Penguin and Random House: Will they combine to form the world's biggest publisher?

Pearson, the owner of Penguin, and Bertelsmann, Random House's parent company, are currently in discussions to merge the two companies.

“Consolidation is the order of the day," says one media analyst of the proposed merged of Penguin and Random House. “They [publishers] have got to gang together to have enough clout."

If the owners of publishing houses Penguin and Random House move ahead with an unprecedented merger deal to combine their businesses, the merger would result in the world’s biggest publisher.

Pearson, which owns Penguin, confirmed Thursday through an online statement that it has entered into merger discussions with Bertelsmann, the German company that owns Random House.

“Pearson confirms that it is discussing with Bertelsmann a possible combination of Penguin and Random House,” the statement reads. However, Pearson added, “The two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction.”

Though not a complete surprise to industry watchers, the merger talks would result in big changes in the publishing world. If the proposed merger goes through, the two companies “would account for north of 25% of global English-language consumer book sales,” according to the Wall Street Journal.

The two companies are considering the merger during a period of great flux in publishing. Publishing is undergoing major changes due to a number of factors including the emergence of digital books, the growing power of web retailers like Amazon, the growth of self-publishing, and the disappearance of traditional bricks-and-mortar bookstores. All in all, these changes have made it harder for publishers to reach readers and to exert control over the books landscape. (That perhaps is why both Random House and Penguin saw revenue decline slightly in 2011, according to the WSJ.)

A merger could reinvigorate the companies and make them more competitive in a changing industry, an industry executive told the WSJ. “A merger would allow the two companies to cut costs while giving the new company more clout to stand up to retailers like Amazon and more resources to compete internationally," said one industry executive.

It would also follow analyst predictions of consolidation among the “big six” publishers, a probable move “in an industry where independent bookstores are giving way to national chains and large technology companies who control e-book stores,” writes the Financial Times.

“Consolidation is the order of the day, and technology and tablet computers have given it extra momentum,” Lorna Tilbian, head media analyst at Numis, told the UK’s Guardian. “They [publishers] have got to gang together to have enough clout to take on the technology giants that have transformed the industry. I can see a world where Apple, Amazon and Google become the 21st century equivalent of Time Warner, News Corp and Walt Disney, but they won't [just] be running the technology and content, but also distribution.”

From a literary perspective, the proposed merger would create a curious array of literary bedfellows. If the publishing houses were merged, John Grisham, Toni Morrison, and E.L. James of erotica “Fifty Shades” fame would share the same publisher as Patricia Cornwall, Junot Diaz, and Tom Clancy.

The publishing powerhouse would also have significant global reach, with markets being developed in Brazil, Korea, China, Egypt, Germany, Spain, Mexico, Argentina, India, and of course, North America.

Of course, not everyone is thrilled about the news. Authors, in particular, see it as a worrying development in the publishing industry. “It will hurt authors because there will be fewer people for us to negotiate with. Fewer books will be published, and advances will invariably go down,” Jane Dystel, owner of Dystel & Goderich Literary Management, told the WSJ.

One thing’s for sure – if it goes through, the merger will send reverberations, for better or for worse, throughout the entire publishing industry, from other publishing houses to retailers to writers and consumers. And by most accounts, it just might be a glimpse into the future of publishing.

Husna Haq is a Monitor correspondent.

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