At the 2013 Frankfurt Book Fair, Penguin Random House CEO Markus Dohle made his first major public appearance since Penguin and Random House merged to form the world's largest trade publisher.
Dohle gamely answered questions from editors and executives from five major international trade publishing magazines, including PW's George Slowik, with the conversation moderated by German journalist and consultant, Ruediger Wischenbart. There have been quite a few reports on Dohle's remarks, which touched on everything from the company's size, to e-books, the future of print, both domestic and international strategy, the DoJ price-fixing case, and of course, the ever-present challenges from companies like Amazon, and developments such as self-publishing.
With interest high in Dohle's vision for the newly merged Penguin Random House, below is a transcript of Dohle's full remarks, edited lightly for clarity. And check our Frankfurt page for PW's complete coverage of the 2013 fair.
Ruediger Wischenbart: Markus Dohle has been with Random House since 2008 and before that he had a long career path at Bertelsmann [with experience in supply chain]. So that's my first question. One would expect you to just work on the logistics, on the hardcore stuff, and not with the authors. But you like to meet authors, right?
Markus Dohle: Well, I mean, the authors are the center of what we are doing and the alignment with our authors is extremely important for us. It has always been and will be in the future.
This is actually my 20th consecutive Book Fair, and it’s an honor to be on the team that has the opportunity to bring these two trophy brands in publishing together. I want to thank you for your invitation first, and I want to thank everybody for making the time midday in Frankfurt, which is a big deal, to be here. So I'm going to try to live up to your expectations. And a lot of current and former colleagues are in the room from Germany and all over the world. So I hope we make it a good experience and we can engage everybody in our discussion.
Coming back to the authors, they are the center of what we do and of course I want to be engaged with the authors. My leadership mantra is that I believe in the day-to-day. I believe that you should only be responsible for setting the strategy if you really understand the details. You should only be responsible for creating a future if you respect and understand the history of where people come from and companies come from.
Fundamentally, our business model is not changing, you know. It starts with discovering talent and nurturing talent and connecting that talent to the largest possible audience. So, yes, I love to meet authors. It's a gift to get to know so many fantastic people who have to can tell a story for millions of people.
Ruediger Wischenbart: As we have as in previous years, five colleagues of our partner publishing magazines will ask the questions today, and I want to start with George Slowik of Publishers Weekly.
George Slowik (Publishers Weekly): Hello, Markus. The benefits of consolidation and of mergers are often very clear in terms of logistics and cost savings, but tell us how this larger company will remain nimble in the ever-changing environment we find ourselves in now as publishers?
That's a very good question. Size is not a value in and of itself, and it's very hard to extract the value from size, the famous economies of scale that people talk about. We at Penguin Random House have had some experience in managing size because, before the merger, we were already the two largest consumer book publishers in the world. So there is some experience in terms of keeping the company nimble, agile, and flexible in our rapidly changing market environment.
We have a very clear idea as to how we want to bring these two companies together. Both companies were created through many, many mergers of small and medium size publishing houses. Penguin and Random House before the merger were actually two communities of small and medium size publishing houses, creatively and entrepreneurially independent. The task is to bring these two communities of small and medium size publishing houses together into one and still preserve that small company feel on the creative, author and agent facing part of the business. That is extremely important for us in order to protect our revenue pool, in order to create an environment where one plus one is greater than two. That's the goal.
On the service, the corporate, the innovation part, we have a huge opportunity not only to pool resources, but to pool investments and innovation. That, in and of itself, is a value. But now we have the opportunity to really scale that innovation and to apply that innovation to a much broader business, and to a much broader range of titles. So that synthesis of preserving small company feel on the creative side with our 250 small and medium size publishing houses, combined with the scale of a global player, the opportunity to leverage innovation and scale innovation and scale what works in our rapidly changing market environment, that's the opportunity.
George Slowik: Give us some idea of your philosophy around the merger and the pace at which you see the entities coming together.
Well, you know, first of all it was actually yesterday when we completed our first 100 days as a united company. Good segue into your next question, right? And we've actually successfully completed our first quarter as Penguin Random House. And that's very important, you know? A good start is half the race.
