As the FT celebrates its 125th birthday, Barber outlines his plans for a digital revolution

Pink is a colour associated with good health and in the past the salmon shades of the Financial Times's pages seemed to signal some immunity from the circulation ravages suffered by other national newspapers.

However, the FT has been undergoing a digital revolution – one that editor Lionel Barber says requires continual editorial change and which may see the importance of those pink pages fade, replaced by the dominance of online news.

January national newspaper ABC figures, published last week, revealed that FT sales were down 3.85% compared with December, to 275,375. Now, as the paper prepares to celebrate its 125th anniversary on Wednesday, Barber, who has edited the paper since 2005, has unveiled his latest "digital first" initiative. It amounts to a combination of a production shake-up, a strategic change of direction for the international editions and, inevitably, staff cuts.

Barber sees it in terms of making internal adjustments to reflect external realities, which means embracing the advantages provided by technological innovation while accepting the changing requirements of an audience with an increasingly sophisticated grasp of the new media landscape.

The changes mean 35 job losses, but 10 digital posts will also be created; so there will be a net loss of 25 from a staff of 600 journalists, of whom 100 work abroad. Barber stresses that the cuts, though painful, are essential because "a Rolls-Royce news organisation" must be a financially sustainable operation.

"Our business is changing," he says. "We don't need to update the paper through the night, so we don't need so many people working anti-social hours producing a newspaper for real-time news. That's the equivalent of the steam age. News is now updated on the website."

So there will be fewer London staff working at night, fewer page changes and a more efficient commissioning regime. The FT editions in the US, Asia and Europe are now running the same "international" front page, though the UK issue does differ.

Will that not upset US readers who are presented with, say, a splash on a Chinese banking story rather than a development at Dell? "Not at all," says Barber, "because our unique selling point in America is not our ability to provide American news. They don't read us for that reason.

"Our US audience is composed of globally-minded Americans, an elite category, the ones who do have passports, the decision-makers, senior ranks in the administration, senators on Capitol Hill. They want a window on the world and that's what the FT gives them. They're not reading it for American news. Of course, we do need to be covered on certain American stories, such as Wall Street and the Fed [Federal Reserve System for banks], and tech is very important too.

"But what we offer is fantastic in-depth reporting, analysis and commentary on Europe, where the eurozone crisis is the biggest story of today. So we give them the stuff they can't get elsewhere. We're connecting the dots between these stories outside America and explaining why they are relevant to the US."

Barber, like all editors, is conscious of the exacting requirements of serving both print and online. However, he was not exactly an early adopter of Twitter – he only wrote his first tweet on 4 January of this year. His Twitter profile celebrates his love of cricket with a photo of him, dressed in whites, chatting to the politician and former cricketer Imran Khan.

Barber – "rides bikes, plays cricket, listens to opera, speaks German and travels light, Big Spurs fan", according to the Twitter profile – concedes that he cannot read the future and therefore cannot have the answers to where we are headed. All he knows is that it will be digital. Meanwhile, the paper version remains important.

"It is still a vital source of advertising revenue," he says, "and I want to make sure the newspaper survives for quite a while. It's also a fashion accessory, a marketing device. And some people, admittedly our older buyers, still want to read newsprint.

"Look, we're engaged in a delicate balancing act in this period of transition. It's like a seesaw and we don't want to slam down on one side. Let it drift down without calling up a storm. We need to make a managed transition, and that's what we're doing."

To that end, the Financial Times is building up its subscription base. It has 600,000 paying subscribers, giving the paper its largest-ever readership. And the FT group's chief executive, John Ridding, talks of the company being on the verge of another historic milestone – sales revenue is close to overtaking advertising revenue. But both Barber and Ridding say they are bored by rumours that the new Pearson chief executive, John Fallon, wants to sell the FT.

About 25% of the paper's traffic comes through mobile. Reading news on the move is part of a growing culture, especially among the young, and they prefer to use apps too. Among the paper's registered users, there is a growing trend in the 25-34 age-group to access the paper through an app rather than through a browser.

Barber's job, of course, is to ensure that people arrive, whatever the platform. He says the key is to make the paper complementary to the website and explains how that can be achieved.

"News now is not the newspaper, but papers still need a sense of timeliness and relevance, and also urgency – but you don't need to do that through publishing what happened incrementally at 11 o'clock last night in London. It's about sheer good reporting or providing under-reported material, and display can convey urgency.

"While the web is very much the first draft of history, a rough-cut, it still has to be good journalism, well-sourced, reliable. Clearly, the printed form is going to have more effort put into it, going to be more reflective and relevant."

Then he comes up with what he calls "a pretty revolutionary thought" by asking: "Why can't you have a page ready almost 18 hours ahead? Very soon this year, I'm going to be saying to executives on a Tuesday, 'what have you got for Thursday?'

"But you know something, it can be done. By using our international network, utilising templates and thinking ahead with pre-planned pages that contain carefully selected relevant news, we can deliver stories that other people just don't have. And that will release resources for the web."

As for the web, he reveals that the paper will launch an innovation called Fast FT later this year. It will be composed of "short, sharp, informed takes on market-breaking news or market developments". And an FT Weekend app is being planned too.

