Meet Penguin Random House, The World’s Largest Book Publisher That Will Counter Amazon

After the U.S. cleared the deal, the European Commission has officially approved the proposed merger between two of the biggest book publishers in the world, Random House and Penguin. The two owners Pearson and Bertelsmann announced the new venture back in October. As it is seeking “new digital publishing models,” the merger has been widely commented on as a way to counter Amazon’s influence on the ebook market.

Penguin Random House will become the world’s largest publisher, ahead of book publishers — Hachette, HarperCollins, Macmillan and Simon & Schuster in size. Bertelsmann will own 53 percent of the new entity, while Pearson will own the remaining 47 percent. With only five major publishers left, the book industry will get much more traction against distributors, such as Amazon, traditional bookstores and ebook retailers (Kindle Store, Nook Book Store, Apple’s iBooks Store).

The price-fixing case against those major publishers and Apple was widely commented. According to the DOJ, Apple’s introduction of iBooks led to a price increase in the ebook market because Apple signed an agreement with publishers.

The so-called agency model partially disappeared with the settlement of Apple and those book publishers. Book publishers now have a very thin margin to negotiate with Amazon to increase ebook pricing. According to publishers, the $9.99 standard created with the introduction of the first Kindle is not enough for newly released bestsellers.

That’s why the Penguin and Random House merger makes sense. The new entity will leverage its size to dictate its own terms. The company could even create a new distribution channel, with exclusive content from Penguin Random House. In other words, it could create a publisher-owned Kindle Store competitor, something that is highly needed to end Amazon’s dominance on the ebook market.

Comparatively, the music industry now only works with three major companies, Sony Music Entertainment, Universal Music Group and Warner Music Group. Back in 2009, those companies managed to end the $0.99 price tag on the iTunes Store to introduce more flexibility. Popular songs now sell for up to $1.29.

The first attempt to create an agency model in the ebook industry failed because Amazon didn’t play ball and Apple benefited from better terms from the publishers. If Penguin Random House threatens to remove its entire catalog from the Kindle Store, Amazon will have no choice but to agree to higher prices again.

(Photo credit: Tracey Tutt)