I have always said that we wanted to make this a very smooth, a very quiet landing. I wanted to make it hard for people to notice that we closed the deal. I wanted to make it the most boring merger in the history of corporations because, in essence, what we do does not change. And I think we made it a smooth landing, and that has helped us not to distract our people from their day-to-day business as we approach the most important season, the fall and holiday season.
George, we have the luxury to take time because we bring together two healthy profitable, well-managed and well-operated companies. There is no need to rush. This is really a proactive move. And my motto is always quality over speed here. And so far, I think we have lived up to that by making it a quite uneventful first quarter. Sorry for the press!
George Slowik: One further question. And I'll segue off your word ‘distraction.’ How do you keep the DoJ outcome [in the Apple e-boom price-fixing case] from being a major distraction to the two companies as they come together, with the restrictions that were imposed on at least half of the entity?
Is my general counsel here in the room? How many lawyers do we have? [Laughter] That's a difficult one. So let me first come back to distraction.
Very good things have happened in the first 100 days. I like how people connected, the mutual respect. On a management and executive level and also on the ground, there is mutual respect. It's sort of even a reunion in some areas because so many people have worked at Random House and Penguin before. It feels really, really good what's happening. But of course, you know, we don't want to declare victory too soon here, and we have a lot of challenges. And distraction is one of our greatest challenges.
Many mergers fail because people get distracted from their core businesses. So we know that continuity will far outweigh the change with this merger because the essence of our business, the core, the center, is actually not changing. We have to find and publish the best books with creativity and excellence in the future and connect our authors and their works to as many people as possible. That does not change. So avoiding distraction is actually one very important task for us and for me actually.
The second is of [not letting] the integration work on the back end—the systems—prevent us from continuing to innovate. Integration needs technology resources, and innovation needs technology resources. So our task is to ramp up our technology resources intelligently so that we can continue to innovate and do even more there while we integrate the two companies on the back end. So those are two big challenges.
Now, to the DOJ: Well, look, I mean, the thing is over. We live now live in agency lite, right? It's a new experience. E-books are being discounted again. And we try to adapt. We try to test. We try to take a very analytical approach to it, and, you know, the task is to maximize the revenues for our authors going forward. And that's what we do. It's not a big deal for the company.
Philip Jones (The Bookseller, U.K.): It’s been said before that getting big is not itself a business strategy, and I think you explained as much in your previous answer. But I wonder, when we look at the global rankings, Penguin Random House is not the biggest publisher. You've got Reed Elsevier, Thomson Reuters, Pearson, and of course some of your customers are still much, much bigger than even the combined Penguin Random House. So I wonder whether you could really answer the question of: "Are you big enough?" [Laughter]
Oh, my God. Give me a break [laughter]. Let me digest for a moment, Okay, I mean, first of all I want to say that we are really happy that we got the deal approved. That was really important for us because you don't want in a merger situation to start to spin off some imprints or whatever because of whatever regulatory issues. So getting the approvals from all the jurisdictions and authorities was very important for the whole project, even before we closed the deal.
Are we big enough? That's a good question, and I know exactly what you mean. I would not compare size on the publishing side with size on the retail side. And basically, fundamentally we are very aligned with the online retailers, be it physical or digital. Because, fundamentally, what we want to do is bring our books and introduce our books to as many readers as possible. So the fundamental idea of what retail wants and what we want as publishers is aligned. The rest is drama around it. If we agree that we are actually aligned in in our strategic goals, then it is all about how we can make this collaboration and cooperation as productive as possible, domestically and internationally. The global online retailers and digital retailers, the e-book retailers, they are rolling out their businesses globally—that is a huge opportunity for us.
Today Penguin Random House already distributes and sells books in more than 100 countries. I know how difficult that is on the print side because I worked in supply chain. The growth opportunities for us, both in print and in digital, are huge—to be able to reach out to more readers globally and introduce our authors to more readers. On the physical front, the book is now only one or two days away [from the customer], and on the digital side, only one click away. So there is huge growth opportunity in emerging markets for us.
I also want to say that the global retailers and e-tailers have brought a lot of innovation into our industry. My hypothesis is that they've expanded the market because of the convenience they provide for readers: buying books 24/7, both in print and in digital form. They've expanded the market. So, you know, they need our content. We need their access to readers. It's a clear win-win situation.
