Michael Lewis wonders
if publishers have gone mad in their expansive mood
I RECEIVED my first fat book contract a year ago and I still wonder whether it represents a shrewd commercial decision on the part of my publishers or simply another example of the lunacy that cur- rently riddles the publishing industry. The book trade in Britain and America, from point of creation to point of sale, has been in turmoil. Publishing houses are rushing to buy both authors and each other. Random House of America, for example, now owns Jonathan Cape, Chatto, Bodley Head, Pantheon, Alfred Knopf, Ballan- tine, Times Books and Crown. It is build- ing an ever more expensive stable of authors; moments after buying Chatto in 1987 it bought Michael Holroyd's biogra- phy of Shaw for £675,000. Rupert Mur- doch's £403 million purchase of Collins and Robert Maxwell's $2.6 billion acquisition of Macmillan in America are only the latest manifestations of an urge felt by many to acquire. The trend in the book trade is towards conglomeration. And it has cre- ated a seller's market for writers and companies.
The odd thing about the trend is that it doesn't make much sense. Publishers ex- plain the takeover activity by saying that it is far easier and cheaper to buy an existing business than create a new one. Empire- building in publishing, however, has as sad a history as empire-building in countries. In the 1960s a spate of acquisitions of UK publishers by American multinationals failed magnificently. Doubleday bought Heinemann, lost a small fortune, then sold it. Macmillan (US) bought a house called Castle and managed it into bankruptcy. CBS bought Anthony Blond and Time- Life bought Andre Deutsch; both turned round several years later and sold the firms back to their original owners at a discount. One heard the same arguments then that one hears now about synergies in world- wide markets. But like so much vague industrial logic, it wasn't particularly logic- al.
The conventional argument made for growth and geographical expansion is that
'Hi! This is Mike Ignatieff still here. You know, we got so involved talking about post-modernism on the Late Show that we stayed up all night!'
it enables a company to price its competi- tors out of the market. But book pub- lishers, unlike say, booksellers, can't undercut their competitors. Their products are not fungibles. A publisher will neces- sarily be frustrated in attempts to corner the market. The market has too many corners. For in a sense even a tiny pub- lisher already has his market cornered. Each book is a monopoly. And since the products are discrete, there is no reason, when two publishing firms are folded into one, that the whole should be anything more than the sum of the parts.
There is, however, every reason why it should be less. Big publishing companies are hobbled by the same inefficiencies that plague big companies in any industry. Tom Rosenthal, the owner and editorial direc- tor of Andre Deutsch, has, over the past 30 years, managed both big publishers such as Thames & Hudson and small publishers such as Secker & Warburg. In a recent speech to the Royal Society of Literature, he said, 'Those organisations that can warehouse multi-millions of books tend to be so big that they compensate by having too many overpaid, under-employed, non- publishing executive personnel with grand titles and no meaningful functions.' Star Lawrence, the part owner and senior edi- tor of W. W. Norton in America, describes the edge he has on large conglomerates: 'When we decide whether to publish a book, the owners of the firm are around the table. We don't have to call some expensive lunchbag in Akron to ask him for approval.' (A lunchbag' is New York's choicest shorthand for a paper-pushing, culture-bashing executive.)
The amalgamation of book publishing looks even stranger in view of the current market environment. The demand for books in Britain — trade books rather than textbooks — has declined steadily over the past ten years. According to the Central Statistics Office, there was a decline in book purchases of 27 per cent between 1980 and 1985. A wild optimist might argue that the inevitable dissolution of the Net Book Agreement and the reduction in book prices will spur a new demand — for pulp bestsellers at least.
But Eric de Bellaigue, the book pub- lishing analyst with Canadian Imperial Banking Corporation, and the one man in the City to whom everyone points as the expert, is not so sanguine. Trade books, he says, especially the sort of fiction and non-fiction one finds reviewed in these pages, 'is not a growth industry'. So those who expand in the UK are attempting to take a bigger slice from a static or shrinking pie. One reaches the inescapable conclu- sion that the buyers aren't after profits but growth for its own sake, and, incidentally, that any money-hungry person who hap- pens to be sitting on publishing assets should bail out now.
But while it does last, oh how sweet a seller's market it is. .n what other industry could the owners of a company on the verge of bankruptcy sell out and still make a killing? That is what Graham Greene and Tom Maschler of Jonathan Cape accom- plished in May 1987. Their deal with Random House was private, so exact figures aren't available. But other British publishers, when they spoke of Maschler, voiced a deep envy of his winnings. And even Maschler, who remains the editorial director of Cape, agrees that he escaped with far more money than he should have when he sold out to the Newhouse family in America.
