‘No’ is the answer to the question of whether paper books – those things printed in ink on paper, been killed by the advent of e-readers such as the Amazon Kindle.

And if Thomas Rabe is to be believed, the see big profits in selling them as sales of physical books have risen for the past three years in the U.S.

The chief executive officer of Bertelsmann, a German conglomerate founded in 1835 as a printer of church hymns that today employs 117,000 in TV, magazines, education, and more, says publishing “is and will remain one of our strategic core businesses.”

After partner Pearson said it plans to sell its 47 percent share, Rabe is poised to boost his 53 percent stake in Penguin Random House. To gain more clout with the likes of Amazon.com, Apple, and Google, the two companies in 2012 merged their publishing assets. From 2.7 billion euros in 2013, sales increased to 3.7 billion euros ($4 billion) in 2015 for Penguin Random House, the world’s No. 1 book publisher. This sale growth has been primarily due to blockbusters like Paula Hawkins’s thriller “The Girl on the Train” and E L James’s “Fifty Shades” series and its foothold in fast-growing markets such as India. Liberum Capital estimates that Pearson’s stake could fetch $1.5 billion as profits at the publisher in 2015 jumped by more than half from the year before, to 557 million euros.

After months of optimistic forecasts from CEO John Fallon, as it acknowledged major challenges in its biggest business, U.S. higher education, Pearson announced the sale on Jan. 18. he was spurred to seek ways to shore up the balance sheet after college enrollments and textbook sales proved weaker than expected. Fallon’s job was put in jeopardy after Pearson’s shares lost a quarter of their value, their worst day ever after the bad news had triggered a sell-off. Since 2015, when it sold the Financial Times and its stake in the Economist Group, this would be the company’s third A-list divestment – offloading Penguin Random House.

Stephen Williams, an analyst at fund manager Brewin Dolphin says that Fallon failed to build “a working model that is suitable for current times.”

Rabe says he’s interested in buying out Pearson even though Bertelsmann, controlled by Germany’s billionaire Mohn family. “We will do everything to guide this business to further growth,” he says.

Ending a 45-year-old partnership with the Jahr family, Rabe bought the 25 percent of German magazine publisher Gruner + Jahr that Bertelsmann didn’t own in 2014. From private equity house KKR, Bertelsmann took over full ownership of music publisher BMG Rights Management a year earlier.

For an industry that just a few years back was being written off as an analog dinosaur stumbling through the digital jungle, doubling down on books would represent a big bet.

But there’s cause for concern. Since book categories that were once big moneymakers — think dictionaries, encyclopedias, and atlases — can now be accessed online for free, publishers’ revenue has been largely unchanged this decade. However, giant publishing houses benefit from economies of scale as they churn out hits from best-­selling authors and books still produce healthy margins for such giants. Five of the 10 best selling print books in the U.S. last year were released by Penguin Random House, which owns 250 publishers on five continents.

“The book market is in much better shape than people predicted five years ago,” says Liberum Capital analyst Ian Whittaker.

Provided the price is “fair”, he’s ready to take the plunge, Rabe says. investing would strengthen Bertelsmann’s foothold in the U.S., its second-largest market and Penguin Random House’s combination went smoothly and created significant synergies, he says. “We have been writing an entrepreneurial and creative success story since 2012,” Rabe says. “And we will continue to write it.”

(Adapted from Bloomberg)

Categories: Economy & Finance, Strategy, Uncategorized