Random House and Penguin Are Negotiating a Merger

Rainer Jensen/DPA, via Agence France-Presse — Getty Images Thomas Rabe, the chief executive of Bertelsmann, has promised to transform the company.

 In an effort to stave off the challenge from online retailers in a rapidly changing market, two of the world’s largest book publishers, Random House and Penguin, are engaged in talks to combine their businesses.
Pearson, the British media conglomerate that owns Penguin, said Thursday that it was discussing a potential deal with Random House’s owner, Bertelsmann of Germany. The merger, if completed, would create a combined entity that would control nearly 25 percent of the United States book market and feature an elite roster of authors like Dan Brown, Toni Morrison and John Grisham of Random House and Junot Diaz and Patricia Cornwell of Penguin.
The potential consolidation comes as traditional publishers try to compete with dominant technology companies like Amazon, Apple and Google that have gained power in the e-book market. Lower prices offered by retailers like Amazon have put pressure on publishers to adjust their digital book strategy at a time when brick-and-mortar stores have been disappearing.
A deal could signal a move toward further consolidation among the major publishers, much the way the music industry realigned itself as it made the painful transition to the digital marketplace. Facing intense competition from Apple’s iTunes, the industry shrunk from six major record companies to three.
A merger of Random House and Penguin could help the publishing houses cut costs by combining resources, and it would give them more heft in negotiations with Amazon and Apple as readers increasingly abandon print for cheaper e-books.
Penguin Group USA is among the five major publishers named in a lawsuit filed last spring by the Justice Department, which accused those publishers and Apple of colluding in the pricing of e-books. Three publishers — Hachette Book Group, Simon & Schuster and HarperCollins — settled. Penguin and Macmillan have not. Random House, the largest book publisher in the United States, was not named in the lawsuit.
“A combined Random House and Penguin would be a supplier so large it would be very difficult for any anyone to dictate terms to,” said Mike Shatzkin, the founder and chief executive of the Idea Logical Company, a consultant to publishers. He added: “You’re allowed to collude if you’re combined.”

Literary Agents reaction
But for authors and their representatives, news of the merger discussions, first reported by Germany’s Manager Magazin, came as another potential blow in an already challenging profession.
Several literary agents said a merger would lead to a consolidation of publishing imprints, thus reducing the number of bidders vying for titles. They also said that combining editing and marketing resources would likely lead to layoffs and potentially put added pressure on authors, especially those who do not churn out mass-market hits.

David Kuhn, a literary agent in New York, said that a shrinking book industry could be compared to the situation in Hollywood, where studios under financial pressure now focus on churning out a handful of blockbusters a year, rather than taking risks on smaller films. “If there are 20 fewer imprints, then that means there are 20 fewer publishers with checkbooks willing to make bets on less known entities,” Mr. Kuhn said.
Another New York agent, who insisted on anonymity to candidly discuss the deal, was more pessimistic. “This group would be HUGE. NOT good for authors,” the agent wrote in an e-mail
Full story at The New York Times