Clearly, the FT has come a long way since that first issue on 13 February 1888. Are there any similarities? Barber doesn't hesitate: "There is a line of continuity. On that original front page there were stories marking the first phase of globalisation, and London was at the heart of it.

"Well, the City has taken a battering but it's still a global player. And then there are the values that have endured – our liberal, international outlook. By liberal, I mean open markets, open minds. Plus we value editorial independence. We're not affiliated to any party. I am genuinely independent and that's a priceless asset."

But is such independence threatened by the coming post-Leveson settlement? Barber is on record as opposing statutory underpinning of the new regulator, which he sticks to, but says he is relaxed about the need to "adjust" statute in order to obtain an arbitration arm to deal with libel actions.

But he is concerned about "unforeseen consequences" in creating a new regulator. Though once a critic of the Press Complaints Commission, for example, he says he has now witnessed it in action and believes it does "a damned good job" in dealing with readers' complaints.

"It would be a crying shame, a hugely retrograde step, if it is suddenly bypassed," he says. "In five years' time we could be asking ourselves, 'my goodness, why did we do that?'"

Media and education group to spend £150m on restructuring, including preparing Penguin for merger with Random House

Financial Times owner Pearson has declared the paper is not for sale, as it confirmed that the number of digital subscriptions to the FT has overtaken the number buying the print edition for the first time.

John Fallon, who recently took over from Marjorie Scardino as the Pearson chief executive, categorically denied the Financial Times was for sale.

"It is a valued and valuable part of Pearson," he said. "I've not said the business is for sale, nor have I have initiated any conversations about that or had any conversations."

At a press briefing later on Monday, Fallon reiterated his denial that the FT, which accounts for around 10% of Pearson's business, was for sale.

"The FT is not for sale, there is no process been initiated," he said. "I have not encouraged anybody to think about selling the FT. I've not met with any advisers. I've not received any bids. I've not spoken to anybody I have no intention of talking to anybody. I hope that is clear, that is a singular signal, very clear view on the FT."

The number of readers subscribing to FT.com increased 18% in the year to 31 December 2012 to almost 316,000, bringing the total circulation of the Financial Times to 602,000. It said 15% of these subscriptions had come from mobile which accounts for 30% of all traffic.

Advertising was generally weak with poor visibility into the future, but the FT increased its market share in mobile, luxury and business education. Digital revenues benefited from the launch of FTSmartMatch, which automatically generates tailored content from the user while they are reading FT news stories.

Fallon said that "each and every part" of the company "has to pay its own way and be successful on its own terms and the FT is".

He declined to give a breakdown of digital advertising revenues or when the publisher might reach the tipping point at which it would make business sense to close the print product.

He said in some parts of the US, the company was already closing the print product because it was more efficient, but that as it was a global product, it was impossible to predict the future for the paper.

"It's too early to call the demise of print," he said. Asked if he thought the paper would be around in 10 years, he said: "I honestly don't know. I think that requires a degree of farsightedness and fortune-telling."

The media and education group's pre-tax profits for 2012 were £434m, down 59% on £1.05bn for the previous year. The steep drop in profits is largely accounted by the fact that Pearson's 2011 profiles included a £412m profit from the sale of its 50% stake in FTSE International. The 2012 results also include £113m in costs relating to the closure of Pearson in Practice.

Operating profit was up 1% to £936m and the company will pay a dividend to shareholders of 45p, up 7%.

FT Group reported sales of £443m, up 4% on 20111. Annual sales revenue up was up 5% to £6.1m.

Pearson said it expected tough trading conditions and structural industry change to continue in 2013 and announced more details of the integration of its Penguin books with Bertelsmann's Random House following the deal struck last October.

It will spend £150m on restructuring in 2013: part of this will be invested in accelerating the transition from print to digital across its businesses and part will be spent on extricating Penguin from Pearson's centralised operations in preparation for the merger with Random House which it will complete in the second half of this year.

Some £50m of the restructuring costs will go into digital services in emerging markets.

Pearson said it the reshaping of the company would generate £100m of annual cost savings from 2014.

Fallon said the restructuring would see redundancies across the group which employs 48,000.

"There will be some job losses that will result from this, yes," he said, but he stressed that the reshaping was designed to accelerate growth.

He said Pearson's overall business, which is dominated by educational products and services, would benefit from the rise in a global middle class, which is predicted to double in size in the next decade. This will have an impact in expenditure on education by parents.

Penguin in the UK had its best year on record for bestsellers including Clare Balding's My Animals and Other Family, which went to the top of the charts following the Olympics. Also top of the sales charts was Daniel Kahneman's Thinking Fast and Slow and Jamie Oliver's 15 Minute Meals.

In the US, it published 255 New York Times bestsellers including No Easy Day: the Firsthand Account of the Mission that Killed Osama bin Laden by Mark Owen, the pseudonym of a former member of the Navy Seals.

Pearson generates approximately 60% of its sales in the US where its education business generated £2.658bn, up 2% year on year.

