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Penguin & Random House Merger

Writing.ie | Magazine | News for Writers
random house

By Vanessa O'Loughlin

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We are sure many of you will have by now heard the news that Random House and Penguin are set to merge in a £2.4bn deal creating Penguin Random House, a company that will be the largest consumer book publisher in the world, with a global market share of more than 25 percent.

The New York Times explains how it will work: “In announcing the agreement, the European owners of Random House and Penguin — Bertelsmann and Pearson, respectively — said Bertelsmann would control 53 percent of the combined entity and Pearson 47 percent. In a statement, Bertelsmann said the deal would most likely conclude in the second half of 2013, after approval from regulators.”

According to Publishers Weekly “In 2011, Random House had worldwide revenue of 1.75 billion euros ($2.2 billion at current exchange rates) while Penguin Group had total sales of 1.04 billion pounds ($1.7 billion at current rates).”

So why have these giants decided to join forces and what does it mean for authors?

The move is a direct result of the need for both companies to tackle the changes in global publishing with the new company having more power to deal with the challenges arising from the growth of electronic books and the power of Internet retailers such as Amazon. As Publishers Weekly puts it, “With that type of market share, it would be difficult for Amazon, or any other online retailer, to turn off buy buttons if they disagreed over some business decision.” Publishers are increasingly worried about the level of control of the market Internet giants like Google, Apple and, especially, Amazon, have. With vast resources to invest in new technology such as digital sales platforms, their size anf foothold in the market gives them bargaining strength on all terms, including price.

Heavy discounting by online retailers and supermarkets has made it increasingly difficult for booksellers of all types to survive, leaving publishers with significantly fewer places to reach consumers. Together with the explosion in the eBook market – Amazon is now selling 114 ebooks for every 100 printed books, helped by the popularity of its Kindle – prices have been driven further down. Add to the mix increased competition from self-published authors and the ease with which they can get books to market, and it is clear that publishing is an industry experiencing change at an unprecedented rate.

John Makinson, Penguin’s chief executive, who will head the new Penguin Random House board, said “We are all worried, as the world moves to a more digital structure for content and distribution, that publishing could diminish, fewer books be published and fewer risks taken.”

“This will give us resources, capacity and confidence to publish a broad array [of content] and to take risks. That is what good publishing is about.”

In The Telegraph, Bertelsmann explained that the deal marked a “significant step” in the companies’ plans to overhaul its digital operation and expand in emerging markets such as China and India. Marjorie Scardino, chief executive of Pearson, added: “Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers.”

There are, however, mixed feelings about the effect the merger will have on authors.

Kate Pool, deputy secretary general of the UK’s Society of Authors, told The Guardian that if the new venture delivered on its promises to continue to invest in content and titles at its current levels, then authors have nothing to fear. “If they keep their promises then it could well be that at the coalface it doesn’t feel that different to the average author. If publishers are struggling because the sands are shifting then they need reinforce what they have always done well – good rights deals, good advances.”

New York agent Richard Curtis writes in Digital Book World‘s article Who Shall Live and Who Shall Die: What the Random/Penguin Merger Means to You, “When it does happen, in my experience the last people to get the ax are authors. That is not necessarily because the management of publishing companies is compassionate (though I believe it is). It’s because management is mindful (thank God) that the whole apparatus of the publishing industry is fed by authors, and there is great reluctance to slaughter the geese that lay the eggs. There is also the question of shelf space. Though the two companies have a number of science fiction and romance imprints between them, for instance, closing one of them could remove critical advantages in shelf space for which publishers fight tooth and nail. When that space is given up, competitive publishers are ready to rush in to fill it, and once lost it cannot easily be regained. So, in the next, say, six months to two years or longer we will see mergers of every process and function except editorial.”

However, as Claire Armistead, Books Editor for The Guardian explains that there are concerns about the move: “The fear among those who are still writing is that the loss of competition will drive advances and royalties down, while narrowing the range of books published. Backlists in particular are likely to suffer, as the logic of amalgamation is that 1 + 1 is more likely to add up to 1.5 than 2. Any overall reduction in backlists will affect the range of books available and the reputations and incomes of the authors who wrote them.”

Armistead adds, “However, for writers, and readers, the key thing is that some sort of publishing industry survives – and this deal is unlikely to be the last, as so-called “legacy publishing” attempts to square up to the threat posed by Amazon’s online monopoly.”

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