The biggest deal in book history - but will it affect readers, writers or reading?

March 29, 1998|By MICHAEL PAKENHAM

Samuel Irving Newhouse Jr. is smarter than most people. He is richer than almost, but not quite, everybody. History insists that one of those qualities does not necessarily yield the other. The book world is wondering how smart he was in closing the largest deal in book publishing history last week.

More importantly, what does it mean for the readers? For writers - and the quality of books?

Known far and wide as Si, though there is nothing wistful about him, Newhouse is patriarch of a family which, beyond books, owns top-flight magazines, a smallish chain of newspapers and significant television. Forbes magazine ranks him and his brother Donald as the 21st and 22nd richest people in America, with $4.5 billion each - and as the 18th richest family on Earth, with a $9 billion total.

Last week, Si agreed to sell his family-held Random House Inc. to Bertelsmann AG, a family-held German publishing and communications empire. The publishing house titles that now become controlled by Bertelsmann: Random House, Knopf, Crown and Ballantine - joining Doubleday, Bantam, Dell, Delacorte and Broadway.

Bertelsmann thus becomes the largest business publishing trade books in the English language, double the size of No. 2 Simon & Schuster. Its share of the $21 billion U.S. book market rises from 6 percent to about 10 percent. Bertelsmann is now the third largest media and entertainment company on Earth, with more than $14 billion in 1997 revenues, behind Time Warner Inc. ($24.6 billion) and Walt Disney Co. ($22.5 billion).

Gorilla act

Synergy will greatly strengthen Bertelsmann's nascent internet book-selling enterprise, poised to battle Amazon.com and Barnes and Noble. In Europe, Bertelsmann has vigorously joined with America Online, the 1,100-pound gorilla of Internet services. All that electronic-based stuff falls under the umbrella of "new media," the trade term for an electronic future that few people in publishing have convincingly comprehended and hardly anyone has found a way to make profitable.

Curmudgeons grump: German domination of English-language publishing should set Winston Churchill spinning in his grave. But no. The foreign ownership anxiety is spurious.

There's no possible threat to national security. Bertelsmann, a company that was suppressed by the Nazis, has a far better reputation for supporting literary values than many American publishers. The quality of in-house editing support among American publishers has dwindled to a scandalous level. Bertelsmann's most valuable asset is an international reputation for excellence. It quite possibly may reverse the American trend of negligent or negligible editing.

Already, vast numbers of American magazines and no small number of newspapers are owned by rather scruffy Brits, and the Republic stands. Ten years ago Sony bought Columbia Pictures and Matsushita, another Japanese firm, got the entertainment giant MCA. Americans sleep soundly. Welcome to the global economic village.

But make no mistake: Increasing concentration is always ominous. The tendency for the leaders of huge conglomerates is make pretty noises while working to crush competition and reduce risk-taking. In books, brilliant and courageous holdouts against that tendency will fight to maintain quality, and sometimes succeed, but natural market forces are against them.

Specifically, the power Bertelsmann will have in the market is immense. The big retail chains must take seriously shelf space or other competitive demands it suggests or even hints at.

From an author's standpoint, the news is dramatic. Peter Olson, the executive who is to run the Bertelsmann U.S. group, has said - very dramatically - that he will insist that all the entities and divisions under him coordinate their bidding for books.

That terrifies writers. Random House and its subsidiaries had a history of enthusiastically bidding against each other for promising books - leading authors' advances and royalty arrangements ever upward.

The overall impact? On balance, I would say generally good for serious readers, who may get some better edited and chosen books, and perhaps fewer bad ones. It will be bad for writers in the middle and upper range, who will be offered less advance money. But I don't believe the quality of truly important books has ever had much to do with personal economics, so I doubt any potential classics will be strangled in their cribs.

Mutiplication tables

Why did the Newhouses sell?

The clan bought Random House in 1980 for $60 million. The industry estimate of the sale to Bertelsmann is $1.4 billion. A lot of other properties had been added by Newhouse at secret prices. Still, even if it's not quite a 2,000 percent gain, the sale doesn't seem dumb.

Si and Donald Newhouse have multiplied by a huge factor their father's small fortune. Now, at 70 and 68, they look to a large next generation. It seems apparent they decided book publishing is not the way their children and grandchildren are likely to exponentially multiply the fortune.

If not in books, then how? Well, it's widely known that Steve Newhouse, Don's son and a leading heir, is fascinated with and profoundly knowledgeable about "new media."

Even the most sophisticated professionals are barely at the edge of that frontier. Of course, something's going to explode in value there, but it will happen in a high-risk, fiercely competitive international jungle. Meanwhile, books are here to stay - words on paper will continue to be indispensable and profitable.

Si and Don might be wrong, even very wrong, but based on performance, I wouldn't bet against them. The family fortunes could, of course, dwindle. Or in 35 years the Earth may be renamed Newhouse.

Pub Date: 3/29/98

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