Random House Inc.

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Random House Inc.

201 East 50th Street
New York, New York 10022
U.S.A.
Telephone: (212) 751-2600
Fax: (212) 572-8700

Wholly Owned Subsidiary of Bertelsmann AG
Incorporated: 1925
Employees: Not Available.
Sales: $1.6 billion (1999 est.)
NAIC: 51113 Book Publishers

Random House Inc. was already the largest general trade book publisher in the English-speaking world when it was acquired by German entertainment and publishing conglomerate Bertelsmann AG in 1998 and merged with Bantam Double-day Dell (BDD), which Bertelsmann already owned. The new publishing entity continued with the name of its senior partner, Random House Inc., and had estimated worldwide sales of $1.6 billion in fiscal 1999 ending June 30.

Modern Library Provides a Solid Foundation: 1925–30

When Bennett A. Cerf and Donald S. Klopfer decided to rename their joint publishing venture Random House Inc. (RH) in 1927, its pedigree was already well established. The 27-year-old Cerf and his 23-year-old partner had purchased the 109-volume Modern Library line in 1925 for $215,000 from the Boni & Liveright publishing firm in New York. Since 1923, Cerf had worked at Boni & Liveright as a vice-president (replacing Richard L. Simon, who left to form a joint venture with M. Lincoln Schuster), and he had become increasingly aware of the series’ value and potential. When Horace Liveright’s financial problems grew untenable and forced him to sell the seven-year-old Modern Library, Cerf and Klopfer jumped at the opportunity.

Inspired by Everyman’s Library, founded in 1905 by Londoners Joseph Malaby Dent and Ernest Rhys, Modern Library already was considered a classic in its time. Cerf and Klopfer replaced the company’s logo with a leaping torch-bearer designed by Lucian Bernhard, bound the books in cloth instead of

the original navy lambskin, and recouped their initial investment within two years. The partners soon changed the company’s name to “Random House” to reflect their intention of publishing a wide array of fiction and nonfiction without limitations, literally “at random.”

Extravagances Cut During Depression: The 1930s

In 1931, Cerf and Klopfer created the Modern Library Giants, “a collection of the most significant and thought-provoking books in modern literature,” as a sibling series of longer classics, like Leo Tolstoy’s War and Peace and Victor Hugo’s Les Miserables. The partners also produced a few “deluxe” editions, like the Rockwell Kent illustrated version of Voltaire’s Candide and a lavish version of Mark Twain’s Adventures of Tom Sawyer. These indulgences were discontinued when the Depression took a firm hold of the economy in the 1930s.

Moving into less expensive trade books, Cerf immediately set out to sign up the day’s literati, including playwright Eugene O’;Neill and poet Robinson Jeffers. Cerf also flew overseas to secure U.S. publishing rights to James Joyce’s Ulysses. When his unexpurgated copy of the book was seized by customs as “obscene” material upon his return, Cerf and attorney Morris Ernst gained international acclaim by taking the case to court. On December 6, 1933, Judge John Woolsey issued a decision with historic implications by upholding Cerf’s right not only to possess the book, but also to publish an uncensored version of Ulysses in America. Cerf’s precedent-setting crusade made Random House a household word, and the Modern Library’s Ulysses was published in 1934.

In 1936, RH purchased Robinson Smith & Robert Haas, Inc. and netted several prominent authors in the process, including Isak Dinesen, William Faulkner, Edgar Snow, and Jean de Brunhoff. The acquisition of de Brunhoff, creator of the popular Babar series, proved both timely and prescient, as RH expanded into children’s books.

Domestic and International Expansion: The 1940s and 1950s

After World War II ended, RH sought both domestic and international expansion, beginning with the establishment of Random House Canada and the development of a college books division in 1944. In 1947, after years of research and at a cost of more than $500,000, RH published the American College Dictionary, the first of its many reference books. Continuing in this vein but directing its efforts toward children, RH’s think tank initiated a series of Landmark Books about legendary Americans in 1950. Written by famous authors like Pearl S. Buck, C.S. Forester, and John Gunther, the line was expanded in 1953 to cover historic world events and leaders.

