For everything there is a season. A time to gather stones and a time to scatter stones. A time to merge companies and a time to spin off companies.
Right now, it is a time of merging companies. The Big 5 are now the Big 4.
To help us navigate this changing publishing landscape, we’re joined by Steve Laube, president of the Steve Laube Literary Agency, who wrote a blog post about the merger.
What happened with Simon & Schuster and Penguin Random House?
Steve: In the middle of last week, Penguin Random House had its bid accepted to buy Simon & Schuster, one of the Big 5 publishers, from ViacomCBS.
Penguin Random House, owned by the German company Bertelsmann, is already the largest publisher in the world. It sells 30-40% of all books, and it has bought what we estimate was the third largest publisher. The big fish bought a smaller fish, and now the big fish is bigger.
Thomas: The incentive is that it lets the biggest publisher get the biggest authors. The top authors make more money than all of the bottom authors combined, so that bidding power matters.
Why do big publishers merge?
Steve: To a certain extent. As part of ViacomCBS, Simon & Schuster was already competitive in bidding. They publish Stephen King. They did the Mary Trump book that was on the bestseller list this year, and the John Bolton book. Those were all won in bidding, and divisions of Penguin Random House bid for them too.
But the real business reason is simple profitability. Say a company puts $1,000,000 in profit on the bottom line each year. Could you make that $1.5 million if you bought it and cut $500,000 in expenses?
Probably. Penguin Random House already has a massive, scalable infrastructure in warehousing, accounting, and technology. Adding to it is incremental. They don’t need a whole new accounting system. They simply merge one into the other. That’s the profit incentive.
Amazon’s Role in the Merger
It can also give them more clout. An article in The Atlantic made the point that we shouldn’t be as afraid of this merger as we should be of the fact that Amazon is 50% of all book sales.
Right now, Simon & Schuster and Penguin Random House each negotiate with Amazon for discounts, advertising, and positioning. Put the two together, and suddenly their right hook against Amazon is more powerful than it was the day before.
Why Most Mergers Fail
Thomas: A few years ago, I read Billion Dollar Lessons, a book about the most expensive business failures of the last 25 years. I’d guess 80% of the mistakes in that book were companies buying other companies.
On paper, it looks great. “We can buy this company, cut the redundancies, and gain all these efficiencies.”
But the people who make the deal aren’t the people who make the merger work. Once the deal is signed, the dealmakers get commissions, often enough to retire on, and they leave. Other people are left to make the merger happen, which is difficult and expensive.
The classic example is AOL Time Warner. “We’re going to create a media superpower that controls both the internet and entertainment.” That did not work.
Steve: AOL Time Warner is a perfect example, but here’s the difference. AOL did not understand Time Warner. They were two very different companies.
Penguin Random House and Simon & Schuster do the same thing every day. The joke is that an editor could move from one to the other and still get off at the same subway stop in New York. You just went up a different elevator.
Thomas: And it’s often the same people. The editors switch back and forth.
Do publisher brands matter to readers?
Thomas: Another reason this may work is that these publishers don’t have strong brands.
When the company being sold has a strong brand, a merger risks alienating its audience. I chose to buy my shoes at Zappos. I don’t want to buy shoes from Amazon, because I’m not an Amazon person. That’s why Amazon kept Zappos as a standalone brand rather than turning it into Amazon Shoes, and hasn’t turned Audible into Amazon Audiobooks.
But nobody can tell Penguin Random House and Simon & Schuster apart. They’re totally interchangeable.
Steve: Great point. When I teach at writers conferences, I’ll ask, “Who publishes Stephen King?” The room is silent. “Okay, we’re at a Christian writers conference, so I assume there are closet Stephen King readers who don’t want to admit it. Who publishes John Grisham?” Nobody knows. “Let me make it easier. Who publishes Max Lucado?” I might get one person.
Then I say, “Isn’t it interesting? You’re in the writing industry, you’re readers, and you don’t care who the publisher is. But once you become a published author, you really care.”