Philip Jones: You mentioned innovation and it's a constant theme of this fair. Around the Penguin Random House merger, there's definitely talk of the new company playing a leadership role, in terms of looking at new business models and in terms of digital or other innovation. Can you articulate how you think that might play out?
Of course innovation is one of the key rationales for the merger. Again we bring two sort of healthy profitable trophy brands, cultural institutions together. It's the dream combination, Penguin Random House, right? We have very deep content treasures, backlists, and, the most powerful roster of bestselling authors. We are bringing together two very, very creative companies together, and two successful companies.
Innovation is of course one of the key rationales because we think we can now invest even more, and in a more structured way, so we don't make mistakes on both sides, at Penguin and at Random House. We can learn faster, and we can scale innovation, which is even more important. It's a big difference whether you apply a piece of innovation and new tool in direct-to-consumer marketing to 50% market share or to 30%, and in some categories perhaps to 40%. It's a big, big difference because you create a standard going forward.
Our basic strategic assumption is that print will always be important, always—not in 50 years or 100 years—always. And our digital business is of course [growing]. That is a very simple, but very important assumption. We are basically saying that even 100 years from now, the print business will be a big chunk of our business. It may be 70% percent. Today it’s 80% print and 20% digital. The buzz here at the fair is 95% digital and 5% print. But I think there is a clear misunderstanding. 80% is actually print today, and in our two biggest markets, North America and the U.K. the growth rates of digital are sort of flattening out a bit.
So, we strongly believe that print will always be a big chunk of our business and it doesn't really matter whether we end up at 50% in the new world balance, at 60% percent, at 40% or whatever. Print will always be a big chunk for our business. That means that we will continue to invest in our print business heavily. We are not running away. We call it our zig-zag strategy. While many publishers run away from print, we continue to invest in print: While everybody goes zig, we go zag.
Publishers today are making important strategic calls in this rapidly changing market environment. And that will distinguish publishers going forward, and create new competitive advantages. We want to create competitive advantages in print and in digital.
And innovation is happening on all three sides of our business: on the retail side, on the consumer side, and on the author side.
For retail, our task is help sustain physical retail—I don't know whether we can save it—but to help sustain physical retail and to expand digital retail. So, that’s two clear tasks on the retail front.
On the end consumer side, our task is to communicate much more directly with our end consumers. Together we can crack the code of discoverability in a world with fewer bookstores. We can do that. And only if we can prove in the future that we can reach more readers than anybody else in this industry—that we can actually connect our authors and their works to more readers than anybody else—only then we will be relevant. So that shift of paradigm in book marketing is extremely important and is at the center of innovation of Penguin Random House.
And last but not least of course to begin with, our authors. Staying aligned with our authors, enhancing our service portfolio for our authors is extremely important for us. We don't want to be disintermediated. We want to increase retention, and we want to increase their loyalty to more [?] publishing and curation.
Ruediger Wischenbart: Thank you so much, but we haven't talked really about Europe.
Thomas Wilking (buchreport, Germany): Let's start with a German topic. Random House Germany is not part of the merger. When will Munich be integrated into the deal?
Well, Verlagsgruppe Random House in Munich is not officially part of the Penguin Random House merger. That's absolutely true. But actually in the day-to-day business there is no change. They are very closely associated, both on the creative side and on the service, corporate, digital innovation side. Like as before, they are very closely associated [event though] they are not actually consolidated in this, and not part of the official merger. I have the honor to still serve and help our colleagues in Munich. At Bertelsmann, we consolidated the business under my leadership. I represent Penguin Random House and Verlagsgruppe Random House on the board of Bertelsmann. So practically nothing has changed.
Thomas Wilking: Would Germany have been a stumbling block for the merger?
It was part of the negotiation dynamic, you know. And you know, perhaps it will become again part of the combined venture. But they are actually in a very good position right now, right? So they can sort of, you know, watch us from the outside a little bit and I would not say cherry-pick, but actually benefit from everything that is happening on the innovation side, on the creative side because we are closely associated and we work together. But they are not 100% percent part of it. That was actually the outcome and the dynamic of the negotiation.
Thomas Wilking: Penguin Random House is going forward particularly in India, China, Latin America. But what do you expect from the market of Europe? Is it a mature, perhaps shrinking business?
