1. Porter's Five Forces analysis: the book publishing industry.
The largest book publishers are Global companies from many nations. Below is a snapshot of the twelve largest book companies in the world ("World's 60 Largest Book Publishing Companies"). Random House is number five on the list.
All of the large firms face similar challenges and opportunities. The Porter’s Five Forces Analysis for Book Publishers is below.
2. What are the merits to consolidation in book publishing? How large or small are these benefits?
Jeremy Greenfield of Forbes magazine writes that book publishers thought that their revenues were huge, until they compared them to what amazon.com was earning in income. According to Greenfield, “Before the Penguin Random House merger, the largest book publisher in the world had between $2 billion and $3 billion in annual revenue; that’s two-to-three weeks of revenue at Amazon” (Greenfield). Therefore, it’s clear to see how mergers could seem appealing to book publishers – there is power in numbers and when two already giant companies such Random House and Penguin combine their resources, suppliers and notoriety, they are in a better position to address the onslaught of attacks from new e-book publishers and industry behemoth, amazon.com with its world renowned Kindle product.
Book publishing companies are now also having to complete on a Global landscape. The world has become a much smaller place as a result of electronic media and technological advances. The Random House Penguin merger, for example, allowed each company to bring its individual dominance in certain markets to the potential success of the combined company. The merger between Random House and Penguin in 2013 created the largest Global Book Publisher based on combined revenues of $4.14b USD. The merger also allows Random House to leverage its market dominance in Latin American and takes advantage of Penguin’s dominance of the China and India markets (Cookson). The merger between Random House and Penguin also enabled the combined company to take control of the #1 best seller list in the US market.
This merger did more than just create the biggest book publisher in the world as measured by annual revenue – it allowed the separate companies to combine their resources and knowhow in electronic platforms to launch and begin to dominate the electronic books industry. The chart below shows how the merged company is performing as an e-book seller. Separately, they were already strong players in this field, but together, they are able to be much stronger and command more share. The numbers shown below describe how each company was performing prior to the merger, and then after they became the combined company known as Random House Penguin ("Best Ebook Publishers in 2013 — Hachette, Penguin Random House on Top of Publisher Power Rankings"). In this table, the rankings are based on “appearances” which denote the number of best-sellers.
It is worth noting that “self-published” appears as its own category as an e-book publisher and completes with these book publishing giants. This is one of items that was described in the Porter’s Five Forces Analysis.
There seem to be large benefits from the type of merger that has been undertaken by Random House and Penguin and due to the success of this merger, other book publishers such as Simon and Schuster are already rumored to be speaking with several other book publishing companies and discussing potential mergers. The benefits of these mergers assure that the larger company is able to complete globally and via electronic platforms.
3. What are Random House's 5 elements of strategy?
Random House recognizes that is undergoing a transition from the world of paper only publishing, to the expanded, new global marketplace where their success relies heavily on being able to maintain the strategies that have worked for them in the past, and to use those same strategies to complete and win in the new digital era of books. Based on this, Random House promotes these concepts as their on-going business strategies ("About Random House").
The first element of strategy is the recognition that the infrastructure that was created and operated by Random House when it was strictly a paper book publisher is a winning strategy and to maintain the way that this has been operated. Random House recognizes that this infrastructure is adaptable and a key component to their future success in the digital era. This infrastructure is one where all of the company divisions including sales, services and operations share a common corporate infrastructure that allows them to invest in new technology faster than otherwise possible without this uniformity.
The second element of strategy for Random House is to continue to be committed to the paper book industry. The concept is that they are willing to lose share to other companies in their successful paper publishing business simply because they are in the midst of a transition to the digital age. They remain unwavering in their commitment to this existing market and its customers.
The third element of strategy for Random House is to be in a position to offer their authors more than one distribution channel for their writing. Prior to the advent of e-books, authors were limited to having to publish a book and the publisher was committed to distributing the book to brick and mortar retail locations. Now, because of Random House’s e-platform advances, they are able to offer the added advantage to their authors of distribution of their books digitally. This is a huge benefit for Random House and authors alike, because today, authors are able to potentially publish their own books, and don’t need to rely on the sales and distribution efforts of a publisher.
The fourth element of strategy for Random House is to invest heavily in digital channel and content development. They are putting both human and financial resources behind exploring new ways to expand their reach to get to new readers; and to evolve with existing readers that have already made the transition from paper to an electronic device for reading books.
