Newscorp shares rose this week on rumors that the company would split in two, with entertainment assets going in one direction and publishing assets (the Wall Street Journal, the New York Post, and HarperCollins) going in the other. The entertainment assets, which include everything Fox-related, make approximately three times as much money as the newspapers and the publishing house. What can we learn from this?
One of the constant themes in these messages has been that HarperCollins would be the first major publishing house to vanish as the masters of the universe who control the major publishers finally got around to looking at their balance sheets. Culling HarperCollins, the Journal and the Post from the herd is a first step toward ridding Newscorp of its least-profitable assets.
A corporate balance sheet is a remarkable thing. Divisions owned by large corporations can literally hide in plain sight. Investors can get a sense of just how poorly a particular division is performing, but the company doesn’t really have to do anything about it because it’s profitable overall.
Investors cheered the rumor that Newscorp would divide in this manner because they understand something of publishing that the publishers themselves don’t — that it’s barely profitable now and will not be profitable at all in the future. So they’re happy to wave bye-bye to these things that don’t make as much money. And then you end up with a Newscorp balance sheet focused solely on entertainment that prints cash.
If HarperCollins doesn’t have the financial resources of Newscorp behind it, it’ll have to do something it’s never done before: stand on its own financially. There’s a certain amount of irony here. In the dim past, going back a few decades in publishing, any given book was not necessarily expected to make a lot of money. Books by new or midlist authors were published in order to develop and grow a readership, and then after three or four or five books, the author would reach bestseller status and a publisher would cash in.
And then things changed. The individual publishers merged together, and then they were bought by international conglomerates. Suddenly every book was obligated to fend for itself financially. There was no longer a concept of a book being published in order to grow an audience for its author. As a result, today, publishers have a “one and done” attitude toward authors. If the book comes out and sells well, great. Welcome to the club, and what would you like to publish next? If it sells poorly, thank you for playing. Next contestant, please.
This is obviously no way to grow audiences for authors, and it also doesn’t permit authors to grow in terms of the quality of their writing. As a result, you’re seeing a lot of first-time authors coming and going, only to be replaced by new rounds of first-time authors. One thing we’ll never run out of is people who have an intense desire to be published by New York, no matter how bad a job New York does publishing them.
So now a major publisher may be about to experience a taste of its own medicine. Authors need the shelter of a responsible publishing house so that they can grow and flourish, the same way publishing houses need the benefits of being part of a multi-national conglomerate so that they can flourish. HarperCollins is about to lose the economies of scale, cash flow, and forgiving nature of Newscorp executives, who somehow didn’t mind the fact that it wasn’t nearly as profitable as making movies or TV. That’s all about to change. HarperCollins is suddenly going to have to stand on its own two feet and do what it’s never done before: make money, year in, year out.
In this economic and publishing environment, good luck.
A number of years ago, an editor of mine worked for one of HarperCollins’ main competitors, Penguin-Putnam. He told me that his boss at Penguin-Putnam assured the troops that if there were ever a merger or any kind of major change, they would hear about it from the brass first. Of course, one day, my editor friend was reading the New York Times on a subway ride to work, and there was a story about a Penguin-Putnam merger that threatened each of their jobs.
If I work at HarperCollins, and I see a rumor that Newscorp is thinking about kicking its publishing company to the curb, I’m locking my door, shutting off my iPhone, and working on my resume.
The end is near.