Random House and Penguin Merge to Take on Digital Publishing Market

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Random House and Penguin will combine their book publishing operations in a merger that is intended to better position the two companies for the era of digital publishing.

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Bertelsmann and Pearson, the parent companies of Random House and Penguin, respectively, announced Monday that the two book publishers would form a new company in late 2013 called Penguin Random House. Bertelsmann will own 53% of the new venture and Pearson will own 47%.

The goal of the merger appears to be bolstering their presence in emerging markets and doubling down on the digital publishing industry. "The combined organisation will have a stronger platform and greater resources to invest in rich content, new digital publishing models and high-growth emerging markets," the companies said in a joint press release.

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Random House is the largest book publisher in the U.S. and releases around 10,000 titles each year. Penguin is somewhat smaller, publishing around 4,000 books annually, but it has a world-recognized brand and a strong presence in developing countries. Even so, analysts say the two companies haven't had as much success with the e-book market as they might have liked.

"They checked into e-book fantasy camp years ago when Amazon released the Kindle in 2007 and it just has not been this lucrative paradise that they expected," said Michael Norris, a senior analyst with Simba Information who covers the book publishing industry.

By joining forces, the two companies should be able to combine resources and cut costs, which in turn could free up more funds to invest in other areas like digital publishing. Norris says the two publishers will also be able to boost the collective amount of content they offer and have a vast amount of data they can mine from customers to find out what does and doesn't work on digital. "That's where Amazon has brought a lot of its strength," he says.

Beyond all this, some have speculated that the two publishers may have more bargaining power together when it comes time to negotiate with the likes of Amazon over e-book pricing and terms. However, Norris argues this is relatively unlikely.

"They are already powerful and influential players separately," Norris said. "By the time they are done combining and all the business cards are handed out, how much bigger will Amazon be by then?"

Image courtesy of Flickr, kodomut

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