The Merger Apocalypse

Editor's Note: The following post is by Rich Adin, and it reflects the inside the industry viewpoint of a long-time professional editor. In the past, consolidation has been very bad for professional editors. Somehow these mergers and purchases needed to be paid for and with supposedly declining sales in bookworld, the way to pay for the merger was to cut expenses. The primary way to cut expenses has been to cut costs in areas that consumers do not see or notice until too late, thus primarily in editorial and book production.

Past consolidations have resulted in layoff of editorial and production personnel and in lowering of fees paid to freelance editors. In preconsolidation days, there was competition for editorial services, so freelancers could easily raise prices. In postconsolidation days, competition has been greatly reduced, there are fewer publishers to compete with each other for editorial services and thus the (successful) downward pressure on pricing. Freelance editors have little place to turn when where there was once two there is now but one job opportunity (publisher).

The merger of Random House and Penguin, who combined will account for approximately 25% of traditionally published (as opposed to self-published) books, is likely to spur a second merger, that of HarperCollins and Macmillan (or perhaps it will be HarperCollins and Simon and Schuster), who combined will account for at least another 20% of that market. And when pricing for freelancers is set, it will be set companywide -- it will make little difference which imprint of the RandomPenguin colossus a freelancer works for, the pricing will be fairly uniform, and increasingly depressed. Or so experience says.

I understand why the merger is occurring: somehow a company has to combat Amazon and Apple and the most logical way is to make it so that Amazon and Apple cannot ignore the publisher's demands because neither can forego stocking 25% of traditionally published books. (And let us not forget that Amazon is working to build its own publishing behemoth as a foil to these publisher tactics.)

Yet there is another possibility. What if one or both of these megapublishers -- RandomPenguin or HarperMacmillan -- decides to combat Amazon and Apple directly? It strikes me that the way to do it would be to buy Barnes & Noble. Buying B&N would give them immediate access directly to consumers. They could set terms for distribution with their captive company (bring back agency pricing) and tell Amazon and Apple they, too, can have access to these books but on the same terms as B&N. It would put the publishers back into control quickly, and B&N could be bought cheaply -- a couple of billion dollars ought to do it.

Another possibility, although one that would likely have limited success, would be for publishers to start a "first edition" club only for brick-and-mortar stores. B&M stores would be given the exclusive opportunity to sell to consumers collectible first edition-first printing-author signed hardcover books that come with an included ebook copy. If done smartly, it could be an incentive for consumers to enter a b&m bookstore. I think, however, publishers would blow it simply because they seem to blow everything else.

The bottom line is that just as these consolidations are likely to be bad news for editors, they are likely, too, to be bad news for consumers and for sellers like Amazon and Apple.

The consolidation of the publishing industry has been ongoing for 30 years. The problem is that there are fewer large publishers to consolidate today than 30 years ago. It strikes me that if the Justice Department doesn't think that Amazon dominates the ebook retail market in the United States and that it never did, it would be hard pressed to oppose these consolidations or even the purchase of B&N by a combination of the megapublishers because their market position would be less than that of Amazon.

Are we in for interesting times in publishing? I think more worrisome than interesting. If book quality is noticeably declining preconsolidation, what will it be postconsolidation? If editorial incomes are in decline, how much more rapid will that decline be postconsolidation? If book prices are on the rise, how much faster will they rise postconsolidation?

The question that comes to mind, however, is this: Would RandomPenguin have come about if Amazon were not acting like the Wal-Mart of ebook world? I have no inside information but I suspect that the answer is no, the merger would not have been proposed. I think it is fear of the Amazon vision of the future that is driving this merger, with the final straw being the court's decision to approve the settlement in the agency pricing case. That settlement gives publishers little leeway against Amazon in the absence of controlling a large enough portion of the market that Amazon cannot do without that portion's product, which would be the case with RandomPenguin controlling 25% of the traditionally published market.

The more I think about the megapublishers joining to purchase B&N, the more I think it would be a smart move. There are a lot of ways that publisher ownership of the chain could effect cost savings, and with good planning, the physical stores could be made relevant again. More importantly, B&N's online store is already a well-established and well-known destination for books for consumers, which would relieve publishers of having to create a new online presence and drive traffic to it, a difficult task. And, as noted earlier, it would provide leverage for dealing with Amazon and Apple.

What do you think?

10 Comments on The Merger Apocalypse

  1. I don’t think buying B&N would help the publishers; while controlling a retail channel might be a good business move I’m not sure any of the publishers would be able to let B&N operate independently as a retailer. They would be too likely to treat B&N as an appendage to the publishing conglomerate. It would fail for much the same reason that B&N’s purchase of Sterling never really worked out; the mindset needed to run the odd duck subsidiary is too different from that of the parent company.

    And as much as I like the idea of a first editions club, that would require that a publisher stop cutting costs and start offering a premium product again. I’m not sure if any are willing to do that or could even consider it (Knopf, maybe).

    But it could be done. I recently acquired an old trade paperback edition of Heinlein’s Number of the Beast. I got it because it has the original illustrations from the first edition hardback. They are so beautiful that I bought the book and paid more used than the original retail.

