A Media Empire’s Expansion

One year ago, Bertelsmann acquired full ownership of Penguin Random House (PRH), the biggest publishing house in America, becoming its parent company when the deal closed in April 2020. Bertelsmann already owned 75% of PRH, which was formed in 2013 through a merger of Bertelsmann-owned Random House and Penguin Group, owned by British publishing firm Pearson. In the contest for Simon & Schuster, the powerhouse conglomerate outbid Rupert Murdoch’s News Corp, offering the American media group ViacomCBS $2.2 billion in cash.

The acquisition would strengthen Bertelsmann’s already significant presence in America. By bringing Simon & Schuster under the PRH umbrella, it would gain control of 70% of the literary fiction market in the U.S. and nearly a third of all English-language book sales worldwide. New York-based Simon & Schuster is the fifth-largest English-language book publisher in the world by revenues.

Thomas Rabe, Bertelsmann’s Chairman and CEO since 2012, is clear about his intention to consolidate the 185-year-old company’s dominance in the publishing industry. As Bertelsmann’s second-largest market and its top foreign market, the U.S. is crucial to this vision. “We are building our position as one of the leading creative content companies in the United States,” Rabe said. He is also confident that the deal will gain the approval of regulators in America and other countries.

The change in ownership would have an impact on the publishing industry, for better or worse. According to The Economist, “Authors and agents worry that the enlarged PRH may become ever more dominant in distribution,” and that such market concentration could place too much focus on bestsellers to the detriment of smaller titles. News Corp CEO Robert Thomson criticised the deal as having an “anti-market logic,” saying, “Bertelsmann is not just buying a book publisher, but buying market dominance as a book behemoth”.

Thomson believes the deal will alert trustbusters, and there is recent precedent for this in publishing. In May 2020 Cengage and McGraw-Hill, both publishers of educational books, were forced to scrap a planned “merger of equals” after it attracted the scrutiny of federal regulators. A long review process culminated in calls from the U.S. Department of Justice for the publishers to sell off assets that would have rendered the deal financially unviable. Similar snags would be problematic for the seller, ViacomCBS, which needs to finance its investments in video streaming.

Will doubling down on book publishing with an expensive purchase be beneficial to Bertelsmann? In its 2021 media and entertainment industry outlook, Deloitte highlights the accelerated convergence and remixing of entertainment experiences brought about by the pandemic. The entertainment options available to consumers continue to multiply. Early on in the pandemic book sales dipped, but they have since rebounded. “People are always predicting the decline of book publishing, but it has actually been very resilient,” says David Steinberger, Chief Executive of Arcadia Publishing.