On Publishing Mergers & Strategy

I have been mulling the Penguin Random House deal for some time now. In fact, I wrote most of this post about ten days ago or longer. I’ll be honest enough to admit that my failure to post my thoughts was as much due to work commitments as it was to a conscious decision, even so it has been useful to wait (as is often the case, we too often underestimate the value of inaction).

I’m glad I waited because it’s quite remarkable what you can discern when you stay out of the flow of an issue. Firstly it meant this post comes in the wake of Peter McCarthy’s wonderful piece When Elephants Mate: Thoughts on the Potential Penguin Random House which explores the merger in wonderfully telling detail and is a must for the interested. Secondly, it comes in the wake of this piece of news News Corp., CBS in Talks Over Merging Book Businesses. Both pieces have been useful in underlining my thinking.

I’ve felt, watching and reading the reactions of tweeters, journalists and thinkers, that there have been three clear waves of response to the news. The first wave of response was mostly surprise (not without some humour and a considerable degree of fun as people contemplated names for the possible merged outfit (my own was definitely Random Penguin). Some discussion pondered the sheer scale of the entity, the number of imprints, staff, buildings  books and authors it would encompass. Best described as the shock and awe stage I think.

The second wave echoed with fear; fear of the powerful combination that the first wave only began to consider, fear of reduced options for writers, agents and readers, and a fear of the changes this new entity would bring to an industry that seems of late to be in constant flux. The fear and loathing stage seems an apt description for this stage.

The third, more considered wave, saw discussion of the merits of the merger in terms of what it equipped the larger entity to do, the power shift relative to digital interlopers and other publishers not to mention the chances for success. In general this wave of discussion was an attempt to put the events in context, consider the implications and look to the future. The dealing with reality stage I pegged it.

To most of those discussions I felt I had little extra to add. One area however seems to have been curiously overlooked in the discussion to date, the fact that we are seeing two very different strategies in action here and strategies that are making value judgements on entire industries. And what are they?

Well the first is a clear strategic decision to move out (and definitively so) of the trade publishing industry. That’s what Perason has done. Make no mistake about it, it wanted shot of trade publishing, and saving the prize of the Penguin brand for use in other areas where it might be useful (like its educational publishing segments) it got shot of it (intriguingly it is also rumoured to be keen to sell the FT though those rumours seem to have been put to bed more recently). What interests me is that Pearson isn’t out of publishing, just trade publishing. So it made a decision based on its read of  its abilities, its resources and its weaknesses. Probably the likelihood of future profits and the environment of the sector had a large bearing too.

Pearson’s takeaway from that analysis was that even with the most recognisable brand in trade publishing, they’d rather be out of the game, than in it. When you let that sink in, the fear and loathing stage doesn’t seem so unreasonable.

Of course, in counterpoint, Bertelsmann made a very different decision indeed. Penguin Random House is now a Bertelsmann beast, majority owned by the company and, I suspect, likely to be wholly owned by it at some point. Bertelsmann has doubled down on trade publishing. As if to confirm the company’s strategic decision it purchased the remaining stake in Random House Mondadori. Bertelsmann sees value in trade publishing, so much value it has gone to the trouble of building the largest English language trade publisher in the world.

It begs the question, “Which one of these huge companies is correct?”

Of course, it doesn’t necessarily have to be a zero sum game. Both parties could well have made the correct decision for their own enterprises and simply assessed their abilities and their desired return on capital very differently. As we line up for the follow on round of mergers that the dealing with reality wave has suggested is likely and recent reports indicate are indeed in the works, we should be looking at what strategy the parents of these trade publishing giants are pursuing and how that will impact the shape of things to come.

We are living in interesting times, or whatever that means!

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5 comments

  1. Great piece, Eoin. And thank you for the link — much appreciated.

    I think you add a great deal to the discussion by pointing out that with this deal Pearson is basically beginning to bow out of the trade publishing game while Bertelsmann doubles down. Some have offered the observation that Bertelsmann is “renting Penguin with the option to buy,” which, if true, would further confirm your point that Bertelsmann is going “all in” on trade publishing just as the Mondadori deal does.

    The other beast in the room is Pearson Education, the massive roll-up of education publishers that, if my memory and the marketplace are still in sync, is the largest education publisher in the world and somewhere around eight times the size of Penguin in terms of revenue. Pearson Ed. was definitely the focal point of Pearson even going back to the late ’90s. It is just so huge. But it comes with its own set of challenges — innovative disrupters, digital behemoths, fickle (though still captive) consumers, etc. By shifting focus away from Penguin, Pearson is implicitly moving it to education and the technology surrounding education. A different bet but by no means a safer one.

    Interesting times indeed!

    1. I like that alright, renting with the option to buy! Funny enough re: education think it’s a sector that really does benefit from scale not so sure greater scale necessarily solves the future problem facing trade publishing.

  2. Eoin, good take on these birds. How goes it my friend? I thoroughly enjoyed your editing skills while you were a honcho at Mercier. “Dark Corners” rocks on. Any chance we can work together again. Jerry.

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