Posted on by John Sloman

A new Penguin House

Two of the biggest publishing companies, Pearson of the UK and Bertelsmann of Germany are to form a joint venture by merging their Penguin and Random House imprints. Bertelsmann will have a majority stake in the venture of 53% and Pearson will have 47%.

The Penguin imprint, with a turnover of just over £1bn, has an 11% share of the English language book publishing market. Random House has a 15% share, with turnover of around £1.5bn. The new ‘Penguin Random House’, as it will be called, will have nearly 26% of the market, which should give it considerable market power to combat various threats in the book publishing market.

One threat is from online retailers, such as Amazon, Apple and Google, which use their countervailing power to drive down the prices they pay to publishers. Another threat is from the rise of electronic versions of books. Although e-books save on printing costs, competition is driving down prices, including the prices of paper books, which may make publishers more reluctant to publish new titles in paper form.

There has been a mixed reception from authors: some are worried that an effective reduction in the number of major publishers from six to five will make it harder to get books published and may squeeze royalty rates; others feel that an increased market power of publishers to take on the online retailers will help to protect the interests of authors

The following videos and articles look at the nature of this joint venture and its implications for costs, revenues and publishing more generally.

Videos and webcasts
Penguin and Random House merge to take on digital giants Channel 4 News, Matthew Cain (29/10/12)
Penguin and Random House confident merger will be approved BBC News, Will Gompertz (29/10/12)
Penguin Books and Random House to merge BBC News, Matt Cowan (29/10/12)

Articles
Random House and Penguin merge to take on Amazon, Apple Reuters, Kate Holton (29/10/12)
Pearson’s Penguin joins Random House Independent, Amy Thomson and Joseph de Weck (29/10/12)
Penguin and Random House sign merger deal Financial Times, Gerrit Wiesmann and Robert Budden (29/10/12)
March of the Penguin The Economist, Schumpeter blog (29/10/12)
Penguin chief: News Corp can’t derail Random House deal The Guardian, Mark Sweney (29/10/12)
Penguin and Random House confident merger will be approved BBC News, Anthony Reuben (29/10/12)
And so I bid Penguin a sad farewell Independent, Andrew Franklin (29/10/12)

Questions

  1. How does a joint venture differ from a merger?
  2. What types of economies of scale are likely to result from the joint venture?
  3. How are authors likely to be affected?
  4. Will the joint venture benefit the book reading public?
  5. The relationship between publishers and online retailers can be described as one of ‘bilateral oligopoly’. Explain what this means and why it is impossible to determine an ‘equilibrium’ wholesale price of books in such a market.
  6. What criteria would the competition authorities use to assess whether or not the joint venture should be permitted to proceed?
  7. What is likely to be the long-term outlook for Penguin Random House?
  8. Assess the benefits and costs of a News Corporation takeover of the Penguin division? This was an alternative offer to Pearson had it not gone with Bertelsmann. (News Corp. has the Harper Collins imprint.)