As an agent, I care because I know which publishers are the best fit. But readers aren’t brand conscious about publishers.
Publishing Brands That Do Resonate
Thomas: There are some exceptions. The most notable is the Dummies brand.
Steve: Correct. But who’s the parent company of Dummies?
Thomas: Wiley & Sons, but Dummies as an imprint has a brand, and Wiley & Sons does not. Because of that brand, Dummies pays far lower royalties.
Steve: Oh, they’re terrible.
Thomas: They don’t have to pay well. That bright yellow cover brings enough readers that they don’t need the author to bring the brand, which is what publishers normally look for.
You’re buying a Stephen King book that happens to be published by Simon & Schuster. You’re not buying a Simon & Schuster book that happens to be written by Stephen King.
Two other exceptions are Love Inspired and Steve’s company, Enclave Publishing. Enclave has a strong following among readers of Christian fantasy and science fiction, with an email list people choose to join and then buy from.
For those of you who run publishing houses, Enclave did this by saying no to everything outside its specific niche. By passing on cool books that didn’t fit the weird stuff it publishes, it built an identity. Simon & Schuster and Random House publish everything, so their brands don’t mean anything.
Steve: And major publishers have imprints, which are divisions within the company. Simon & Schuster has 30. Penguin Random House has 320.
Thomas: And maybe two or three of those resonate with readers, at best.
Steve: You might recognize Alfred A. Knopf or Doubleday, which are Penguin Random House imprints. Who published Twilight? Little, Brown, a division of Hachette, which is owned by the French company Lagardère. You might know Little, Brown. Probably not.
Thomas: You might recognize the name, but it doesn’t mean anything.
Steve: It’s not like buying Pepsi, because publishing is so diverse.
Why do Penguin Random House imprints bid against each other?
Steve: Here’s a tidbit. Why would the founder call a publishing company Random House? In essence, he said, “We publish at random. Whatever we think will sell and whatever is a good book.”
As it grew, Random House adopted a philosophy that each imprint is a profit center, and imprints can bid against each other. If an imprint overpays and loses money, its managers and editors get dinged for it. It creates internal competition.
Thomas: That suggests those imprints don’t have a clear brand identity. If they’re bidding against each other, their brands aren’t distinct.
Steve: Unless the author is Stephen King and you’re buying that brand.
What’s unseen is that above the imprints, they all share the same sales team. Different imprints have different titles, but only one person from Penguin Random House visits Barnes & Noble.
What does a publisher’s sales team do?
Thomas: This is different from marketing, so it’s worth explaining.
Steve: The sales team presents the books to the sales channels.
Some reps still cover a territory, like California, Arizona, and Nevada, visiting every independent bookstore in it, schlepping a bag, opening a catalog, and asking, “How many do you want?” The pandemic moved much of that to phone and video calls.
Then you have the chains: Barnes & Noble, Books-A-Million, Walmart, and others. I met the Thomas Nelson rep who sells to Walmart. Thomas Nelson is part of HarperCollins Christian Publishing, which also owns Zondervan. Selling to Walmart is all that person does.
Thomas: Do they live in Arkansas or Nashville?
Steve: Nashville, and they travel to Arkansas. Imagine how important that relationship is. That person may also sell to Costco. Most big box chains buy through a company called ReaderLink, which supplies their stores.
Take Baker Publishing Group. Its major imprints are Bethany House, Baker, Revell, Chosen, and Brazos. Each has its own editorial and marketing departments, but they all share one sales team.
A Traditional Publishing Advantage
For those of you authors who are wondering, this is one of the advantages of traditional publishing. An independent author can’t sell their book to Walmart even if they wanted to. The large publishers, because of their size, have the titles the big box stores want.
Why does it matter that Penguin Random House paid cash for Simon & Schuster?
Thomas: The merger still needs approval, but Penguin Random House says it’s paying cash, which is crazy.