The fifth element of strategy for Random House is to gain knowledge and leverage as a result of being sister companies with other parent company Bertelsmann book publishers. In doing this, Random House is able to gain access to vendors, suppliers and other important components of their business that are already contracted to work with Bertelsmann companies. There are two tangible benefits with this strategy: economies of scale for purchased materials; and, a time/cost savings in not having to establish a new relationship. Since the relationship already exists through the parent company, contract addenda, not new contracts need to be developed in order to take advantage of a whole new set of partners, vendors and suppliers.
4. What are the main benefits to Random House from being part of a corporate parent like Bertelsmann?
One of the main benefits to Random House being part of a corporate parent company has been discussed in Random House’s strategies section. Due to the corporate parent, Bertelsmann, Random House is able to tap into existing relationships that other Bertelsmann companies already have. These relationships include other publishers, vendors, partners and suppliers. Additionally, Bertelsmann’s other companies have established readers and authors. Hence, Random House is able to extend their reach both on the supply, as well as the demand side of their businesses.
Another main benefit to Random House being part of a corporate parent company is new cash that can be used to invest in new and diverse platforms to ease the growth into the digital age. As noted above in the strategies section, one of Random House’s main strategies is to invest heavily in digital channel and content development. There is a new capital stream that is provided through the parent company Bertelsmann to enable this type of growth. Bertelsmann views this type of investment in digital channels and content development as key to their success ("Penguin-Random House Merger Completed by Parent Companies Bertelsmann and Pearson").
5. What are the most salient threats to Random House’s business? What steps can Peter Olson take to mitigate or address these threats?
The Porter’s Five Forces analysis revealed that there are a variety of threats to Random House’s business. The threats come from a variety of directions, but most notably are due to the transition of the book publishing industry from paper to digital media. Today, a writer can use a web tool titled “Smashwords” to upload their written work in a WORD document, along with a book cover image and after running both items through Smashwords’ “meatgrinder” tool, the author is able to transform their product into an e-book that can be published directly on the Smashwords site or in a format that allows the author to upload it to Barnes & Noble's e-Bookstore, Sony, Kobo, Apple's iBooks and Baker & Taylor's Blio (Carnoy). With this type of capability now possible, Random House needs to fight to maintain their authors’ loyalty.
The other challenge revealed by the Five Forces analysis is the proliferation of membership-based websites such as Scribd and Oyster. These websites offer unlimited downloads for a flat monthly membership fee. They are already transforming the paper book industry in the same way that Netflix changed the DVD industry – the business model is very similar. The big difference is, in the film industry, there are few Independent film companies that can’t complete with the big Hollywood production companies. Whereas in the book publishing industry, any writer can become a published author and leverage these membership based websites to create awareness about their work. In doing it this way, “the middleman”, namely, the book publisher becomes extinct.
Peter Olsen stepped down from his post as the CEO of Random House in mid 2008. This allowed Random House to forge a new future that required a fresh approach.
. The World's 60 Largest Book Publishing Companies. N.p., 19 Jul 2013. Web. 8 Apr 2014. <http://www.publishersweekly.com/pw/by-topic/industry-news/financial- reporting/article/58211-the-global-60-the-world-s-largest-book-publishers- 2013.html>.
Greenfield, Jeremy. "Get Ready for More Mergers and Acqusitions in Book Publishing." . N.p., 22 Jan 2014. Web. 8 Apr 2014. <http://www.forbes.com/sites/jeremygreenfield/2014/01/22/get-ready-for-more- mergers-and-acquisitions-in-book-publishing/>.
Cookson, Robert. "Penguin Random House creates biggest book publisher by revenue." . N.p., 01 Jul 2013. Web. 8 Apr 2014. <http://www.ft.com/cms/s/0/a4dc8eee-e244-11e2-a7fa-00144feabdc0.html
"Best Ebook Publishers in 2013 — Hachette, Penguin Random House on Top of Publisher Power Rankings." . N.p., 30 Dec 2013. Web. 8 Apr 2014. <http://www.digitalbookworld.com/2013/best-ebook-publishers-in-2013-hachette- penguin-random-house-on-top-of-publisher-power-rankings/>.
"About Random House." . Random House. Web. 8 Apr 2014. <http://careers.randomhouse.com/About-Random-House.html>.
"Penguin-Random House Merger Completed by Parent Companies Bertelsmann and Pearson." . N.p., 01 Jul 2013. Web. 8 Apr 2014. <http://www.hollywoodreporter.com/news/penguin-random-house-merger- completed-577834>.
Carnoy, David. "How to self publish an e-book." . N.p., 01 Jun 2012. Web. 8 Apr 2014. <http://www.cnet.com/how-to/how-to-self-publish-an-ebook/>.