Now there are 5

Abstract

News of the completion of the Penguin Random House merger on July 1 came with a roster of the new global corporate hierarchy. At the top: Marcus Dohle, chief executive of Random House, is the new CEO of Penguin Random House, now the world's largest consumer book publisher. Penguin's John Makinson, head of Penguin worldwide, chairs the new company. The newly formed company will have $3.9 billion in revenue, 10,000 employees, nearly 250 imprints, and a global reach, combining Random House's strength in Latin America with Penguin's hold in India and China. Penguin Random House will publish 15,000 new titles a year. The first 100 days of a new corporate regime tend to telegraph the future. Changes announced so far at Penguin Random House emphasize retaining valued executives and employees, authors, and readers and a collaborative rather than a "winner take all" approach, blending the companies gradually, over a two- to five-year period.

Now there are 5

The Penguin Random House merger has shrunk the "Big Six" by one. What does this mean for publishing and for libraries?

News of the completion of the Penguin Random House merger on July 1 came with a roster of the new global corporate hierarchy. At the top: Marcus Dohle, chief executive of Random House, is the new CEO of Penguin Random House, now the world's largest consumer book publisher. Penguin's John Makinson, head of Penguin worldwide, chairs the new company.

The newly formed company will have $3.9 billion in revenue, 10,000 employees, nearly 250 imprints, and a global reach, combining Random House's strength in Latin America with Penguin's hold in India and China. Penguin Random House will publish 15,000 new titles a year, about one-quarter of the world's English-language books.

Bertelsmann, which owned Random House before the deal, is the controlling partner, with 53 percent to Penguin-parent Pearson's 47 percent. Bertelsmann CEO Thomas Rabe ticked off the strategic advantages of the match: "Together, we can and will invest on a much larger scale than separately in diverse content, author development and support, the publishing talent, the entire spectrum of physical and digital book acquisitions, production, marketing, and distribution, and also in fast-growing markets of the future."

Big enough to fight back?

What will this mean for the publishing landscape? Now that we are down to the Big Five--Hachette, HarperCollins, Macmillan, Penguin Random House, and Simon & Schuster--will we see the U.S. market boil down to a Big One within a decade, as consultant Mike Shatzkin predicted at this year's Publishers Launch conference in June? Will consolidation bring homogenization and dampen risk-taking, as others have speculated, echoing a charge levied against big publishers for years?

"I don't think it's dire," says Lorraine Shanley, president of Market Partners International, a consulting firm that specializes in traditional and digital publishing in the United States and internationally. "Publishers are all rowing in the same direction on this one, in reaction to Amazon," Shanley continues.

The silver lining, Shanley says, is that Penguin Random House is large enough that even Amazon, with its $61 billion in annual revenues, most from nonbook sales, can't ignore it when it comes to books. "And that will help the others. This is a potential plus for the industry. Penguin Random House can be a market leader," Shanley says, by standing up to the massive online retailer's aggressive tactics, including price slashing. A single player that can push back at Amazon may be particularly appealing because a previous attempt to do so by multiple companies with Apple backfired, leading to expensive price-fixing lawsuits and settlements.

Inside the house

The first 100 days of a new corporate regime tend to telegraph the future. Changes announced so far at Penguin Random House emphasize retaining valued executives and employees, authors, and readers and a collaborative rather than a "winner take all" approach, blending the companies gradually, over a two- to five-year period. Industry watchers venture that while it's likely that cuts will happen, they won't be drastic. Because the merged companies didn't ramp up billions in leverage to get the deal done, there is no external pressure to crank up profitability. As a result, the top executives can take the time to make thoughtful decisions.

Dohle has said that the integration of Penguin Random House will take place over the next two to three years, not months, according to Penguin Random House spokesman Stuart Applebaum: "In the immediate months ahead, our byword is continuity, not disruption. Cross-divisional collaborations were indispensable to our premerger integration processes with our IT, human resources, and communications groups, and now we are expanding this approach to virtually every department and division.

"Our senior management team is specifically drawn from both sides of the company, and the long-term and day-to-day strategic, operational, and publishing decisions--including library-centric ones--will be evolved jointly by Random House and Penguin executives, sharing their knowledge and experience, determining what we hope will be a right course for all. In the beginning weeks of our united company this coming together has been productive--and fun."

Developing and expanding digital platforms will be "a crucial priority" for Penguin Random House, Applebaum adds, with plans to invest heavily capital and talent resources and provide training courses for emerging digital platforms, social media tools and programs, and metadata analytics companywide.

Possible downsides

Not surprisingly, outsiders have been more open to voicing the potential negatives of combining two already-massive publishers. The newly merged company is "a huge behemoth with a lot of moving pieces and an enormous number of imprints and editors," says Shanley. "It will take a certain amount of time to figure out how to sell a significantly larger list."

