Markus Dohle, Chief Executive of Random House, must have had a long hard think about what a booklover could possibly treasure more than a Kindle.
The answer is, of course, a Penguin. Everyone loves Penguin. Their paperback covers have become such a design cult that people flock to buy not just their books, but also bags, mugs, postcards, and even deckchairs, trussed up in Penguin livery. If Random House wants to stand up to the mighty Amazon, then this strong brand is a boost to their arsenal.
Why else would Random House want to merge with Penguin? Last year Random House reported revenues of 1.7 billion euros, with an operating profit of 185 million euros. This year, they published Fifty Shades of Grey – a phenomenal money-spinner. Surely there is no need to supplement strong organic growth with a merger, which adds value to the company but translates as job losses in areas such as warehousing, distribution, finance and production. Making people redundant seems like strange behaviour in such profitable times.
From Penguin’s point of view, their profits this year were down in part due to Random House’s success with Fifty Shades of Grey. But still it seems bizarre for them to want to join forces with their greatest rival. They are sacrificing their strong brand to the Random House conglomerate, and for this there must be a massive incentive.
Many astute commentators, whose articles have been neatly rounded up in this piece in the Bookseller, have pointed out that Amazon is the elephant in the room in this Penguin–Random House deal. The two publishers are coming together in order to gain negotiating power with this digital giant, as well as other giants Google and Apple.
The snag is that even with its projected worth of £2.5 billion, Penguin Random House will only be worth 6 per cent of Amazon, 8 per cent of Google and 2 per cent of Apple. Given that Amazon paid no attention to these publishers when they stood alone – already representing major forces within the publishing industry – why do Penguin and Random House think Amazon will suddenly listen to them when they club together?
Perhaps they have strong grounds, of which I’m ignorant, for expecting Amazon to drop its notorious bullying tactics – tactics that include demanding ludicrous discounts and threatening to remove buy buttons – if they join forces. But I can’t help but think this merger is deeply flawed if it has been engineered solely to stand up to Amazon.
Instead of a merger, why not a more inclusive, less adamantine alliance? Why not get every single publisher to join forces rather than just these two? Amazon will be much more likely to pay attention to a threat to its entire book retail arm than to books from just two publishers.
It sounds improbable, but it is not impossible; there is already a model in place. Seven years ago, a few fiercely independent small publishers joined forces in an ‘Independent Alliance’, to help each other with sales and distribution and to give them a greater presence amongst the big publishing conglomerates. It has been a resounding success, helping these ten publishers, which include Faber & Faber and Canongate, to thrive in difficult times.
In an article for the Guardian, in which he explained the rationale behind the Independent Alliance, Andrew Franklin wrote of the need to ‘join arms to fight against the big boys’.
Franklin couldn’t have put it better, but times have changed. The big boys are no longer the major houses like Hachette, Random House and HarperCollins. The much bigger boys are Amazon, Google and Apple, and to have any negotiating power, publishers need to face them together. Rather than consolidating with mergers and losing their unique, often beloved, identities, they should remain independent and stand together in an alliance. Certainly, absolutely everyone needs to be involved – not just two publishers, however major – in order to have any clout against these digital powerhouses.
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