Well, first of all, I want to say here in central Europe, continental Europe, you guys should be very optimistic. Yes, it's mature, it's stable. But stable is the new up [Laughter]. And it was always the new up in publishing, wasn't it?
Yes, we have a lot of challenges, but you are sort of—I don’t want to go into the details of a fixed book price agreement—but, you know, everything comes a little bit smoother here in continental Europe.
I think that, of course, we have huge growth opportunities in emerging markets. Our global footprints here, you know, the Random House and Penguin global footprints are very complementary to each other. Penguin has a long history in India, almost 30 years, right? We have a long history in Spain, and Random House Mondadori in Latin America. You know, Penguin has that footprint in Brazil, and it’s fantastic.
It's like a puzzle that fits perfectly together. The combination of innovation in our core markets, mastering the digital transformation, and growing in emerging markets, that's the recipe for success going forward for Penguin Random House.
Thomas Wilking: Can you think of any investments in continental Europe, in France or so on?
Well again, what can I say? I think we have a big task here to bring these two companies together. We are not really actively now pursuing a lot of acquisition opportunities here. I don't want to say no, but I think, you know, we also want to be realistic and modest and humble. We have a big task here. And that task goes even beyond the company we create. You know, the team feels a little responsibility to get this right for publishing and for the industry as a whole because we don't want to mess this one up. That wouldn't be good for publishing.
Thomas Wilking: You talked about the 80 percent print and 20 percent digital thing. What do you think is the reason for the different speed of e-books development in USA, UK, compared to continental Europe?
Well, I mean, it's not the first time that the Anglo-American market would adopt new technology faster than continental Europe. I think that has been the case before with digital photography and even like, you know, with iPod and other sort of inventions. So I think it is part of the DNA of those countries.
We also have different market environments. I mean, you know, if you come to the United States, you have regions where you can't find a bookstore in almost 100 miles. So if you want to read, you'd better use technology. And that is one of the driving forces.
I'm actually quite optimistic. This morning actually I just discussed with my Verlagsgruppe Random House team the growth rates in Germany and it's really, really compelling. We are getting there. In continental Europe, I think Germany is now sort of leading, which is great.
In the fullness of time, we’re going to approach the 20% here, too, even with a very, very good network of retail stores and a retail environment, which is under pressure. And part of that, is a correction by the way, not actual shrinkage. But we are approaching 20% with this huge and fantastic network and distribution of print books. I think it's a big deal. We are getting there.
What’s really interesting is I think that our markets in the U.S. and the U.K. are sort of -- you know, the growth rates are flattening out a little bit—who would have thought that? At the sort of 25-percent-ish share? I think it's quite surprising. But we've always believed in print and we feel more encouraged and inspired as ever to invest in print because it will matter always.
Iona Teixeira Stevens (PublishNews Brazil): You were talking about a vision that does seem to cover the emerging markets really well. So this question, is the growth over? Are you expanding to other emerging markets? And if so, would that be through like joint ventures or through other publishers, like Mondadori?
Yeah. So, first of all I want to say that publishing has always been a quite local business. And it is very important for Penguin Random House. It's part of our cultural DNA that we respect local culture and nurture local culture. There are some global aspects and trends. I already talked about global accounts, rolling out their book businesses globally, huge opportunity for us, you know, to distribute our content on a global scale and to grow together with them. And then these publishing phenomena, right? They're also becoming more global: social buzz, globalization.
But besides that, the core of the book business will always be local. And we enter those markets humbly. We want to learn about the local environment, about the local culture: like in China, for example, very small steps that Penguin did undertake to learn and not to sort of, you know, "bring publishing" to China.
We want to learn, and once we have learned enough, we invest. In Brazil we found this wonderful partner, Companhia das Letras, this wonderful cultural powerhouse—fantastic match with Penguin. When I heard about the partnership as Random House CEO I was so jealous! I needed the merger to become part of it [Laughter]. So now I'm part of Companhia das Letras. That’s one rationale for the merger.
I visited Brazil two weeks ago, and I was so impressed with the local growth. There is a growing middle class, a growing readership in that country, a growing physical retail in that country. I was really impressed with the energy in the market.
