Bertelsmann and Pearson lay it on the line

Bertelsmann SE & Co and Pearson have applied for Commerce Commission clearance to form Penguin Random House, merging their respective New Zealand retail publishing businesses.

Bertelsmann SE & Co and Pearson have applied for Commerce Commission clearance to form Penguin Random House, merging their respective New Zealand retail publishing businesses.

We all know traditional publishing is under massive pressure and the reasons behind the move are pretty darn obvious (in their own words, "to create a more efficient publishing business able to invest in new and richer content, innovative publishing models and emerging geographies".) Now it's up to the ComCom to rule on whether this will substantially reduce competition in the New Zealand book publishing market.

In making the case for the merger, Bertelsmann and Pearson argue the market is fragmented and competitors run the gamut from Hachette to Harper Collins, Macmillan to Allen & Unwin, through to local press such as Awa and Craig Potton (though their estimate of their combined post-acquisition market share has been scrubbed from the public version of the document).

Bertelsmann will own 53 percent of Penguin Random House, contributing five directors. Pearson will own 47 percent of Penguin Random House with four directors, one of which will be the chairman. Bertelsmann will appoint the CEO and COO, and Pearson will appoint the CFO.  Pearson's education publishing businesses are excluded from the deal, so Pearson Education NZ will remain separate. Here's a handy chart of the structures.

The companies say technological advances have lowered barriers to entry to the publishing market, paving the way for the entry of smaller publishers operating at lower scale, and alternative business models that bypass traditional publishers (i.e. self-publishing). 

"There are a large number of self- publishing companies online that offer a range of services for as little as $1,000, including POD printers such as The Copy Press and e-book self publishers such as Createspace (owned by Amazon), Smashwords, Lulu and Mebooks.co.nz."

And they argue that since the success of a title is never guaranteed (even for established authors) large publishers are no more likely than competing smaller publishers to identify or acquire the most promising books.

"The secret to success is not scale, or financial backing, but rather a skilled team that picks the right titles, makes the right publishing decisions, and markets those titles well."

They also point out that books now compete with a number of other media including television, music, films and the internet. Plus, e-books now account for an estimated 2-3 percent of sales in New Zealand and industry analysts predict that e-book sales in New Zealand will increase significantly in the next few years.

"Other new technologies are also impacting on the popularity of books; as smartphones and tablets have become more popular they have started to fulfil roles traditionally occupied by books, for example providing people with information on gardening and cooking." Ouch.