That's not the only concern. Others in the close-knit book industry focused on the back office: publishing veterans predict that postmerger, the first obvious changes will be in operations--one contracts' department instead of two, one sales force instead of two, one warehouse, and so forth--and that ultimately editorial cuts will fall on "redundancies."

Ethan Nosowsky, editorial director of Graywolf Press, expressed the feelings of many in the industry about cutbacks. "Several of us at Graywolf have worked at larger publishers, so right now we are looking on with concern for our friends and former colleagues--the many talented and hardworking editors, publicists, and salespeople who inevitably lose their jobs in these mergers."

And what about the 250-some imprints in the new company? Will some be put to bed or combined? "Penguin Press publishes the best serious nonfiction around," said Grove Atlantic publisher Morgan Entrekin, rattling off an extensive list of imprints and editors. "One would hope these imprints will stay intact..." Anticipating such speculation, Dohle addressed a letter to literary agents in late October 2012, shortly after the merger was announced. "In this new partnership with Penguin, we will be retaining the distinct identities of both companies' imprints," he wrote.

"The divisional publishers--not corporate leadership or shareholder fiat--will determine the priorities for their individual imprints," Applebaum says, postmerger. "Surely, there will be changes they will implement over time, as they always have done, but this will be gradual and in response to the marketplace, the editorial affinities of their staff, and feedback from readers." Bolstering Dohle's statement, he points to the parallel literary, business, and genre imprints that coexist among Random House's three adult divisions. "This will continue cross-company with Penguin Random House," he says.

The impact on other publishers

Each of the other Big Five players is figuring out a way to get its "moment in the sun," Shanley says. "The ebook market is growing, the English-language market is growing worldwide. There are lots more opportunities to find new markets outside the United States. Look at Harper. It's really made inroads in terms of being able to offer print on demand worldwide. Macmillan is doing far more English-language publishing and ebook distribution worldwide. HarperCollins--with its recent alignment with the Dow Jones side of News Corp--is doing a huge ebook initiative with the Wall Street Journal . Hachette has more ebook best sellers than even Random. Everyone's going to be more aggressive, partner up, and be as efficient as they can."

For smaller companies, the effects of the merger may be less noticeable. "Random House is 100 times my size, Penguin is 75 times my size," says Entrekin. "Together, they are 175 times my size. I don't see it as having that much impact on how Grove Atlantic operates. I'm never going to be able to measure up to their advances. We'll still have authors who will leave us at some point. That's the way it's been for 20 years.... If anything, it differentiates us more. We are markedly different in terms of size and shape."

That is a plus, says Graywolf's Nosowsky, pointing out that consolidation provides opportunity for smaller houses to seize some literary territory. "We're going to do that happily," he says. "But I think all of us would rather be talking in terms of healthy ecosystems than battlefields."

The impact on authors

What if you're an author published by Penguin, and suddenly you're on a list with hundreds of your competitors? Penguin Random House is taking a lot of time and effort to soothe authors and their agents. But no one can tell what is going on behind closed doors.

"It remains to be seen what impact this merger will have on our clients' ability to have their books successfully published," says literary agent Gail Hochman, president of the Association of Authors Representatives. "We want the most vigorous marketplace possible for our clients' books, where they can be published in increasingly effective and creative ways."

While Penguin Random House has the talent and money to publish authors "effectively," other factors may narrow authors' ability and opportunity to get the best deal. Penguin Random House will have "a more robust top-tier list of authors to support and be supported by, which may mean less need and/or motivation to develop authors who are considered to be underperforming or solidly midlist," says Sylvia Day, president of the Romance Writers of America and a best-selling author. (She closed a multimillion-dollar deal in June for two erotic novels with Penguin, which published her "Crossfire" series.) "The resources at their disposal have magnified (sales force, marketing and publicity talent, and networks), and their industry footprint is considerably larger," she says. "[But] other publishing houses [will] have one less house to compete against in auctions. This may--in some ways--be a boon for other houses but is a huge loss for authors and agents."

Previous mergers have affected auctions, too, with prohibitions against bidding wars when more than one imprint of a house is involved. According to Penguin Random House's Applebaum, however, "The respective bidding process for both sides of the company will essentially remain unchanged. When more than one house has a shared interest in a title, there can be competitive bidding between the Penguin imprints and the Random House imprints in the acquisition mix, which can continue as long as there is at least one outside publishing house bidding."

The new competition

Author Day also pointed to the growth of self-publishing as a game-changer in the way big houses compete for authors. "As more authors become independent publishers, the Big Five will find that they're competing less against one another and more against the lucrative and less frustrating path of self-publication," she says.