It said it expected the market to remain challenging in the developed world and publishing businesses partly because of pressures on education budgets and college enrolments.

Pearson's shares were down 44p, or 3.2%, to £11.77 in early trading.

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Retirement marked with £6m remuneration and gift of an Ivon Hitchens canvas, bought by the company for £12,000 in 1988

Pearson has given Dame Majorie Scardino a painting worth as much as £100,000 to mark her retirement from the publisher of the Financial Times, along with more than £6m she received in remuneration in her final year as chief executive.

The painting, of lilies, by Ivon Hitchens, was originally bought by the company for £12,000 but is now valued at between £50,000 and £100,000.

Hitchens, who died in 1979 at the age of 86, became part of a circle of artists known as the London Group.

After his house was bombed in 1940 he moved to a "patch of woodland" in West Sussex where he lived for 40 years, at first in a caravan, according to the Tate website.

"He was an isolated figure but his art was never eccentric," the gallery says. "He painted mostly outdoors, however, and his technique developed from a tonal treatment that recalled the informality of Constable's sketches".

Pearson appears to have acquired the painting nine years after his death, at an auction on 14 June 1988 that describes it as "signed, inscribed" by Hitchens personally, although this has not been confirmed by the company.

Pearson's gift of Hitchens' work, which has hung on the wall of Scardino's 9th floor office on the Strand for most of the 15 years she ran Pearson, caps a final year in charge in which she received more than £6m.

Scardino received £6.35m in pay, bonus, retirement benefits and long term awards in 2012, 28% less than the £8.88m she received in 2011, according to Pearson's annual report published on Thursday.

Her basic pay remained unchanged at £993,000 but cash bonus dropped significantly year-on-year, from £1.35m in 2011 to £432,000 last year.

Under the terms of her contract the maximum cash bonus Scardino is eligible to receive is 180% of her salary.

Similarly, her long term incentive award declined from £5.7m in 2011 to £4.01m last year.

David Arculus, chairman of Pearson's remuneration committee, said: "Annual incentives paid to executives for 2012 performance were significantly lower than for 2011, reflecting performance in a tough business environment and more challenging incentive targets."

Scardino also holds 1,925,435 shares in Pearson in a personal capacity, worth almost £24m according to the company's financial report.

Outside of her work at Pearson she is also paid for non-executive roles at Nokia, where she receives €150,000, and the MacArthur Foundation, where she received a further £140,000 last year.

Rona Fairhead, the chairman and chief executive of the Financial Times Group, has received a £1.15m pay out after announcing in November that she is to leave the company.

Fairhead announced her departure less than two months after missing out to replace Scardino.

"The [remuneration] committee and the board determined that her leaving employment was a consequence of the planned incorporation of the professional education division overseen by Rona into other parts of Pearson's education business, coupled with the smaller size of the Financial Times Group owing to recent major divestments," the company said.

Separately Fairhead received £2.12m in 2012 in pay, cash bonus and long term awards.

John Fallon, the head of Pearson's international education business took over as chief executive on 1 January.

Arculus said that the Pearson has moved to tighten restrictions on the level of pay outs for anymore top executives that might depart.

"We reviewed and amended the service agreements for those executive directors, including the chief executive, who will continue to serve throughout 2013," he said. "The consequence of this review has been to remove any entitlement to annual incentive from the calculation of any compensation that might be payable on termination of employment by the company without notice or cause."

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iSpeech could dramatically cut the cost of audiobooks. Shame the reading voice sounds like a bus announcement

Last week iSpeech, a text-to-speech startup, announced that it had acquired its first publishing client: Pearson. Claiming "the most natural-sounding TTS audio on the market" and previously known for driving-direction applications and audio cues for the home, iSpeech wants to help publishers automate the creation of audiobooks. The default voice on iSpeech is pleasantly lilting, but it's still definitely not human, and more akin to a pre-recorded bus announcement in its odd pauses and stumbles. Pearson intends to use the service primarily with textbooks; the robotic voice is definitely not ready for the emotional range and styles of fiction yet.

Text-to-speech has been tried many times before, but it's technically very difficult to pull off, and legally complex. Amazon got into trouble in 2009 when it rolled out basic text-to-speech for the Kindle. Publishers said that Amazon was abusing its copyright and it withdrew, much to the chagrin of, among others, the blind and partially sighted community, reliant on audiobooks, who briefly gained access to Amazon's vast library. The problem is the cost of creating an audiobook. This involves studio hire and voice talent and can reach thousands of pounds, which is often difficult to justify in sales, while iSpeech offers automation costing just fractions of a penny per word.

But while the cost of creating quality audiobooks prevents much contemporary work being made available, older work is being "acoustically liberated" by collaborators on the internet. LibriVox, founded in 2005, recently passed 6,500 books in its collection: all in the public domain, all recorded by volunteers. LibriVox's moderators assemble teams of participants who take a chapter each. While the tone might sometimes vary as much as iSpeech's robot, LibriVox's enthusiastic volunteers are now putting out three classic audiobooks a day, a victory for networking the passion of readers.

