Once again, changes at Random House have made headlines in papers throughout the country. The highly regarded head of the Random House Trade Group, heir to the old Random House, was summarily fired by Bertelsmann’s American chief, Peter Olson. Not only was Ann Godoff fired on January 16 after recently signing a three-year contract, but the whole of her publishing house is to be dismantled and placed under the control of the much more commercial paperback firm within the group, Ballantine Books. The reason is very clear. Olson made a point of saying in his memo that Random House was “the only…division to consistently fall short of their annual profitability targets.” The aim of this unusual statement was not simply to humiliate Godoff in addition to firing her–always a nice touch–but to warn everyone else at the greater Random House that this was the fate awaiting them if they did not meet their goals.
But what, precisely, were those goals? In all the articles, Olson’s assertion that Godoff had fallen $4 million short of her $6 million target was assiduously repeated. But no one asked what percentage this was of her unit’s sales goal, or what the Bertelsmann profit target was for the overall group. Surely, this is an important part of the story, and it is curious to see that so many trained business journalists did not even bother to ask it. As I’ve shown in The Business of Books, the owners’ profit demands determine what can be published. Presumably Olson’s goals for Godoff were based on the clearly commercial and mass market-oriented output of the rest of Random House (Knopf excepted). Godoff’s mistake was to adhere to the higher standards of Random’s past.
Nor did any of the articles mention that there was a certain déjà vu to this story. Fourteen years ago, Random House made the headlines, indeed, the front page of the New York Times, when S.I. Newhouse summarily fired Bob Bernstein, the company’s president for many years. Here too, Bernstein was accused of not making enough money, though it was never specified how serious his sins were. After Bernstein’s dismissal, numerous changes took place within Random House as a whole. He was replaced as president of Random by Alberto Vitale, under whose leadership Pantheon Books, the house that I directed, was deemed insufficiently profitable and subsumed under Knopf in exactly the same way that Random House will be merged into Ballantine. Faced with the new commercial pressures, a large number of major editors–not merely those at Pantheon–left in the ensuing years, and a new policy of spending ever-larger amounts for advances was instigated. But by 1999 it was clear that this policy had been a dismal failure; Random House had an operating profit of one-tenth of 1 percent that year. The firm was then sold to Bertelsmann, the German conglomerate.
Bertelsmann’s own newsletter has trumpeted the expectation that each subsidiary should make an annual operating profit of 15 percent while increasing sales by 10 percent. For the American holdings of Bertelsmann, which account for 40 percent of the country’s trade book sales, in excess of $2 billion a year, this would mean an additional $200 million of business each year.
Clearly, this is very difficult to achieve, and it explains why Ann Godoff and her colleagues were pressed to gamble on increasingly high advances in the hope that the necessary bestsellers could be delivered. All the articles give a detailed list of those books that didn’t quite make it: the $10 million advance paid to Stephen King and Peter Straub, which lost a great many millions; the $7 million-plus paid for the as-yet-unwritten second novel by Charles Frazier, author of the bestselling Cold Mountain. Of course, all such advances have to be approved by Olson himself, but it was unlikely that he would deliver a criticism of his own role in this policy. Indeed, a Random House spokesman stated simply that his participation in those decisions “had been taken into account.”