From The New York Times:
Rupert Murdoch’s News Corp is making a play for Simon & Schuster, the venerable home to best-selling authors like Stephen King and Hillary Clinton that raised a ruckus this year after releasing a string of hit titles critical of President Trump.
The powerhouse publisher was put up for sale by its owner, ViacomCBS, in March, and the company has since fielded more than half a dozen inquiries, according to three people familiar with the process who declined to be named because the matter remains confidential.
In addition to News Corp, which already owns HarperCollins, a leading bidder is Penguin Random House, according to the people. Penguin Random House, the largest book publisher in the United States, is owned by the German media giant Bertelsmann. The French firm Vivendi, a minority owner of Hachette through the publisher Lagardère, has also made a bid.
. . . .
Publishing has become a winner-takes-all business, a circumstance brought on by Amazon’s aggressive pricing, and now a publisher needs size to survive. Tent-pole titles can better offset losses from weaker books. A bigger inventory can generate more data on the habits and interests of book buyers.
Those dynamics underpin the wave of consolidation that has swept the business in the last decade. Penguin and Random House merged, Hachette Book Group acquired Perseus Books, and News Corp bought the romance publisher Harlequin.
. . . .
Should a major publisher win the auction, Simon & Schuster is likely to undergo staff cuts. Departments such as human resources and finance are often slimmed down after a big merger. It is not clear how a deal might affect high-level positions at the company. Jonathan Karp, who was named Simon & Schuster’s chief executive this year after the sudden death of Carolyn Reidy, could be relegated to a lower role or be forced out. Not long after he took over, Mr. Karp named Dana Canedy, a former journalist and administrator of the Pulitzer Prizes, as publisher of its namesake imprint, putting a Black woman in charge of one of the biggest publishing houses.
. . . .
Any merger agreement would also have to undergo regulatory scrutiny. A combination with either Penguin Random House or HarperCollins, the two largest book publishers in the country, could raise questions in Washington. Penguin Random House’s sales exceeded $4 billion last year. Annual sales at HarperCollins, which reports its fiscal year at the end of June, were about $1.7 billion.
Link to the rest at The New York Times
Any merger agreement would also have to undergo regulatory scrutiny. A combination with either Penguin Random House or HarperCollins, the two largest book publishers in the country, could raise questions in Washington.
A reasonable question being, “where does it end? – and with what?”
It’ll end when Bertlesman owns all the five ex-BPHs.
There were similar concerns when Penguin bought Random House; the feds just shrugged it off. Their reason being that for them the revelant market in US publishing is more than just “foreign-owned NY corporate trade book publishers”. The latter is at most a third of all US publishing because they include textbooks, magazines, catalogs, etc. And eBooks.
Ever since the randy Penguin merger US publishing has grown by about $3B ($28B->$31B) and the trade book share has been flat after inflation. Most of the bulk of the growth has been digital and outside their domain. As it stands, the merged Penguin commands half the BPH volume but the BPH share has declined.
Also, S&S is up for sale because CBS merged with Viacom and they need to reduce the debt load resulting from the merger and S&S is a stagnant business that might, if they’re lucky, fetch a year worth of revenue. Something in the $800M-$1B.
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“Not surprisingly, the plethora of best sellers has translated into financial performance, especially in the third quarter, which ended in September. According to the S&S results, released last week, third-quarter revenue of 2020 was $279 million, up 29% from the third quarter of 2019, while S&S’s version of EBITDA—what ViacomCBS calls OIBDA, operating income before depreciation and amortization—was $58 million, up 5% from the third quarter of 2019. Since S&S is being sold, ViacomCBS doesn’t say much about it anymore in its public filings with the Securities and Exchange Commission. The only explanation ViacomCBS had for why S&S’s third-quarter OIBDA did not keep pace with its third-quarter revenue gain was “higher author expenses”—it had to pay up for the books it published—“and increased costs associated with the mix of titles,” whatever that means. In the latest 12 months for which financial information is available, S&S had revenue of $864 million, compared to $814 million in revenue for 2019, and OIBDA of $149 million, a modest 4.2% increase above the $143 million in OIBDA S&S had in 2019. ”
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https://www.vanityfair.com/news/2020/11/simon-and-schuster-sold-just-about-everything-in-2020-except-itself
For context:
https://www.forbes.com/sites/noahkirsch/2020/04/08/viacomcbs-downward-spiral-is-accelerating-as-talk-of-unraveling-grows/?sh=6751ea847b09
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The combined businesses issued their first report card in February, delivering a loss from continued operations of $273 million on revenue of $6.9 billion, a 3% drop over the prior year. They’ve also lagged behind their peers in launching a subscription streaming service that could compete with Disney+, Netflix, Hulu, NBCUniversal’s Peacock and Warner Media’s HBO Max.
