a bookshelf of Christmas turkeys.

Contrary to Mr Newton's hopes, Father Christmas is not being plagued with requests for copies of Gary Barlow's autobiography, for which the former Take That singer pocketed an estimated £1m up front. Nor is the book of David Blunkett's infamous tapes proving popular. And as for the tome by the country's leader-in-waiting, Gordon Brown, well it's safe to say that isn't flying off the shelves either.

But Bloomsbury's lack of bestsellers is not its only problem. The publisher said it was also suffering from poor sales ahead of Christmas, sparking broader concerns about how book chains such as Waterstone's and WH Smith are faring against a tough retail backdrop.

With supermarket chains and online book retailers on the offensive like never before, specialist book chains are being squeezed ever harder. Neill Denny, the editor of The Bookseller, a trade magazine, said: "The big picture is the power of online."

New internet-based players such as Play.com are pushing into books and Amazon is making a big pitch to be as authoritative in back lists as it is on best-sellers. Even Dixons.co.uk, the electricals website, has got in on the act, selling books alongside iPods and digital cameras.

Investors punished Bloomsbury for its warning late on Monday evening that pre-tax profits for the year to end-December could be as much as 75 per cent less than the market had expected, wiping 30 per cent - or £66m - off the group's valuation. Shares in HMV, which owns Waterstone's, also fell.

Despite the bad omen from Bloomsbury, book market insiders had mixed views on whether this meant book retailers could wave goodbye to any hopes of a happy ending to 2006.

Tim Godfray, head of Booksellers, a trade organisation spanning the supermarket chains and small independents, said: "Retailers have a pretty tense time at this time of year, keeping everything crossed that they can, but I suspect book sellers are doing better than most at the moment. It's quite a struggle, but I'm hopeful and I'm encouraged."

The latest data from Nielsen Bookscan, which collates till receipt data from 80 per cent of the industry, shows that the total consumer book market was up 2.8 per cent for the 12 months to 2 December and up 1.5 per cent on the same week in 2005. These figures exclude inflation, implying that in cash terms the book market is fractionally down for the year, but given the problems in other sectors such as music and fashion this compares favourably.

Mr Denny described the sector as "solid in a difficult market", but conceded that there was pain on the high street where heavy promotions of best-sellers is still the norm.

The main cause of the malaise is a lack of decent reads. Last year's best-seller lists contained both the latest Potter title and Dan Brown's Da Vinci Code. In addition, there have not been any surprise hits, no matter how many times titles such as Why Don't Penguins' Feet Freeze? get plugged in gift guides for unimaginative shoppers. Instead, it has been left to a resurgence in popularity of celebrity memoirs and retro annuals, such as The Best of "Jackie", to lift sales.

Scott Pack, the commercial director for The Friday Project, an independent publisher set up to find publishing hits from the internet, said: "There hasn't been anything that has really captured the imagination and become the one big Christmas book." The former Waterstone's buying manager added: "Bloomsbury has clearly had quite a bad time and a couple of their high-profile titles haven't performed, but to be fair most publishers have had a lot of failures. A lot of money has been wasted."

Paul Smiddy, retail analyst at HSBC, said a sticky high street had left publishers bearing the pain on two fronts. "They had the pain of giving discounts to start with and now they are not getting the volumes through that they needed."

Arguably the bigger problem for Bloomsbury following the shock profits collapse is one of credibility. Not least because the third - and biggest - fork of its three-pronged profit warning concerned an aspect of its business about which analysts claimed to know very little.

The company cited delays in selling on the rights to some of its reference titles as the third reason for its woes. Malcolm Morgan, at Investec Securities, the company's joint broker, estimated that Bloomsbury could have been budgeting for some £10m of profits from this source.

Yet Monday evening was the first time the company had ever even hinted about the extent to which it was relying on this profit stream. Back at its interims, it chose to bury its only reference to its "new print electronic reference database projects" deep within the text of its announcement.

Analysts at Dresdner Kleinwort Wasserstein, its other joint broker, wrote in a note to investors: "There will obviously be questions about the quality and sustainability of earnings whatever the outcome, and in particular a further exposition of the reference rights business will be required."

Mr Newton, whose tight grip on the company he founded is regularly attacked by proponents of tighter corporate governance structures, had hoped to repeat the success he had back in 1999 and the rights deal Bloomsbury struck with Microsoft for its Encarta World English Dictionary. The company is still optimistic it will complete its "major pending rights deals", but as analysts have no clue what these might be they were taking nothing for granted yesterday.

Simon Davies, at ABN Amro, said Bloomsbury's warning was a taster of life without Harry Potter. He said that the company's £50m push into new categories such as entertainment and sport had "increased its risk profile. This Christmas was the first big test of that strategy and initial signs are not positive", he added.

DKW expects to lower its profit forecast for 2007 to £15m from £22m despite the likelihood that JK Rowling will come good with the seventh Potter novel in time for next year's school summer holidays. Thereafter, the pickings from Potter will be slim, although Bloomsbury will follow the hardback with a paperback and reissue the titles every time a new film is made.

But given the gamble that is signing a new writer, even re-prints of titles as hot as Harry Potter and the Goblet of Fire may not be enough to cover up for the disappointments of Messrs Barlow and Blunkett et al.