Birth of a £2.4bn literary giant marks a new chapter in history of publishing
The era of Amazon and ebooks made Penguin and Random House's marriage inevitable
"It is business as usual," Dame Gail Rebuck assured her stable of best-selling authors after Random House, which she chairs, sealed a £2.4bn merger with Penguin to create the world's largest books publisher.
She insisted that "creativity and editorial independence" will be placed at the heart of the new literary empire, which brings Fifty Shades of Grey author EL James, John le Carré, Dan Brown, Pippa Middleton and Jamie Oliver under one roof.
The newly titled Penguin Random House is a concerted attempt to wrest back control from Amazon, Apple and the digital giants who are increasingly able to dictate how consumers read books and what price they pay.
The loss of Penguin, founded in 1935, as a stand-alone imprint was inevitable, said Jonny Geller, the joint chief executive of the Curtis Brown literary agency.
"The consolidation of the big publishers was bound to happen due to the rise of Amazon and the decline of high street sales," Mr Geller said. "Publishers needed to bolster their leverage with e-tailers and retailers."
Amazon is responsible for almost 40 per cent of all UK book sales, undercutting physical book stores, 2,000 of which have disappeared from the high street over the past seven years.
The 2007 launch of the Kindle e-reader, which now sells one million devices a week, delivered a near monopoly of the ebook market to the US company, which enjoys 90 per cent of the flourishing UK digital books business.
When Amazon demanded that British publishers cover the cost of 20 per cent VAT on ebooks, they had to comply. Discounting among ebooks is still rife, with works by best-selling authors being sold for just 20p.
The merger should give the new company greater muscle in negotiations with Amazon, Apple and Google. Random House, the world's biggest general-interest publisher, and Penguin, the fourth-largest, together account for revenues of £2.4bn.
Publishers have struggled to regain control of pricing since the Net Book Agreement, which allowed them to refuse to supply any retailer that discounted their product, was ripped up in 1997. High-street book stores now fear that the new entity could use its size to once again impose pricing on retailers.
Mr Geller said: "The danger with these huge interests is that editorially, quality and experimentation become a casualty. The merger will be a success if they keep their promise to authors that the quality of books will be maintained."
He added: "The publishers and authors need to retain value in books. The consumer would probably prefer to pay nothing. But I doubt the merger will itself produce a change in prices."
Mr Geller predicts further consolidation among the others in the "big six" – Hachette, Macmillan, Simon & Schuster and HarperCollins, which tried to derail the Random House merger with its own £1bn offer.
Publishing has avoided the revenue collapse suffered by the recorded music industry. Physical books still accounted for more than 87 per cent of sales in the UK during the first six months of 2012, while digital fiction sales increased by 188 per cent.
In her letter to Random House authors, Dame Gail wrote: "Your relationship with your editor and publishing team is unaffected. We want to build a new home that continues to foster creativity, where our imprints will continue to enjoy independence, and our publishers and editors the freedom to decide which books to publish and how best to publish them."
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