Steve: I know. $2.175 billion lying around in a bank account. Holy smokes.
Thomas: They found it under the couch cushions.
Steve: Going back to your point about failed mergers: almost all of them were financed with debt at high interest rates, which had to be serviced through sales growth.
Penguin Random House is buying a company debt-free. From day one, they will show a profit, and they will probably pay back the purchase price within three or four years. They have the cash and nothing else to spend it on. That’s astounding.
The Publishing Industry Is Not Dying
Thomas: Don’t believe that publishing is dying. The largest company has $2 billion lying around.
Some poorly run publishers may struggle, but billions of dollars are still spent on books every year, and the companies getting those billions can buy each other.
Steve: Penguin Random House published Barack Obama’s memoir a week and a half ago. It sold 1,200,000 copies in one week at a retail price over $30.00. Do the math, my friends. That’s in one week, never mind the rest of the year.
Thomas: Obama will probably outsell the bottom 50% of all authors, while only on sale for one month of the year.
Will the Simon & Schuster merger make it harder for new authors to get published?
Steve: That’s always the rub, isn’t it?
It won’t be any easier, but it won’t be any harder. There is simply one less major player in the so-called bidding wars. If Simon & Schuster’s 30 imprints are allowed to work the way Penguin Random House imprints already do, you won’t see much change. Now, I could be wrong.
Thomas: This is important. The companies at the top may merge marketing, finance, and HR positions, but they’re not merging any imprints.
Steve: At least not right now. Some less successful imprints may be shuttered, but that happens anyway.
Imprints Come and Go
Thomas: Every publishing professional I talk to says, “We’re launching this new imprint.” They never say, “And we’re quietly discontinuing this other one.”
Steve: Exactly.
Thomas: Since publishers rarely market an imprint as a brand, creating one costs almost nothing. Often it’s just telling somebody, “You now work for this imprint instead of that one.”
Coming from the tech world, where brands are valuable, I find that fascinating. In publishing, an imprint organizes things internally. It doesn’t present anything to readers.
Steve: In fact, the American Booksellers Association has a webpage listing the new imprints created in 2020. There are about 40, and I recognized three right away as divisions of HarperCollins Christian Publishing. They were all launched in the first quarter, before the pandemic hammered everybody’s thinking.
Thomas: To be clear, HarperCollins Christian Publishing is itself an imprint of HarperCollins, with its own imprints.
Create a Book Publishers Can’t Turn Down
Steve: So let’s say an aspiring writer comes to me and says, “Simon & Schuster’s gone. I can’t get published now.”
I’d say, “How is it any different than it was yesterday?”
You have to create a product so amazing that a publisher can’t say no. They will look at the content, the idea, and its commercial viability. Then they will look at the author.
Thomas, you teach this in your programs on building a platform. Publishers ask, “Does this author bring 20,000 people to the table, all clamoring for the book?” If you have that, you’ll likely find a publisher who says, “We can make money publishing that.”
The Major Leagues and the Minor Leagues
Steve: One general market literary agent, whom I quote on the blog, worries this makes the major leagues too big. He says you still need the minor leagues.
I’d ask him, “When did you think Simon & Schuster was the minor leagues?” That comment seems a little disingenuous, but I agree with his larger point.
You always need a place where a Lysa TerKeurst can get published and not become a bestseller until her third book. Or a John Piper, whose first book nobody cared about.
Max Lucado’s first book failed miserably. I have a copy of that paperback. Then he went to another publisher, and No Wonder They Call Him the Savior put him on the bestseller list. Thirty years later, we’re still buying his books.
Six years after his first book, its original publisher reissued it in hardcover. It became a bestseller and is still in print.
Thomas: Because his brand had changed.
Steve: Of course.
Why a Strong Author Brand Gives You Leverage
Thomas: We’ve been taking side shots at publishers for not building strong brands. But that weakness is your opportunity. The stronger your author brand, the more leverage you have, because publishers need you to make them look good, not the other way around.
