Merger of Penguin and Random House: Good for Investors, Bad for Authors

Posted on October 28, 2012


British media conglomerate Pearson (PSO) on Thursday confirmed press reports that the company is in talks to combine its consumer publishing business, Penguin, withBertelsmann’s Random House.

“The two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction,” read a note posted on Pearson’s website.

Despite the uncertainly of what the final deal might look like, the news that the Big Six of publishing could soon shrink to the Big Five sent the book industry into a state of frenzied self-examination. The prognostications generally fell into two camps.

Analysts cheered. Agents moaned.

“Strategically it makes sense for Pearson, as there are synergies to be gained from the merger,” said Ian Whittaker, an analyst at Liberum Capital in London. “In an industry that is facing structural problems, the easiest way to get profits are synergies and cost-cutting.”

“Leaving aside potential revenue benefits … we think combining software, print, bind, distribution, etc., activities of the two consumer units could result in substantial costs savings,” noted an analysis from J.P. Morgan (JPM).

The move might also give the publishers better negotiating leverage in a rapidly shifting industry that is increasingly driven by e-book consumption and crowded with new competitors such as Amazon (AMZN), Google (GOOG), and Apple (AAPL).

“They [publishers] have got to gang together to have enough clout to take on the technology giants that have transformed the industry,” Lorna Tilbian, head media analyst at Numis, said in the Guardian.

Agents tended to be less than thrilled by the potential merger.

“It will hurt authors because there will be fewer people for us to negotiate with,” Jane Dystel, the owner of Dystel & Goderich Literary Management, told the Wall Street Journal. “Fewer books will be published, and advances will invariably go down.”

“If there are 20 fewer imprints, then that means there are 20 fewer publishers with checkbooks willing to make bets on less-known entities,” David Kuhn, a literary agent, toldthe New York Times.

Others argued that consolidation in the industry won’t benefit readers. “Given the size of the global giants, you can see where the attraction is,” agent Philippa Milnes-Smith told the BBC. “But what authors and readers need is for publishers to be in places where creativity flourishes, and size by itself has never delivered better books or better publishing.”

In the meantime, an all-important debate is already raging on Twitter. What would the combined entity be named? Random Penguin? Or Penguin House?

Gillette is a staff writer for Bloomberg Businessweek in New York.