(AP Photo/Mary Altaffer)
The recently announced merger of Penguin and Random House, which is owned by Bertelsmann in Germany, sent shock waves throughout Western publishing circles. This new leviathan will publish a quarter of all books appearing in English, with annual sales of close to $4 billion, yet it is being treated by The New York Times and other media as a routine and perhaps even beneficial development.
Since the 1980s, when Random House was purchased by Si Newhouse’s Advance Publications, mergers have swallowed up most small and independent US and British firms. Publishing has been so dominated by the major conglomerates that another merger seems natural, the Times suggests. Indeed, others can be expected to follow. Rupert Murdoch has already expressed his disappointment at not having bought Penguin and his desire to buy another large firm to merge with HarperCollins, a subsidiary of News Corporation, which his family controls.
In a way, there’s a logic to this analysis. The mergers are occurring because book publishing has proved to be less profitable than the conglomerates had hoped. For most of the past two centuries, Western houses averaged a mere 3 percent annual profit. The new owners had hoped to raise the rate closer to 25 percent, to match those of their other holdings: newspapers, magazines and TV stations (even though these depend on advertising). But try as it might, publishing failed to churn out enough bestsellers.
Then came the competition from Amazon, which has entered the publishing market itself, hiring agents and editors to help it find bestselling authors. Amazon has also forced publishers to accept its pricing of e-books at $9.99—which has drastically reduced their profit margins and has the additional benefit for Amazon of weakening sales of the traditional trade paperback, the format publishers have counted on as a dependable earner. It has even refused to list the books of houses that resisted its policies. Amazingly, the Justice Department has taken an extremely narrow view of the antitrust laws, prosecuting the publishers resisting Amazon’s pricing rather than the behemoth pressuring them.
Faced with this challenge, the newly merged companies argue that they will save money on sales and distribution, and thus compete with Amazon or get a better deal. They can hardly argue that they will publish more profitable books, since they are doing all they can now. But they can cut the smaller titles, commonly known as the midlist. The Economist quotes Mark Oliver, a publishing consultant, saying that he “expects Penguin Random House to cut the number of midlist authors, just as music labels once cut mediocre crooners.” So much for literary authors or those attempting serious nonfiction. But as every business school student knows, the real savings come not from eliminating titles but from firing those hapless editors who still feel it part of their duty to find such books.
Citing Thomas Rabe, the head of Bertelsmann, the Times tried to reassure its readers that “the merger would also allow the combined company to invest in emerging markets, which show more promise for growth than developed markets like the United States and Western Europe.” That’s not an encouraging comment about their hopes for publishing in this country. When I was in India last fall, I met the chief editors of the leading European-owned houses, who did not seem to share such expectations and indeed worried about the sales and profit targets they were expected to meet. But Bertelsmann—famous for having more accountants in its headquarters than editors in all the companies it owns—must have more accurate projections than its employees possibly could.