Steve, I know you see this. A strong brand gets publishers bidding against each other, and they pay far more than they would without the competition. They think, “If other publishers want this author, the author must be big.” It feeds on itself, and suddenly a five-digit advance becomes a six-digit advance.
Steve: I had this happen earlier this year. Two publishers put bids on a project. Before I could tell either one about the other bid, the first publisher raised his offer by 40% without me asking.
It was a Saturday night. I said, “I’ve never seen this happen. That’s a huge leap.”
He said, “I figured I need to put my best foot forward right now. This is the best I can do, and I don’t want to play around.”
He won. The other publisher couldn’t come close. The brand was so strong and the idea so great that the publishers thought, “I can’t afford to lose this.” Not, “I can’t afford to spend more money.”
Thomas: It hurts publishers to lose a bid on a book that goes on to make millions. That’s a deep psychological pain. They’re not just trying to make money. They’re trying not to feel like schmucks for losing money they could have made.
The Risk of Overbidding
Steve: At the same time, I have stories from ancient history, when dinosaurs were reading.
Back when I was a publisher, I watched the bidding for an author’s three-book deal reach the stratosphere: $800,000 advances. That’s unreal.
The author’s previous book had sold 700,000 copies, so everyone jumped at it. But he never came close to that again.
A few years later, the publisher who lost wiped the back of his hand across his brow and told me, “Whew, I’m so glad I lost that one. I got caught up in the emotion at the time.”
Everyone likes to pooh-pooh the major traditional publishers. But they are in a risk-averse business. They’re in business to be profitable and to publish great content. If they get it wrong enough times, they go bankrupt and disappear.
Thomas: And getting it wrong doesn’t only mean losing money. In this business, you need some home runs, not just base hits.
I’m thinking of LifeWay’s Christian fiction imprint, which was closed down. From my perspective, and I know you were much closer to it, they were getting base hits but no home runs. You need at least one home run to hang your hat on.
Steve: In that case, they weren’t losing much money. They just weren’t making enough for management to keep investing in that division.
Someone at the top said, “If we put that $200,000 or $250,000 in expenses and advances somewhere else in the company, we’d get a better return.” The accountants always win in the end. And your dad’s an accountant, Thomas, so he’ll say, “Yes, you’re right.”
Thomas: There’s a saying in marketing: you don’t stop running an ad when you get tired of it, or when listeners get tired of it. You stop when your accountant gets tired of it.
What advice do you have for authors navigating the changing publishing industry?
Steve: Don’t let these big changes worry you or convince you it’s going to get that much harder. That’s my problem, not yours.
Your problem is creating a gasp-worthy book. Don’t give a publisher or an agent a reason to say no. When I receive it, I want to say, “Wow, that is an amazing idea. You’re a great writer. We need to get you out into the highways and byways.” Then I will convince a publisher.
It happens every year. We’ll have a debut author whose book will make a difference. It might not be a bestseller. Let’s not get stars in our eyes. But it will change lives and reach an audience it otherwise wouldn’t.
You have to create something that makes us old-guard, cynical beasts say, “Thank you. Thank you for being faithful to your calling. Thank you for creating something that will make a difference in this world.”
Don’t worry about competing with John Grisham, Stephen King, and Sean Hannity. Keep at it, keep working hard, and keep learning how this industry works. Listening to this show is one way to do that.
Thomas: Well said. The fundamentals have not changed. Publishing companies get bigger and smaller, spin off and merge, but good books stay the same. Your book is either good or it’s not. Your platform and your brand are either good or they’re not.
Keep Up With the Changing Industry
One thing that does not change is the Christian Writers Market Guide. It tracks new imprints and the moves of editors and agents between publishing houses. The print guide is updated every year, with the 2021 edition about to come out, and the online edition is updated monthly, sometimes weekly.
Check it out at ChristianWritersMarketGuide.com.