07/02/06

Hachette buys Time Warner

So, Hachette has bought Time Warner’s book divisions for half a billion, which were up for sale mainly because books were “non-core” to their business.

This deal makes Hachette the largest trade publisher in the UK, ahead of Bertelsmann, and pushes other companies down the ranking. It is also the third largest in the world, after Pearson and McGraw Hill.

Is this likely to be the first in a new round of consolidation in the book trade? If it is the first stage of a new consolidation, and large publishers inevitably need to increase their economies of scale in the face of ever-increasing retailer power - then who is next?

For companies with a diverse multimedia portfolio which happens to include publishers (for example, News Corporation) but whose core business is in much bigger and more profitable areas, then does the TW model seem attractive: jettison the old media where the margins are getting ever smaller and the returns are inherently volatile? Interestingly, Rupert Murdoch disagrees, saying,

“I don’t know what Icahn thinks he’s doing,” he told Newsweek magazine. “If you split it apart, there’s no more than $1 or $2 in it for shareholders, and that’s without thinking about taxation.

“Icahn has gone out on a limb. Even if he succeeds in getting it broken up - and that would be very sad - I don’t think he’d make money out of it.”

Mr Murdoch cited Viacom, which recently split itself into two in an attempt to extract value, as an example of why breaking up media conglomerates is far from a winning strategy.

but then he would. Murdoch has been vocal about his support of the current, and ongoing TW management.

There was speculation last year that Pearson was looking to sell off both the FT and Penguin. This was in part due to the disastrous warehousing and supply chain project that cost Penguin and its authors millions of pounds (£15m apparently) of lost sales for a sustained period of time. But to date, the FT is performing better again and Penguin recently won Brand of the Year in the UK.

And of course, Pearson is at core a publishing company, and has an emotional attachment to books and print in a way that media companies with more diverse portfolios do not.

It does seem that, for the larger publishers at least, consolidation is the only reaction to a booktrade that is stripping so much of the value out of itself by drastic discounting and squeezing margin out of the publishers.

So, how does this make us feel? On the one hand, it is terrifically exciting. Publishing, however painfully, is facing up to the most dynamic period of change in recent years. We have a book retail trade that is imploding: selling more and more of fewer books, discounting them heavily, and squeezing out the marginal titles and backlist. At the same time, the Wottakers merger threatens even greater buyer power and lower margins for publishers. Beyond that the threat of technology in all its facets (Google, piracy, Amazon, online sales, ebooks) amps up the pressure on CEOs needing to perform. It is natural for companies to reorganise in the light of this and find ways to become more competitive.

On the other hand the high street and pubilshing seems at times increasingly bland and corporate. There is an erosion of brand and a prevalence of anonymous mass market, media and celebrity tie-in titles. And as the corporates naturally take more shelf space through the negotiating power their size commands, the book shop experience seems duller and more identikit.

So, my first guess is that this is only the beginning of a number of major shake-ups among the big players in publishing, and that the global reach of companies [read: their rights business] is going to become more important at the same time as their bargaining power. I’d be surprised if these power struggles, as well as those consuming the UK retailers (with HMV trying to buy Ottakers to back Waterstones, but whilst HMV fends off takeover bids of its own) didn’t suck in the smaller publishers in the coming months. My guess is that the gloves are coming off.

Posted by Peter Collingridge in Publishing.

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