RH’s children’s division published a picture book in 1957 called The Cat in the Hat by Dr. Seuss (Theodor Geisel). Simple and silly, the book was so successful it was reprinted in 1958 as the first of a new line christened “Beginner Books.” The series enjoyed huge success, becoming an enduring favorite for new readers and remaining a staple of libraries and bookstores to this day. The same year, RH hired Saxe Commins as its editor-in-chief. “With Mr. Commins’s counsel and Mr. Cerf’s instincts,” Alden Whitman of the New York Times observed, “Random House began to grow into one of the giants of the books business.”

Rapid Expansion After Initial Public Offering: The 1960s

In 1959, RH went public with an offering of more than 220,000 shares at $11.25 each, with Cerf selling about a third of his stock (he kept 200,000 shares). Much of the proceeds went into rapid expansion, beginning with the 1960 acquisition of Alfred A. Knopf for about $3 million. In Knopf, RH gained one of the nation’s most distinguished and respected publishers. Cerf assured the new subsidiary complete editorial independence, and he and Knopf forged a close alliance, both professionally and personally, that endured for decades. RH’s second major acquisition was textbook producer L.W. Singer, which was followed by Helen and Kurt Wolff’s brainchild, the 19-year-old Pantheon Books, in 1961. Andre Schiffrin was named editor-in-chief of Pantheon in 1963 at the age of 28.

Changes in Ownership, Editorial Leadership: 1965–73

In 1965 the first of several significant events affecting RH’s future occurred. In a curious role reversal, the acquisitive RH was purchased by Radio Corporation of America (RCA). Cerf became chairman of the board following the sale, and he relinquished the presidency to protege Robert L. Bernstein the next year. Though the buyout was one “of mingled sadness and joy” for Cerf, he was pleased with RH’s record earnings and happy to end the company’s independence “in a blaze of glory.” In

1966 one of the company’s crowning achievements came to fruition—the unabridged, 2,059-page Random House Dictionary of the English Language, which took more than ten years to research and compile at an estimated cost of $3 million, was published. It sold significantly more than 500,000 copies within the next five years.

The changing of the guard was nearly complete in 1969, when RH moved from the old Villard House on Madison Avenue—a historic landmark located behind St. Patrick’s Cathedral—to the company’s current location at 201 East 50th Street. Cerf stepped down as chairman the following year, with his longtime friend and colleague Klopfer taking over. Cerf remained at RH as a senior editor until his death in 1971, at age 73. Called “a glorious amalgam of pragmatist and leprechaun” by John Daly, former host of What’s My Line? —a television game show on which Cerf had been a panelist for 16 years—the RH founder was a popular man whose funeral was a veritable who’s who of the publishing and show business worlds. “I wonder,” Eudora Welty mused, “if anyone else of such manifold achievements in the publishing world could ever have so many friends.”

With Bernstein and Klopfer running the ship, RH continued to flourish. In 1971 the Modern Library exceeded 400 titles and sold 50 million books. The 1973 acquisition of mass marketer Ballan-tine Books added considerably to RH’s paperback audience.

Decade of Extraordinary Growth: The 1980s

In 1980 RH was again the object of a takeover, this time by Advance Publications, Inc., part of the Newhouse family’s vast holdings, which purchased the publisher from RCA for $70 million. The next decade was one of extraordinary growth, marked by the 1982 purchase of Fawcett Books, the 1983 founding of Villard Books, and the 1984 acquisition of Times Books from the New York Times Company. In 1985 RH launched its AudioBooks division, drawing on the company’s extensive backlist to create abridged and unabridged cassette recordings.

