The struggle to control the future of trade publishing changed subtly at the end of last month when Penguin and Random House, two of the world’s leading publishing houses, merged to form a company with projected annual revenues in excess of US$3 billion (in the global market of $12.5 billion), and a market share of just over one in seven books worldwide. Although the deal still requires regulatory approval on both sides of the Atlantic, industry analysts and competitors are feverishly preparing themselves for further shakeups.
Thomas Rabe, chairman of Bertelsmann, the German multinational that bought Random House in 1998 and will hold a 53% in the new company, said the merger would lead to a “diversity of publishing opportunities for authors, agents, booksellers and readers,” but few pundits seemed to share his enthusiasm. In the New York Times, Adam Davidson called the deal “the financial version of a couple having a baby to save a marriage.” Davidson argues that competition among the six largest traditional publishers is a sideshow to a much larger struggle between the industry as a whole and the giant online retailers who have gutted margins and completely disrupted previous models of how to distribute and sell books.
The combined annual sales of Random House and Penguin currently amount to just one twelfth of Amazon’s. As the market swings further towards e-books (which generated more than $2 billion in US sales last year), companies like Amazon and Apple are well-placed to exert further pressure on established publishing houses. Five years after the introduction of the Kindle, sales of e-books have increased more than thirtyfold and their numbers keep rising. Amazon controls approximately 70 per cent of this market. Faced with daunting legacy costs, traditional publishers have been slow to adapt to the new reality and have often hedged their bets foolishly. Earlier this year, for instance, the US Department of Justice sued Apple and five publishers for conspiring to fix the price of e-books above what Amazon charged. Three companies settled; Penguin was one of just two that chose to fight the charges.
Ironically, it was Penguin’s founder, Allen Lane, who first overhauled the book trade with cheaper books. Launching Penguin’s revolutionary paperback series in 1935, Lane warned fellow publishers not to rely exclusively on pricy hardbacks: “The time has come to wake up to the fact that people want books and that they are willing, even anxious, to buy them if they are presented in a straightforward, intelligent manner at a cheap price.” His vision has now been pushed to its limit with the advent of digital books and now the entire industry trade is fumbling to come to terms with a new technology that disrupted and nearly destroyed music publishing a decade ago.
Strangely enough, for all its talk about the future, the Random House/Penguin merger is a gamble that traditional publishing still has enough editorial and marketing muscle to compete against mere distributors. Executives in the music industry used to hold similar convictions about the future of digital music – until the market proved them wrong. While independent bookstores, and even chain bookstores like Borders, have crumbled, many online companies have prospered. Apple’s iTunes store, which has focused on distribution since its launch in April 2003, has now sold more than 16 billion songs; it also generates about US$1.5 billion each quarter. The company’s success at marketing digital music began when it reached deals with five major record labels. (It later added more than 2,000 independents to its database.) It is hard to see how book publishing will avoid a comparable fate.
In the digital age, however painful it may be for trade publishers to accept, books are not what they used to be. They can now be acquired through the ether of cyberspace, and loaned or pirated in seconds. The book as artifact is a thing of the past. Designs and layouts are far less important when the product is being read on an electronic device, and the authority of the traditional bookstore is at an all-time low. During the last five years, thousands of independent booksellers on both sides of the Atlantic have been driven out of business and a recent survey found that nearly 600 towns in the UK no longer have any bookstores whatsoever. The lower cost of entry into publishing has also lured thousands of new competitors into the marketplace and is steadily pulling readers away from established genres and brands. This unsettling state of affairs is likely to become even more complicated in the near future. Given this context, unless trade publishers can do more than circle their largest wagons, mergers like this will hardly delay the inevitable.
