Inside Bertelsmann's Ambitions To Dominate The Publishing World

The German publishing giant has completed a mega merger of its Random House publisher with Penguin books. And it isn't done yet.

The climb to the top requires a digital strategy
The climb to the top requires a digital strategy
Caspar Busse

MUNICH - Bertelsmann is not shrinking in front of the fact that people are buying fewer and fewer printed books. Indeed, the German publishing giant's strategy for the age of e-books is to grow – at any cost.

After a failed attempt to take over Gruner + Jahr, Europe’s largest publishing firm, in which it already owns a majority share, Bertelsmann CEO Thomas Rabe, 47, set his sights on merging his Random House publisher with Penguin.

The joint venture was confirmed Monday between American publisher Random House, which is 100% owned by Bertelsmann, and Penguin, the London-based publishing house that belongs to British education and media publisher Pearson that is also owner of the Financial Times.

Bertelsmann will have majority shareholding – and hence the decision-making power -- in the new super-entity named Penguin Random House. Bertelsmann will own 53%, and Pearson’s share will be around 47%. John Makinson, chairman and chief executive of Penguin will be chairman and Markus Dohle, chief executive of Random House, will be chief executive.

The merger would create by far the world’s biggest consumer publisher, as Bertelsmann believes that such scale is the way to meet the e-book age head on. It is not known what anti-monopoly authorities will have to say about the latest deal.

This is just the latest sign that Rabe is playing for keeps. On Friday, he was in Beijing, where he had gathered over 100 Bertelsmann executives for its first internal “China Conference.” On the agenda was exploring how Bertelsmann, one of the world’s biggest media companies, could expand business in China. A good 80% of the company’s turnover currently comes from Europe.

"China, which will soon be the biggest economy on the planet, is a highly attractive market for us," said Rabe. "The framework for foreign investment has improved recently." The Bertelsmann boss announced that the company would be investing further in China, primarily in digital media and education.

Meeting the digital challenge

Growth is a major priority for Bertelsmann right now. Rabe, a finance expert at the helm since the beginning of 2012, wants to see turnover heading north after years of stagnation under his predecessor Hartmut Ostrowski.

But expensive purchases are not in the cards as Bertelsmann continues to be owned 100% by the Mohn family and hence capital cannot be augmented on the stock exchange.

Rabe is however changing the company’s legal form to Kommanditgesellschaft auf Aktien (joint stock company) in the hopes that it can be listed without the owner family losing influence, but the project is faltering. The merger of Random House and Penguin however requires no new capital.

The Random House/Penguin deal is crucial for Rabe after his failure in the Gruner + Jahr (Stern, Brigitte, Financial Times Deutschland) endeavor -- Bertelsmann and the Jahr family that holds 25.1% could not come to terms.

New York City-based Random House is one of Bertelsmann’s four major companies along with the RTL TV group, service provider Arvato and Gruner + Jahr. As Random House’s annual turnover is around 1.7 billion euros, Bertelsmann already owns the world’s largest publishing house. It sells 500 million books a year and prints 11,000 new titles annually. E-book sales are on a sharp rise, particularly in the U.S.

Under contract at Random House and its subsidiaries are best-selling authors like John Grisham, Dan Brown, John Irving, Toni Morrison, John Updike and Orhan Pamuk. A recent publication, Fifty Shades of Grey, sold 30 million copies in the last quarter alone. Random House employs 5,300, and this year’s first semester operating profit was 113 million euros.

Penguin is smaller than Random House, and has a turnover of 1.3 billion euros. It too publishes world-renowned writers. Marjorie Scardino, Pearson’s longtime chief executive, is leaving at the end of the year, fueling speculation that there will be a change of course at Penguin. Pearson makes more than three-fourths of its turnover with schoolbooks and other educational tools, but that part of its business is apparently not for sale.

Worldwide, fiction and non-fiction is dominated by six major publishers called the Big Six. Along with Random House and Penguin these are Hachette Book Group, Harper-Collins, Simon & Schuster and Macmillan. The book sector's crisis is widely acknowledged, as people buy fewer books, and bookshops are forced to close. Increasing use of tablets like the iPad, E-Reader and Kindle is sinking sales of printed books as demand for e-books rises sharply and online booksellers like Amazon and companies like Apple and Google become tough competition for traditional publishing companies.