RH continued to expand its reach with the 1986 purchase of Fodor’s Travel Guides and the 1987 acquisition of Chatto, Virago, Bodley Head & Jonathan Cape, Ltd., a prestigious British publishing group. “With companies like Bantam and Simon & Schuster becoming more involved overseas, we had a feeling we should do something ourselves,” Bernstein told Publishers Weekly. As with previous mergers, the companies remained autonomous but also stood to benefit immensely from the alliance for subsidiary rights and other negotiations. Also in 1987, RH’s renowned Pantheon Books and the newly acquired Schocken Books were merged editorially.

Company Perspectives:

Random House Inc., founded in 1925, is the world’s largest English-language general trade book publisher. It includes an array of prestigious imprints that publish some of the foremost writers of our time —in hardcover, trade paperback, mass market paperback, audio, multimedia, and other formats.

The following year, RH once again expanded its holdings by acquiring the large, respected Crown Publishing Group, comprised of Crown Books, Clarkson N. Potter, Inc., Harmony Books, and the Outlet Book Company. In 1989 the company experienced its second changing of the guard when Bernstein departed RH after 23 years. His replacement as president, chairman, and CEO was Alberto Vitale, former head of rival Bantam Doubleday Dell (BDD).

Among Vitale’s immediate concerns were trimming the fat and overhauling RH’s operations. In addition, Vitale focused RH on the 21st century by diversifying into the burgeoning electronic field and developing multimedia products. This year also saw further U.K. expansion with the acquisition of Century Hutchinson, Ltd., which along with the Chatto, Virago, Bodley Head and Cape group became Random House UK, with subsidiaries in Australia, New Zealand, and South Africa.

In his continuing efforts to streamline the company, Vitale set his sights on the ailing Pantheon Books. Since Bernstein—one of Pantheon’s most ardent supporters—was gone, the industry was rife with rumors of the imprint’s imminent dissolution. Andre Schiffrin, Pantheon’s directional force for 28 years, resigned in 1990 after refusing to go along with Vitale’s cost-cutting measures. His departure stirred up a storm of controversy, as Studs Terkel (Pantheon’s best-selling author), E.L. Doctorow, Barbara Ehrenreich, Kurt Vonnegut, and 350 others staged a demonstration in front of RH’s offices, while another 300 writers signed a letter of protest on Pantheon’s behalf. In response, Vitale told Publishers Weekly, “I want to most emphatically reaffirm Random House’s commitment to maintaining Pantheon’s position as one of our most prestigious imprints and to insuring its continuity and success in the future.” Vitale soon hired Erroll McDonald—who had criticized the demonstrators in an op-ed piece for the New York Times —as the new executive editor of Pantheon, and the imprint continued with a smaller staff and fewer projected titles.

In 1992 Vitale raided his former employer’s legions to hire William Wright, who became his righthand man as RH’s executive vice-president and chief operating officer. Also during this year, RH founded two new imprints under the Ballantine group’s umbrella: One World, to produce culturally diverse originals and reprints in hardcover and trade paperback; and Moorings, to publish hardcover and trade paperbacks with a Christian, devotional, or inspirational leaning.

Yet 1992’s biggest news was the renaissance of the Modern Library, with the reintroduction of 27 volumes, complete with new bindings and reset pages, to celebrate the series’ 75th anniversary. Simultaneously, those at Knopf put the finishing touches on the revival of Everyman’s Library, the long dormant hardcover classics once published by Dutton that were the original model for RH’s own Modern Library series. Though there was some concern about competition, Jane Friedman, president of RH Audio, posited, “Would we have been any happier if some other publisher had brought out Everyman’s?”

Once again solidifying assets and looking for more, Vitale engineered the purchase of BDD’s Bantam Electronic Publishing in 1993. The move was intended to beef up RH’s own electronic division, or as Vitale told Publishers Weekly, “to create more critical mass in a field that, while evolving, is here to stay.” As proof of his commitment, Vitale formed RH’s New Media Division to “identify and pursue multimedia opportunities” and installed Randi Benton as its president.

In addition, RH formed several joint ventures in 1993, including one to distribute the National Geographic Society’s books; a second with Br0derbund to create and market story-based multimedia software for children; and another between RH’s Electronic Publishing division and Prentice Hall to produce and market a line of computer-oriented books under the newly established imprint of HewlettPackard Press.

