According to a number of market commentators, a new era of publishing mergers and acquisitions is upon us: the last five years has seen a constant stream of deals from the “merger of the decade” to the more regular acquisitions of smaller independent publishers.
Despite recent rhetoric, M&A transactions are not of course new to the publishing industry. Whilst there may have been a lull during the economic crisis as publishers paused to understand in which direction e-books would take the industry, analysis of publishing M&A dating back to the late 1950s show that for every organic, self-made imprint of one of the big five publishers, there are two or three legacy imprints of publishing houses previously acquired.
That said, the gradual stabilising of the economy, increasing maturity of the digital book market and rapidity of developments in frequently disruptive technologies and business models have helped drive the recent surge in publishing deals. Accordingly, rather than the phenomenon of publishing M&A itself being new (which it is not), it is the characteristics of recent publishing M&A transactions which evidence a sea-change in sector strategy.
This article examines three aspects of recent publishing M&A transactions and what they tell us about the sector in general: the mega-mergers; the demand for digital; and the continuing success of the independents.
While the sheer size of the Penguin and Random House merger in 2013 (which combined two of the biggest publishers in the world) may have left some analysts open-mouthed, market reaction to the merger in general was somewhat more tempered.
In the age of convergent media, there is a recognised need for already large publishers to enhance their negotiating positions. Publishers are now playing in a global and digital marketplace and the big publishing houses have to play that game at the highest level against the world’s largest media conglomerates and technology mega-corporations. It is somewhat grounding to note that the annual revenues of the largest publishing houses equate to just a couple of weeks’ worth of revenues for Amazon, perhaps the key player in the digital media sphere.
It was not therefore that surprising that two of the biggest publishing houses would seek to explore economies of scale and potential consolidation of support functions in a move that would not only boost revenues, but would also provide a stronger negotiating position with its partners and suppliers alike.
Hachette and Amazon’s public dispute over e-book pricing may have been settled in late 2014, but it brought to the forefront the deep-rooted tensions within the upper echelons of digital publishing. While it was surely coincidental that the dispute coincided with Hachette’s attempt to acquire independent publisher Perseus Books, there must have been an element of comfort in the thought of bulking up and diversifying in the face of the digital power of Amazon, Apple and other online providers: a publisher with a couple of thousand titles is much less powerful than one with several hundred thousand and it is always cheaper (and quicker) to buy a book list than to create one.
It appears that collaboration alone is often not enough: merger and acquisition may well be the only certain way to secure a stronger negotiating position. Amazon’s successful case in the US against Apple and six of the big publishers in respect to the fixing of e-book prices makes the risk of any collaboration being found to be anti-competitive worryingly real. In addition, the success of a gentleman’s agreement or other informal arrangement amongst traditional competitors is doubtful at best, even where such arrangement does pass the competition law test. In the publishing world where margins are growing ever tighter and public perception is all important (Amazon, after all, is popular among the average consumer for pushing costs to an all-time low), the ability to divide and conquer should not be under-estimated.
However, for all the strength that a mega-merger can bring, the changing nature of the publishing market, in particular the potential for significant growth in the self-publishing arena, could diminish such strength in the future. In addition, bulk at the negotiating table may make flexibility in the operational and strategic sphere more difficult. Whilst size may assist in negotiations with the likes of Amazon and Apple, it does not solve (and indeed can hinder) the wider issues of digitisation as a whole. Big publishers are typically slower to respond to changing markets and new mediums and the bigger they become, the more they need to source new strategies and methods from other more nimble operators – digital companies and independent publishers.
Demand for Digital
While Amazon is the biggest single player in the ebook market, the disruptive model of digital publishing over the last six years has seen the creation of dozens of successful publishing start-ups exploiting the technology field. Although the original ebook was little more than an electronic version of the printed title, the way people consume media is constantly changing and the trend is now leaning to more immersive digital content: apps, online communities, games etc. Publishers are realising that, in order to flourish, they need to become content creators, digital producers and rights managers – but devising and implementing a digital strategy takes time; acquiring one is often much faster.