Authors like Stephen King and Seth Godin already have opted for Amazon and Kickstarter, notes Minda Zetlin, president of the American Society of Journalists and Authors and a business/technology author ( The Geek Gap ). But so have many other authors she knows, who "work with some combination of smaller publishers and self-publishing in addition to the Big Six-Now-Five. As authors have come to understand that sales of their books is their own responsibility, it's less and less clear why we need these giant houses at all," she says.

"While this is certainly a major transformation from the viewpoint of bookstores and the publishing industry, from the viewpoint of workaday writers...it's just another item in a long-familiar trend," continues Zetlin. "The big houses are becoming fewer and more corporate-driven. Big advances are rare, promotional support rarer. So in a way, Simon & Schuster's partnership with self-publishing company Author Solutions seems as significant to me as the Random House/Penguin merger."

Entrekin agrees that publishing will "morph" into many types and forms over the next ten years. "Self-publishing, Amazon publishing. There will be tiers of publishers that won't be so corporate in size. Pottermore is an interesting form of publishing," he says, referring to the site J.K. Rowling established to sell Harry Potter ebooks. As consolidation drives new models, those same new models also drive consolidation. "The large corporate publishers traded on the public markets will have even more pressure," Entrekin hazards.

The library connection

Continuing the strong relationships they've had with Penguin and Random House under the new regime is a priority for librarians. "During the past two years, we have had numerous interactions--via in-person meetings and other communications mechanisms--with representatives of both companies and with library marketing executives and executives at the highest level of each company," says American Library Association (ALA) president Barbara Stripling. "We do not agree on every issue, but we have had substantive and respectful conversations. ALA is hopeful about continuing this good relationship with Penguin Random House."

For the foreseeable future, Penguin and Random House will continue to advance their partnerships with libraries under their current distinct and separate policies and terms, says Applebaum. A "collaborative approach will be the hallmark of how Penguin and Random House will be working together in the time ahead to formulate a unified, shared strategy, together with sales terms, for libraries," he says.

He offers no time line for the new policies to take effect. "We will take the time we need to think this through and plan it properly and to try to get it right for all parties. In doing so, we will actively be reaching out to the library community for their views and recommendations about our respective best practices for every aspect of our relationships. We want them to have a voice in determining our future together."

In the meantime, top executives from both sides of Penguin Random House underline the importance of continuing their ongoing partnerships with libraries.

Skip Dye, Random House VP for library and academic marketing, went on a weeklong "listening tour" of Ohio public libraries in early August, culminating at OverDrive's Digipalooza user group meeting in Cleveland. His goal: "To reaffirm and reassure people we will still be doing what we do."

Dye and his Penguin counterpart, Alan Walker, VP, senior director of academic and library sales and marketing at Penguin Group, expresses mutual respect and the wish to collaborate and continue seeking feedback from librarians.

"Skip and I right now are talking quite often about how we can work together," says Walker. "We've always had a friendly collegial relationship." Penguin and Random House have a shared philosophy, Dye says. "We believe in supporting librarians and in the importance the library plays in the community. We've become active listeners within the library community. We do listen. And after the merger, we're still listening."

Adds Walker, "We're trying to make it a two-way conversation."

About Those Ebooks

Will there be uniformity in Penguin Random House lending policies? This key question was raised by ALA president Barbara Stripling.

"The library ebook lending business models for Penguin and Random House differ greatly," Stripling says. "Penguin employs a model centered on a one-year duration with pricing somewhat comparable to consumer ebook pricing. By contrast, Random House provides perpetual licenses, but typically pricing is several times the consumer ebook pricing. Another important difference lies in how ebooks are made available to libraries through different distributors."

Currently, Penguin ebooks are available only through 3M and Baker & Taylor's Axis 360, not through OverDrive, the largest distributor of ebooks to libraries.

Penguin Random House spokesman Stuart Applebaum addressed some of these issues. "There eventually will be uniform companywide Penguin Random House terms of sale and lending conditions for our print and ebook titles," says Applebaum. "We have no time line in place for it to start. Its formulation will be a gradual process for us, incorporating lots of recommendations we will be soliciting from all quadrants of the library universe nationwide. We want to get this policy right, and we will take the time to try to do so. For now, and until new ones are set, the distinct library sales terms and practices for Penguin and Random House, respectively, remain unchanged."

ALA advocates for more choice for librarians, Stripling notes. "A business model with options--for a shorter-term license (such as one-year availability) and a longer-term option (such as perpetual access)--would provide librarians with improved ability to customize collections and better serve community needs. We also continue to believe that library ebook pricing is too high and continue to advocate for lower pricing that takes into account the value of library engagement, such as promoting the discoverability--marketing--of publisher titles."

"ALA is contemplating further issues and hopes to talk about all of them with Penguin Random House this fall," Stripling concludes.