RH continued its trend of acquisition and reorganization in 1994 and 1995. Its investment in Worldview Systems Corporation, a San Francisco-based provider of electronic destination information, enabled RH’s Fodor’s subsidiary to launch Fodor’s Worldview Travel Update (FWTU), a service that provided buyers of Fodor’s travel guides with updated information sent electronically or via fax or mail.

Key Dates:

1925:: Co-founders Bennett Cerf and Donald Klopfer acquire Modern Library.
1927:: Company is renamed Random House Inc.
1934:: Random House publishes James Joyce’s Ulysses.
1944:: Company establishes Random House Canada and college books division.
1947:: Company publishes American College Dictionary, the firm’s first reference book.
1950:: Landmark Books series for children is introduced.
1957:: First Dr. Seuss book, The Cat in the Hat, is published.
1959:: Random House goes public.
1960:: Company acquires Alfred A. Knopf.
1965:: Random House is acquired by Radio Corporation of America (RCA).
1966:: Random House Dictionary of the English Language is published.
1971:: Co-founder Bennett Cerf dies.
1973:: Random House Acquires Ballantine Books.
1980:: Company is acquired by Advance Publications and becomes part of the Newhouse family’s media empire.
1986:: Fodor’s Travel Guides is acquired.
1988:: Crown Publishing Group is acquired.
1989:: Alberto Vitale becomes president, chairman, and CEO of Random House.
1989:: Random House U.K. is established.
1997:: Random House U.K. acquires adult trade division of Reed Books.
1998:: Random House is acquired by German conglomerate Bertelsmann AG.

That year RH also entered into an agreement with Kiplinger Washington Editors to publish books on personal finance and other business topics under a new imprint, Times Business Books. RH Value Publishing introduced a new adult trade imprint, Park Lane Press, which also would publish children’s titles in addition to titles on cooking, gardening, history, and illustrated gift books. Other RHVP imprints included Gramercy, Wings, Crescent, and Glorya Hale Books. RH acquired a 20 percent interest in The Princeton Review. The investment enabled The Princeton Review to double its output of book titles from 60 to 120 by the end of 1997. RH already was publishing The Princeton Review’s books and distributing its software to the book market.

With ownership of electronic rights becoming a contentious issue between authors and publishers, RH discovered in 1993 that it did not own the electronic rights to Theodor Geisel’s Dr. Seuss books. RH was able to negotiate with representatives from Geisel’s estate and acquire the multimedia rights to Dr. Seuss. More significantly, it changed the wording in its author contracts and added tough clauses regarding electronic and other rights not yet defined. The William Morris Agency, angry over the new contract language, refused to do business with RH for about a year before softening its stance. Julia Child, a longtime Knopf author, parted ways with Knopf in a dispute over electronic rights.

In 1996 RH withdrew from the annual American Booksellers Association (ABA) convention, after the ABA filed a lawsuit against RH charging RH with illegally providing discounts to chain bookstores. After a federal judge refused to dismiss the ABA’s lawsuit, RH and the ABA reached an out-of-court settlement in November 1996. Under the agreement RH admitted no wrongdoing and would not reimburse the ABA’s legal fees. RH agreed to abide by a ten-year consent decree that required RH to abide by its principles on pricing and promotional allowances. Any changes must be made available to all customers. The ABA had accused RH of offering selective discounts to the larger chain bookstores at the expense of smaller independent booksellers.

The publisher also received negative publicity in 1996 when it unsuccessfully attempted to reclaim a $1.3 million advance paid to author Joan Collins, in large part because her contract contained a clause saying RH would accept the manuscript regardless of its quality. The decision to sue Collins was attributed to RH’s feisty chairman and CEO, 62-year-old Alberto Vitale. Vitale also was feuding with the ABA over its lawsuit and with several top literary agencies over RH’s insistence on purchasing all electronic rights to its books.