An example, at the beginning of 2015, was car manual publisher Haynes Publishing’s acquisition of Teon Limited, the creator of a digital platform designed to engage younger motorists with a database covering Europe’s most popular cars, which provided Haynes with an established digital delivery system for its own content.
At the same time as traditional publishers seek to acquire technology companies, technology and other online companies are seeking to expand into publishing, as different mediums continue to converge. In 2013, LinkedIn acquired Pulse, to help it become “the definitive professional publishing platform – where all professionals come to consume content and where publishers come to share their content”. In 2014, Immediate Media Co, the special interest content and platform company, acquired Future Publishing’s sport and craft titles, to help bolster their development of a business around leading content brands, highly-engaged communities and multi-platform modes.
Mergers and acquisitions in the publishing arena are now attracting a wider variety of players. While traditional publishing houses are still entering into acquisitions, disposals and mergers with each other (either at the corporate level or by transfer of lists), they are also mining each other for digital expertise and application, whilst at the same time seeking to acquire technology companies to help them kick start or further develop digital strategies. At the same time, there is an increasing number of technology companies looking to procure content for their platforms whether it be from (or by acquiring) traditional publishing houses or other technology companies with established content capabilities.
Many digital strategies for the larger publishing houses are rooted in the merger and acquisition of established digital independent businesses (whether digital publishing or general technology or a hybrid of both). By contrast, whilst smaller independent publishers are also seeking opportunities to acquire digital skills, there is generally less need to look for external targets: independent publishers tend to have the innate flexibility and freedom to grow those skills organically.
In its recent announcement about the creation of Goldsmiths Press, a digital-first publishing house, Goldsmiths (University of London) pointedly referred to not just authors and readers but creators and users. As a new venture, Goldsmiths Press has the flexibility to explore many different avenues and the potential to utilise digitisation to the full. Not only interested in audio, visual and performance work (already well outside the scope of many mainstream publishers), it is also seeking non-standard modes and forms of communication, such as comics and graphic novels.
In comparison to their larger market competitors, independent publishers are particularly well-positioned to devise, utilise and benefit from new digital technologies and markets. The digital paradigm challenges the traditional business models of many publishing companies. However, the rapidity with which new disruptive technologies arrive means that by the time a big publisher has devised a new strategy, the next platform, medium or content distributor has arrived; smaller independents are often able to move faster with less bureaucracy.
As with start-ups or smaller companies in any sector, innovation is the key to an independent publisher’s survival and success and the digitisation of the industry helps foster that innovation. Digital development has broken down the inter-media walls of the wider industry. Where the innovation of independent publishers may have previously been focused on content, author-relationships and subject specialisation, such innovation is now used to recognise and capitalise on transmedia opportunities that big publishers are often less able to seize upon.
Independent publishers are increasingly multi-platform providers with the creation of online content, apps and games alongside more traditional mediums. Many have adopted electronic-only or at least electronic-before-print production models. It is therefore not surprising that when big publishers are looking for digital-heavy targets, the independents appear particularly attractive.
The attraction of independent publishers to more established houses is not of course new. As previously mentioned, the abundance of acquired imprints within the larger houses speaks volumes. Often sector specific, independents are well placed to foster strong relationships with readers (now users) and authors (now creators) alike and when an established house is looking to enter a new market (or acquire new expertise) it is often the independents that tick the right boxes.
While some independent publishers are occasionally wary of their larger counterparts, there is generally a ready acceptance that in order to compete in today’s publishing environment (digital or otherwise), significant resources are required together with access to global networks, which the larger publishers are well positioned to provide.
As long as big publishers continue to get bigger, and the digital landscape keeps changing, independent publishers will remain a fundamental part to the success of the publishing industry. For every independent publisher acquired, another one is needed to explore, innovate and push the established traditions of publishing into new mediums and markets. The consolidation of publishers (both large and small) is paradoxically making room for a new era of independent and digital publishing to take hold, fuelling a continuing cycle of M&A activity.