Pearson predicts difficult first quarter for newspaper, with total group revenues down 1% year on year to £1.2bn

Pearson has said that the Financial Times faced a "weak" advertising market in the first quarter of this year, but nevertheless managed to increase its digital subscriptions by 4% on the first quarter to 328,000, while Penguin has had a good start with strong sellers from authors including Jamie Oliver and Nora Roberts.

Overall, Pearson said total group revenues fell 1% year on year on an underlying basis to £1.2bn in the first quarter.

Pearson, which owns an international education business and book publisher Penguin, said the FT has been hit by the fact that a number of large advertising campaigns have been planned for the second quarter compared with last year, when they ran in the first three months.

The company, which is proposing a final dividend of 30p at its annual general meeting to be held on Friday, said that despite the weak trading conditions, the FT was "benefiting from resilient demand for content and services". The FT has a global paid and digital circulation of 602,000.

Pearson said Penguin, which is being merged with rival Random House, has had a good start with bestsellers from Harlan Coben, Nora Roberts, Jamie Oliver and John Green.

The company said that in its education operation, conditions remain generally weak in developed markets and stronger in emerging markets.

Pearson said it expects operating profits in the first six months to be down on the same period last year, but noted that the nature of its business is that revenue is "heavily weighted" to the second half of the year.

The company said that it has about £500m available to invest in "bolt-on" acquisitions this year.

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Alexander Lebedev needs an investor, there's a new boss at Pearson, and the regional press faces further advertising woe

With Rupert Murdoch set to spin off his newspapers, Alexander Lebedev on the hunt for an investor to prop up the Independent and another steep decline in advertising on the cards, 2013 is set to be another tough year for the publishing industry.

A feast of sporting and royal events provided a tonic for newspaper advertising and sales this year. No such luck in 2013. The commercial opportunity of the birth of the Duke and Duchess of Cambridge's first child aside, it will be a dogfight among publishers as advertisers continue to go elsewhere with their cash. Just over £1bn is forecast to be spent on national newspaper advertising, 9% less than 2012 and nearly two-thirds less than the £2.55bn in 2005.

All eyes will be on Murdoch's plan to spin off News Corporation's newspaper and book publishing assets from his more lucrative film and TV businesses, which will result in more pressure to address the £1m-a-week losses a week at the Times. News International is by no means alone in seeking to reduce costs – the publisher of the Guardian is planning to cut 68 journalist posts in order to help reduce its editorial budget by £7m, after a £44.2m loss in the year to the end of March.

"There will be a relentless battle between cost-cutting and product investment and development," says Douglas McCabe, media analyst at Enders. "Culturally News Corp has always been good at backing initiatives it believes in, and that spirit is not going to disappear. It will be a scale, global newspaper and book publishing business with many premium assets."

The new business will face major changes, including an effort to get rules barring a seven-day operation at the Times and Sunday Times loosened, but scrapping the papers' online paywall is not likely to be one of them.

"At the moment you can't say that any publisher has got the model [to survive] exactly right," says Rob Lynam, head of press at media buying agency MEC. "In which case why would they [drop the paywall]? I see no indication that is what they are looking at." McCabe says that he "wouldn't rule out" a potential newspaper sale, even by Murdoch.

Other potential sellers are Russian billionaire Lebedev, who is looking for an investor to share the losses at the Independent and Independent on Sunday, and Financial Times parent Pearson. There are some who speculate whether, following the success of taking the London Evening Standard free, Lebedev might consider the same for one of the market's few bona fide success stories, the cut-price 20p national i.

"What other newspaper is showing growth like that. The i has done well and imagine what would happen at 1m-plus copies a day out there," asks a press director at one major media buying agency. "People would pick it up, it is a better read than the Metro, there would be appetite among advertisers. The Independent now has a fundamental scale problem and is at risk of falling off the roster of advertisers, something has to give."

John Fallon takes over the reins at Pearson in the new year and has taken a more equivocal stance on a sale of the FT than his predecessor, Dame Marjorie Scardino, stating "we never rule anything out". The already well-oiled rumour mill has suggested Michael Bloomberg of late, although he doesn't complete his final term as mayor of New York until November.

David Montgomery's newly minted regional newspaper business Local World, home to 110 titles formerly owned by Northcliffe Media and Iliffe News & Media, will be tested by a predicted 10% fall in the regional advertising market in 2013. Advertisers are forecast to spend less than £1bn on regional papers for the first time, more than 60% below the 2005 level of £2.5bn.

The jury is still out on whether regulators are likely to start to take a more benign view of competition issues in the ailing regional market, allowing Montgomery to bring shareholder Trinity Mirror's titles into the fold.

"One obvious tactic could be to look at bringing in titles, or groups of titles, from Trinity or others where there isn't likely to be a competition issue," says McCabe.

The magazine market will face a projected 7% slide in ad revenue and there has been no growth since 2005; like newspapers, magazines have to get to grips with digital strategy.

Sales of the top 100 magazines have plummeted by 31% from about 31m to 21m over the last decade, according to an analysis of data from the Audit Bureau of Circulations.

