Markus Dohle’s Big Flop: What Penguin Random House’s Failed Bid to Eat S&S Means for Publishing

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From New York Magazine:

he National Book Awards are the Oscars of the publishing industry, although nobody who attended the ceremony on November 16 at Cipriani Wall Street would likely confuse the two. Still, it wasn’t without its glamour and drama. That night, Padma Lakshmi, best-selling author and former wife of Salman Rushdie — who only a few months before had been nearly murdered for his writing — was the host. Her yellow strapless dress was conspicuously adorned with a union button in solidarity with the striking HarperCollins staffers picketing out on the sidewalk. But all eyes were on Markus Dohle, the tuxedo-clad CEO of Penguin Random House who had for 14 years been the most powerful and successful publishing warlord in the room.

PRH had become the biggest publisher in the game after a 2013 merger, led by Dohle, that saw Random House gobble up Penguin. The combined company had cast a long shadow over its four smaller rivals — Hachette, Macmillan, HarperCollins, and Simon & Schuster — but Dohle wanted more and had spent much of the past two years fighting to buy S&S in order to create a world-spanning leviathan.

Few in the room had wanted the $2.175 billion S&S merger to happen. Already most felt that PRH had become too bureaucratic, too unwieldy, and they worried that competition among book buyers would be hobbled further if it went through. Many had cheered on the antitrust hawks of President Biden’s Department of Justice who sued to block the deal’s consummation. After a bruising, and in some ways humiliating, trial, Dohle had been denied his ambitions by the court. But more importantly, in the process, his imperial publishing house’s weaknesses had been laid bare for all to see.

“People were trying to decide if they still needed to kiss the ring,” recalls one top executive who was at the dinner that night, “or if there was even a ring left to kiss.”

Though Dohle had declared his intention to appeal the court’s decision, it was looking like a long shot, and Cipriani was humming with Schadenfreude. And then, sure enough, come Monday, the deal was officially pronounced dead after S&S was yanked off the table by its parent company, Paramount. Three weeks later, on December 9, Dohle resigned.

Whether the demolition of the S&S deal was going to be good or bad for the actual making of books remains another question entirely. And whoever does end up getting S&S — it’s back on the market — won’t be as well known or as well liked as Dohle.

“He brought an optimism and energy to the business during fragile moments,” said book agent and Dohle pal Elyse Cheney, “but, you know, the last year and a half has been very tough.” Paul Bogaards, the well-known book publicist who worked for 32 years at Knopf (which is part of PRH) before striking out on his own, told me that “many of the suits in publishing are tone-deaf to the needs and wants of the people who help make the business run. Markus has had a great, historic career in publishing. But he failed to read the room when it came to the merger.”

. . . .

Random House, the most storied of American publishing houses, had been acquired by the German media conglomerate Bertelsmann in 1998 and merged with Bantam Doubleday Dell. It was the era of corporate consolidation in books, accompanied by much grumbling at the time about the perceived lack of competition and a fear of a creeping cultural blandness. Still, publishing adapted.

In 2008, Bertelsmann put Dohle in charge of Random House. Nobody was quite sure what to make of him. Markets were tanking and people were declaring the end of print. (Remember that brave new world of Kindles and Nooks?) Dohle, then 39, was not a book editor. He had trained as an engineer and had been running Bertelsmann’s highly profitable printing division, which was so far from any sort of glamour that it was nicknamed “Siberia” within Bertelsmann.

But he soon proved to have an intuitive understanding of the business, and his mechanical background allowed him to grow out a muscular distribution infrastructure that became the envy of other publishers. He counterintuitively championed the physical book. And once he achieved the 2013 deal that combined Random House with Penguin, he found himself ruling over a global juggernaut with 11 branch CEOs reporting to him from midtown to Madrid. He became the figurehead of the industry, and he turned out to be a larger-than-life character in a contracting industry that had been wanting for them. Even the most jaded New York editor found it hard not to be at least a little charmed. “He’s like our Arnold Schwarzenegger,” said one.

