The dynamics of the global publishing industry are about to change dramatically as Britain’s Pearson (NYSE:PSO) and Germany’s Bertelsmann have announced plans to merge their publishing arms Penguin and Random House.
The deal will bring both publishers’ authors and titles under one venture, to be called Penguin Random House, and is designed to give both parent companies increased negotiating power when dealing with tech giants like Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL), which have revolutionized the book industry with the advent of e-reader devices.
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The deal, which was confirmed Monday after months of speculation and discussion, will split ownership of the new venture with 53 percent going to Bertelsmann and the remainder to Pearson. In addition to giving the publishers leverage in dealing with e-book vendors, the deal is also expected to shave the companies’ shared cost base as much 10 percent, as Pearson and Bertelsmann will now be able to operate joint warehousing, distribution, printing, and central functions.
Pearson Chief Executive Marjorie Scardino said mergers of this nature are bound to happen in today’s book publishing world, where seismic changes are being driven by technology companies like Amazon and Apple that have reshaped the way people read and buy books.
“Together, the two publishers will be able to share a large part of their costs to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers,” Scardino said.
By combining their rosters of authors – which tout must-have items like EL James’s “Fifty Shades of Grey” trilogy and books by popular novelist Terry Pratchett – Penguin and Random House promise to become the world’s premiere publisher. The hope is that wielding such money-making titles will force Amazon and Apple, who will need to have selling rights for their e-book marketplaces, to approach the negotiating table with less strength and create more publisher-friendly business deals.
“This is about negotiating power,” said Mike Shatzkin, founder and CEO of book research consulting firm Ideal Logical. “Random House and Penguin will have so many of the most important books, it’s hard to see how any retailers can live without them.”
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