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?

Bye Bye Book Of The Month

Remember those ‘Book of the Month’ Book Clubs, where you often forgot to send the unwanted title back and then spent an age sorting it out? Bertelsmann were the ‘Book club’ with the leading Book Club services in many countries and a club for every taste.

Today, the once giant club has fallen on hard times and laid the blame on the internet, Oprah, deep discounting and much more. The US Direct Group’s business alone has shrunk by some 75% from its peak. The truth is that they, like many others, thought the end would never come and they had a licence to trade for ever. Today the Direct Group has sold off most of its international subsidiaries, U.S., UK, Italy, Spain, Australia, Asia, and France, and plan to wind up the rest.

Webb bought up the UK BCA business and have proudly declared that they intend to increase sales by 30%, but after all that is easily when the beast is on its back and sales are rock bottom. Najafi Companies, a Phoenix-based private equity firm, have bought Direct Group North America and clubs such as the Book of the Month Club and Columbia House.

So what went wrong for what on reflection was an obvious internet service? After all they understood managing mail lists and direct marketing. They understood the book market and product mix. The had a diverse demographic of heavy book buyers and they did business from the armchair.

The problem was the model which was based on, locking members into buying cycles, dumping a book of the month on members and ‘twigging ‘. Twigging is were one starts with a branch, say History then that twigs into ancient civilisation, medieval, 20th century and so on and these can even twig further. They missed two significant changes; one that readers were becoming and probably always have been eclectic in their reading and secondly depth of range was becoming available in a click through the likes of Amazon. In fact Amazon is the new book club sending you alerts to titles you may be interested in and given you the range at your convience in a one click operation.

The challenges that the old Book Clubs that have not already adapted now face are huge and that is without digital content. However, their skills and ability to rise to the challenge is still possible as they still have a community or communities but will they understand that twigging is for the past? Will they open themselves up to discounting? Will they leverage their huge lists before they become inactive or die? Will they understand how to digitally direct market? Is it possible for them to step forward to take on digital rentals?

In our hearts we want them to change, throw out the old and antiquated business model and practices, but somehow in our heads we fear that leopards don’t change their spots.

Wiki Madness

What on earth do you want to print copies of Wikipedia for?

As soon as you transfer the first page to print, its out of date. As the print is bound and the copies shipped, it becomes more out of date. By the time a customer has bought it, it is definitely out of date.

Although Bertelsmann are only going to print 25,000 of the most popular pages on German Wikipedia, it makes no sense. At just under 20 euros the one volume, initial 20,000 print run is set to go on sale in September. The questions are who would buy it and why?

Perhaps it’s relatively free content, with Bertelsmann reporting to be paying, one euro a copy for using the Wikipedia name in the title. Perhaps Bertelsmann get the copyright to reuse the content and avoid those 90K authors that they would have had to normally pay. Perhaps it’s just a gamble to see if customers are daft enough to pay for something that was conceived to replace what it is – abridged out of date material. Perhaps it’s approaching Frankfurt and someone dreamt up a way to get publicity at any cost.

Whatever, it clearly is summer madness!