Dohle, now 54, grew into the job. His house is up in Scarsdale, but he would make it a point to drop in on book parties around the city. He sat on the board of PEN America alongside Masha Gessen and Jennifer Egan, became tight with Dan Brown and Andrew Solomon, and personally negotiated Barack Obama’s book deal.

The guy had banked a lot of goodwill. But before long, there were whispers that Dohle had made PRH so big that it was inefficient. It was losing market share to more nimble competitors. When Paramount put S&S on the market — a book publisher doesn’t exactly fit into a corporate vision predicated on streaming services — Dohle seemed to see a potential merger as a way to make up for market-share loss through brute-force consolidation.

After announcing his intent to buy S&S, things started to go wrong for him straightaway. Organizations such as the American Booksellers Association that ordinarily have good relationships with PRH generally and Dohle personally began publicly trashing the merger. On the eve of the trial, the president of the Authors Guild, Douglas Preston, wrote an op-ed in the Los Angeles Times slamming the merger.

. . . .

The DOJ sued to block the deal, arguing that the big five being reduced to a big four would leave too much buying power in the hands of too few, screwing over authors. (PRH, ready to defend the deal, hired the same legal team that had successfully shepherded the AT&T and TimeWarner merger to completion.) The case was handled by Judge Florence Y. Pan, a Biden appointee; this would be the first case in her new role.

The trial finally began in August 2022. It lasted only three weeks, but for Dohle it was about as long and unhappy as Jarndyce v. Jarndyce. The DOJ hinged its case around a tiny sliver of top book deals — the kind that pretty much only the big five can compete on — to show how concentrated power in publishing already is. “Freelance writer” Stephen King took the stand to support the government’s point.

Dohle and his executives were made to explain a lot about how PRH had been operating since the 2013 merger.

Like the other publishing houses, PRH consists of many imprints, each with its own flavor and identity. The imprints are grouped into divisions. (PRH is so dense it consists of 94 imprints — 37 being children’s imprints — spread across seven divisions.) The different divisions operate like separate companies, even though they’re all plugged in to the same corporate infrastructure, jockeying for resources. The main three divisions within PRH are Penguin Publishing Group (imprints include Riverhead, Penguin Classic, Viking, etc.); Random House (its got Ballantine Books, Bantam, Crown Trade, etc.), and the vaunted Knopf Doubleday Group (Alfred A. Knopf, Doubleday, and Pantheon, among others).

The imprints compete for book deals against one another, even if they’re part of the same division. That keeps things hot and competitive and individualistic and creative. Supposedly.

But then the trial revealed that all the different tentacles within PRH were being tangled up to create some kind of publishing kraken. Madeline McIntosh, the CEO whom Dohle had appointed to run the U.S. operation, started to encourage the separate divisions inside PRH to get on the same page while competing against one another for the same book at auction. There was a 2018 document, written by McIntosh, that talked about “increased background coordination in auctions to leverage internal demand information better and avoid internal upbidding.” Such a practice might sound simply like how a corporation would work to you, but book publishing thinks of itself as being on a sort of genteel old-school honor-system version of capitalism. This division coordination that McIntosh was torquing up inside PRH posed a couple of problems.

Link to the rest at New York Magazine

8 thoughts on “Markus Dohle’s Big Flop: What Penguin Random House’s Failed Bid to Eat S&S Means for Publishing”

  1. Publishers are notorious at screwing up data systems that would create useful sources for corporate decision making. They simply don’t seem to believe in them (that’s part of the “old school” boast — they seem to prefer Ouija boards from their youth).

    I don’t care how knowledgeable about their competitors & the ecosystem the execs may be… if they can’t get at basic data about backlists, topicality, formats, format conversions, acquisitions, tracking, covers, updates, profitability, etc., all of which need a data-focus, and disseminate that info within the corporate units AND make them live up to data-related targets, then they are simply not a modern firm.

