Random House and Penguin to Be Combined

Confirmation on Monday that Random House and Penguin will merge narrows the business to a handful of big players, led by a new international giant, Penguin Random House. And it could set off a long-awaited round of consolidation, analysts said.

Bertelsmann, the owner of Random House, and Pearson, which owns Penguin, said Monday that they had reached an agreement to combine the two houses to create the largest consumer book publisher in the world. Analysts said the deal between Bertelsmann, of Germany, and Pearson, of Britain, would give the combined companies greater scale to deal with the challenges arising from the growth of electronic books and the power of Internet retailers.

Together, Penguin Random House would have a global market share of more than 25 percent, and a book list that includes contemporary best sellers like Random House’s “Fifty Shades of Grey” and Penguin’s back list of classics from authors including George Orwell.

With e-book sales growing, publishers are increasingly worried about the leverage wielded by Internet giants like Google, Apple and, especially, Amazon. These companies have huge resources to invest in new technology, including digital sales platforms and algorithms that steer people toward books that match their interests. Their scale gives them the power to negotiate better terms on book prices.

“That is very attractive in a business that is going to become more and more digital,” said Douglas McCabe, an analyst at Enders Analysis in London.

The remaining of the so-called Big Six publishers could face increased pressure to respond to Penguin Random House, which will be based in New York. The other four are also owned by larger media conglomerates: HarperCollins, which is part of News Corp.; Macmillan, which is owned by Georg von Holtzbrinck of Germany; Hachette, whose parent company is Lagardère of France; and Simon & Schuster, a division of CBS.

“I wouldn’t be surprised if all the major trade publishers were having conversations like this,” said Ned May, an analyst at Outsell, a research firm. “I would expect to see similar realignment.”

“Some of these publishers, which last week no one would have called small, are realizing that they need to gain scale to invest in digital transformation,” he added.

Of the Big Six, HarperCollins has already signaled its interest in consolidation. News Corp. reportedly approached Pearson informally during the weekend as it was meeting with Bertelsmann to complete their talks, which had been going on for months.

One person close to the merger talks said Pearson had considered all options for Penguin, including an outright sale rather than the joint venture that was announced. But a sale would have been difficult, this person said, because it would have prompted prohibitively high capital gains taxes in the United States.

The deal requires approval by regulators in the United States and Europe. But if it is completed and further consolidation occurs, midsize players in the crowded field of publishing mass-market books might find it especially difficult to compete, analysts say, with bigger players more able to extract favorable terms from customers or to invest in digital operations. Small publishers with a niche focus and loyal groups of authors and readers might manage to remain independent, Mr. McCabe said.

While the music industry, which was hit earlier and with greater force by the digital revolution, has already shrunk to three major players — Warner Music Group, Sony Music Entertainment and the pending combination of Universal Music Group and EMI — the publishing world has remained relatively fragmented.

John Makinson, the chief executive of Penguin, who will serve as chairman of the new company, said that with consolidation inevitable, “we decided it was better to get in early rather than be a follower.”