On a brighter note, Jo Blake, a director at media buying agency Arena, says that, with huge sales expected this Christmas, 2013 should be the year of the tablet. "The key will be tablets and how publishers get to grips with monetising [them]," she says.

The implementation of a tablet strategy at Trinity Mirror, the publisher of the Daily Mirror, Sunday Mirror and Sunday People, has seen a surge in investor confidence reflected in a two-year share price high.

New chief executive Simon Fox will be hoping that the revitalisation is not derailed by the allegations of phone hacking reaching beyond News International. Trinity Mirror has strenuously denied any wrongdoing at its titles.

Media buying agency executives do not see an issue with advertiser support over the rumbling issue of phone hacking, or the fallout of the Leveson inquiry. It took unprecedented national outrage to force advertisers to pull out of the now defunct News of the World.

"It will be interesting to see what happens over Christmas. If retailers do well, they are such a big part of the [ad] market for newspapers and it will give more confidence," says Lynam. "Some recent indicators have been more positive, but everyone will be challenged next year."

Financial Times owner looks to tap into student market by taking 5% share in digital book venture in a deal worth $89.5m

Financial Times-owner Pearson is to take on Amazon with a move into the e-reader market by purchasing a 5% stake in Nook, Barnes & Noble's digital books venture, in a deal that values the business at $1.79bn (£1.1bn).

Pearson has acquired a 5% stake in Nook Media – a new company that houses Barnes & Noble's e-reader and tablet operations, digital bookstore and 674 college bookstores in the USA – for $89.5m.

The deal, which includes the option for Pearson to up its stake in Nook to 10% in the future, values the business at $1.79bn.

Following the deal, Barnes & Noble will hold a 78.2% stake in Nook Media, with Microsoft holding 16.8%.

The deal will put Pearson in competition with Amazon's market-dominating Kindle e-reader –Jeff Bezos's company enjoys 95% of sales in the market– with the Nook currently only available in the US.

Pearson said the aim of the strategic investment is to boost its north American learning division by better tapping into the student market with digital products.

"Pearson and Barnes & Noble have been valued partners for decades, and in recent years both have invested heavily and imaginatively to provide engaging and effective digital reading and learning experiences," said Will Etheridge, chief executive of Pearson North America.

"With this investment, we have entered into a commercial agreement with Nook Media that will allow our two companies to work closely together in order to create a more seamless and effective experience for students".

In 2011, Pearson's north American education business reported revenues of £2.58bn, 44% of total group sales. Adjusted operating profits were £493m, 52% of total group adjusted operating profits.

Microsoft invested $300m in Nook in April.

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Is the FT for sale now that Dame Marjorie Scardino has retired? If not, hadn't someone at Pearson better say so, and quickly?

Uncertainty casts a blight on newspapering. When there's stability there's success: good people stay, good people want to join. But when the whole paper's in play – maybe passing from one owner to another – then the precise opposite operates. Good journalists leave, good replacements go elsewhere.

Marjorie Scardino gave the Financial Times 15 years of certainty. It was a prime Pearson responsibility and would stay that way while she stayed chief executive. But that pretty golden era ended as the old year turned and Dame Marjorie retired. Enter John Fallon from the education division: enter uncertainty.

Is that a Bloomberg bid we see just over the horizon? Surely one of the big information operators would be tickled pink to have a prestige daily as part of its package? Fallon doesn't move to quash the speculation. Indeed, he doesn't move at all. Sitting there mum, though, doesn't make sense for a property so fragile and precious. Anxiety hurts. Rumour hurts. If Fallon is wise, he'll repeat the Scardino pledge – or admit he's a seller pretty damn quick, and get on with it while there are good things left to sell.

Parent company of FT Group says weak market conditions means that it expects operating profits of £935m for 2012

Pearson's share price is down more than 3%, the biggest faller in early trading among FTSE 100 companies, after the publisher of the Financial Times surprised investors by reporting a profits downgrade for 2012.

In early trading, Pearson shares were down 3.5%, 44p to £11.94.

Pearson, which has developed a reputation in the City for consistently beating its own forecasts, has downgraded operating profit and earnings per share for 2012.

Pearson said weak market conditions in the fourth quarter – key selling season for corporate advertising, publishing sales at its Penguin book arm and higher education business – means it expects operating profits of £935m for 2012.

Adjusted earnings per share is forecast at 84p.

The consensus among City analysts was for Pearson to report operating profits of £942m and EPS of 84.9p.

While the lowering of estimates is considered "light", Pearson has developed a reputation in the city for consistently beating its own forecasts.

FT Group, home to the Financial Times, expects to report "good revenue growth" for 2012.

Pearson said growth at the division, which includes a 50% share in the publisher of the Economist, came despite a deterioration in advertising sales in the fourth quarter.

FT Group digital and subscription-based revenues continued to grow in 2012, although profits will be "significantly" lower year on year because of "further actions to accelerate the shift from print to digital".

The division's profits will also be hit by the loss of income from FTSE International after Pearson sold its 50% interest to the London Stock Exchange for £450m in December 2011.

FTSE accounted for £20m of profit and 2.2p of eps in 2011.

