Murdoch snubbed as Penguin Random House deal is struck

Oct 29, 2012

New books giant created as traditional publishers face up to threat from Amazon

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PENGUIN and Random House are facing up to the threat of bookselling colossus Amazon by forming a joint publishing venture that will account for a quarter of the US and UK markets.

After days of speculation, a deal was announced this morning between the two publishers' owners, Pearson and Bertelsmann. It is hoped the deal will be completed by late 2013, and the combined company, to be called Penguin Random House, will be 53 per cent owned by Bertelsmann, while Pearson will take a 47 per cent share.

Pearson's outgoing CEO, Marjorie Scardino, said: "Together, the two publishers will be able to share a large part of their costs, to invest more for their author and reader constituencies and to be more adventurous in trying new models in this exciting, fast-moving world of digital books and digital readers."

The proposed deal is likely to face scrutiny from the competition authorities, according to Philip Jones from the Bookseller magazine.
Random House is already the largest trade book publisher in the world and Penguin is the second biggest.

"In the UK the market share will be around 27 per cent, so they may have to divest themselves of some non-core interests," he told the BBC.

However, the dominance of Amazon could yet save Penguin Random House from having to take such measures.

"Amazon has 90 per cent of the ebook market - if [the competition authorities] allowed that to happen, how can they block a merger that gives Penguin Random House 27 per cent?"

It is Amazon's dominance that has led to the Penguin Random House merger. The new company will hope to have a better bargaining position when it comes to selling ebooks through the online retailer.

"Print book sales are in long-term decline, with the British market falling by six per cent to £3.1 billion last year," according to The Times. "The tie-up between Penguin and Random House would give the publishers more clout."

However, authors worry that it could ultimately lead to less choice. Bertelsmann and Pearson have attempted to assuage these fears by saying in a statement that Penguin and Random House "will continue to publish their books with the autonomy they presently enjoy, and retain their distinct editorial identities".

A number of newspapers see the announcement of the deal as a snub to Rupert Murdoch and his News Corp empire. Yesterday, Murdoch's Sunday Times reported that News Corp's publishing arm HarperCollins was planning to gate-crash the Bertelsmann deal by making a £1bn bid for Penguin. According to Reuters, analysts appeared to prefer this option because it would "bring cash into the company [Penguin] and enable Pearson to exit a challenged market".

The Times today suggests Murdoch has not given up hope just yet, saying the Penguin Random House tie-up "could be thrown off course" if, as expected, HarperCollins puts the deal to Pearson directors this week.

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