Deeply tanned and smiling, he told a story that nicely illustrates how the specu- lative bubble in the book trade includes authors as well as their publishers. To appreciate fully his story requires a bit of background. On a trip to New York in the early 1960s, Maschler met a young editor at Simon & Schuster named Bob Gottlieb (who later left to run Alfred Knopf, and is currently the editor of the New Yorker). 'He told me about an amazing first novel,' says Maschler, 'called Catch-18.' Cape purchased the UK rights from Joseph Heller for £250. The publishers agreed that the title was too near a recent title of a book by Leon Uris. Catch-18 became Catch-22. The novel took off faster in Britain than in America. 'In the first three months we actually outsold the Americans. That has never happened since.' Cape published Joseph Heller's next six books.
Then, last year, Heller jumped pub- lishers for more money in America, from Simon & Schuster to Putnam. And instead of continuing in Britain with Cape, he authorised Putnam to hold an auction for UK and Commonwealth rights to two books. Those books were his most recent novel, Picture This (now flopping spectacu- larly), and what was described as 'a sequel to Catch-22'.
Macmillan was the high bidder in the auction, paying a $1 million advance. Cape was not even close. And $1 million struck Maschler — who, by virtue of his experi- ence, knew better than anyone at the time how many books Joseph Heller was likely to sell — as laughably absurd. He called Putnam in New York to ask what exactly was meant by a 'sequel to Catch-22'. 'This sequel,' Maschler asked, 'is it set in war or in peace?'
'You know, that's a good question,' said the representative at Putnam; 'no one has asked that.'
What else had no one asked? No doubt there is a sequel to Catch-22. The point is that Macmillan had no idea what the two novels would look like when they paid a sum of money for them completely unjusti- fied by Heller's past performance in the market. 'I can't explain it,' says Maschler.
Here is the single advantage that size confers upon a publisher: in the short run, a monolith doesn't need to explain. It has the ability to pay unreasonably large sums of money in competitive auctions for books without going bankrupt if they flop. But, in the long run, the practice is unsustainable. One reflects that the term 'advance' has become a misnomer. If sales justified the advances, the advances would not be so eagerly sought, for the authors would eventually earn the same money or more from royalties. The very same commercial logic, or illogic as it were, underpins the outrageous 'advances' given authors as the outrageous prices paid for publishing houses. Buying authors is a way of expand- ing, albeit on a smaller scale than buying entire houses.
A former president of the Publishers Association, Gordon Graham, recently presented the spectre 'that world pub- lishing (not just books) will be controlled by half-a-dozen corporations by the year 2000, a prospect from which no self- respecting tycoon will shrink'. And the thought of six firms run by Maxwellian tycoons who effectively determine what the public reads is chilling. But because attention has been focused on the short- term cultural consequences of tycoons like Murdoch and Maxwell, no one has asked whether their valuation of authors, their gobbling up of publishing houses at prices of 35, 40 or even 50 times annual earnings (compared to the 15 to 20 times earnings commonly fetched in other industries) makes any economic sense. The question is important. For if ruthless and tasteless corporations fare no better commercially with literature and quality non-fiction than smaller, editor-owned and (possibly) more culturally minded competitors, then those who bemoan the state of publishing can relax. Let Maxwell be Maxwell. He won't make much difference in the end.
The greatest danger to literature from the temporary tycoon-driven hysteria in publishing is that those who produce it will grow so rich off the current froth that they will not be bothered to continue. How does a writer who has just received a million dollars get out of bed in the morning? Slowly, I'd guess. And there is no telling what runs through his mind once he is on his feet. As the novelist Jonathan Raban wrote last year in the Observer about the boom in the fortunes of writers:
Underlying all this is a rude irony which should worry any writer trying to reconcile the life he writes about with the commercial life he now finds himself leading. Literature has never sanctioned the philosophy of every man for himself. The novel, particularly, has exalted the personal relationship over the self-seeking business alliance. It has cele- brated the integrity of the individual, the moral value of loyalty, the innate superiority of love over money.
But there is no permanent danger to The Good. The proof of this is in the books of the publishers who have preserved both their standards and their independence. All of the half-dozen I have spoken to insisted they were more prosperous now than ever before. In his speech to the Royal Society of Literature, Tom Rosen- thal said that business was booming at Andre Deutsch. Sales had risen by 40 per cent in the last year, he said, at a time when book-buying in the United Kingdom was actually declining. In other words, the prototypical mid-size independent UK publisher is outperforming most of its competitors.
The same is true in America. One of the two main independent publishers in New York, W. W. Norton, has had a series of bumper years. The other, Farrar Straus Giroux, has just concluded the best year in its history, having published both Tom Wolfe's Bonfire of the Vanities and Scott Turow's Presumed Innocent. And you will never guess where Turow's editor, Jonathan Galassi, came from — Random House. He left the giant Newhouse empire after several unhappy years. They were unhappy because he failed to produce a blockbuster.
Farrar Straus Giroux probably could not afford to buy Scott Turow's next novel if he chose to put his work on the auction block. But perhaps he will not do that. Authors, in a sense, pay for whatever it is that they enjoy about an intimate relationship with their publishers by resisting cheque-book writing. 'Authors don't want to deal with IBM,' said one publisher. I find that reassuring.