The ‘merger’ of Penguin and Random House is, like all such deals, a takeover by another name. In this case, it’s a slow-motion takeover (it will take three or five years to be completed, depending on circumstances), after which either side can buy out the other. But given that it was Penguin’s owner, Pearson, that put its UK subsidiary on the block, and that Bertelsmann, Random House’s owner, starts off with 53 per cent of the merged entity, I agree with my friend Andrew Franklin, the founder and managing director of Profile, that, ‘It’s a racing certainty that the UK holding will be bought out by the deeper pockets of the richer German company.’ (See his comments here.)
The initial question is, ‘Why has this happened?’ There’s been a lot of company spin about it enhancing service levels and enriching content, and there’s been external commentary that, with around 25 per cent of the world trade-publishing market, Penguin and Random House will be able to better withstand the bullying behaviour of the major e-book retailers.
I think both of these are smokescreens. Amazon would certainly find it harder to turn off the buy-buttons of a Penguin House, but all the trade publishers in the world stacked end to end wouldn’t put a dent in Amazon’s side.
It’s much more relevant, I think, that Pearson has been under pressure from the financial markets for a long time to offload Penguin, and it’s been to its credit that it’s withstood these urgings. But the underlying reality is that trade publishing is a relatively slow-moving, low-profit business, and one that will be under enormous pressure for the foreseeable future. In the transition to digital publishing, with bricks-and-mortar outlets disappearing and physical turnover stalling or declining, the large houses are in a world of pain with their massive overhead costs and working-capital requirements.
Their owners have to do something about this, and their options boil down to exiting the industry, managing decline, or expanding: that is, they can sell out; reduce their lists, their costs, and their turnover, by dropping imprints and shedding functions and staff; or they can seek economies of scale by taking over a competitor. In Pearson’s case, they clearly decided that they didn’t have the corporate will or the patient capital necessary to persevere. They seem to have felt that their best solution was to find a new owner for Penguin that would feel appropriate, and to disguise their abandonment of the business as gracefully as possible.
The benefits for Bertelsmann are clear. They acquire a former competitor with wonderful lists, and immediately get the economies of scale from bulking up: jobs (and therefore costs) will quickly go in the physical handling of books, and in back-office functions, and there’ll be further ‘rationalisation’ down the track.
The questions that follow this decision are more important and interesting. What happens next to their competitors, and what are the implications for the small fry in this story — authors, agents, bookshops, and independent publishers?
I have no doubt that this takeover will trigger a wave of further takeover activity. Rupert Murdoch’s HarperCollins clearly has the will and capacity to swallow up one of its competitors, but News Corp is like an obnoxious rich boy with a history of bad behaviour that no girl wants to be seen in public with. I suspect that the only date it can get will be with Simon & Schuster.
There are also geo-political complications: the huge French-based multinational Lagardere owns famous imprints in the UK and the US, such as Little, Brown, Hachette, and Hodder & Stoughton, while the large German-based house von Holtzbrinck owns notable publishing companies worldwide, such as Macmillan, Henry Holt, and Farrar, Straus and Giroux. It is hard to imagine either company agreeing to be bought out by the other.
My guess, then, is that the Big Six will become the Big Four.
For the rest of us, the results are even more speculative. For authors, there’s likely to be less choice as the larger houses focus even more on the pursuit of blockbusters, and stop bidding against each other internally. It may mean that advances will go up for highly commercial manuscripts, but they’d be likely to do so while they decline for midlist books. If this is right, literary agents will see this as a mixed blessing.
Bookshops might welcome having fewer publishers to deal with, but I suspect they’ll have less bargaining power in their pursuit of marketing support. The large houses that remain may also be less worried about the further decline of physical bookshops.
Independent publishers will also view these developments with some anxiety. It will make it even harder for them to acquire good books at reasonable prices, and will probably accelerate the trend towards global publishing. It may also make their dependence on large houses for sales and/or distribution facilities more fraught. This is a much bigger and more important subject than it might seem, as it is the key to the independents’ business model — and to the availability of their books.
