Monday, October 29, 2012

Big 6 Consolidation is a Given

The planned merger of Penguin and Random House comes as no surprise and if anything we expected to see a consolidation in the trade houses earlier than this. The changing landscape of the market is such that only giants tend to survive in markets that operate under cut throat discounting and radical digital change. The question is how will the new giant reorganise itself to leverage the economies of scale and scope on offer?

It matters little who owns what percentage, or even who sits behind what desk, the challenge is to maximise those areas that add value and consolidate those that do the same and incur waste. Much of the front office should remain as it is today, but again there are areas of scope to remove duplication and given their combined market share there is even more pressure to ensure that they don’t try to outsmart each other. The back office would appear to offer much more scope for reducing costs and streamlining global operations.

The fact that Rupert Murdoch's News Corporation were reported ready to crash the party and bid £1bn for Penguin this week, shows that all the big six are cognisant of the need for consolidation and that one move such as that taken by Random House and Penguin, could now lead to others very quickly. HarperCollins and Macmillan would make obvious bedfellows, but would the merger be merely restricted to trade or across both diverse businesses and could it also benefit sectors such as education were some would suggest both lag behind the pack. The music industry has show that, other than being niche and independent, consolidation of the major players may be the only way to survive. But are we really ready to go from six to three to two? Some may eye those just behind the top tier but sometimes its as easy to swallow a big pill than a smaller one and it often down to which gives the biggest payback.

If we step back and look at the other relationships affected, we can envisage some mixed reactions. A top author in either house should expect the prospect of more sales supported by larger marketing and promotion. Even the smaller authors will probably be relieved if they are inside the new tent. Those outside the new giant will have to fight even harder to be seen and read. After all, market shares of 27% UK and 25% US, are not to be sniffed at. It relates to 1 in 4 sales, which means 1 in 4 units and a quarter of shelf space.

The new organisation should be able to also commercially hit harder against the likes of Amazon, Barnes and Noble, Apple etc. They could even start to effectively market direct and try to compete head to head. This is especially relevant in the digital market, where their ability to innovate and make changes happen has now doubled and will now be watched closely and followed by others.

So on balance, it would appear to be a sound move and a potential sea changer that others will have to follow. Now the betting starts on who will follow?

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