Penguin Random House wins financial award

It is difficult for most authors to publish a book, let alone write a bestseller or win a prestigious award. So when Damon Galgut, the South African writer, won the Booker Prize for his novel The promise On Wednesday night, after being shortlisted twice for the award before, he triumphed against all odds.

The odds of Penguin Random House, the world’s largest book publisher (and mine), winning the award were much higher. The promise was published in the UK by Chatto & Windus, one of its many editions, and PRH published four of the other five shortlisted books in the UK or US. He was unlikely to lose.

The publisher had a tougher time in Washington this week, as the US Department of Justice took legal action to block its $ 2.2 billion merger plan with Simon & Schuster, the fourth US publisher. Reducing the Big Five to four could “cause substantial harm” to successful writers, the DoJ said.

The argument that fewer books will be written if publishers don’t have to fight so hard for authors asking for royalty advances of $ 1 million or more is new, in the antitrust rather than literary sense. It is by no means safe to win in the courts, where the litigation will then proceed (the merger was authorized in the UK earlier this year).

The subtext is as interesting as the story. Not so long ago, it seemed entirely plausible that Amazon was severely weakening publishers with its Kindle e-reader, e-books, and the rise of self-publishing. Established authors faced greater existential uncertainties than the prospect of PRH or Simon & Schuster offering a few of them slightly lower seven-figure sums.

But the Internet was the dog that barked, but didn’t bite. Major publishers have not only increased their revenues, but have also become more profitable since the launch of the first Kindle in 2007. PRH’s profit margin has doubled over the past decade to reach 18% in the first half of this year: Editors tend to quietly admit it over lunch, but they’re doing just fine.

Publishing avoided the fate of music, which fell into a financial pit before being relaunched by Spotify and subscription streaming. It continued, especially at the highest level. The 2013 merger of Penguin and Random House, which then looked like a final defense against Amazon’s editorial power, was a financial blow: no wonder it wanted to strengthen itself again with S&S.

Books aren’t like CDs – people still want to read and put the physical object away. E-books accounted for just 11.5% of total consumer book sales in the United States in July. Although bookstores have been weakened by e-commerce, even Amazon sells more hardback and paperback books than e-books.

E-books have also been a boon for publishers with larger catalogs. Now it is easy for readers to buy all of a writer’s works – indeed, they never run out. Owning a back catalog is also very profitable because all upfront costs, such as author advances, are paid. No wonder PRH’s margins have grown so easily.

As the DoJ points out in its complaint, this favors large publishers when they bid for the best-selling books, such as celebrity memoirs and presidents’ diaries. Backlists “are an essential source of income that allows the Big Five to pay larger and higher advances,” he notes.

The internet and social media have proven to offer other benefits to publishers in what has traditionally been rather a hit and miss market. Instead of having to bet a lot to post and develop first-time writers with no track record, they can search for talented people with followers on Instagram or Facebook. This helps them limit the financial risk.

A prime example is Charlie Mackesy, the British illustrator whose book The boy, the mole, the fox and the horse has sold 5 million copies worldwide after a publisher from Ebury, PRH’s UK non-fiction publishing house, discovered his designs on Instagram. He hadn’t written his book then, but the publisher helped him develop it, already knowing that it had a lot of appeal.

This combination of print resilience, past catalogs, and author’s online platforms has made publishers both more profitable and more financially stable. What was once a cottage industry has consolidated into a much stronger business, forged by the threat of obsolescence a decade ago.

There is a surreal side to this week’s legal complaint. This gives an example of S&S offering $ 5 million for the memoir of a Grammy-winning singer and ultimately having to shell out $ 8 million due to a counter-offer from PRH. Most hearts wouldn’t bleed if celebrities had to make do with a few million dollars less; the average author earns a small fraction of that.

But it also tells a bigger story about the book industry’s balance of power. American publishers paid more than a billion dollars in advance to authors last year and can hardly cite poverty as a reason to consolidate further. When PRH publishes such a big chunk of Booker’s shortlist and makes such a profit, it feels pretty solid to me.

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