Once upon a time there were men named Dutton, Knopf, Scribner, Doubleday and Macmillan, among others, who proved adept at peddling stories.
That their names remain on the spine of hardcover books today gives the publishing industry a more human feel than, say, cable television or cellular telephones.But for the moment, at least, publishing houses are being swapped on the basis of the same cold financial factors. Ernest Hemingway's writing may be a priceless addition to American literature. But his publisher, Charles Scribner & Sons, was scooped up twice in the past three years, and its fate differs little from most other houses.
For the owners, at least, the payoff from selling modestly profitable operations has been extraordinary. Macmillan, which counts Scribners as only part of a vast text and trade book publishing fiefdom, was acquired after a protracted battle for ownership by Englishman Robert Maxwell. The cost: $2.5 billion; 1987 profits: less than $70 million.
To cover the interest charges alone, it would appear that Maxwell may have to come close to tripling profits. Had he merely invested such a large sum in a savings account, assuming the $2.5 billion was in spare cash, his immediate return would have been double. Instead, he is left with a costly, classy holding that requires much care.
Book publishing, as opposed to other information services, such as broadcasting, telephone transmissions or newspaper publishing, carries with it no geographic or technological monopoly. Performance can hinge on a best-seller or a revision of academic textbook standards by a major state's public school system.
For a purchaser, the lack of guarantees is somewhat offset by low entrance barriers. While newspapers rarely come to market, and domestic television station ownership is limited to U.S. citizens, anyone who has the cash can buy a book publisher, and foreigners have leapt at the opportunities.
In 1987, Rupert Murdoch spent $300 million for Harper & Row (1987 net income $1.1 million). Half of the venture was later sold to William Collins PLC, another British publisher that Murdoch is now seeking to acquire.
The numbers in the Harper & Row deal look like a conservative banker's nightmare. While some efficiency can be gained by linking the back offices of various houses to achieve efficiencies in warehousing, bookkeeping, billing and collections, it is nearly impossible to justify the deals based on the numbers.
Murdoch has attempted to explain the deal by citing a linkage between books and his other media operations, such as film studios and televisions - a connection that has been made before but that has never been shown to yield any advantage.
Apparently, an intense desire to enter the U.S. market and offsetting profits from elsewhere in these media moguls' empires allow them to swallow prohibitive costs. Whether they will later be determined to be simply foolish deals at the end of a manic period will take several years to determine.
In addition to the Murdoch and Maxwell deals, other recent acquisitions of U.S. publishers by those abroad include the Hachette S.A. of France's purchase of Grolier Inc. and the U.K.'s Pearson addition of Addison-Wesley and New American Library to its current book operations which include Viking Penguin and E.P. Dutton.
In a rare reversal of the cross-border buying trend, New York-based Random House acquired three British publishers, Chatto, Bodley Head and Jonathan Cape, as well as another U.S. company.
BP Reports, a trade weekly, lists more than three dozen smaller deals in 1987, and industry observers say that the pace has continued during 1988. Not surprisingly, the result is a shorter table of contents among dominant publishers.
Since 1985, the share of industry revenue generated by the top 15 companies has grown from 61.7 percent to 72.4 percent, according to BP statistics. Among those producing general-interest books only two independents remain: Farrar, Straus & Giroux and Norton.
It is not the first time the publishing industry has undergone consolidation. In the 1960s, dozens of public and privately held book companies were scooped up by conglomerates, exceeding even the recent frenzy, said PaineWebber analyst Kenneth Noble, who left publishing at that time to come to Wall Street.
In retrospect, however, most of the mergers didn't stick, Noble noted. Only one of the major publishers acquired then, D.C. Heath, is still controlled by the original buyer, Raytheon.
For an acquisition-hungry chief executive, the book industry undoubtedly has provided some shocks. Typical economic analysis is difficult, if not impossible. The publicly available numbers, for instance, are so dreadful that a statistician at one of the industry's main trade groups complains that his work is frustrating and often fruitless. Those facts that can be garnered from multiple industry sources invariably conflict.
And intuition may be misleading. Consider readership trends. Declining literacy and the advent of other forms of entertainment would seem to suggest that fewer books would be bought today than ever before. But since 1972, research by the Book Industry Study Group suggests, people have gone from buying 11 books per year for $22 to 14 books for $92.
That, however, does not suggest widespread success. The number of titles published every year has remained relatively stable at a little more than 50,000, with some recent growth. But only the tiniest fraction of the books published each year are hits. And newly published books are now written off as failures more quickly than ever before.
Accounting standards adhered to by most publishers call for writing off a title more than six months old. However, the large chain retailers - B. Dalton, Barnes & Noble and Waldenbooks - which together account for the majority of domestic sales, may scrap a slow seller in half that time. The average shelf life of a book now may be about the same as a box of crackers.
There may be a compensating reaction. A Book Industry Study Group reckons that there are currently 22,500 active publishers, 8,000 of which are less than 5 years old. The group does not track the number of publishers that disappeared during the same interval, but no one disputes the industry's ability to regenerate.
"For every major consolidation between media giants literally dozens of smaller publishers start up," said John Baker, editor of Publishers Weekly. "They obviously aren't big or important at first, but they are taking up a lot of slack."
The smaller houses are responsible for such hits as "West With the Night," the autobiography of aviation pioneer Beryl Markham, and "The Hunt for Red October," the military thriller and Pentagon favorite by Tom Clancy.
New ventures now dot Manhattan, specializing in everything from ethnic writers to arcane graphs of amusing financial charts. And though they are invariably privately held, a number are believed to be growing faster, and providing better returns, than the majors.