German Publisher Buys Random 'Wise Deal Further C nsolidates Industry By DAVID STREITF 61 Its books—published under the and PAUL FARM imprints of Knopf, Crown, Panthe- Washington Post Staff Writers on, Villard and Ballantine in addi- tion to Random House itself—look The German media conglomer- better and often are better than ate Bertelsmann announced yes- most in the industry. Its deals are terday that it is huying Random flashier, with not only its writers House, the largest and most promi- but also its editors turning up in nent American book publisher, gossip columns. Its self-conscious . from billionaire S.I. Newhouse. role as the standard-bearer of liter- The deal makes the privately held ature and literacy in this country is firm, once a provincial religious sometimes mocked but rarely de- house, the biggest force in U.S. nied. publishing. • With $16 billion in revenue dur- Estimated to be worth as much ing its last fiscal year, Bertelsmann as $1.6 billion, the agreement is the world's third largest media marks another huge, step toward and entertainment conglomerate, consolidation in the publishing in- behind Time Warner Inc. and Walt dustry. The deal will leave only Disney Co., and ahead of Rupert seven major New York houses— Murdoch's News Corp. four of them owned by foreign It already owns the U.S. publish- conglomerates. ing empire Bantam Doubleday Random House, whose thousands Dell. Its best-known author is John of authors include John Updike, Grisham, whose legal thrillers sell Gabriel Garcia Marquez, President millions. Earlier this month, Ber- Clinton, Anne Rice, Tope John Paul telsmann announced it would go Norman Mailer and Michael into online bookselling, a la Arna- Crichton, has an importance that goes beyond its massive size. See RANDOM HOUSE.,49. Cot. I NA k

THE WASHINGTON POST Random House Sale Shocks Industry

RANDOM HOUSE, From Al zon.com. Little work got done in New York publishing circles yesterday. People were too busy trying to figure out what it all meant BY NICHAFIAAPPELER-REUIERS "Half the earth just moved," said Bertetsmann officers Frank Woessner, left, and his brother Mark at Juris Jurjevics, proprietor of Soho yesterday's announcement of the company's purchase of Random House. Press, an independent house. /lie landscape is irrevocably altered. I don't think there's any precedent of someone else." for something of this size. It will have book dubs, mass-market pa- The American Booksellers Asso- ciation, which represents 3,500 in- perbacks, multiple hardcover lines. It's everywhere, with five varieties dependent bookstores, had been of everything. Who knows what to concerned about consolidation pri- think? It's just so gigantic." or to yesterday's announcement. Last week it sued the Barnes & I haven't talked to anyone who hasn't expressed great shock," said Noble and Borders book chains, Andre Schiffrin, who left Random alleging that these giants use their House under bitter circumstances clout with publishers to obtain se- eight years ago to found the New cret discounts and other favorable Press. "Everybody's now owned by treatment that undermines inde- pendents' ability to compete. foreigners." One measure of the huge clout "We are stunned," said ABA that the new firm will have is that spokesman Len Vlahos. "We need many agents and editors were reluc- to take time to analyze it and see tant to speak on the record, for fear how it impacts booksellers." of offending someone. It's sad, A woman who answered the frightening," said one agent. "I used phone in Si Newhouse's New York to have a list of 75 editors you can office yesterday said he wasn't in. send a book to. Now there are 15. It But the deal apparently was initiat- justreduces, once again, the num- ed when Thomas Middelhoff, Ber- ber of choices." telsrnann's incondng chief executive "Sad" was a word that seemed to officer, visited Newhouse on his come up a lot Said a former Ran- 70th birthday on Nov. 7. Bertels- dom House executive: "What's real- mann had made no secret that it ly sad is that Random was the was in the market for a major independent voice in a culture that acquisition. has very few independent voices "Random was a dream, some- anymore." thing we hoped would be available One major Random House au- someday," said Peter Olson, chair- thor, William Styron, said he wasn't man of Bertelsrnann Book Group =eh worried "The company's got- North America. ten so enormous and monstrous Negotiations, which went smoothly, continued under a veil of and bloated, it hardly makes any difference if it paws into the hands secrecy through the end of last week. Newhouse, whose family me- aia empire inductes more man a morning I was speechless. Now dozen major newspapers and maga- can talk, but I'm still not coherent." zines ranging from the New Yorker But a third said Bertelsmann "has a to Parade, said via a news release good reputation. They seem very that a decision had been made "to interested in books.