Penguin Acquires Self-Publishing Service Author Solutions For $116 Million

In the first significant investment by a major trade publisher in self-publishing, Pearson announced Thursday morning that it has acquired self-publishing service Author Solutions from Bertram Capital for $116 million in cash (or a little more than one times sales). ASI, formed in 2007 from the merging of iUniverse, AuthorHouse, and other related self-publishing services, was put up for sale earlier this year. Pearson said in a statement the buy "gives Penguin a leading position in this fast-growing segment of the publishing industry and brings significant opportunity for the two companies to collaborate. Penguin will gain access to ASI's expertise in online marketing, consumer analytics, professional services and user-generated content" while Author Solutions "will benefit from Penguin's design, editorial and sales skills, and its strong international presence as it looks to expand outside the US."

In a conference call, Penguin Group ceo John Makinson noted that Pearson's stock hit a 10-year high this morning. (As with HarperCollins' recent acquisition of Thomas Nelson, today's purchase significantly demonstrates Pearson's eagerness to invest capital in growing their trade publishing interests.) to ASI ceo Kevin Weiss will report directly to Makinson and sit on the board of the Penguin Group, as Makinson personally oversees the integration and expansion of the self-publishing business. Makinson emphasized a number of times their intention to "develop as quickly as possible the international strategy of ASI," saying they "are very excited by the growth opportunity." Later in the call, though, Weiss noted their "business is growing quite nicely in the UK, though I will tell you it's not growing fast enough." ASI had closed their UK office over two years ago because "the cost of us being there was exorbitant; we were losing money," but he hopes they can reestablish a presence in London now. On a broader level, Makinson said they plan to have "quite a lot of people" from Penguin USA and elsewhere visit ASI's operation in Indiana "to see how this works and brainstorm with colleagues at ASI how we can make the most of this association."

Makinson said "we jumped at" the opportunity to buy ASI. He sees self-publishing as something "that's not only entering the mainstream" but is "converging with what you might call the traditional model," as self-published successes now get made bigger in the hands of established publishers. He hopes they can "explore opportunities that lie somewhere between self-publishing as presently defined and Penguin publishing as presently defined," with "curated publishing" imprints that "draw on user-generated content rather than the agent community." Makinson admitted they "haven't thought in detail" yet how the acquistion might affect Penguin's start-up Book Country, but he expects it will benefit from "gaining access to all of the functonal skills within ASI." Penguin USA has also dabbled in "curated" self-publishing through their partnership with Amazon's annual "breakthrough novel" competitions.

ASI, which employs 1,600 people in Bloomington, ID and the Philippines, said it had generated total revenues of $100 million in 2011. Weiss told us their revenue divides approximately into thirds: one third book sales, one third publishing services, and one third marketing services. The company's back office and technology infrastructure will be integrated into Penguin's over the course of the next 12 months (pending deal approval) but will continue to operate separately from Penguin.

Makinson talked eagerly about "accessing the enormous author base" of ASI as well as coming to "understand how rich and detailed their understanding of consumer data" is and looks forward to "accessing their customer support and data analytic strategies."

Weiss underscored that the new owners "are committed to developing a vibrant partner community" with other publishers--such as Harlequin and Thomas Nelson, for whom ASI runs independent self-publishing imprints. Those operations are already run "with very big ring fences" and Weiss reiterated "we will not sahre partner-level data with our parent."

Another big strategic question is whether Penguin has jumped on the model of the future, or has ASI's premium-price, print-centric self-publishing focus peaked. Weiss said they "have been competing with free options for a long time" and noted that in their analysis of their recent BookTango platform--which emulates other free or low-priced ebook publishing and distribution services--"we have not seen any cannibalization" of their other services. Weiss noted, "we have not felt any price pressure thus far from the free publishing market" and suggested that "the market for authors is segmenting itself."

Makinson, meanwhile, opined that high-profile self-publishing hits have been "causing more people to think about writing as a serious professional career" and he expects there will be a "new and growing category of professional authors who are going to gravitate towards the ASI solution rather than the free model." While most of the best-known breakouts have come from those free publishing platforms, Weiss said "now that Penguin has the opportnity to define what we should be looking for" in books with crossover potential, "I think there will be the opportunity to find the people who can break out."
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