Big commercial books will always find their market, but all those other books we all need are only made available to readers by people who care about what they’re doing. That needs personal dedication — committed publishers, hand-selling booksellers, passionate reviewers and bloggers, and ultimately word-of-mouth recommendations. Anything that puts this ecology at risk puts our civilisation at risk, too.
Henry Rosenbloom
I think both of these are smokescreens. Amazon would certainly find it harder to turn off the buy-buttons of a Penguin House, but all the trade publishers in the world stacked end to end wouldn’t put a dent in Amazon’s side.
It’s much more relevant, I think, that Pearson has been under pressure from the financial markets for a long time to offload Penguin, and it’s been to its credit that it’s withstood these urgings. But the underlying reality is that trade publishing is a relatively slow-moving, low-profit business, and one that will be under enormous pressure for the foreseeable future. In the transition to digital publishing, with bricks-and-mortar outlets disappearing and physical turnover stalling or declining, the large houses are in a world of pain with their massive overhead costs and working-capital requirements.
Their owners have to do something about this, and their options boil down to exiting the industry, managing decline, or expanding: that is, they can sell out; reduce their lists, their costs, and their turnover, by dropping imprints and shedding functions and staff; or they can seek economies of scale by taking over a competitor. In Pearson’s case, they clearly decided that they didn’t have the corporate will or the patient capital necessary to persevere. They seem to have felt that their best solution was to find a new owner for Penguin that would feel appropriate, and to disguise their abandonment of the business as gracefully as possible.
The benefits for Bertelsmann are clear. They acquire a former competitor with wonderful lists, and immediately get the economies of scale from bulking up: jobs (and therefore costs) will quickly go in the physical handling of books, and in back-office functions, and there’ll be further ‘rationalisation’ down the track.
The questions that follow this decision are more important and interesting. What happens next to their competitors, and what are the implications for the small fry in this story — authors, agents, bookshops, and independent publishers?
I have no doubt that this takeover will trigger a wave of further takeover activity. Rupert Murdoch’s HarperCollins clearly has the will and capacity to swallow up one of its competitors, but News Corp is like an obnoxious rich boy with a history of bad behaviour that no girl wants to be seen in public with. I suspect that the only date it can get will be with Simon & Schuster.
There are also geo-political complications: the huge French-based multinational Lagardere owns famous imprints in the UK and the US, such as Little, Brown, Hachette, and Hodder & Stoughton, while the large German-based house von Holtzbrinck owns notable publishing companies worldwide, such as Macmillan, Henry Holt, and Farrar, Straus and Giroux. It is hard to imagine either company agreeing to be bought out by the other.
My guess, then, is that the Big Six will become the Big Four.
For the rest of us, the results are even more speculative. For authors, there’s likely to be less choice as the larger houses focus even more on the pursuit of blockbusters, and stop bidding against each other internally. It may mean that advances will go up for highly commercial manuscripts, but they’d be likely to do so while they decline for midlist books. If this is right, literary agents will see this as a mixed blessing.
Bookshops might welcome having fewer publishers to deal with, but I suspect they’ll have less bargaining power in their pursuit of marketing support. The large houses that remain may also be less worried about the further decline of physical bookshops.
Independent publishers will also view these developments with some anxiety. It will make it even harder for them to acquire good books at reasonable prices, and will probably accelerate the trend towards global publishing. It may also make their dependence on large houses for sales and/or distribution facilities more fraught. This is a much bigger and more important subject than it might seem, as it is the key to the independents’ business model — and to the availability of their books.
Big commercial books will always find their market, but all those other books we all need are only made available to readers by people who care about what they’re doing. That needs personal dedication — committed publishers, hand-selling booksellers, passionate reviewers and bloggers, and ultimately word-of-mouth recommendations. Anything that puts this ecology at risk puts our civilisation at risk, too.
Henry Rosenbloom
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