Philip Pfeffer became RH’s new president and COO in 1996, replacing William Wright and reporting to Vitale. Pfeffer was formerly chairman and CEO of the Ingram Distribution Group. In 1997 RH established a new division, RH Client Services, to expand its sales and distribution systems. Gilbert Perlman was named president of the division. RH was distributing books for about 30 other publishers and sought to expand its distribution business. Distribution was seen as an area with significant growth potential.

In 1997 RH established a new children’s book imprint, Knopf Paperbacks, with 14 titles drawn from the Knopf and Crown lists. The imprint was established to create a more focused literary identity, with new covers and designs for backlist and reissued titles. In addition, the Juvenile and Merchandise Group was renamed Children’s Publishing in an effort to clarify its publishing program.

The RH Information Group, with Walter Weintz as group president, was formed within the company’s trade publishing group in 1997.

It contained three nonfiction publishing units—Times Books, Princeton Review, and Reference and Information Publishing. Also that year Random House U.K. acquired the adult trade division of Reed Books, making it England’s leading

fiction publisher. The acquisition included the lists of William Heinemann, Methuen, and Seeker & Warburg.

Ann Godoff was promoted to editor-in-chief and executive vice-president in the trade group. She joined RH in 1991, became vice-president and associate editorial director in 1994, and editorial director in 1995. At the end of 1997 Harold Evans, head of RH’s trade publishing group, left to become editorial director and vice-chairman of Mortimer Zuckerman’s publications, which included U.S. News and World Report, New York Daily News, Atlantic Monthly, and Fast Company. Ann Godoff replaced Evans as president of the trade group, while retaining her titles of editor-in-chief, executive vice-president, and member of the executive committee.

Period of Transition Under Bertelsmann: 1998–99

In 1998 RH was acquired by privately held German publishing and entertainment conglomerate Bertelsmann AG for anywhere from $1.2 to $2 billion. Bertelsmann already owned American publisher Bantam Doubleday Dell (BDD). Bertelsmann was known for its marketing savvy, and RH for the quality of its publications. Bertelsmann ran the largest book club business in the world and had acquired publishers in Germany, France, England, Spain, and the United States.

RH and BDD were expected to dominate the best-seller lists in the United States. For 1997 the two publishers had a combined total of 69 hardcover and 69 paperback titles on Publishers Weekly’s best-seller lists, or about a third of all hardcover best-sellers and half of the best-selling paperbacks. After the merger RH would have 20 to 23 percent of the trade publishing market, but only about seven percent of total U.S. book sales.

The announcement on March 23, 1998 took the American trade publishing industry by surprise. Merger talks had been held over several months in secret between Thomas Middelhoff, Bertelsmann’s next CEO, and Si Newhouse, head of RH’s parent company Advance Publications. Since both Bertelsmann and Advance were private companies, no financial details concerning the merger were given. Publishers Weekly, the book industry trade publication, estimated Bertelsmann would pay about $1.4 billion for RH.

Following the merger, BDD and RH would operate under the name of the senior partner, Random House Inc., with estimated annual sales of $1.8 billion, almost double its nearest rivals, Penguin Putnam and Simon & Schuster. The head of the combined U.S. publishers would be Peter Olson, chairman and CEO of Bertelsmann’s North American operations. Alberto Vitale became chairman of a newly created supervisory board that would serve as an advisory board but have no operating responsibilities for RH.

In April 1998 the U.S. Department of Justice filed suit to block the acquisition. Authors and agents, represented by the Authors Guild and the Association of Authors’ Representatives, sent a complaint about the merger to the U.S. Federal Trade Commission (FTC). The complaint claimed that the new Random House would control more than 36 percent of the U.S. adult trade book market, not including textbooks and professional books. Agents and authors were concerned about access to publishers for new and established authors. Bertelsmann pegged the new RH market share at 10.9 percent, including mass market paperbacks and book club sales.