The division is the subject of constant speculation of a possible £1bn sale following the appointment of new Pearson chief executive John Fallon.

Penguin, which is to be merged in a joint venture with rival Random House, benefited from a good fourth quarter and "traded in line with our expectations in its key selling season".

The division will report flat revenues on a constant currency basis year on year – in spite of tough conditions in the physical sales market – although perhaps tellingly Pearson does not say how Penguin's performance rates on the key metric of like-for-like sales.

In Pearson's education division, which accounts for 75% of the company's business, its North American division has endured a tough year.

The company said US school and higher education publishing industries declined by 11% in the first 11 months of 2012, which hit Pearson's operations.

"Our services and digital-learning revenues continued to grow rapidly and we benefited from a strong performance from recent acquisitions and tight cost control," said Pearson.

"In general, Pearson's businesses continue to face tough market conditions and structural industry change which we see continuing into 2013," it added.

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Music station's future still uncertain but Pearson or UTV Media could possibly step in

Bauer Media's bid to buy Absolute Radio is understood to have stalled at the 11th hour with the future of the music station still uncertain.

The German-owned private radio and magazine company emerged as the favourite to buy Absolute, owned by the Times of India parent company Bennett, Coleman & Co, after a rival consortium fronted by former Virgin Radio chief executive John Pearson pulled out.

But talks between Bauer, home to the Kiss and Magic networks, and the Absolute owner have fallen through, according to industry sources.

It remains to be seen whether this paves the way for the return to the negotiating table of Pearson or TalkSport owner UTV Media, which has also expressed interest in the station, or whether the Bauer bid can be resurrected.

Pearson, who had the support of Time Out backer Peter Dubens, came close to buying the station on two occasions and was understood to have tabled a £15m bid.

Absolute Radio's chief operating officer Clive Dickens announced last month he was leaving the station to join Australian broadcaster Southern Cross Austereo.

His responsibilities at Absolute were split between chief executive Donnach O'Driscoll and chief financial officer Adrian Robinson, with content director Tony Moorey taking greater responsibility for programming.

Absolute Radio declined to comment. A Bauer Media spokesman said: "We do not comment on speculation around commercial matters."

Bennett, Coleman & Co is understood to be looking for bids in excess of £20m for the station which it bought for £53.2m from SMG (now renamed STV) in 2008, when it was still called Virgin Radio.

Although audiences for the main Absolute Radio station tumbled after its rebrand to Absolute, the broadcaster has launched a number of spin-off digital stations, now totalling six, with the most popular Absolute 80s, listened to by nearly 900,000 people per week on average.

The station reported a rise in listeners in the latest official Rajar figures, with a weekly reach of 1.77 million people tuning into Absolute Radio in the final three months of last year, up 10.8% year on year and nearly 15% on the previous quarter.

Breakfast host Christian O'Connell also saw his audience grow, possibly picking up older listeners from Radio 1, where Nick Grimshaw replaced Chris Moyles on breakfast.

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As the FT celebrates its 125th birthday, Barber outlines his plans for a digital revolution

Pink is a colour associated with good health and in the past the salmon shades of the Financial Times's pages seemed to signal some immunity from the circulation ravages suffered by other national newspapers.

However, the FT has been undergoing a digital revolution – one that editor Lionel Barber says requires continual editorial change and which may see the importance of those pink pages fade, replaced by the dominance of online news.

January national newspaper ABC figures, published last week, revealed that FT sales were down 3.85% compared with December, to 275,375. Now, as the paper prepares to celebrate its 125th anniversary on Wednesday, Barber, who has edited the paper since 2005, has unveiled his latest "digital first" initiative. It amounts to a combination of a production shake-up, a strategic change of direction for the international editions and, inevitably, staff cuts.

Barber sees it in terms of making internal adjustments to reflect external realities, which means embracing the advantages provided by technological innovation while accepting the changing requirements of an audience with an increasingly sophisticated grasp of the new media landscape.

The changes mean 35 job losses, but 10 digital posts will also be created; so there will be a net loss of 25 from a staff of 600 journalists, of whom 100 work abroad. Barber stresses that the cuts, though painful, are essential because "a Rolls-Royce news organisation" must be a financially sustainable operation.

"Our business is changing," he says. "We don't need to update the paper through the night, so we don't need so many people working anti-social hours producing a newspaper for real-time news. That's the equivalent of the steam age. News is now updated on the website."

So there will be fewer London staff working at night, fewer page changes and a more efficient commissioning regime. The FT editions in the US, Asia and Europe are now running the same "international" front page, though the UK issue does differ.

Will that not upset US readers who are presented with, say, a splash on a Chinese banking story rather than a development at Dell? "Not at all," says Barber, "because our unique selling point in America is not our ability to provide American news. They don't read us for that reason.

"Our US audience is composed of globally-minded Americans, an elite category, the ones who do have passports, the decision-makers, senior ranks in the administration, senators on Capitol Hill. They want a window on the world and that's what the FT gives them. They're not reading it for American news. Of course, we do need to be covered on certain American stories, such as Wall Street and the Fed [Federal Reserve System for banks], and tech is very important too.

