Strategy: The Big Merge

We rang up four industry experts and asked them what—if anything—it all means for publishers and publishing.

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The Inside Guy

Peter McCarthy

Founder and Principal Consultant

McCarthy Digital

Peter McCarthy is a publishing vet and marketing pro whose CV includes lengthy runs at both Penguin (VP, executive director Penguin Group USA online from 1998-2005) and Random House (VP, director of marketing innovation from 2005-2011), so he's got unique insights on what makes each company tick.

"I think many of the executives see it as a way to grow," says McCarthy of the overarching motivation. "When they combine—and I don't have the precise numbers—they'll have anywhere between 25 and 40 percent of the market depending on if they have hits in a given year."

That kind of size will, of course, give them "leverage with people in the value chain. With Amazon in terms of negotiation, and, I don't think they would want to talk too much about this, but the bigger the pipe, the more negotiation power they have with authors and agents."

So in a way, to take McCarthy's view on things, the inherent growth involved in merging two giant publishing companies is intended to save money.

"When you read the press releases, everything is mentioned as Bertelsmann and Pearson having made these decisions," he says. "Basically, the trade book publishers are viewed as constant providers of anywhere between a nine and 12 percent margin on an annual basis. I think what's going on here is downward price pressure on ebooks—and whether or not it's real is another question, but there's a perception of downward price pressure—combined with a perception of a flat marketplace in terms of unit sales. If you're selling the same amount of product but for a lower price, decreased revenues is the conclusion one draws. The only way you can preserve margins is by cutting costs."