When the first major restructuring at Random House occurred six months after Markus Dohle was named chairman of the country's largest trade book publisher, some pundits wondered why it took so long and questioned whether the reorganization was enough to give the giant house a jump-start. But one week shy of his second anniversary at the helm of Random, it is clear that Dohle has accomplished an overhaul of Random that was more evolutionary than revolutionary. With the recent creation of the Ballantine Bantam Dell unit and further realignment of the Crown Publishing Group, Dohle has done what Random outsiders said was necessary to re-energize the company—made Random's bureaucracy easier to navigate; consolidated the mass market imprints into one group; simplified the publishing groups and given them a better identity; and brought in new blood.
Dohle's initial cautious approach was deliberate. With the economy headed into a deep recession and signs that digital technology was starting to have a significant impact on the industry, "I couldn't afford to make the wrong decision," Dohle said in an interview at Random's New York office about his first two years as chairman. To make sure he made the right decisions, Dohle spent his first few months getting to understand Random House and its different stakeholders—employees, authors, agents, and customers—as well as the American publishing industry. His priority, Dohle said, was to let Random employees know that he was there to support them, whether that meant getting them resources to acquire a book or flying to Seattle to meet with a customer. His goal was to build relationships and create momentum to make it easier to implement the changes that were to come. "You can't successfully change things without people buying in," Dohle explained. "I needed to have a close working relationship with my colleagues."
The Random House of May 2010 is more streamlined, cost-conscious, and collaborative, Dohle believes. "Size by itself is not always a benefit," Dohle said, adding that to give Random the flexibility it requires to compete in the digital age he needed to reduce Random's "complexity and expenses." Random now rests on three pillars: a commitment to creativity, a drive to be the most efficient supplier to its customers, and a leader in digital publishing. With his background in manufacturing, Dohle acknowledged that in his first months on the job he was most comfortable dealing with supply chain issues, but noted that in a mature industry, the only way to grow is to grab market share, and that one way to take market share is to provide better service to customers than competitors, whether that be by providing faster replenishment or helping customers keep their cost structure down. Another way to grow its print business is to have the right books and authors, so despite being a leaner company, Random still invests "hundreds of millions" annually to acquire books and wants to be known "as the house of talent," Dohle said.
Random also has been investing "tens of millions of dollars" to improve the infrastructure for distribution not only of physical books but digital ones as well. Digital sales rose significantly in the first quarter and the combination of e-book and digital audio revenue was roughly 8% of total revenue, the same percentage that Simon & Schuster and Hachette Book Group reported in the first quarter. Although Dohle is aware that the physical and digital markets have different requirements, he doesn't want to divide them completely. Keeping the print and digital sides working together is one reason he sees the return of Madeline McIntosh as president of sales/operations/digital as a key hire. McIntosh is familiar with all parts of Random House and can build bridges that will enable Random to distribute its content through various channels, Dohle explained.
Finding the right digital business model is obviously a key to the future, and Dohle said the model continues to evolve. Noting that the 25% royalty rate on e-books is significantly higher than the average rate for print books, he called the percentage "a reasonable number at this time." Regarding Random's reluctance to move to the agency model, Dohle said that was a major decision that needs more study, but added, "I'm in close contact with Apple. They could be one of my biggest customers one day."
One old-time Random practice that, to the surprise of many industry members and the relief of agents, Dohle has not changed is permitting the different Random groups to bid on the same project. He said allowing the different groups to bid results in "healthy competition." Dohle believes the restructuring of Random from five groups to three that aligned the units in more distinct operations—Crown's emphasis on nonfiction, for example—plus more coordination between editors and publishers in the different groups will keep internal bidding within reasonable limits. And by including sales executives and others, Dohle said, Random is now "managing the acquisition process more effectively."
In implementing the restructuring, Dohle looked to build a management team that could work closely together. By bringing in a few new faces—most notably McIntosh, and Maya Mavjee as head of Crown—and giving broader responsibilities to some veterans, Dohle believes he has an executive staff that works well together not only in the U.S. but across Random's worldwide operations. One trait Dohle is looking for in his top executives, and also throughout the company, is a spirit of entrepreneurship. "Sometimes a big company has to act like a small company" to keep up with changes, Dohle said.
Dohle emphasized that he wasn't taking over a troubled company two years ago, noting that Bertelsmann considers the 1998 acquisition of Random House one of its most successful deals. But sales and profits fell in 2007 and again in 2008, before the changes resulted in stable profits in 2009 and a very small sales increase. "The goal was and is growth," Dohle said, before adding, "profitable growth." Without profits, Dohle said, Random won't have the resources necessary to keep itself in the forefront of trade publishing and to keep intact the "cultural institution" that Random has become.
After a sometimes difficult two years, Dohle called Random House "in good shape to face the challenges that are still out there. We've put the focus on our authors and the marketplace, not ourselves."
