Random House, Penguin to Merge After Amazon Beatdown
October 29, 2012 3:27 PM
The new company name will be Penguin Random House
Two of the largest book publishers -- Penguin and Random House -- are merging in an effort to better embrace
the digital future of publishing
Bertelsmann, Germany-based owner of
, and Pearson, UK-based owner of Penguin, have decided to join forces in a merger that will give both companies a combined 25 percent global market share.
The agreement will give Bertelsmann 53 percent of the control while Pearson will receive the remaining 47 percent. The new company name will be Penguin Random House.
As far as leadership goes, Markus Dohle of Random House will be CEO of Penguin Random House while Penguin's John Makinson will serve as chairman.
The main benefit of this merger is the combined resources, which will allow the new publishing superpower to focus on a digital shift. Competitors like Amazon, which sell books online for much lower prices than other retailers, have pummeled the traditional book publishing industry.
Customers these days are more interested in cheaper books that they can either buy online or download directly to their mobile devices. Both Random House and Penguin have gone to great lengths to battle the digital shift (Random House announced it was
raising e-book prices for libraries by as much as 300 percent
last March, and Penguin
suspended the availability of e-books
to libraries for Kindle devices last year).
The merger would also allow the publishers to cut costs in back offices and
spend more on authors
. Recognizing the need to adapt and save money, Bertelsmann and Pearson came to the conclusion that a merger made the most sense. The expected annual revenue of Penguin Random House is $3.8 billion.
However, the deal isn't all sunshine and rainbows for everyone. Some literary agents have said that the merger would decrease the number of outlets for authors.
Also, considering both companies are based in Europe, the European Commission could raise questions as to whether the merger would be anticompetitive because the combined global market share would slightly exceed 25 percent. The Commission has been known to worry about "cultural diversity," and whether or not it would be lost in such a large merger.
Apple and five major book publishers were recently targeted by the European Commission and the U.S. Department of Justice (DOJ) for anticompetitive practices in the e-book industry. Apple and the publishers agreed to an agency pricing model, which allowed publishers to set prices and Apple got a 30 percent cut. However, the model meant that publishers could not allow Apple's competitors, such as Amazon, to sell the same books for lower prices. Apple and four of the publishers submitted a
settlement proposal to the European Commission
last month (Penguin was not one of the publishers). However, Apple, Penguin and Macmillan will go head-to-head with DOJ in a
bench trial on June 3, 2013
The Bertelsmann/Pearson merger is not subject to Pearson shareholder approval, and Bertelsmann is privately held.
The New York Times
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