What the Random House-Penguin Merger Means for Authors (Analysis)

The deal that creates the world's largest publisher could directly impact their book advances.

This story first appeared in the Nov. 9 issue of The Hollywood Reporter magazine.

The Oct. 29 merger of book behemoths Random House and Penguin not only creates the world’s largest publisher, home to authors as diverse as Fifty Shades of Grey’s E L James and mystery writer Patricia Cornwell, it also will present a formidable challenge to the growing power of such digital distributors as Amazon and Apple. And some already are worrying that the consolidation will decrease opportunities for authors and drive down advances.

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The company, to be called Penguin Random House, will boast $4 billion in revenue and control about 25 percent of the worldwide consumer book market. In the U.S., its share of book sales will hover around 40 percent. Bertelsmann, the German conglomerate that owns Random House, will control 53 percent of the new company. (Penguin’s British-based parent Pearson Llc. will hold the rest.) Bertelsmann chairman Thomas Rabe says the merger -- subject to regulatory scrutiny in the U.S. and abroad -- will produce a “diversity of publishing opportunities for authors, agents, booksellers and readers.” Pearson CEO Marjorie Scardino promises the company will be “more adventurous” in moving into digital publishing.

But some, such as IAC’s Barry Diller and partner Scott Rudin, who recently announced a new digital book company, have argued that the future of publishing is with pure digital players unburdened by legacy costs (like printing). Penguin Random House is doubling down in the opposite direction, believing that combining its legacy investments in marketing and distribution actually will make it a stronger digital force by shedding some costs in production and warehousing while giving it more money for marketing. This strategy is designed to combat not only Amazon, which controls about 60 percent of the e-book market and perhaps 40 percent of total sales, but also Apple, which is looking to increase its 10 percent share of the e-book market with the just-introduced iPad mini.

STORY: Penguin and Random House to Merge to Create Book-Publishing Giant

Agent Robert Gotlieb, chairman of Trident Media Group, which represents such authors as Deepak Chopra and Stephen Colbert, calls the promise of savings “Wharton Business School-speak for cutting.” He predicts a merging of imprints and publishing divisions to the financial and artistic detriment of authors. “It gives one company enormous power to dictate terms to authors,” he says.

Still, the combination is likely to be just the first shoe that drops in publishing. When news of the Penguin-Random House talks leaked, News Corp. owner HarperCollins made a late offer for Penguin for a reported $1.6 billion. Now analysts are wondering which of the remaining “Big Six” (Macmillan, Hachette or Simon & Schuster) Rupert Murdoch will court next. Many believe News Corp. will gobble up a big-name publisher in advance of the company’s split of its newspaper-publishing operations from its entertainment units.

What do you think?

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