Mergers alone won’t save book industry
News of merger talks between book publishers Random House and Penguin has shaken loose alarmist responses from the book industry: howls from agents and authors that they’ll have fewer publishers to pitch to, and hence their incomes will fall; warnings that editors and marketers face huge layoffs; fears that reducing the number of big publishers from six to five will bestow upon the survivors unprecedented cultural hegemony.
Somewhere somebody must be describing the impending merger and the increased concentration of book power in fewer New York hands as an assault on democracy.
If the admonitions seem familiar, itâ€™s because theyâ€™ve been sounded for a half century. The book industry has been consolidating steadily since the early 1960s, when independent publishers–many of them run by families–swarmed. A July 31, 1960, New York Times article (subscription required) chronicled that era’s merger-mania, as independent publishers Holt, Rinehart, and Winston had hooked up to create a new companyâ€”Holt, Rinehart, and Winstonâ€”that sounded like a law firm. In other transactions, Random House had acquired Knopf and Crowell-Collier had taken Macmillan, presaging the coming days when conglomerates would eventually swallow the industryâ€™s major players.
“The mergers have, in some cases, meant consolidation of clerical and shipping staffs,” the Times article reported.
Yet the number of big publishers has remained fixed at six since the mid-1980s suggesting that for all the shouting, the consolidation of the industry has been exaggerated.
Some publishing executives are on record advocating greater consolidation. In 2009, for example, Arnaud Nourry, head of Hachette (then the world’s No. 2 publisher by sales) called consolidation the best way to compete with Barnes & Noble, Amazon.com, Apple, and Google, all of which have been vying to become the digital tails that wag the publishing dog. (See this recent Bloomberg Businessweek story about Amazon’s hardball tactics against publishers.) Nourry and other publishers regard bulking up with mergers and acquisitions as a business offensive. But from my vantage point, it looks like a defensive crouch that says We’ve got the books, Amazon, you got bupkis, and we’re going to set the terms for the digitization of the book industry, not you!
Like other industries, the big publishers feel the pull of the “consolidation curve,” the term of art devised in this 2002 Harvard Business Review article to describe the trend toward greater and greater consolidation of mature companies. If individual industries don’t consolidate, it’s because they’ve evolved into something new (from buggy-maker to automaker) or they’ve just disappeared.
Nobody thinks book publishing will disappear, especially given the ubiquity and ease of e-books. After all, even in a world of cheap self-publishing, somebody has to find and market books to the masses. Recognizing this business reality (and good for them) is Penguin, which recently purchased the self-publishing company Author Solutions for $116 million. But the long-term prognosis for books is still not super. A New Yorker writer was probably right to fret in 2007 that pleasure reading may “one day be the province of a special ‘reading class,’ much as it was before the arrival of mass literacy, in the second half of the nineteenth century.” Indeed, the industry has fallen into a stagnant funk. A year ago, the Association of American Publishers claimed as positive news that 4.1 percent more books were sold in 2010 over 2008. 4.1 percent! That kind of growth kills.
According to the Harvard Business Review wizards, a company that possesses a terrific first-mover advantage, a technological edge, or a patent portfolio strong enough to protect it from the competition can build scale and dominate its sector. Penguin was that sort of revolutionary company when publisher Allen Lane founded it in the mid-1930s. Lane intuited correctly that there was a market for quality literature printed inexpensively in paperback form. But his success inspired so much instant competition that his first-mover advantage was fleeting, and he couldn’t patent the paperback.
The Penguin-Random House merger would theoretically give the new company more leverage in the pricing fights with Amazon et. al. But as important as that struggle for control might be, it still leaves Penguin-Random House operating in a moribund and hidebound enterprise that looks and acts like something out of the 18th century. Book publishers are playing against a stacked deck. They don’t own the distribution channels, they don’t own the stores, they don’t control any proprietary technologies or patents, they’re terrible at inventing new products, and the market value of their brands is dwindling. Plus, their most valuable properties, their writers, are free agents who don’t really belong to them.
This mergerâ€”and other book industry consolidation to comeâ€”is less about winning than it is losing more slowly.
“Random House & Penguin Publishers are negotiating a merger … please let the new company be called Random Penguin,” tweeted Shara Morris today. I can’t beat that! Send email to Shafer.Reuters@gmail.com. See also, the right hemisphere of my personality on Twitter. Sign up for email notifications of new Shafer columns (and other occasional announcements). Subscribe to this RSS feed for new Shafer columns.
PHOTO: Leona, 7, poses inside a labyrinth installation made up of 250,000 books titled “aMAZEme” by Marcos Saboya and Gualter Pupo at the Royal Festival Hall in central London July 31, 2012. REUTERS/Olivia Harris