Penguin House: does strength lie in unity?

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Le 29 octobre 2012, une nouvelle déchaine l’industrie du livre : la société allemande Bertelsmann et Pearson annoncent la fusion de leur maisons d’édition respectives. Tous deux espèrent ainsi jouir de nouvelles synergies dans cet ultra-concurrentiel marché du livre. Penguin Random House qui sera possédé à 53% par Bertelsmann devra voir le jour au deuxième semestre de 2013. Les deux grandes maisons d’édition ont été sévèrement touchées par l’essor fulgurant d’Amazon. En effet, la prise de position d’Amazon dans le marché du livre a créé un véritable capharnaüm causant la disparition de plusieurs sociétés. Les prix affichés par Amazon et l’accessibilité qu’offre le site sont autant d’arguments qui poussent le consommateur à faire confiance à ce nouveau géant du secteur. L’essor d’Amazon sonne-t-il irrémédiablement le glas de ces sociétés ? A moins que les stratégies de fusion à l’œuvre aujourd’hui ne leur permettent de sortir la tête hors de l’eau ?

 

To merge: a way to remain competitive on the publishing market

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The two publishing giants – Penguin, controlled by a multinational company headquartered in London (Pearson plc) and Random House, owned by the German private media corporation Bertelsmann –, announced on October 29th that they will combine their business in a new joint-venture named Penguin Random House. The book industry has felt more pain than pleasure in the past few years, largely thanks to the retail sectors and technology. Indeed, traditional retailers, like Borders, have shut down or are struggling, while Amazon and other online sellers are flourishing. Therefore, such a combined organization “will have a stronger platform and greater resources to invest in rich content, new digital publishing models and high-growth emerging markets”, as Pearson and Bertelsmann both concluded in their agreement. They claim that the merger will “generate synergy” and seem determined to outshine their main competitors: Hachette, Macmillan, and HarperCollins. But the very scary Amazon is also in focus.

A real solution?

Gigantism has become a habit in today’s economy; the mergers could explain this trend. In fact “All of the top ten American firms have been involved in at least one large merger or acquisition over the past 25 years.” But mergers are not often good and the benefits of mergers depend on the industry or the service in question. “Size can even drive costs up, if the firms get too big to manage efficiently”. Some firms may be growing not to lower costs but to receive the comfort of implicit state support. American antitrust regulators recently looked back at past health-care mergers, and found that prices rose significantly after some deals. But nowadays, globalization offers a solution to make profit by going digital. The book companies have no choice but to merge if they want to survive. As explained before, the mergers are still profitable because big companies are more likely to undergo losses without being severely damaged. Moreover a bigger company can grant more incentives and be more likely to come up with a great idea that could revolutionize the field. In fact the bigger the company is, the more money can be poured into R-D and the more innovative it can be. Moreover the mergers can expand a company’s geographic coverage and allow access to new technologies and resources. In the context of the world crisis it appears to be a solution to avoid bankruptcy. However, mergers can be harmful if the companies that are about to merge don’t take into account the firms’ weaknesses.

Amazon: the new evil empire?

The irresistible rise of the world’s largest online retailer, Amazon, combined with the emergence of digital technology, creates huge uncertainty in the publishing world.  “If you’re an independent bookseller, Amazon must look like a cold, relentless stealth bomber casting its shadow over the pavement outside”, wrote Lloyd Shepherd in an article about his novel, The English Monster. But Amazon should actually look rather different to the publisher and the writer. Indeed, this company, offers competitive prices, efficient delivery and a good customer service: it really can help anyone to sell more books. If Amazon is the evil empire, as authors and publishers suggest, then why are their books still sold on the website? Perhaps the publishing industry should draw its inspiration from Amazon’s innovative concepts instead of squarely shunning it. Because, the synergy promised by the two giants may rather look like a road to hell: spending cuts, mass lay-offs, and fewer books. “All because publishers never figured out how to deal with the Internet and how to sell books in a wired world”, explains NYT best-selling author Michael Levin in a very pessimistic column.

 VISITING THE LONDON BOOK FAIR 

The demise of the publishing industry?

“Publishing is dead. And we have killed it. How shall we comfort ourselves, the murderers of the murderers? Is that the very conclusion of those massive changes in the publishing industry? There is definitely more and more uncertainty about the digital revolution and merger like this one may be one of the numerous symptoms. Cheap online retailers like Amazon will also lower the reader’s tolerance to how much he or she is willing to pay, which should put downward pressure on prices … and authors’ revenues. As if they had not been through enough hardships with yet colder-hearted publishers and plummeting advances.  But interactive technology and digital platforms can offer new opportunities to the authors and the publishing world in general. Both should embrace the trend (following the example of these two young and British publishers execs, Laura Austin and Gavin Summers, with their  social media networking platform –BookMachine.me) and take advantage of the progress in technology. It may not make the printed books vanish, because “we all like the way books feel in our hands”, and data tend to prove it: In May 2011, Amazon announced that, for the first time, it was selling more Kindle versions of books than paperback and hardbacks combined; however (here’s the thing that doesn’t get quoted so often) sales of print books were still increasing (source: Lloyd Shepherd’s article)

Naoufal HAMZAOUI & Christopher CADARSI

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