    But given the quality of a current hardbacks, I don’t expect to see similar illustrations any time soon.

  2. Andy Ross, a longtime independent bookseller and literary agent, offers his thoughts on this subject at Here is an excerpt:

    “What does [the Penguin/Random House merger] really mean? The new company will have sales in the US of over $2 billion dollars. It would have an estimated 17% market share of the general book publishing business. But expect the share of best sellers to be even higher. In 2011 Random House and Penguin together had 45% of all bestsellers on the Publishers Weekly list.

    I think such a merger will be bad news for authors, booksellers, and book lovers. Both Random House and Penguin have a huge number of imprints. By my count, Random House has 56 and Penguin 39. (Imprints are units within these publishers that operate independently, essentially as separate publishers. For instance Knopf and Ballantine are imprints within Random House. They have their own editors and their own styles and cultures. Sometimes they even compete against each other.)

    A lot of these imprints overlap with one another. There is likely to be some consolidation and elimination of some of some imprints that would allow the new super-publisher to reduce overhead. Agents are understandably distressed that less competition will mean smaller advances. That will certainly be true. But more significantly, I worry that fewer imprints with fewer editors is going to mean fewer books. The big name brand authors: Stephen King, James Patterson, Janet Evanovich, John Grisham, Malcolm Gladwell, etc. will always be there.

    The pressure will be on the midlist. These are the books that never become bestsellers, but I suspect these are the books that most of you like and admire. There just won’t be as many slots in the catalogues for these kinds of books. It astonishes me, really. Whenever I go to New York to talk to editors, they are always telling me how much they want “new talent.” Smaller midlist opportunities mean fewer chances for new talent to break out and fewer chances for book lovers to discover this new talent.

    Still, these are but the parochial concerns of the editors, the people on the creative side of publishing. They have some rather quaint and old fashioned values. They love books, for instance. The mergers are being driven by the business side and probably at the level of the parent corporations, giant multi-media conglomerates.”

  3. >>>I understand why the merger is occurring: somehow a company has to combat Amazon and Apple and the most logical way

    Oh is it? As Rand would gutturally bleat, “Check your premises.”

    And the size of these companies is predicated on a false premise to begin with: That they will continue to attract writers. That they will stop shedding writers. That writers won’t abandon ship for more lucrative deals from Amazon or others. The “thought” behind it is frozen in amber to begin with.

    • Check the premises indeed!
      Do they *really* have to make war on one of their biggest distributors? The one that is best plugged in to consumer needs and preferences? The one handling a quarter of *their* business, which only consitutes a few percentage points of the distributor’s business?
      In fact, is that what they’re really doing?

      If they really are doing it to go after Amazon, why are both mergers part of a divestment of publishing by their parent multinational mediacorps? Industry consolidations are a great way for multinational corporations to divest themselves of problematic and dying businesses. (One of the greatest general managers in baseball history once observed that it was better to get rid of a player a year too early than a year too late.)

      I wonder if they are really going after Amazon or merely floating it as a smokescreen to disguise their mergers’ true goal; getting out of consumer publishing while the getting is (still) good.

  4. In addition to laying off editors, I would expect that Random-Penguin will also close half of their warehouses, and lay off half of their travelling salespeople, the ones who visit bricks and mortar stores.

    They can also talk to the various printes in order to try to get a better volume price for the combined printing business for the new, larger conglomerate.

    I’m sure that there are other economies that I haven’t thought of.

    • Yes, there is at least one more and it is a doozy: the backlist.
      On a short-term basis, the traditional publishers can drastically improve their financials by pushing out their full backlist on ebook at the same kind they drastically cut back on staff, facilities, and new content.
      Add in the BPHs new habit of signing up “proven” new writers from the self-pub pool to their stable of “big name” and pop-culture ghost-written “bestsellers” and the risk of new content goes way down. (Along with the advances and the nominal royalties.) And with less new content on a given month, there will be less competition for the new content they do ship in print.

      Of course, over the long term those practices will lead to reduced market share and shareholder value, but by then the merged companies will be somebody else’s headache.

  5. As for the pressure on editors, that can be ascribed largely to the collapse of educational standards. If many readers are not bothered by bad English and typos, the temptation is not to bother so much with line-editing. Good editors will only benefit if bad editing cost sales. It’s a market thing; and wise editors will look more and more to self-publishing as the place to hawk their wares. Traditional publishing is dying on its feet, and I predict that your list of big-name authors will look pretty dated in ten years’ time.

  6. If the Big less-than-six cannot figure out any other inventive way to survive in this e-World, except by becoming bigger and slower, buying B&N will just sink them faster. By the way I see no impact on the Indie Pubs, whatever the Bigs will do. It is the retailing that was unraveled by Amazon, not the actual book publishing (production) but the Bigs understand only the old business model and they are panicking, as they should.

  7. You know what would help publishers is thinking about what would make them better publishers rather than trying to destroy a retailer that sells a butt load of their books. The hatred of Amazon is fairly irrational. Maybe instead of this constant “fear of Amazon” they might work on their fear of e-books. The publishing world has changed. It is not going back. They need to deal with it. And maybe stop acting stupidly.

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