Britain's Pearson, which owns Penguin, the largest publisher in Australia, is in merger discussions with Bertelsmann, the privately owned German company that owns Random House, third largest in Australia.
''Consolidation in the publishing industry is absolutely logical in response to the dominance of certain online retailers who are changing the landscape,'' said Malcolm Edwards, the managing director of Hachette Australia.
Penguin publishes bestsellers such as the TV cook Jamie Oliver and Australian novelist Anna Funder, while Random House owns the Fifty Shades of Grey erotic phenomenon.
Literary agents are concerned the merger would reduce the potential buyers for authors' work. ''I'd be devastated because there would be one less player,'' said Lyn Tranter of Australian Literary Management.
However, Mr Edwards said a merger is not a takeover and both companies would be likely to protect their brand names.
Allen & Unwin, the biggest independent Australian publisher, recently took over the distressed Murdoch Books, which was started by Rupert Murdoch's nephew Matt Handbury.
Mark Davis, the co-author of the University of Melbourne Book Industry Study 2009, was ''flabbergasted'' when he heard about the proposal. ''The irony is that Random's market share has gone up - because of Fifty Shades of Grey - and Penguin's has gone down because of Fifty Shades. It has cannibalised sales.''
He said it was hard to see how any deal would affect readers. ''Both have been pruning lists a bit anyway. All publishers have.
''The new approach in publishing is that marginal titles and mid-list books are falling by the wayside. Publishers are looking at books that will make the Nielsen BookScan top 100.''
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