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Random House and Penguin in mega merger

29 October 2012

There's no doubt about the top story this week. The news that Random House and Penguin are negotiating a merger came out of the blue. Both companies are large, with Random House currently the biggest UK publisher with 16.2% of books sales, and Penguin with 10.9%, giving them a combined 27.1%. In the US the merger would give the combined entity slightly less of the total at 25%.

It looks as if the forthcoming retirement of Marjorie Scardino, CEO of Penguin's parent company Pearson, may have had something to do with the timing of this deal. She has guided Pearson to great success by expanding its international educational business, using new technology to drive growth. Her successor, John Fallon, has been in charge of this same international educational business. Penguin, for all its great name (which makes it one of the few publishers which is a brand in itself) is primarily in the traditional print book business, which is not to say that it hasn't been very successful in expanding its commercial publishing over the last few years.

Rebecca Smart, CEO of publisher Osprey, may have had it right when she tweeted: 'This deal makes the best sense of any - RH has cash, Penguin has brand.'

In the Financial Times, the Wall Street Journal and the New York Times, this deal has been put down to big publishers' need to become even bigger in order to stand up to Google, Apple and Amazon. The New York Times said: 'A deal could signal a move toward further consolidation among the major publishers, much the way the music industry realigned itself as it made the painful transition to the digital marketplace. Facing intense competition from Apple's iTunes, the industry shrunk from six major record companies to three... A merger of Random House and Penguin could help the publishing houses cut costs by combining resources, and it would give them more heft in negotiations with Amazon and Apple as readers increasingly abandon print for cheaper e-books.'

So, would the combined company's size really mean it could stand up to Amazon? The giant online retailer has always managed to play one publisher off against another as it has grown its dominance. The Kindle already gives it a pole position in terms of the digital market for ebooks, as there's recent clear research showing that once people have a Kindle they tend to buy books through it - and what's surprising about that?

This looks more like a traditional publishing merger, not dissimilar from those which have been going on for many years as the industry consolidates. It is the first major shift in ownership of publishing companies since 2006, when Lagardere acquired Time Warner Book Group to set up the group now known as Hachette.

And it really unites more of the same, as both houses publish in the commercial and literary areas and this will give birth to a monster group with many competing imprints. Literary agents and authors' bodies have been quick to see the dangers. Kate Pool, Deputy General Secretary of the UK Society of Authors said: 'It's hard to see, from the point of view of authors and readers, how this is going to be of any advantage to anybody.' Authors have in the past been adversely affected by mergers, which tend to reduce the number of publishing imprints and thus the possibilities for authors to get their work taken on. 

The Times said: 'Backers of a merger argue that books, like music, are undergoing rapid change and that regulators ought to be lenient in order to help the industry weather the storm.' Perhaps they were being lenient when they allowed Amazon to proceed with their purchase of The Book Depository, but to many it looked as if they were just dozing on the job.