Big Six May Become Big Five—Random House and Penguin in Preliminary Merger Talks

UPDATE 10/28/12: The New York Times and The Sunday Times (UK) are reporting that News Corp (parent of HarperCollins, Fox News, The Sunday Times and many other media organizations) also wants to acquire Penguin.
Pearson is in talks with Bertelsmann to combine Penguin and Random House, the company confirmed. However, “the two companies have not reached agreement and there is no certainty that the discussions will lead to a transaction,” Pearson said in a statement.
The Financial Times, which is also owned by Pearson, reported that Bertelsmann’s stake in any resulting company would exceed 50 percent, citing three people familiar with the negotiations. FT also estimated that the combined company, if it does come to pass, would have more than a quarter of the U.S. and U.K. publishing markets, which means even if the talks don’t fall through, the proposed merger could potentially run afoul of anti-competition watchdogs.
If it does pan out, the move would align with Bertelsmann’s multi-year strategic plan, which was released in September. The plan calls for “some major acquisitions and strategic partnerships,” strengthening the content businesses through investments and “the leveraging of opportunities for consolidation,” and expanding the e-book business.
Pearson has been making some acquisitions of its own. In addition to its much-publicized buy of self-publisher Author Solutions earlier this year, since 2011 the company has purchased TQ Holdings, a British vocational and technical training company; Global Education and Technology Group, a test preparation services firm for students in China; and Connections Education, which operates virtual public schools in the U.S. (Bertelsmann acquired U.S. digital media agency Smashing Ideas for Random House in the same period.)
For libraries, an additional twist of uncertainty is which publisher’s ebook policy a combined Penguin House? Random Penguin? would follow. Despite massive price hikes last spring, which initially led some to boycott, Random House has one of the more liberal library ebook policies among the Big Six, claiming that libraries own their RH ebooks. (And while some have disputed the term, even considered as a licensing agreement, RH’s contention that libraries have the right to move their ebooks from one intermediary to another puts it ahead of many.)
Meanwhile, Penguin essentially withdrew from the library ebook market in February when it terminated its contract with Overdrive. Its recent pilot with 3M and the NYPL is a promising toe in the water, but it contains a six month waiting period, much longer than patrons considered reasonable according to LJ’s most recent Patron Profiles survey. And it won’t even begin to be available to other libraries until 2013—assuming the potential merger doesn’t further delay or halt the timetable.–Meredith Schwartz, Library Journal

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