Although a Random House/ Penguin Group merger is not a done deal yet, the fact that Penguin’s parent company, Pearson, issued a statement confirming that it is in negotiations with Random’s parent, Bertelsmann, about some sort of combination was more than enough to get the industry speculating about what such a move would mean for all parts of the industry.
There are plenty of unknowns on how the deal would play out, but what is a certainty is that a Random House/Penguin combination would produce a company with sales in the U.S. of more than $2 billion, making it the largest trade house by a wide margin. While the company would be the dominant publisher in all segments, it would have the largest share of the mass market paperback category, a format that has been especially hard hit by the growth in e-books. Based on BookStats’ most recent figures of trade sales for the industry (excluding religion) of $12.5 billion, the combination would have about a 17% share of that market. And its share of top sellers would be substantially higher, as seen by the percentage of bestsellers each publisher accounted for on the Publishers Weekly bestseller lists in 2011—Random Penguin would have had just over 47% of hardcover bestsellers and 45% of paperback bestsellers last year.
Industry members and analysts said that kind of market share would make it difficult for Amazon, or any other retailer, to threaten to remove buy buttons over a dispute in business negotiations. For better or worse, one fellow publisher said, “You would be creating a monopoly to fight a monopoly.” While a merger would certainly draw scrutiny from the government, given the state of flux in publishing, the consensus was that a deal would likely be approved by the government (especially if Mitt Romney wins the presidential election).
Analysts said Random House and Penguin, already the #1 and #2 trade houses in the U.S., could still realize considerable savings from joining forces and combining back-office operations (one analyst put the savings at well over $100 million). A combination of resources would also give Random Penguin enough heft to develop a more robust direct-to-consumer channel, a platform that could go beyond the struggling Bookish (of which Penguin is one of three partners). In addition, the combination would give the new company a more comprehensive global presence, although one competing publisher noted that it is business conditions in the U.S. driving the deal, not global concerns.
While there seemed to be clear business reasons for both sides to do a deal (and for their parent companies), the benefits to each house’s publishing programs was less evident. “There would be tremendous overlap among the imprints,” one observer noted, wondering how the imprints would try to compete with each other for new titles. Lack of competition was certainly on the minds of agents, who see a possible combination as the loss of a deep-pocketed company to bid on titles. As one agent boiled it down: “Fewer publishers to submit to, lower advances.” This agent noted that a merger could mean more opportunities for independent publishers to step forward, but added, “It’s hard to feel positive about that.” Another agent had a more theoretical take. Calling the possible merger a “disaster for authors, their agents, and their readers,” he reasoned that a Random Penguin combination would “throttle” the book business at the beginning of the business cycle by producing fewer titles. Another industry member, however, said he was hopeful that because Random gives its publishing groups the chance to compete with each other, such would be the case at a merged Random Penguin.
Consolidation was also on the minds of booksellers. “I always worry about too much consolidation in any industry. And since Random House and Penguin together are 30% of our sales, that is cause for concern,” said Roxanne Coady, owner of R.J. Julia in Madison, Conn. “When I was an accountant, it was always a worry if any one person was 15% of your sales, because it tips the scales of the relationship. I can imagine how many conversations publishers have with an account like Amazon and the amount of business that they represent. The same would translate here. Random House is already the gorilla going through my checkbook. Together they would be the elephant.”
Others were a little more sympathetic to the realities faced by publishers. “There are some alarm bells that go off for me whenever companies grow that much bigger and dominate that large a share of the market,” said Chuck Robinson, owner of Village Books in Bellingham Wash. “But I do understand that publishers are also scrambling to invent new business models, and perhaps they believe this kind of consolidation is necessary.” Mitchell Kaplan, owner of Books & Books, headquartered in Coral Gables, Fla., expressed the hope that the houses would keep editorial separate and limit changes to the business side. “I hope that each group continues to publish as finely as they do, and it doesn’t diminish either of them.”