"But what we offer is fantastic in-depth reporting, analysis and commentary on Europe, where the eurozone crisis is the biggest story of today. So we give them the stuff they can't get elsewhere. We're connecting the dots between these stories outside America and explaining why they are relevant to the US."

Barber, like all editors, is conscious of the exacting requirements of serving both print and online. However, he was not exactly an early adopter of Twitter – he only wrote his first tweet on 4 January of this year. His Twitter profile celebrates his love of cricket with a photo of him, dressed in whites, chatting to the politician and former cricketer Imran Khan.

Barber – "rides bikes, plays cricket, listens to opera, speaks German and travels light, Big Spurs fan", according to the Twitter profile – concedes that he cannot read the future and therefore cannot have the answers to where we are headed. All he knows is that it will be digital. Meanwhile, the paper version remains important.

"It is still a vital source of advertising revenue," he says, "and I want to make sure the newspaper survives for quite a while. It's also a fashion accessory, a marketing device. And some people, admittedly our older buyers, still want to read newsprint.

"Look, we're engaged in a delicate balancing act in this period of transition. It's like a seesaw and we don't want to slam down on one side. Let it drift down without calling up a storm. We need to make a managed transition, and that's what we're doing."

To that end, the Financial Times is building up its subscription base. It has 600,000 paying subscribers, giving the paper its largest-ever readership. And the FT group's chief executive, John Ridding, talks of the company being on the verge of another historic milestone – sales revenue is close to overtaking advertising revenue. But both Barber and Ridding say they are bored by rumours that the new Pearson chief executive, John Fallon, wants to sell the FT.

About 25% of the paper's traffic comes through mobile. Reading news on the move is part of a growing culture, especially among the young, and they prefer to use apps too. Among the paper's registered users, there is a growing trend in the 25-34 age-group to access the paper through an app rather than through a browser.

Barber's job, of course, is to ensure that people arrive, whatever the platform. He says the key is to make the paper complementary to the website and explains how that can be achieved.

"News now is not the newspaper, but papers still need a sense of timeliness and relevance, and also urgency – but you don't need to do that through publishing what happened incrementally at 11 o'clock last night in London. It's about sheer good reporting or providing under-reported material, and display can convey urgency.

"While the web is very much the first draft of history, a rough-cut, it still has to be good journalism, well-sourced, reliable. Clearly, the printed form is going to have more effort put into it, going to be more reflective and relevant."

Then he comes up with what he calls "a pretty revolutionary thought" by asking: "Why can't you have a page ready almost 18 hours ahead? Very soon this year, I'm going to be saying to executives on a Tuesday, 'what have you got for Thursday?'

"But you know something, it can be done. By using our international network, utilising templates and thinking ahead with pre-planned pages that contain carefully selected relevant news, we can deliver stories that other people just don't have. And that will release resources for the web."

As for the web, he reveals that the paper will launch an innovation called Fast FT later this year. It will be composed of "short, sharp, informed takes on market-breaking news or market developments". And an FT Weekend app is being planned too.

Clearly, the FT has come a long way since that first issue on 13 February 1888. Are there any similarities? Barber doesn't hesitate: "There is a line of continuity. On that original front page there were stories marking the first phase of globalisation, and London was at the heart of it.

"Well, the City has taken a battering but it's still a global player. And then there are the values that have endured – our liberal, international outlook. By liberal, I mean open markets, open minds. Plus we value editorial independence. We're not affiliated to any party. I am genuinely independent and that's a priceless asset."

But is such independence threatened by the coming post-Leveson settlement? Barber is on record as opposing statutory underpinning of the new regulator, which he sticks to, but says he is relaxed about the need to "adjust" statute in order to obtain an arbitration arm to deal with libel actions.

But he is concerned about "unforeseen consequences" in creating a new regulator. Though once a critic of the Press Complaints Commission, for example, he says he has now witnessed it in action and believes it does "a damned good job" in dealing with readers' complaints.

"It would be a crying shame, a hugely retrograde step, if it is suddenly bypassed," he says. "In five years' time we could be asking ourselves, 'my goodness, why did we do that?'"

Media and education group to spend £150m on restructuring, including preparing Penguin for merger with Random House

Financial Times owner Pearson has declared the paper is not for sale, as it confirmed that the number of digital subscriptions to the FT has overtaken the number buying the print edition for the first time.

John Fallon, who recently took over from Marjorie Scardino as the Pearson chief executive, categorically denied the Financial Times was for sale.

"It is a valued and valuable part of Pearson," he said. "I've not said the business is for sale, nor have I have initiated any conversations about that or had any conversations."

At a press briefing later on Monday, Fallon reiterated his denial that the FT, which accounts for around 10% of Pearson's business, was for sale.

"The FT is not for sale, there is no process been initiated," he said. "I have not encouraged anybody to think about selling the FT. I've not met with any advisers. I've not received any bids. I've not spoken to anybody I have no intention of talking to anybody. I hope that is clear, that is a singular signal, very clear view on the FT."

The number of readers subscribing to FT.com increased 18% in the year to 31 December 2012 to almost 316,000, bringing the total circulation of the Financial Times to 602,000. It said 15% of these subscriptions had come from mobile which accounts for 30% of all traffic.