We don't want to publish in 150 languages and accents. But Spain, Latin America and Portuguese is one of our core growth areas—500 million Spanish-language people, more than 30 million in the U.S. alone—that, is a huge growth opportunity for us. And we also believe in the recovery of Spain itself, so we are investing in our Spanish language business. We bought Mondadori a year ago out of a joint venture.
We would like to grow in Spain and Latin America going forward. Our colleagues in Mexico have done a terrific job. Mexico is growing both in digital and in print right now. It's fantastic, and our team has done a great job. So that’s one area of focus and priority.
There are some markets in Asia, and India of course is a growth market for us. But we don't want to do too much. We do have a core business. And we have to integrate the two companies.
Iona Teixeira Stevens: Since you've been to Brazil two weeks ago, I want to ask what are the expectations and projections for the company in Brazil? And also a little bit about China?
So, Brazil. Again, [Companhia das Letras] is just fantastic and the fit is just perfect. To be part of it and their growth is a gift in and of itself. What we try to do is we try to help them on the creative front in terms of content. We’re trying to reach this new middle class, so they're branching out on the commercial side of their business. And of course we try to help them to be an innovation leader in Brazil, which is fantastic. But, you know, the company doesn't need any adjustment because it's a great company.
Now, China is a different animal. There is still like this issue that we can't own a publishing company in China. So in China, from a publishing perspective, we will be cautious. We will grow. We will learn more, and that will sort of be the next phase in China.
What's really, really great in China is the growing distribution, both in print and in digital. The digital retailers are actually rolling out their businesses and the physical convenience has become much, much better in China. That is of course a huge opportunity for us as the English language becomes more and more important in the world, to grow in Asia and to roll out our business, and to bring our English language content into those countries.
Iona Teixeira Stevens: In Brazil and other countries you have Imprints to publish mainly the classics in foreign languages, and on the other side you have mega-sellers. Is it about putting mega-sellers in emerging markets or investing in local content?
Well, I think that we are just reacting to this sort of global buzz and social buzz that creates those mega-sellers, right? Why not share that content? I think it's good for the authors, it's good for agents if we share our marketing tools and our marketing campaigns with our colleagues around the world and just leverage the brand and sell more books and find more readers. It's just good.
But again, it will always be a combination of nurturing local talent and discovering local talent, and [Companhia das Letras] has done that brilliantly for almost 30 years now. We could let them continue to do that, plus share with them opportunities that they can also publish. And they've always published authors from abroad. We can do that now in a much more structured way.
Fabrice Piault (Livres Hebdo, France): From your publisher point of view, how would you characterize Google, Amazon, Apple, and do you make any differences between them?
Markus Dohle: The differences between them? Oh my God, these guys are, you know, very different, right? But they have a few things in common: a global approach, for example. Also, they are really interested in content businesses and in distributing content.
Fabirce Piault: So they are they competitors, or…
I have always said, if you live through this, if you want to master the digital transformation and if you want to make it a smooth landing, you of course will have challenges that you are facing. New publishing models, new competition, disintermediation, and self-publishing, you know, that is one aspect of it. I have always said, you know what, it's only going to make us better at what we do."
It's a good challenge for publishers, for curators, to see new business models emerging. We have to give authors and agents evidence that we can connect them to more readers than anybody else. That's what we want to do, and I'm convinced we can do that, and together we can perform that role much better than as stand-alone companies.
So, new business models, you know, is actually great. Many of you know that we have Author Solutions International as a portfolio company that came in with Penguin. So we actually perform and provide the biggest self-publishing platform in the world. So a part of our business is also self-publishing.
And self-publishing is market expansion. And I think self-publishing makes curated publishing also more important because we have a flood of publications. I mean, 10 years ago with 85,000 new titles at the Book Fair, we always thought, "Oh my God, we cannot manage that!" Today we have hundreds of thousands of new titles with ISBNs every year. That makes curated publishing more important because in this more complex world, people need orientation and guidance, and publishers guide.
So it's not about confrontation, neither with the global accounts nor with new publishing models. It's a challenge, and it's good.
Fabrice Piault: Turning to the New Republic, literary agent Andrew Wylie urged publishers to leave Amazon. Are you ready to do it? [Laughter].
