Book merger deal

Germany-based media giant Bertelsmann and British publisher Pearson have agreed to merge their book publishers, Random House and Penguin, to form the joint venture Penguin Random House, the companies announced Monday. Bertelsmann would own 53 percent, with Pearson holding a minority share of 47 percent.

Talks had been ongoing for months. News of the planned merger comes as book publishers attempt to deal with the rapidly changing media landscape, with the emergence of new players like Amazon, Apple and Google, and new business models, such as e-books. Heavy discounts by supermarkets and online retailers have also added to the book industry's struggles.

"Random House and Penguin complement each other," Bertelsmann spokesperson Christian Steinhof told DW. The new publishing group will include both companies' publishing divisions and imprints in the US, Canada, the UK, Australia, New Zealand, India and South Africa. Penguin's publishing company in China, as well as Random House's Spanish-language publishing divisions in Spain and Latin America, will also be part of the new group. Random House Germany, however, will be excluded from the deal.

"The German market is quite different," said Steinhof. "For instance, the Anglo-American market is not familiar with German fixed book pricing." The new joint-venture will focus on English and Spanish publications.

Complementary skills and strengths

Both publishing companies hope to benefit from the respective strengths of their former rival. "Random House is the leading English-language publisher in the US and the UK, while Penguin is the world's most famous publishing brand and has a strong presence in fast-growing developing markets," said a statement issued by Pearson. Rupert Murdoch's News Corp., which owns publisher HarperCollins, was also reportedly interested in buying Penguin and ready to bid 1 billion pounds ($1.6 billion/1.2 billion).

"With this planned combination, Bertelsmann and Pearson [would] create the best course for the future of our world-renowned tradebook publishers, Random House and Penguin, by enabling them to publish even more effectively across traditional and emerging formats and distribution channels," said a statement from Bertelsmann.

Pearson firmly believes the book industry will consolidate despite its challenges - the merger was a means to be in the lead of consolidation efforts, a Pearson spokesperson told DW.

While both companies where full of praise for the merger, industry analysts were rather critical. Liz Thomson, of the book industry website Bookbrunch, agreed that the Random House option was better than going with Murdoch's offer, but she doesn't think it was an overall good move on Penguin's part.

"It's a great shame that such a unique publisher will no longer be in British hands," Thomson said. "Why couldn't it remain the way it was? Penguin was profitable, it's a household name."

This merger might be just the first of many, she added. "Once there's a shift, others might follow." Giving an example, Thomson said the UK's largest publishing group Hachette might think of expanding as well, and check to see if HarperCollins is for sale. They both belong to the "big six" - the six big global publishing companies.

A quarter of the English-language market

Authorities have yet to agree to the plans, but the companies hope to close the deal by the second half of 2013. Together, Random House and Penguin would have a combined market share of 25 percent in the English-language book sector.

According to Thomson, actual sales numbers might be even higher. Since they have so many popular authors in their portfolio - among them Ken Follett, Terry Pratchett, "Fifty Shades of Grey" author E.L. James and 2012 Nobel Prize winner Mo Yan - the joint venture might actually make up as much as 40 percent of the average bookseller's sales, she said.

However, analysts expect the authorities to approve the deal. "They have proven to be pretty toothless in the past," Thomson said. "If they are prepared to allow Amazon to have 90 percent of the e-book market in the UK and 80 percent in the US, they can't really block a merger that is responding to it," Philip Jones, of The Bookseller magazine, said in an interview with the BBC.

Markus Dohle, now chairman and CEO of Random House worldwide, would be heading the newly-formed joint venture. Pearson head John Makinson will become chairman of the board of directors. Bertelsmann, Europe's biggest media group, will nominate five directors to the board; Pearson will hold four.

Both companies would not be able to sell their shares to a third party for three years. Share amounts were based on long-term developments in revenue and profits, according to a Bertelsmann spokesperson. In 2011, Random House had revenues of 1.7 billion euros ($2.2 billion) and had an operating profit of 185 million euros, while Penguin reported revenues of 1 billion pounds ($1.6 billion) and an operating profit of 111 million pounds.

The joint venture could be a change in strategy for Pearson, following the news that its chief executive Marjorie Scardino plans to step down at the end of 2012 after more than 15 years. Many now wonder whether Pearson will also sell the newspaper Financial Times to focus on its educational sector.