In June the FTC approved the acquisition, and the transaction was completed by July 1, 1998, the start of Bertelsmann’s fiscal year. Olson named Erik Engstrom, former head of BDD North America, as president and chief operating officer of the new Random House. Addressing concerns over whether the many RH imprints would continue to bid independently for books—something that BDD imprints were not allowed to do under Bertelsmann—Olson circulated a statement to the company’s employees worldwide indicating that Bertelsmann would support“continuity of editorial autonomy of each of the publishing divisions and imprints of BDD and Random House.”

With new ownership RH’s organizational structure began to change. In October three new publishing groups were formed: 1) RH Children’s Media Group, consisting of all the book publishing imprints, video publishing, multimedia activities, outside joint ventures, and third-party distribution arrangements of the previous BDD Books for Young Readers and the RH Children’s Publishing divisions; 2) RH Audio Publishing Group; and 3) RH Diversified Publishing Group, which included RH Value Publishing and RH Large Print.

In March 1999 the RH sales force was reorganized into three sales groups, with the Ballantine sales group eliminated. One of the new sales divisions included Ballantine, Bantam, Broadway, Dell, and Doubleday imprints. The children’s sales division was expanded significantly to sell titles from all of the company’s children’s publishing divisions. The RH trade sales division was left, in large part, unchanged, representing books from Crown, Knopf, RH trade publishing, RH information, and Fodor’s adult books, as well as audios and large-print titles.

Following repeated statements that distribution was no longer a priority at RH, Gilbert Perlman and a group of RH executives agreed to purchase RH’s distribution division and form a new company, Client Distribution Services, Inc. Operations of the new company were expected to begin in September 1999.

The realignment of RH’s adult publishing began in May 1999 with the formation of four new publishing groups. The most significant were the formation of the Doubleday Broadway Publishing Group and the Bantam Dell Publishing Group, the latter uniting two paperback giants under one roof. Carole Baron, president and publisher of Dell for 18 years, left the company effective June 30. In addition, Anchor Books joined Vintage in the Knopf Publishing Group to form a new trade paperback unit. A new Doubleday Religious Publishing division also was established, which would include RH’s Wa-terBrook religious imprint. All affected imprints were to retain their distinct editorial identities.

In July 1999 RH acquired Listening Library Inc., a Connecticut-based publisher of unabridged audio titles for children. Listening Library would become the children’s audio imprint of the RH Audio Publishing Group. Founded in 1955, Listening Library was a pioneer in creating unabridged audio titles for the trade market and later focused on children’s literary titles.

For fiscal 1999 ending June 30, RH had estimated worldwide sales in excess of $1.6 billion, with 80 percent of sales coming in North America. RH Chairman Peter Olson noted that the company was able to maintain the distinction of its publishing programs and imprints even as it reorganized. The company was receiving the same number of submissions from agents as in the past, and different imprints continued to compete for the same title as long as another publisher was also bidding for the book. Olson also noted that he had increased the level at which an editor could make an offer to an author before seeking corporate approval.

After acquiring RH in 1998, Bertelsmann took a decentralized approach to managing its American publishing property. It gave editors freedom to sign authors and publishers the freedom to run their own publishing programs. Centralization was limited to support services and back-office functions. RH’s management was given wide latitude in running the company, and Bertelsmann executives were more interested in long-term results than results for a single year.

Concerns for the future centered on expanding and refo-cusing the company’s distribution center in Westminster, Maryland, which took on inventory from BDD’s warehouse in Illinois and Ballantine’s distribution center in Tennessee. Another ongoing concern was RH’s ability to continue to attract top authors and publishing talent, especially in non-editorial areas such as operations and information systems.

Principal Divisions

The Ballantine Publishing Group; Bantam Books; Broadway Books; The Crown Publishing Group; Dell; Doubleday; The Knopf Publishing Group; Random House Audio Publishing Group; Random House Children’s Media Group; The Random House Information Group; The Random House Trade Publishing Group; Random House Diversified Publishing Group; Fodor’s Travel Publications; Random House New Media; Random House Direct Marketing; Random House International; Random House UK (England).