Tuesday, March 24, 1998

German media giant buying biggest U.S. book publisher

By ERIC R. QUINONES AP Business Writer

NEW YORK (AP) - Random House, the largest U.S. book publisher, is being bought by a German media giant in a deal that assembles an all-star roster of best-selling authors.

Bertelsmann AG, owner of the Bantam Doubleday Dell publishing group, said Monday it will buy Random House from Advance Publications Inc. for an undisclosed sum. The deal will bring Random House authors including Michael Crichton, Norman Mailer and John Updike into the same fold with big Bertelsmann names such as John Grisham, Maya Angelou and Dean Koontz.

The combined publishing business, home to several well-known publishing imprints, will take the Random House name.

"Our new company will draw and build upon the strengths of two great publishing traditions ... with an unprecedented diversity of publishing choices," said Peter Olson, who is chairman of Bertelsmann Book Group North America and will head the new Random House.

The merger is a huge step in Bertelsmann's plan to build its English-language publishing business. Random House also will provide a wealth of titles for a new online book-selling venture that Bertelsmann is planning to compete with Amazon.com and Barnes & Noble.

For Advance, the sale allows the privately held company to focus on its main businesses of newspapers, magazines, business journals and cable TV. Advance, owned by the Newhouse family, includes The New Yorker, GQ and Vanity Fair among its publications.

Bertelsmann said all of its publishing businesses will retain their editorial independence once the deal is completed.

If that holds true, the deal could be a boon for young authors because the new Random House would have more financial backing to aggressively pursue new talent, said Robert Gottlieb, a powerful literary agent for the William Morris Agency who represents Koontz and Tom Clancy.

But for major authors who may be unhappy with their contracts, there are fewer options available because publishing houses owned by the same company will not bid against each other, said agent Esther Newberg, whose clients include Caroline Kennedy Schlossberg and historian Michael Beschloss.

"Now the playing field's cut in half," Newberg said.

While analysts said the combined company will have more bargaining power with book stores, Barnes & Noble chairman Len Riggio said the creation of a larger group will not mean dominance on retailers' shelves.

"With the consolidation of publishers, we've had literally thousands of small presses come into business over the last 20 years," Riggio said. "If anything, the percentage of books we sell from major publishers has declined over the years."

A spokesman for the American Booksellers Association, which has accused major publishers including Random House of offering discounts to big chains such as Barnes & Noble, said the group needs to study how the merger will affect the 7,000 independent book stores it represents.

"We are stunned," said spokesman Len Vlahos.

Random House was founded in 1927 by Bennett Cerf and Donald S. Klopfer, two friends who purchased the Modern Library collection of classic reprints. They then decided to create a company to put out a wider range of books, giving it a name to suit their random aim.

Random House was purchased by Advance in 1980.

Alberto Vitale, chairman and CEO of Random House since 1989, will stay on as chairman of the new publishing company's supervisory board. Vitale formerly served as CEO of Bantam Doubleday Dell.

The deal combines a variety of publishing imprints, including Doubleday, Bantam Books, Dell-Delacorte and Broadway Books from Bertelsmann and Random House, Knopf, Crown and Ballantine from Advance.

The purchase also adds another well-known name to Bertelsmann's stable of properties, which includes the BMG music club, the RCA and Arista record labels, and McCall's and Family Circle magazines.

Bertelsmann, with annual revenue of nearly $16 billion, is the world's third-largest media and entertainment company behind Time Warner Inc. and Walt Disney Co. Since purchasing Bantam Books in 1977, the company has concentrated on expanding its English-language publishing operation.

Bertelsmann has been cited recently in published reports as a possible buyer of part of Simon & Schuster. Fellow media conglomerate Viacom Inc. said in January it would sell Simon & Schuster's educational, reference and professional operations.