    Getting from where they are to where they should be for corporate health… well, they’ve missed that boat. They are the last place that data techs want to work, as senior or junior employees, because the firms so patently don’t see data nimbleness as a corporate asset worth supporting. The tech people who know how to bring large corporations into the modern world of data-driven corporate management have finished that job for just about all the major industries that needed it. Publishing is one of the few industries left that is gradually floating further and further out to sea without this, because it is so insular that they don’t quite understand why they’re sinking — all their colleagues are in the same boat.

    It’s really a generational version of modernizing manufacturing/intelligent outsourcing. If you don’t keep up with the costs/ways things are designed and made, eventually it’s too late. For publishing, their very coziness with each other status-wise at the top ensures that they will drown together rather than soil their fingers with actual corporate management with modern tools/processes.

    • Getting good techie help is going to be hard in any case:
      – They’re on the wrong coast
      – They’re in the highest cost of living cities
      – They are known for under-paying staff and are doubtful to sign up with a top tier computer support outfit who would be paying prevaling wages plus charging for running the operation.
      – Their labor pool comes from sources that despise techies and other ‘vocational” professions. If they actually managed to hire competent tech help by paying prevailing Manhattan IT salaries, the rest of the staff would mutiny. (I’ve seen quotes of $128,168 to $174,000 per year, maybe more.)

      I’m thinking that even if they knew what they need they couldn’t afford the transition cost: their overlords wouldn’t be happy. Mostly they’ll hope to muddle through until retirement.

      • All very true. And, while money will fix a lot of those problems (if they had the money from an investor/acquirer) the lack of desire (or even understanding of the issue) at the top makes all of that moot.

        Dying industries collect the same sorts of management wherever they occur. The people who hope to buy and remake them are playing a game of “hot potato”, IMHO. Sometimes that works, if you can replace all the management and integrate them into a functional company. In this case, I think it’s hopeless.

        I expect it all to end in a series of IP asset acquisition purchases, like music/film/TV IP asset consolidators. I expect we’ll end up with a David (indie) and Goliath (mega licensing firms) for all entertainment IP, and likely some consolidator service firms for the indies.

        • Agreed.
          With one addition: a lot of smaller publishers have a chance to survive by contracting out pbook production (both batch and POD, as appropriate) and distribution (Ingram primarily) and survive as virtual corporations like we see in consumer electronics. They won’t grow big but they’ll have a chance to survive the transition from pbook only to ebook mostly. We’re still at the early stages.

          • If they use off-the-shelf software and analysis systems, they’ll be accepting the predetermined objectives of “business” used to create that software and analytic tools. And those “objectives” are largely… inapplicable in arts and entertainment, if only because their temporal parameters are inapplicable.

            Conversely, if they use custom software and analysis systems, that rather assumes that they can explain the real objectives to the software developers and the analysts, and then pay enough attention to ensure what they get back is not just mildly-customized bog standard that doesn’t integrate the correct objectives. (Which, of course, begs the question of whether the predetermined leaders understand themselves either that their objectives are distinct from either widget manufacturing or nonbespoke services, let alone what those objectives really are.)

            Just about sixty years ago we had a little adventurism in Southeast Asia that demonstrated that problem rather definitively. With body counts and napalm. And, more to the point, involved use of software and analytic systems that were, at best, ill-adapted to the actual objectives; just don’t ever say “McNamara” around a military officer. Even the hidebound military establishment learned from that! (MBA programs… not so much. But that’s for a vicious attack at some academic seminar attended by only those who can’t get jobs in government or as talking heads, so —)

        • That kind of transition means the business will likely have to conform to the software. I suspect they have neither the in-house talent to build boutique systems, nor the money it would cost. Canned systems are expensive. Custom systems are more expensive. Even if they had the money, I wonder if they have the will to change

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