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Penguin Random House merger cleared by European Commission

The proposed merger of Penguin Random House has been given the go ahead by the European Commission. The deal was announced in October 2012, and the US authorities had cleared it in February.  With two of the major competition authorities passing the deal, it looks probable that this paves the way for the creation of one of the largest global publishing companies.

The deal will merge media group Bertelsmann’s Random House and publisher Pearson’s and Penguin into one unit, with Bertelsmann owning 53% and Pearson 47% respectively. It would merge the two largest book publishers in the United States, and the largest and third largest in the United Kingdom, with over a quarter of the world’s consumer book market, with Lagardere the nearest competitor.

The rationale of the merger will be to create a large enough publisher to counteract the activity of Amazon, which through e-book sales has been aggressively cutting prices and undercutting the traditional medium. By merging two of “the big six” US publishers, the economies of scale garnered should help to countenance the pricing strategies of the online giant. The pooling of distribution, warehousing and other functions will also help to save costs. Other rationales include greater resources for advancement in new content and digitalization, with emerging markets also a temptation. The size of the company will also increase its clout with its digital distributors, such as Apple, Google, and Microsoft.

The EU Commission claimed the deal did not raise competition concerns, due to “several strong competitors” in the market in the English language book market. The competitors include online retailer Amazon, which has helped to proliferate eBook sales, supermarkets, and other publishers, such as HarperCollins for traditional print mediums. The deal has already been cleared by regulators in the US, New Zealand, and is under consideration in China, Canada and Austria.

Random House has been buoyed by the commercial success of the “Fifty Shades” trilogy, with its revenues jumping from €1,749m ($2,247m) to €2,412m ($2,752m) in 2012, an increase of 22%. Penguin’s revenues increased 1% to £1,053m, ($1,668m) with eBook contents now making up 17% of their sales due to consumer trends in the US and UK market. The company is also investing in self-publishing with the acquisition of Author Solutions in 2012.

It remains to be seen whether this heralds a new wave of consolidation in the publishing industry. In times of crisis, the industry has adhered to such standards before; Both Random House and Penguin were conglomerates formed from the mergers of smaller companies to become business divisions of larger media groups. Further acquisitions or mergers may persist in order to head off the trend of eBooks and other threats.

Posted in Publishing, Retail.

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