* focus its efforts on the management Meanwhile, at Bantam Double- and expansion" of those core busi- day Dell, a source said: People are nesses. ecstatic. Everyone here always A source dose to the deal said wants to work at Random House. Newhouse had been mulling for a The perception is they do the best HarperCollins; the British conglom- books, they attract the best authors. erate Pearson, which owns Viking It's generally a stimulating environ- and Putnam; the publicly held Time while what to do with Random ment. And now, suddenly, we all do Warner, which publishes under the House, including sung it or acquir- work there. Actually, it's even bet- Warner and Little, Brown names; ing another publisher to introduce ter—they work for us." the German family Holtzbri nck, greater economies Of scale. "it was Robert Picard, a professor spe- which owns Farrar, Straus & Gi- dear to him that the economics of cializing hi the economics of media roux, Henry Holt and St. Martin's book publishing are changing for companies at California State Uni- Press; and the publicly traded Via- the worse," the source said. "And versity at Fullerton, said consolida- corn, which has announced its in- he's a realist. When it becomes clear tion in the book industry is being tention to sell part of Simon and he's swimming upstream, he's facile driven by high debt levels and Schuster. enough to swim downstream." shrinking profit margins as more Despite its size, Bertelsmann is Another factor, several sources titles and more publishers seek to barely known in the United States, surmised, is that none of the next attract readers. By combining oper- in part because it is based in tiny crop of NewhoUses felt so passion- ations, Berteismarm and Random Guetersloh, Germany, and because ately about the business to want to House will be able to save substan- 69 percent of its stock is controlled keep it 11w Newhouses decided tially on overhead—everything by the private C. Bertelsmann chari- the next generation had enough on from warehouse operations to ac- table foundation. The foundation is their plates," one source said. counts payable to publicity. affiliated with the Mohn family, part Random House's sales slipped of the dynastic succession of family from $1.5 billion in 1995 to an owners since its founding in 1835. estimated $1.22 billion in 1996, Beyond the book publishing op- with profits of about $70 million, "Books are among the most risky of media products," said Picard. erations, it has a highly successful according to Albert Greco, an asso- music division here that includes date professor at Fordham Univer- "The ability to project success is lower than a TV program. You have Arista Records, the label of Whitney sity's graduate business school who Houston, Toni Braxton and Kenny studies the book business. Bertels- fewer formulas. With a book, you're throwing it out there, hoping that G, and RCA Records, the recording marm's imprints had sales of about home of Elvis Presley. $670 million in both years. the public may ble But one veteran industry execu- The company is a major force in Greco said the combination of the European magazine, book, tele- two of the largest publishers will tive, who asked not to be identified, vision, film and printing businesses. invite "scrupulous investigation" by questioned whether Bertelsmann the Justice Department or Federal could really achieve enough cost Its roots as a publisher stretch back Trade Commission. But he said he savings to make the deal succeed. more than 150 years when its doubted the government would "The whole thing doesn't make founder, a printer named Carl Bei-- seek to stop it. sense," he said. `This is like Colum- telsinann, began publishing Protes- "The book industry is moderate- bia Pictures merging with Para- tant religious and educational ly concentrated, but given all the mount—instead of making 40 mov- books. It later added titles by the factors in play," it would be hard to ies a year, they make 80 together, Res of Lord Byron and the Broth- justify blocking it on antitrust but without dosing down a studio. ers Grimm. grounds, he said. ... You can cut, but can you do it in Random House began in 1925, Neither of the companies re- a way that will be meaningful? I am when Bennett Cerf bought the leased terms of the deal, but pub- flabbergasted by this." Modem Library, a line of cheap lishing industry sources estimated The source dose to the negotia- classic reprints, from Horace Liver- that Bertelsmann is paying between tions stressed that, at the end of the ight for $200,000. It's a measure of $12 billion and $1.6 billion for day, there would be consolidation the company's deep concern for its Random House. Newhouse bought as employees, becks and redundan- roots that the Modern Library is Random House from RCA in 1980 cies are eliminated. "This deal only still a vital force today. for between $65 million and $70 makes sense if there are economies of scale At Random House, a notoriously The other owners of top U.S. voluble place, no one wanted to talk publishing companies are the pri- on the record. There was surprise, vately held Hearst Corp., which has chagrin and hope. "Thrilled' is not the Morrow and Avon lines; Mur- the word around here: said one doch's News Corp., which owns employee.. Said another: "This