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Paying tribute to the victims of the attack in Kongsberg

Terje Bendiksby/NTB Scanpix/ZUMA
Carl-Johan Karlsson

The bow-and-arrow murder of five people in the small Norwegian city of Kongsberg this week was particularly chilling for the primitive choice of weapon. And police are now saying the attack Wednesday night is likely to be labeled an act of terrorism.

Still, even though the suspect is a Danish-born convert to Islam, police are still determining the motive. Espen Andersen Bråthen, a 37-year-old Danish national, is previously known to the police, both for reports of radicalization, as well as erratic behavior unrelated to religion.

Indeed, it remains unclear whether religious beliefs were behind the killings. In an interview with Swedish daily Dagens Nyheter, police attorney Ann Iren Svane Mathiassens said Bråthen has already confessed to the crimes, giving a detailed account of the events during a three-hour interrogation on Thursday, but motives are yet to be determined.

Investigated as terrorism 

Regardless, the murders are likely to be labeled an act of terror – mainly as the victims appear to have been randomly chosen, and were killed both in public places and inside their homes.

Mathiassens also said Bråthen will undergo a comprehensive forensic psychiatric examination, which is also a central aspect of the ongoing investigation, according to a police press conference on Friday afternoon. Bråthen will be held in custody for at least four weeks, two of which will be in isolation, and will according to a police spokesperson be moved to a psychiatric unit as soon as possible.

Witnesses have since described him as unstable and a loner.

Police received reports last year concerning potential radicalization. In 2017, Bråthen published two videos on Youtube, one in English and one in Norwegian, announcing that he's now a Muslim and describing himself as a "messenger." The year prior, he made several visits to the city's only mosque, where he said he'd received a message from above that he wished to share with the world.

Previous criminal history 

In 2012, he was convicted of aggravated theft and drug offenses, and in May last year, a restraining order was issued after Bråthen entered his parents house with a revolver, threatening to kill his father.

The mosque's chairman Oussama Tlili remembers Bråthen's first visit well, as it's rare to meet Scandinavian converts. Still, he didn't believe there was any danger and saw no reason to notify the police. Tlili's impression was rather that the man was unwell mentally, and needed help.

According to a former neighbor, Bråthen often acted erratically. During the two years she lived in the house next to him — only 50 meters from the grocery store where the attacks began — the man several times barked at her like a dog, threw trash in the streets to then pick it up, and spouted racist comments to her friend. Several other witnesses have since described him as unstable and a loner.

The man used a bow and arrow to carry the attack

Haykon Mosvold Larsen/NTB Scanpix/ZUMA

Police criticized

Norway, with one of the world's lowest crime rates, is still shaken from the attack — and also questioning what allowed the killer to hunt down and kill even after police were on the scene.

The first reports came around 6 p.m. on Wednesday that a man armed with bow and arrow was shooting inside a grocery store. Only minutes after, the police spotted the suspect; he fired several times against the patrol and then disappeared while reinforcements arrived.

The attack has also fueled a long-existing debate over whether Norwegian police should carry firearms

In the more than 30 minutes that followed before the arrest, four women and one man were killed by arrows and two other weapons — though police have yet to disclose the other arms, daily Aftenposten reports. The sleepy city's 27,000 inhabitants are left wondering how the man managed to evade a full 22 police patrols, and why reports of his radicalization weren't taken more seriously.

With five people killed and three more injured, Wednesday's killing spree is the worst attack in Norway since far-right extremist Anders Breivik massacred 77 people on the island of Utøya a decade ago.

Unarmed cops

As questions mount over the police response to the attack, with reports suggesting all five people died after law enforcement made first contact with the suspect, local police have said it's willing to submit the information needed to the Bureau of Investigation to start a probe into their conduct. Police confirmed they had fired warning shots in connection to the arrest which, under Norwegian law, often already provides a basis for an assessment.

Wednesday's bloodbath has also fueled a long-existing debate over whether Norwegian police should carry firearms — the small country being one of only 19 globally where law enforcement officers are typically unarmed, though may have access to guns and rifles in certain circumstances.

Magnus Ranstorp, a terrorism expert and professor at the Swedish Defence University, noted that police in similar neighboring countries like Sweden and Denmark carry firearms. "I struggle to understand why Norwegian police are not armed all the time," Ranstorp told Norwegian daily VG. "The lesson from Utøya is that the police must react quickly and directly respond to a perpetrator during a life-threatening incident."

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