The Random House Acquisition: An Interview with S.I. Newhouse
Nora Rawlinson -- 4/3/98
The announcement of the pending acquisition of Random House by Bertelsmann has left industry watchers with many questions. Nora Rawlinson, editor-in-chief of Publishers Weekly, sat down with S.I. Newhouse, head of Advance Publications -- Random House's current owner, to discuss the sale andhis views on the future of publishing. Portions of the interview appear in the April 6 PW. The full text of the interview is below.
PW: What are you proudest of having accomplished with Random House?
SN: As a company, we have developed a wonderful group of people inall phases of the business; editorial, marketing, and distribution. Randomis a place that people are happy to work in, that authors are happy to bepublished by and we have developed a certain standard of quality.
PW: Part of the reason people in publishing were so surprised by the saleis that they believed you had a personal passion for book publishing.Why did you decide to sell?
SN: We are a family business, privately owned. The most importantstrategic goal we set for ourselves is to remain as a private businesswith all the advantages and disadvantages that entails. We are now in atransition period. My father founded the company and he died in 1979, Iam 70, my brother is close to that age, and we have a third generationcoming along. There were private, practical, and governmental factors --inheritance taxes -- that made us decide that we had to focus thebusiness. This was originally a newspaper company and at its heart, itremains one. The magazines are the second major area, with cableinterests next. We have also added business journals as part of thenewspaper business. We arrived at the decision over discussion overthe course of 1997 to sell the book publishing company if the rightopportunity came along. At the same time, Bertelsmann was going in theopposite direction and decided that books were its core business.
PW: Why didn't you do what Sumner Redstone has done with S&S, put thebusiness on the block and sell it to the highest bidder?
SN: We wanted to find the right organization to buy the business. We feltit would be destructive and destabilizing if we went public, puttingRandom House up for sale to the highest bidder. We never would havedone what Sumner's doing -- he has his own problems and priorities.Being a public company means he has to act in a certain way. Wewouldn't have sold to a financial player, someone who didn't have aninterest in the business. If Bertelsmann hadn't emerged, we wouldn'thave sold the company. Thomas Middelhoff got in touch with me andmade it known that he was interested.
PW: Is the famous birthday party story true?
SN: Not at all. We didn't know each other; there would have been noreason for him to be at a party for me. He did happen to talk to me on mybirthday, but it wasn't at a party.
PW: Do you feel that Bertelsmann's optimism about the business isjustified?
SN: History teaches that forms of communication do not disappear; radiowas dismissed as being of no interest because of TV, TV because ofcable. The Internet and movies are regarded as competitors of bookpublishing and print. But good books, marketed well and made available ina contemporary way will do well.
PW: There is speculation in the business that Random House was notprofitable, or that it had incurred debts.
SN: It's a very well-run company, I am very satisfied with the profits. We had resolved a lot of the problems of over-publishing and over-printingand it is a sophisticated and effective publisher. We are gratified with itsperformance creatively and financially. It is not true that there were largedebts; there is almost no debt.
PW: You have online activities in both the businesses you are retainingand in Random House. What do you think of the future of that business?
SN: We have 20 sites in the company. We are distributing news andweather on the newspaper sites, Random House has 4 sites, Paradehas a site, Conde Nast has a home page, Epicurious, with four sitesunder it, in travel, food, and other areas. We has started a site withProctor and Gamble called PHYS, aimed at health and exercise forwomen.
People who have major companies have to invest in getting an educationabout the Internet. Technology is being developed to allow fortransactional activity and viewers will be willing to pay subscriptionfeels. The business will follow the cable pattern of both subscription andadvertising.
PW: PW interviewed Peter Olson yesterday and he said that publishing adiverse range of titles is important. Where do you see the businessgoing?
SN: Unlike Warner, who publishes a few books and tries for major frontlistactivity, Random House has to do frontlist, but also has to publish toniche markets. With the size of the two companies, present and futurelies in publishing to niches along with works of broad interest.
PW: What do you feel you have left undone?
SN: (long pause, smiling, shaking of head). Publishing is an ongoingsituation. My role as an entrepreneur, owner, manager is to create aculture in which ideas are encouraged. What we have done is to createa place where ideas come to the surface, are not bottled up and we arewide open to new technologies.
PW: What will you do with the $1.5 billion dollars?
SN: I will never comment on the price. We constantlyexamine opportunities and take advantage of the ones that makesense. We don't need and never did need cash to invest. We are alwaysinvolved in the study of meaningful opportunities. A few years ago webought American Cities, which is now a dominant player in the field ofweekly newspapers.
PW: Both Conde Nast and Random House are known for a certain style andcache. That style can be expensive, yet you keep referring to yourcompanies as being well-managed. How do you balance the two?
SN: I hope we do both. As a private company, we operate differently froma public company. Many of the disciplines that a public business has areones that we could do well to absorb, but a private business can take alonger term view of investment. Each structure of business has its owndynamics. The culture of Conde Nast and Random House reflect ourinterest of long-term growth and create an atmosphere where a SonnyMehta will be comfortable.
PW: Do you think Sonny will be comfortable in the new company?
PW: Where would you like to see the new Random House in three years?
SN: That will be Bertelsmann's responsibility. Bertelsmann has notacquired Random House to downsize it, but to expand in the U.S. andworldwide. Random House is a strategic investment to help them grow.The fact that they have named the company Random House indicateswhere they are going.
PW: What major changes do you foresee in the business?
SN: It is a complex market out there now and its evolving. There is atension between the different types of retail bookselling; there isAmazon, Barnes and Noble and Berstelsmann's plans for online. Thechallenge now is how to deal with the variety of ways of marketingbooks. When I started with the business, it was basically a mom and popretail structure.
PW: Is the business meaner? Are the ABA suits an indicator of that?
SN: Not really. ABA has to respond to its members and they do what theyhave to do. But there is a community of interest between publishers,agents, authors and retailers. What holds them together, above andbeyond their competitive relationships, is the good of the business.Agents have a duty to represent their clients, but they also have a dutyto protect book publishing itself. The publisher, marketer, and retailer allhave to exist for publishing to work well.
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