October 31, 2012

Back to the other storm that rocked the book industry: Analysts weigh in on the Penguin Random House deal


Up against the literal uproar of Hurricane Sandy, the book industry’s biggest story since I don’t know when — that is, the merger of Penguin and Random House — didn’t seem quite so important for a couple of days there. At least not here in New York City.

But coming out the storm — thankfully intact — it’s clear it’s still a hot topic under close consideration elsewhere in the book world.

For example, there’s the question that was probably first for most people: Can they do that? Aren’t there, like, rules or something?

Well, there are — they’re actually called “government regulations,” also, “antitrust laws” — but initial news stories brushed them off. As an early Guardian report breezily summed it up, “Analysts … suggest it is likely to be waved through as regulators allowed the music industry to be consolidated down to just three big players.”  And Slate’s Matthew Yglesias, in a comment on the magazine’s Money Box blog, says publishing people are deluded in the first place if they think regulators care about them. “Worrying about anti-trust issues in the book publishing industry is like worrying about a horse and buggy cartel,” he writes, although he also says “there’s just nothing the traditional publishers can possibly do to avoid competition. Regulators ought to cut them some slack.”

But a BBC News report, at least, studies the question in a bit more depth:

Pearson and Bertelsmann, which are merging their publishers Penguin and Random House, are confident of getting the deal cleared by regulators.

Pearson chief financial officer Robin Freestone told BBC News it was a complicated issue but their advice was that the merger would be approved.

But he added that Pearson would sell “bits and pieces” to get it through.

… The new Penguin Random House is set to have between 25% and 30% of the global publishing market.

Bertelsmann chief executive Thomas Rabe said he considered this market share to be “reasonable”, and added he was “confident we will get the transaction cleared in the second half of next year”.

Interestingly, both sides also apparently believe it will impress regulators that “their brands, or imprints, would retain their editorial independence.”

Then there were those who see the merger as a good thing: In an in-depth analysis on the website for PBS’s Media Shift, Jason Allen Ashlock even suggests Random and Penguin keep going:

It’s unlikely that any one of the existing large publishers could or would build a retail competitor to Amazon with only their share of the market. But Random House + Penguin just might be large enough to leverage their combined brand weight and consumer reach to create and sustain their own storefront.

To that end, one other consolidation might make sense: to expedite the building of their retail component, Random + Penguin merges with Barnes and Noble. It’s not as crazy as it sounds. Not so long ago, and for not so long a time, Bertlesmann owned a large stake in BN.com. Not so long from now, they may again.

Maybe not a bad idea: As Andrew Franklin smartly points out in a column for the Independent, if the merger is about getting equal footing with Amazon, or any other big digital player such as Apple or Google, well … “this new company will be only eight per cent of Google’s size and six per cent of Amazon’s. So they will hardly square up equally in the ring.” He predicts — as does everyone, including me — more mergers will quickly follow.

(Okay, maybe you had another first questions: What about the name of this new two-headed love child, the subject of many a meme? Katherine Rushton says in a Telegraph report that Pearson CEO Marjorie Scardino tells her, “Random Penguin did come into conversation, but it hurt the penguin’s feelings.”)

In any event, what happens now? First, many are already complaining that it’s bad news for authors, because it means one less gigunda publisher handing out mega-advances. As an early New York Times report observed,

Authors and literary agents, one step removed from the merger, have expressed concern about consolidation, fearing that they will lose leverage if there are fewer publishers. Blake Bailey, the author of literary biographies of Richard Yates and John Cheever, reflected this unease, saying: “Having just gone through an auction with my Philip Roth biography, I think it’s usually true that an author benefits when there are as many big players as possible bidding against each other.”

But for most authors, that’s like complaining about having fewer chances to win the lottery. Martha Gill counters the complaint rather stirringly in a New Statesman commentary:

… this is only bad news for the snobbish – those who think that highbrow authors must be protected from the lowbrow, lest they get infected, and believe publishing houses the best location for such a quarantine.

Even if you do believe this (and most people don’t find it hard to spot a Will Self from a JK Rowling, even with the same symbol on the spine), it’s the smaller and cash-strapped publishing houses that are having increasingly to rely on selling “50 shades rip-offs and cookbooks” (according to one industry member) in order to make ends meet.

Not sure I agree with that last twist — there’s an argument to be made that this could inspire a growth in small publishing, too, as demand for much of the work that will be rejected by the big houses will go undiminished. As Bookseller editor Philip Jones observes in a perceptive commentary for the Guardian,

 It is naive to imagine that the big groups don’t set ceilings, but in truth advances are being driven down by fears over the future of high street bookshops and the shift to digital, not by consolidation at the top. The publishing world is also kept honest by those smaller independent publishers, such as Profile Books, often run by individuals discarded by the big groups. A publishing deal is still a relationship between one editor, one agent, and one author. The essence of this won’t change.

But there is something that will change, and rather quickly, say several observers — Andrew Franklin, for one, in his lovely Independent column cited above:

Champagne corks are not popping in the book world at news of the Penguin-Random House merger. There is no celebrating among competitors or authors, and the atmosphere at Penguin Towers and Random HQ is apparently one of deep gloom. Only the Mergers & Acquisitions lawyers will be happy.

Such mergers of titans are always accompanied by job losses so it’s hardly surprising that employees at Penguin and Random House are worried. The first jobs to go will be in warehousing and distribution, then it will be finance and royalties, production next and editors last. Savings will be trumpeted and P45s handed out. That, of course, is what mergers are for.

That’s the version of the question “what now?” that none of us asked, because we all knew the answer.



Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.