Happy Outcome for Random/Penguin Merger? History Tells A Different Tale
From Digital Book World:
In his press release announcing Random House’s merger with Penguin, Random CEO Markus Dohle promised agents that “You and your clients will benefit from an extraordinary breadth of publishing choices, and editorial talents and experience.” Some leading literary agents are skeptical and one outspoken rep majorly begs to differ,reports Ella Delany in the Daily Beast.
“Publishers’ releases in the past have always said that nothing significant would change, and that all imprints would continue working independently as before.” says Georges Borchardt, one of the most distinguished authors’ representatives in the industry. What happened to such houses as Atheneum, Anchor, Lippincott, and Free Press? he asks. All absorbed in the churning mill of merger and acquisition that has homogenized hundreds and hundreds of proud and great publishing companies into an indistinguishable soup.
. . . .
Even if you’re too young to remember companies buried in this graveyard, or too unsentimental to mourn their passing, it nevertheless makes for depressing reading and offers scant comfort for agents and their clients wondering how they will navigate the new landscape. Especially because smart money says there are more mergers on the way.
. . . .
- Trend: The large publishing houses will continue to reduce overhead as profits shrink in the years ahead.
- Counter trend: Publishers will be looking for mergers and acquisitions to compensate for those shrinking profits. The Big Six could be the Big Three within five years.
- Trend: These companies will continue to focus more resources on fewer titles…Title count at the largest houses could drop by as much as fifty percent over the next five years.
- Counter trend: Self-publishing will grow exponentially.
- Trend: In terms of advances, the amounts paid for brand-names will continue to increase, with seven-figure or eight-figure acquisitions commonplace among authors with established track records.
- Counter trend: The six-figure advance…will become a rare species within the decade.
. . . .
- Trend: The agent of the future will become more of a business manager who handles every aspect of an author’s career.
- Counter trend: Publishers will create free-standing departments whose services can be purchased a la carte by authors.
Link to the rest at Digital Book World
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Trend: The large publishing houses will continue to reduce overhead as profits shrink in the years ahead.
Counter trend: Publishers will be looking for mergers and acquisitions to compensate for those shrinking profits. The Big Six could be the Big Three within five years.
The trouble is that M&A activity tends to increase overhead. The bigger the company, the more managers and executives it takes to keep track of it all — and this administrative overhead increases faster than the size of the organization. Also, it is the profits that make mergers and acquisitions possible. So while the publishers may be looking for M&A, their ability to purchase other companies (or finance merger deals, which cost money to do) will be diminished.
I’m going to go out on a limb and say that at most one of the Big Six will still exist in a recognizable form, under the same name and corporate structure, within ten years. I base this on a historical parallel:
In 1980, the mainframe computer industry in the U.S. was concentrated in six firms: IBM, Burroughs, UNIVAC, NCR, Control Data, and Honeywell. Personal computers were a disruptive technology that destroyed the whole mainframe business as then known; mainframes survived, in the end, as simply super-sized servers, and had to be radically designed for a client-server architecture instead of the old batch-processing or timesharing architectures. Of the six U.S. mainframe manufacturers, only IBM had the resources and the inventiveness to make this transition.
It helped immensely that IBM was the first large computer company to produce its own PCs. The other companies, the so-called BUNCH, tried to introduce personal computers of their own, but they were several years late and had to face leaner and nimbler competition, not only from IBM, but from scores of startups whose low cost structures and low overheads were perfect for selling PCs.
Burroughs and UNIVAC merged to form Unisys, which still exists as a (relatively small) corporate IT service vendor. NCR quit the computer business, was acquired by AT&T and spun off again, and now makes ATMs, point-of-sale terminals, and other things of that kind. Control Data simply went out of business. Honeywell also left the computer business and now makes industrial control systems of various kinds. None of the BUNCH could survive by continuing to sell mainframes; the market didn’t exist any longer. And none of them sell PCs either. (Even IBM had to sell off its PC business to Lenovo when cutthroat price competition made the profit margins too small for that business to support its share of IBM’s overhead.)
Large publishers are caught between two disruptive technologies: ebooks on the one hand, and POD publishing on the other. Both of these tend to negate the economies of scale which made it profitable for publishers to grow big. Even if traditional publishers continue to exist in the future, the business will be best done by small firms that don’t have to carry large debts or massive corporate overhead, and that are nimble enough to adapt quickly to changes in technology and markets. ‘Survival of the fattest’ is no longer an option.
Good comparison, Tom.
Thank you. So if you’re ever in earshot of me (which seems unlikely), and someone mentions the Random House/Penguin merger, you’ll know why I am muttering ‘Unisys’ under my breath. That merger saved Burroughs/UNIVAC from bankruptcy, but not from irrelevance.
Wow, I had forgotten about Burroughs + Univac = Unisys.
Do mergers (and acquisitions when the acquired company is over 1/2 the size of the acquirer) ever work? They sap so much momentum out of both companies.
Having been involved with M&A .. The rough number is 70% of all M&As fail. Either the companies financially crumble like two drowning wretches clinging to each other (especially if significant cash was used to acquire shares in one or the other), they get unwound/spun-off by replacement executives due to lack of market focus by the prior team (whew! that didn’t work after all!) or they spend so much time fighting for which executive manager and his pyramid of middles and workers down below gets to stay that the prognosis is often bad. M&A is great for their major competitors for about eighteen months. If you hear they are doing unilateral X% of headcount reductions – watch out. They have to get to headcount reduction targets by lopping off whole groups from top to bottom to have a chance at success – and they almost never do.
So where would Cray fit in your analogy?