Future reports were not expected to be much better even before coronavirus lockdowns put a freeze on entertainment and sports businesses. Then came the cancellation of the NCAA’s March Madness basketball tournament and with it ad revenue of more than $1 billion, which would have been divided between the two rights holders, CBS and Turner.
“The underlying problem here is that, despite $28 billion in revenues, the company generates a paltry amount of free cash flow,” the research firm MoffettNathanson wrote in a report published March 27. “It is mind-boggling to figure out where the cash flow is actually.”
It’s not likely to be found soon. The Paramount film studio can’t make movies right now, nor can it collect revenue from showing those that it has produced since theaters are largely closed. Furthermore, veteran media analyst Harold Vogel wrote last week that the company’s $18.7 billion of debt at year-end was “too high for comfort,” with $800 million of it coming due in the next year. “Cash flow in support of this debt is a relative trickle of what it ought to be at this stage,” he wrote.
Pressure is mounting for management to act. The problem is there are few good options.
ViacomCBS shares plummeted 18% the day after the February earnings report came out and have fallen another 48% since. Valued at about $25 billion after the merger, the combined businesses are now trading at a market capitalization of less than $10 billion. There are plans underway to sell off its book publishing arm, Simon & Schuster, but many are advocating the sale of far larger assets, like Showtime Networks or Paramount (whose titles include Top Gun, Mission Impossible and Star Trek), to shore up its balance sheet.
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Note the contrast: they went from a separate valuation of $25B to $10B and have revenues of $28B of which less than $1B is S&S, which bring in a net of $150M. This for a company spending $13B a year trying to keep up with Netflix, Disney, and Warner Media.
Most of tbe $10B valuation is their video archives, and of those the jewel is STAR TREK.
CBSVIACOM is trying to become leaner and meaner by ditching dead weight but like the merger, that might very well backfire by making them more attractive for somebody trying to beef up their video streaming archives to be able to stand up to Disney, Warner, or Comcast. Potential buyers start with Netflix, Amazon, Apple (who *desperately* need an archive of originals), Google, or even Microsoft (who just negotiated a free month of Disney+ for subscribers to their Game Pass subscription service and are filming at long last a HALO live action series–for CBS’s VIACOM).
As Forbes said, they are midgets in a realm of giants.
And S&S is a spec even with that midget’s realm. (3% of CBS VIACOM revenues).
Outside of publishing, this is barely noticeable and only because as forbes says, $800M of debt is due next year. Roughly what S&S might fetch.
Or more apropos to TPV, S&S *nets* about a third of what KU *pays out” to authors.
The DOJ will yawn when and if it’s sold.
Thanks for the detailed analysis, Felix.
You’re welcome.
I just thought the NYT piece was seriously lacking in context, especially as to the size/importance of publishing. The literati present themselves as essential when they’re barely noticeable.
Here’s a (rough) scale:
S&S -$850M
NYT – $1.74B
Harper Collins – $1.76B
Indie, Inc – $1-2B (+?)
randy Penguin – $4B
Netflix – $24B
US publishing – $28B
CBS VIACOM- $28B
Sony – $76B
Facebook – $79B
Microsoft $143B
Google – $160B
Apple – $274B
Amazon – $280B
Walmart – $524B
Obviously net income isn’t proportional to their gross (Apple nets $90B a year, MS $44B, Amazon $17B) but it does reflect the extent of the companies’ economic importance. The total US economy runs north of $21B, despite the pandemic.
I seriously doubt tbe DOJ cares who buys S&S.
BTW, odds are APub by itself outsells S&S. It almost certainly outearns it.
Indies do.
Of course, it’s Amazon’s fault…
Never mind that the multinationals have been buying up American publshers since the 80’s…