US book publishers merge into global information market

Their products may not command the consumer awareness of offerings from Kraft, Pillsbury, or RJR Nabisco, but American book publishers are going through their own round of takeovers, mergers, and restructurings. For them, however, it's a much more international game. Favorable accounting methods and a cheaper United States dollar have helped a few international companies buy and merge American trade houses (whose books sell through regular bookstores, as opposed to textbooks or subscription books) into their budding global networks. With last week's $2.62 billion takeover of Macmillan Inc. by Maxwell Communication Corporation of Britain, recent publishing acquisitions now exceed $6.5 billion.

It was the latest in a series of international publishing takeovers in recent years. For example, Hachette of France now owns Grolier and Crowell; Pearson of Britain owns Viking Penguin, E.P. Dutton, and New American Library; Rupert Murdoch's News Corporation of Australia owns Harper & Row and Salem House; Bertelsmann of West Germany owns Bantam Books, Doubleday, and Dell Publishing; and Holzbrinck, also of West Germany, owns Henry Holt.

This trend matches historical patterns, analysts say.

``When we have had an usually long period of economic growth, a dramatic surge in media acquisition begins,'' says J.Kendrick Noble, first vice-president and media analyst at PaineWebber Inc. in New York.

International companies are finding several reasons to pay more than 50 times annual earnings for US publishers:

The European economic unification scheduled for 1992 has encouraged a wave of mergers which has carried over into the US.

English is the principal world language, so English-language companies are prime targets.

Cheaper US dollars make American publishers a relative bargain.

Unlike their US counterparts, European companies don't have to take an amortization charge against earnings when they buy a media company. An Australian company can actually revalue its acquisitions upward to improve its earnings.

Very large publishers have the capital to make the best use of the industry's complex distribution systems. Smaller companies don't.

Global distribution of popular books is faster and cheaper, allowing a greater return on investment, analysts say. It will permit publishers to tap global television for subsidiary rights profits, which have become critical ancillary benefits for publishers.

But with all the advantages, there are still some drawbacks.

Worldwide publishing requires books that can appeal across international boundaries. Such books are rare. ``I have several times been surprised by things that were terribly successful in Europe and failed here,'' Mr. Noble says. ``Several years ago, the French book `Papillon' was a best seller all over Europe but did not do well when it was brought here.''

Global publishing will concentrate resources on fewer books and will limit seriously an author not suitable for mass distribution from being heard widely.

But the attraction of publishing has always been a large return for a small outlay. Globalization increases these numbers enormously, says Ivan Obolensky, himself once a publisher and now a senior vice-president and stock analyst with Josephthal & Co. ``An English-language publisher can be inefficient,'' says Mr. Obolensky, who brought to market, among others, Carlos Fuentes, Joan Didion, and J.T. Donleavy. ``But it doesn't matter, because the global publishers are taking the long view. For them, acquisition now is really cheap.''

But can trade books be marketed globally? Peter Davies, chairman of Reed International, formerly one of Britain's largest conglomerates, has redirected his company's focus to publishing magazines and books. In the last six months, he has sold 40 percent of Reed's divisions, creating a $1.53 billion war chest earmarked for purchasing publishers. Still, Mr. Davies cautions, ``it would be a mistake to lose sight of the individual nature of the reader or customer in a euphoria of dealmaking and empire building.''

There is also the question of time available for books, which must compete with new and attractive forms of visual entertainment, an issue that has been overlooked, says Noble of PaineWebber. ``No one does any analysis on the imputed cost of time an individual has to spend on leisure activities,'' he says.

In the end, Noble believes publishing in the United States will be divided between a few mass market distributors and an increasing number of specialized companies. ``There is a growth of specialized interests, with each publisher serving a more defined share of the total market,'' he says. ``This is the real trend and the future of publishing.''