Creative Destruction

Martin Levin spent four decades in the publishing industry, before retiring and – at the age of 61 – immediately decided to attend law school.  He graduated from the New York School of Law 4 years later and found a new career with Cowan, Liebowitz & Latman in New York City.  But, he’s obviously more than a little qualified to voice an opinion on the state of publishing in America today.  In this piece, he expresses his concerns for publishing in the face of such growing enterprises as Amazon, Facebook and Microsoft.  He dubs the new wave in technology “creative destruction,” a process that has enabled “larger, well established, well financed, entrepreneurial publishers to acquire independent publishers.”  In a manner similar to how the top 1% of the wealthiest Americans controls the bulk of the nation’s financial assets, 20 publishers now control some 80% of publishing revenue in the United States.

Levin is channeling the late Joseph Schumpeter, an Austrian-born economist and political scientist who introduced the world to his theory of “creative destruction” in his 1942 book Capitalism, Socialism and Democracy.  Unlike stereotypical anti-capitalists who believed capitalism would be destroyed by its enemies, Schumpeter believed that it would be undermined by its own successes; that it would create a class of elitists who make their living by attacking the same system of private property and freedom necessary for the very survival of those elitists.

Levin applies Schumpeter’s theory to recent events in the publishing industry.

Last year Harper Collins, already the owner of a major religious publisher, Zondervan, acquired its significant competitor, Thomas Nelson, for $200 million.  Ironically in 2006, Intermedia had paid $473 million for Nelson.

Around the same time, Barnes & Noble decided to put its Sterling Publishing Company on the market for $115 million, so it could concentrate on its e-book reader, the Nook.  Sterling had a backlist of more than 5,000 titles and revenues close to $100 million.  But, no one was interested.  Sterling lost its CEO and 3 other executives.  B&N still owns it, perhaps realizing only now that what had been a truly valuable asset is now a liability.

Just this past March, John Wiley and Sons, original publishers of Moby Dick, announced it would explore the sale of its print and digital assets that if felt were no longer in line with the company’s long term strategies.  Wiley had carefully procured the targeted assets, many of which had been freestanding companies.  They included CliffsNotes and Webster’s New World Dictionary.  At the same time, Wiley had acquired a workplace learning solutions company, Inscape Holdings, for $85 million.  They then bought another digital publisher, Structure, making it clear that they see their future in technology.

Also last year, Bloomberg, a global business and financial news corporation, bought BNA, the 19th largest publisher in the U.S.  BNA specializes in publishing for business, legal and government professionals.  Thus, the union creates a new monolithic entity, apparent in the $990 million cash payment Bloomberg made to shareholder employees.  That’s roughly $600,000 for each shareholder.

In 2008, Zagat, publisher of a survey directory for diners, placed itself on the market for $200 million, then withdrew its offer when no takers arose.  Three years later Zagat finally found the appropriate buyer – Google, which paid $161 million.  Zagat’s directory will now join Google’s other online programs, such as Google Maps.

With such mega-mergers in mind, Levin asks, “is it within reason that the future buyers of publishers will be a non-conventional buyer?  And if so, is it hard to speculate about list of potential buyers who may be interested in acquiring book publishing companies?”

Mergers and acquisitions was a popular trend in the financial services industry throughout most of the 1990’s.  It came on the heels of the disastrous savings and loan collapse.  Banks grew bigger, with tentacles reaching across the country and across the globe; an endeavor some saw as ultimately beneficial to the consumer.  But, with the recent housing market catastrophe, which was tied directly to the banking industry, the entire concept of a company growing larger just for the sake of it is questionable.

As for Amazon, Levin points out the obvious: it led the way in the e-book market with its Kindle device and it is now a full-fledged publisher, as well as a top book distributor.  Microsoft is close behind, and Facebook is now maturing along with its founder, Mark Zuckerberg.

Everyone in the publishing industry is asking what the future look like.  It’s the million- (or billion) dollar question.  Some smile at the prospects, seeing nothing but a bright, infinite horizon.  Others squirm at the thought of a handful of publishing titans deciding what writers should be published and therefore, what consumers should read.  It could mean that a small number of powerful people will decide what information is released and when.  I have to admit I have my own qualms at such a future.  If the banking and housing industry crises are any indication, it doesn’t look that bright.  I’m not clairvoyant and I’m not among the monied elite, so I’ll just wait – and keep writing like the rest of us.

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