Where is Andrew? Are you in the room, Andrew? [Clears throat]. Look, again, fundamentally, and this was always my mantra, the relationship is about cooperation and not about confrontation. And I don’t let anybody talk me into this sort of confrontation, because it’s not true. We want to reach out to as many readers as possible. Of course we have to manage each other, right? And that's fine. But fundamentally we are aligned, and the rest is about whatever, terms of sale and negotiation power, you name it.
I have a great deal of respect for the entrepreneurial achievement and the innovation that Amazon et al brought into our industry. And we should not forget about that. Kindle has at large prevented us from piracy in the first place because they created this wonderful, very convenient kindle system with a fantastic Wi-Fi device with a huge selection of titles and a fantastic convenience to buy books. And that was sort of a gift for the book world and the value chain of books. That they started with that when the business was so small. So, they brought innovation. They have grown for a reason. And I think we can grow together, both domestically and internationally.
Fabrice Piault: The streaming model is emerging for books as it exists for music. Is that good news for publishers?
You mean subscription and stuff?
Fabrice Piault: Yes, subscription.
Yeah, yeah. These are new business models, right? And we are testing. We do our homework and R&D with different business models. And we do it cautiously. We are building a company for the next 100 years and not for 100 days. We think that some of the new business models are not sustainable, and we want to be careful because, you know, our goal is to maximize the revenue for our authors. So, we take our time, quality over speed, and there is no need to rush. But of course we are very interested in new business models. We are even creating new business models, and we are innovating in that space.
Fabrice Piault: Would you build yourself a streaming platform?
Well, actually we have in Germany a joint venture, a consortium together that is a subscription model for e-books, and we've been testing and growing that platform for almost two years. So we have our feelers out there and our toe in the water. So yes, we do test in that space.
Fabrice Piault: As you said, you are building a company for 100 years. Do you think a big publishing company like yours can survive in the digital world by staying only on the publishing side, and not book selling or [other ventures]?
I'm not a big fan of this sort of vertical integration. I want to strengthen the trade and retail. We don’t want to further weaken them, right? It’s hard enough out there. And the transaction is not our core goal. Our core goal is to crack the code of discoverability in a world with fewer bookstores.
What do we want? We want to keep readers interested in reading, and we want to provide them with great reads. We want them to choose books in the future and not Netflix. And that is a big task. And this awareness thing, this shift of paradigm in book marketing, is the biggest task for us. It’s writing this code, it's proving again that we can reach out to more consumers than anybody else. And that reach, that awareness creation is a much more sort of direct form and communication for publishing going forward.
Reach will result in relevance for publishing. Yes, I truly believe we will be relevant 100 years from now. Our world is becoming more and more complex. People need guidance. People need editors who drill down into vast information to its core message. The world needs that more than ever before. I truly believe that. Our goal is to discover talent, to nurture talent, and to ensure discoverability. And then we're going to be relevant in 100 years.
Fabrice Piault: From the beginning of this session, you defined your group as a sort of federation of small publishers.
It's a community.
Fabrice Piault: Yes. But what has to be done locally, and what will you do globally? Because, it's difficult to view your group like just small publishers sharing a few…
We like that. We like that picture. It's good. It's a good picture.
Fabrice Piault: It's a good picture, but…
You know, I don't know a creator—I've never met one, who likes big. For creators, big is bad, isn't it? They all like small. And size is not a value in and of itself. It’s hard to manage size. It's hard to create a company where the sum of the pieces is greater than the stand-alone companies—where one plus one is greater than two. So you want to be extremely cautious and decentralized on the author-facing, creative side of the business.
We want to combine that [our] scale, with the best tools, the best toolbox, and the best instruments to connect our authors to more readers, locally and globally, and leverage it on the service side, the corporate side, the back end of our companies, scaling that innovation globally and locally.
Scale what works. That's the motto for us. And that synthesis, small company feel, hundreds of creative and entrepreneurial cells, with, you know, extreme independence, both creatively and entrepreneurially, bringing their ideas to life, investing into risks, and then the best marketing machine to reach out to more readers in a world with fewer book stores, in a more end-consumer-oriented way. The shift of paradigm is in marketing. We don't need to do the transaction, others can do that better.