When Hachette Book Group acquired Workman Publishing, HBG CEO Michael Pietsch observed that Workman was one of the biggest, if not the biggest, remaining independent trade publishers left in the U.S. Based on available data, a case could indeed be made that Workman was the largest of its kind. Which has raised a question in publishing circles: why are there so few independent publishers of size? There is a dearth of what can be called midsize publishers that fall between the Big Five and the many independent publishers with sales of $20 million or less.

The Houghton Mifflin Harcourt trade division, with 2020 sales of $192 million, was what could have been considered a mini-major before it was acquired by HarperCollins. The Scholastic trade group, with sales of $355 million in the fiscal year ended May 31, is a major player in the children’s trade market, but as part of a $1.3 billion publisher, it is clearly not independent. Other trade publishers that could be considered midsize that are also part of larger companies are Disney’s publishing division and Abrams, which is owned by the French company La Martinière Groupe, which was itself acquired by Media Participations.

Other trade publishers that qualify as a midsize independent, based on NPD BookScan market share data, are (ordered alphabetically, not by market share) Andrews McMeel, Chronicle, Kensington, Norton, and Sourcebooks. Many of the smaller trade publishers are distributed by three companies—Independent Publishers Group, Ingram Publisher Services, and National Book Network—that combined represent about 900 publishers. The revenue for each of those distributors is the equivalent of a midsize publisher, with Ingram by far the largest of the three.

Jed Lyons, president and CEO of the Rowman & Littlefield Publishing Group and its sister company NBN, cited two reasons why it’s difficult to build a midsize publishing house: time and money. The key to being a successful midsize publisher is having a quality backlist, and that takes time to build, Lyons said. He noted that it took RLPG 45 years, and lots of acquisitions, to create his company’s 80,000-title strong backlist containing both academic and trade titles. Building a publisher also requires access to capital to support expansion, either by organic growth or through acquisitions. Smaller companies don’t have the access to cash that the larger companies have, and Lyons said that as he grew he had some “near death” experiences, usually tied to concerns raised by banks.

Lyons offered a final reason for the current paucity of midsize publishers. “They’ve been picked off,” he said. All of the Big Five companies became the size they are through series of acquisitions that began years ago. Among the larger deals over the past 10 years are HarperCollins’s 2014 purchase of Harlequin (which was not an independent but was a mini-major), HBG’s purchase of Perseus Book Group (which made its share of purchases before it was acquired), and Penguin Random House’s acquisition of Rodale Books’ assets.

David Lamb, partner in the M&A broker Book Advisors LLC, said one reason for the lack of midsize publishers is that many of the more successful smaller presses are comfortable in their own publishing lanes, and that though they look for annual growth, they do not have the interest, time, or resources to engage in major expansions. Given the dearth of midsize publishers, Lamb said it is all but impossible that a new player would be able to create a publisher that could compete with the Big Five, short of buying one of the Big Five.

At the same time, Lamb said, the biggest publishers will likely continue to make acquisitions in an effort to gain more economies of scale and greater operating efficiencies, which would lead to higher profits. He wouldn’t rule out the possibility of a company coming along that could build something the equivalent of a Perseus (which had book revenue of about $100 million when it was sold). He noted that some of the best-known smaller indies and niche publishers have older owners who may be looking to cash out, and with the high prices HMH and Workman received, it appears to be a good time to sell.

Ken Fund, executive director of Quarto Group, which had sales of $127 million last year, wasn’t so sure there is a company that would be interested in doing a rollup of smaller publishers, explaining that even as books have done well during then pandemic, investors don’t see publishing as an exciting investment opportunity. If there is a company considering building a midsize publisher, Fund has this bit of advice: “Develop a strategic vision and stick to it.” In order for an independent publisher to survive, the company “needs to know where it fits” in the publishing ecosystem.

For Quarto, that means “sticking to its knitting” in such areas as illustrated nonfiction, arts and crafts, and home improvement, Fund said. “These may not be the sexiest categories, but there is an audience for these books. Over time they will sell in bestseller numbers. It may take a few years, but sales will get there.” Similar to Lyons, Fund said Quarto has focused on building its backlist, which annually accounts for about 65% of its revenue.

Though this might be a good time to sell, one publisher that is not for sale is Kensington Publishing. After a couple of difficult years, it’s completing one of its better ones in the fiscal year ended September 30, said president and CEO Steve Zacharius, with sales up about 30% over fiscal 2020. He attributed Kensington’s ability to operate as a midsize publisher to its relationships with authors, noting that, for example, Fern Michaels and Kat Martin have left the publisher for bigger houses and then returned. “Publishing is a business based on relationships,” he added, “and it makes a difference when an author can meet with the top executives at a company.”

Zacharius said he was sorry to see Workman get acquired, but acknowledged “it’s tough being in the middle.” He said Kensington’s budget only allows it to invest in certain areas, which is one reason why the house still licenses its audiobooks rather than publishing them itself. “We can’t put money into everything,” Zacharius noted. Priorities at the moment include investing in IT upgrades and adding to publicity and marketing, with a focus on digital marketing in particular.

Zacharius is looking at some modest expansion in the new fiscal year. Kensington was one of the first general publishers to enter the African American market in a significant way with the 2003 launch of Dafina, and Zacharius said he is looking to do more in that area. He would also like to expand cozy mysteries, another area of strength for Kensington, while adding more thrillers and nonfiction. In the latter category, Zacharius has high hopes for Dance Theatre of Harlem, a $50 book that, he noted, has received good initial orders ahead of its October 26 release.

Zacharius, Fund, and Lyons don’t really see the Big Five as direct competitors. “We’re in different leagues,” Lyons said. He noted that the agents RLPG regularly works with know how much it can spend on a book and don’t offer projects outside of its budget. “They may not always be happy with the size of the advance, but they are grateful we buy a lot of books,” Lyons added.

“We publish in areas where we don’t go head-to-head with the Big Five,” Fund said, adding that books from Quarto and other independent publishers make up a large portion of bookstores’ offerings.

One area where midsize indies can run into competition with the bigger players is in looking for companies to buy, which Lyons, Zacharius, and Fund said they are all doing. “No one wants to stay in place,” Fund said. The problem facing smaller buyers is something Lamb alluded to: “I’ve never seen multiples so high,” Fund noted, referring to the formula publishers use to acquire companies (usually based on sales and/or earnings; HBG paid $240 million to buy Workman, a multiple of 1.8 of Workman’s revenue of $134 million).

International interest

While U.S. companies and investors may be cool to the publishing business, international publishers remain interested in getting a piece of the world’s largest book market. Quarto, though based in the U.K., generated $63 million—about half of its 2020 sales—in the U.S. and looks to continue to grow its presence here. U.K.-based Bloomsbury Publishing has made no secret of its interest in expanding in the U.S., a market that generated about $75 million for the publisher last year.

A potentially major new player is Astra Publishing House, which is backed by Thinkingdom Media Group, the Beijing-based company that previously acquired Boyds Mills Press and took a majority stake in Minedition. Last month, Astra announced the creation of a children’s book division, Astra Books for Young Readers, under which the company has organized its roster of children’s book lines.

Asked what advice Lyons would offer someone who wants to build a midsize publisher in the U.S. today, he offered this: “You need lots of determination.”