Today’s announcement of talks on a merger between Penguin and Random House has provoked a storm of pseudo-analysis of the “well, the big players must get bigger because they have to fight bigger battles with ever more powerful device manufacturers or online suppliers etc etc…” variety. I find this fairly unsatisfactory, and since the shrunken corpse of the UK retail book trade will undoubtedly seek to have this deal referred to the Office of Fair Trading on the grounds that the new combine will have a 25% market share it may be a good thing to think if there are better arguments for defending size other than negotiating power with Amazon or Apple. Here are a few:
* Most of the books published by both of these companies are agented. There is therefore no question about author access to markets here. The selectivity question comes down to who can pay the level of advances demanded and still market enough bestsellers to stay in business.
* The new driver in terms of author development is likely to be self-publishing, a remarkably democratic development in which huge progress is being made by start ups like Eileen Gittin’s amazing www.blurb.com, and by Amazon, but where neither of these players have much market share at all.
* The trend in media marketplaces seems to be towards size, clustered around the old market model, supported by shoals of start-ups, of which only a small percentage survive. If the key to survival for the old market model is cost-cutting and making infrastructure services work better and more cost effectively, then size is vital. And compared to the size of Apple, all of the so-called Big 6 consumer publishers would still seem fairly puny even if they were all lumped together.
* There is no brand loss here. Random House has little by way of consumer-recognizable brand, and Penguin, though it has a distinctive resonance for an ageing demographic who, like me, recall it as our Adult Education Institute, has little of that left in bestseller markets, where the real money is made.
* If this merger goes ahead it is likely to be followed by others. If this one is blocked in the UK does that mean that, for example (purely fictitious thought) the future merger/purchase of Hachette by Harper Collins/News as News Corp seeks to make sense of the media businesses that it has now cut adrift from the film/TV/music mothership is also impossible? I doubt it.
* What is the alternative to merging these weakened businesses whose margins are in decline and who seek to blame the new world for being unfaithful to the practices of the old? They will decline further, there will be fire sales, redundancies and eventually closures. Pearson know all about this. Their focus is education, where they have a pre-eminent global position. Behind them trail the three remnants of the former Big 4 of the textbook world of 1990. Harcourt are now with Houghton Mifflin, just moving out of Chapter 11 protection and still with no answer for the future, and McGraw-Hill Education, despite some good initiatives, is cast adrift by its owners into a separate company so that its margins do not pollute perceptions of McGraw’s bid for survival via financial services. Do Pearson bid for these ageing relics? Certainly not – no one has seen them buy a textbook for many a year. They buy cutting edge, tech progressive companies in growing markets with expanding margins. And they are very good at it indeed.
Here then are some of the arguments which I would present to the regulator, albeit in a rather less direct format. Then, during the coffee break, I would take him aside and remind him that book readers are a small proportion of human kind, though hugely vocal and opinionated (I, for example, am an avid book reader). This does not mean however that their marketplace should be immune from the pressures being felt elsewhere. Why, I would ask him, were these players not experimenters in the early days of digital change? Penguin bought Dorling Kindersley, the only publisher who could have been said to have followed the clues to multimedia in pre-internet days but threw away the learning experience. Both are now Johnny-come-latelys to the digital marketplace which they point to as a disruptor. Please, Regulator, let them have their way. Unless they discover Plan B they will deflate, separately or together. Do not stand in the way of market forces in very small markets.
And should this be a merger? Pearson should not neglect, obviously, the huge power of consumers as buyers of self education or of educational materials for children. But I doubt if this merged venture is a vehicle for that. Pearson may have a residual feeling of responsibility for the Penguin brand, which is the best there is outside of OUP in the sector. But sentiment should not stand in the way of liberating capital which can be used in further global educational developments. That is something for the Brits , who have few global brands as resonant as Pearson is in education, to relish, and could be worth a shaky chorus of Land of Hope and Glory…!keep looking »