Random House and Penguin to Be Combined

The following is an excerpt from an article in:


The New York Times
Tuesday, October 30, 2012

Random House and Penguin to Be Combined

By ERIC PFANNER and AMY CHOZICK

PARIS — The book publishing industry is starting to get smaller in order to get stronger.

The announcement on Monday that Random House and Penguin would merge narrows the business to a handful of big publishers, and could set off a long-expected round of consolidation as the industry adapts to the digital marketplace.

John Makinson, the chief executive of Penguin who will serve as chairman of the new company, said that with consolidation inevitable, “we decided it was better to get in early rather than be a follower.”

In announcing the agreement, the European owners of Random House and Penguin — Bertelsmann and Pearson, respectively — said Bertelsmann would control 53 percent of the combined entity and Pearson 47 percent. In a statement, Bertelsmann said the deal would most likely conclude in the second half of 2013, after approval from regulators.

The merger will create the largest consumer book publisher in the world, with a global market share of more than 25 percent and a book list that includes contemporary best-sellers like Random House’s “Fifty Shades of Grey” and Penguin’s backlist of classics from authors like George Orwell.

The deal, analysts said, would give the new company, to be called Penguin Random House, greater scale to deal with the challenges arising from the growth of electronic books and the power of Internet retailers. Publishers are increasingly worried about the leverage wielded by Internet giants like Google, Apple and, especially, Amazon. These companies have vast resources to invest in new technology, like digital sales platforms, and the size to let them negotiate better terms on prices.

Facing those challenges, the major publishers have been expected to join together, getting smaller in number and bigger in size. The other four houses among the so-called Big Six are also owned by larger media conglomerates: HarperCollins, which is part of News Corporation; Macmillan, owned by Georg von Holtzbrinck of Germany; Hachette, whose parent company is Lagardère of France; and Simon & Schuster, a division of CBS. They could all now face increased pressure to consolidate in response to a combined Penguin Random House.

“I wouldn’t be surprised if all the major trade publishers were having conversations like this,” said Ned May, an analyst at Outsell, a research firm. “I would expect to see similar realignment.”

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