Cray fell out of Control Data Corp. long after the BUNCH was forgotten; also it was considered a supercomputer company rather than a mainframe company – a subtle distinction perhaps…
Can anybody identify Datamation’s “Snow White and the Seven Dwar(f/ve)s”? I’m missing one, I think. Bonus points if you can associate companies with the appropriate dwarf.
Actually, Cray is descended from Cray Research, which Seymour Cray founded in 1972 after leaving Control Data. It was never a part of Control Data as such, and Cray Research existed at the same time as the BUNCH.
By the way, the distinction between supercomputers and mainframes, in those days, was not subtle at all. The Cray 1, when it came out, had no input/output capabilities. It had to be hooked up in tandem with an ordinary mainframe to handle such mundane tasks. All the Cray was supposed to do was vector calculations, very very fast.
The Seven Dwarfs were the BUNCH plus GE and RCA. Alas, I have no idea which company goes with which dwarf; that was before my time, and I never got to know those companies (or their products) well enough to assign definite personalities to them. Except that I think Control Data must have been Doc.
Good article. I think it’s on target in terms of predictions, for the most part, but there are also alot of wild cards here.
Wild cards:
a. Competition from upstarts that offer the same services as Publishers to authors, but cheaper and better.
b. Amazon, and its desire to lure authors from Publishing.
c. The Author.
Like all predictions from insiders, these have a generally reasonable ring of sense about them, but really miss the really essential changes that will take place in the next 10 – 15 years imho.
I don’t think it takes a genius to realise a few basic things. In 10 – 15 years time the majority of titles will be what will broadly be referred to as ‘self published’. The rest will be high profile writers with huge success behind them and celebrities etc.
It seems to me, as someone from outside the industry, that Mr Curtis is right-ish about the plight of the heavyweight legacy publishers, but he omits a complete sector that I believe will occupy the whole centre ground. Small, multi skilled publishers who offer multiple choice services to self publishing authors, and medium publishers who do the same, but also invest capital in significant promotion and advances. And please, don’t let anyone try to persuade me that advances will totally disappear. They will remain at the top end and in the middle. Why ? because they are how high potential authors will continue to be attracted, and there will always be someone who sees money to be made by hitching their wagon to a promising author.
Multiple Choice services will dominate the centre ground, imho. Offering the author a selection of services to chose from …. Editing, Copy Editing, IT, Art/Design, Online promotion, Physical World Promotion, Syndicated Promotion.
Royalties will be individually negotiated, depending on costs and risks. This will facilitate the wide range of people that authors will be … some will want to hand over everything to someone to take care of and be willing to take a lower royalty. Others will be hands on and very involved and will take a higher percentage. These new publishers will be much more risk aware on an individual title basis and that will be, in my view, about time for this industry.
As far as Agents go it appears to me, and I may merit criticism here, that this ‘profession’ has fallen decades behind the times on the backs of lazy and uber-naive authors. Agents, other than those involving celebs and elite authors, will have to become far more business aware and adopt far higher levels of professionalism.
One comment by Mr Curtis that I find very misguided is “As the Boomers lose their eyesight and their children become teenagers, demographics will favor books for young adults over books for adults.”
I believe that he suffers from a common misconception that young people don’t read much and won’t read much as they grow. I believe the opposite. The change to digital eBooks and the transformation of the industry and access to reading material will result in them becoming huge readers.
One comment by Mr Curtis that I find very misguided is “As the Boomers lose their eyesight and their children become teenagers, demographics will favor books for young adults over books for adults.”
This is stupid in more ways than you’ve mentioned, Howard. The children of the Boomers are not becoming teenagers; a good many of them are already middle-aged. (My biological mother was a Boomer, and I’m 46.) The kids who haven’t hit their teens yet are, for the most part, the grandchildren of Baby Boomers.
Basically, Mr. Curtis imagines that there is nothing at all between old people going blind and young people just learning to read. Anybody born between 1964 and 2000, in his view of the world, simply doesn’t exist. Unspeakably silly of him.
Even more silly as disposable income and time both increase with age, after you get those pesky middle years of working done with.
Of course, the meta-response to this article is that for agents to worry about the future of the publishing houses is the equivalent of musicians on the Titanic worrying about the phonograph taking their jobs.
Oh, that’s good! May I quote you on my blog?
Absolutely.
I find this interesting:
“Publishers’ releases in the past have always said that nothing significant would change … What happened to such houses as Atheneum, Anchor, Lippincott, and Free Press?…”
The first is the usual and expected communication to worried sheeple “don’t worry it will all be the s a m e. You will be f i n e.” Then massive compression of the system (if they hope to make a success of the M&A). The real question, coming at the ‘houses’ is who are they? Inside traditional publishing they are strong brand names and their executives will fight with each other to protect their fortresses .. but out in reader land who are they? Readers know the authors, and some authors have switched big publisher brands several times and readers don’t pay attention or care. If the R-P company hopes to survive they will need to figure out how to be a brand in and of themselves to readers.
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If the R-P company hopes to survive they will need to figure out how to be a brand in and of themselves to readers.
An impossible task unless they voluntarily give up most of their business and concentrate on one recognizable genre of books. Baen is a brand: it stands for a particular kind of SF, often with a libertarian slant. Harlequin is a brand: it stands for category romance. The same thing applies in other media industries. Motown is a brand that stands for something identifiable, but Sony Music isn’t. ESPN is that kind of brand, but NBC isn’t. Branding requires focus; conglomerates like Random House and Penguin (let alone the combination of the two) lack focus by their very nature. ‘We publish everything’ is not something you can build a brand on.