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News Corp's HarperCollins May be Acquirer, Says Providence Equity's Napack

Stocks in this article: NWSA AMZN DIS BKS

NEW YORK ( TheStreet) -- The book industry, rattled by the surge in e-book sales through online retailers, is poised for consolidation, said Brian Napack, a former Macmillan president and senior advisor at Providence Equity Partners.

"We're in a major battle right now for the future of the industry," Napack said Wednesday at BookExpo America, the industry's annual convention held at the Javits Center in New York. "It will be very difficult for the existing major players to stand alone in the face of growing scale because they are competing for the same authors and competing for the same distribution channels. There are only so many big companies in this business."

News Corp. (NWSA)is expected to make clear its strategy for book publisher HarperCollins after Rupert Murdoch's company is split later this month, Napack said. And when it does, HarperCollins could be an acquirer, he said. HarperCollins will remain with the company's its legacy print and news businesses while its television and film units will be reorganized in a new company called 21st Century Fox.

Random House, which is owned by the German media company Bertelsmann, is expected to complete its merger with Penguin, owned by the U.K.'s Pearson, in the coming months. The merger will create the world's largest book publisher.

Much of the fuel behind the consolidation of the book business, Napack said, is (AMZN), which has become the world's largest book retailer. Publishers are under pressure to lower costs in order to negotiate better prices with Amazon and extend their own relationships with consumers.

"It's easy and glib for us to say that Amazon doesn't care about the book business, the truth is they love the book business," said Napack, who joined Providence, the private equity firm, last year after working as Macmillan's president from 2006 to 2011. "Amazon, in its heart, is a customer relationship business while publishers, in their hearts, are author relationship companies and to a large extent intellectual property companies."

"We book publishers have to do a better job not just of editorial but also in customer development. We have to go after those relationships."

To augment its relationship with book readers, Amazon in February acquired Goodreads, the San Francisco-based Web site that has become popular among book readers and publishers. Goodreads, which was founded in 2007, has more than 16 million members, many of whom participate in one of the website's more than 30,000 book clubs.

The Goodreads acquisition, Napack said, is just one of many examples of an erosion in booksellers' relationships with book buyers. The merged Random House and Penguin "should have" acquired Goodreads, he said.

"Publishing is having significant leakage out of the value chain," said Napack, who while at The Walt Disney Company (DIS), founded Disney Educational Publishing and was a co-founder of Disney Interactive. He also held senior positions at Simon & Schuster. "Sure, there's Amazon but it's also entertainment companies and all sorts of self-publishing ventures."

Amazon this week said it will start a publishing platform for fan fiction, a popular trend by which readers write their own stories based on books, films and television shows. amazon said it will host the new platform at its Kindle store.

To counter or at least chip away at Amazon's central position in the book business, publishers are likely to seek ways to get larger, Napack said.

"It appears what we're seeing is a squeeze on the small and mid-sized publishers," Napack said. "There is an inexorable move and irresistible force to pursue scale. There will be a move for consolidation as companies have to look outside. We're going to see some of the big guys looking to acquire innovation, acquire consumers and manage them better."

-- Written by Leon Lazaroff in New York

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