Advertising was generally weak with poor visibility into the future, but the FT increased its market share in mobile, luxury and business education. Digital revenues benefited from the launch of FTSmartMatch, which automatically generates tailored content from the user while they are reading FT news stories.

Fallon said that "each and every part" of the company "has to pay its own way and be successful on its own terms and the FT is".

He declined to give a breakdown of digital advertising revenues or when the publisher might reach the tipping point at which it would make business sense to close the print product.

He said in some parts of the US, the company was already closing the print product because it was more efficient, but that as it was a global product, it was impossible to predict the future for the paper.

"It's too early to call the demise of print," he said. Asked if he thought the paper would be around in 10 years, he said: "I honestly don't know. I think that requires a degree of farsightedness and fortune-telling."

The media and education group's pre-tax profits for 2012 were £434m, down 59% on £1.05bn for the previous year. The steep drop in profits is largely accounted by the fact that Pearson's 2011 profiles included a £412m profit from the sale of its 50% stake in FTSE International. The 2012 results also include £113m in costs relating to the closure of Pearson in Practice.

Operating profit was up 1% to £936m and the company will pay a dividend to shareholders of 45p, up 7%.

FT Group reported sales of £443m, up 4% on 20111. Annual sales revenue up was up 5% to £6.1m.

Pearson said it expected tough trading conditions and structural industry change to continue in 2013 and announced more details of the integration of its Penguin books with Bertelsmann's Random House following the deal struck last October.

It will spend £150m on restructuring in 2013: part of this will be invested in accelerating the transition from print to digital across its businesses and part will be spent on extricating Penguin from Pearson's centralised operations in preparation for the merger with Random House which it will complete in the second half of this year.

Some £50m of the restructuring costs will go into digital services in emerging markets.

Pearson said it the reshaping of the company would generate £100m of annual cost savings from 2014.

Fallon said the restructuring would see redundancies across the group which employs 48,000.

"There will be some job losses that will result from this, yes," he said, but he stressed that the reshaping was designed to accelerate growth.

He said Pearson's overall business, which is dominated by educational products and services, would benefit from the rise in a global middle class, which is predicted to double in size in the next decade. This will have an impact in expenditure on education by parents.

Penguin in the UK had its best year on record for bestsellers including Clare Balding's My Animals and Other Family, which went to the top of the charts following the Olympics. Also top of the sales charts was Daniel Kahneman's Thinking Fast and Slow and Jamie Oliver's 15 Minute Meals.

In the US, it published 255 New York Times bestsellers including No Easy Day: the Firsthand Account of the Mission that Killed Osama bin Laden by Mark Owen, the pseudonym of a former member of the Navy Seals.

Pearson generates approximately 60% of its sales in the US where its education business generated £2.658bn, up 2% year on year.

It said it expected the market to remain challenging in the developed world and publishing businesses partly because of pressures on education budgets and college enrolments.

Pearson's shares were down 44p, or 3.2%, to £11.77 in early trading.

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Retirement marked with £6m remuneration and gift of an Ivon Hitchens canvas, bought by the company for £12,000 in 1988

Pearson has given Dame Majorie Scardino a painting worth as much as £100,000 to mark her retirement from the publisher of the Financial Times, along with more than £6m she received in remuneration in her final year as chief executive.

The painting, of lilies, by Ivon Hitchens, was originally bought by the company for £12,000 but is now valued at between £50,000 and £100,000.

Hitchens, who died in 1979 at the age of 86, became part of a circle of artists known as the London Group.

After his house was bombed in 1940 he moved to a "patch of woodland" in West Sussex where he lived for 40 years, at first in a caravan, according to the Tate website.

"He was an isolated figure but his art was never eccentric," the gallery says. "He painted mostly outdoors, however, and his technique developed from a tonal treatment that recalled the informality of Constable's sketches".

Pearson appears to have acquired the painting nine years after his death, at an auction on 14 June 1988 that describes it as "signed, inscribed" by Hitchens personally, although this has not been confirmed by the company.

Pearson's gift of Hitchens' work, which has hung on the wall of Scardino's 9th floor office on the Strand for most of the 15 years she ran Pearson, caps a final year in charge in which she received more than £6m.

Scardino received £6.35m in pay, bonus, retirement benefits and long term awards in 2012, 28% less than the £8.88m she received in 2011, according to Pearson's annual report published on Thursday.

Her basic pay remained unchanged at £993,000 but cash bonus dropped significantly year-on-year, from £1.35m in 2011 to £432,000 last year.

Under the terms of her contract the maximum cash bonus Scardino is eligible to receive is 180% of her salary.

Similarly, her long term incentive award declined from £5.7m in 2011 to £4.01m last year.

David Arculus, chairman of Pearson's remuneration committee, said: "Annual incentives paid to executives for 2012 performance were significantly lower than for 2011, reflecting performance in a tough business environment and more challenging incentive targets."

Scardino also holds 1,925,435 shares in Pearson in a personal capacity, worth almost £24m according to the company's financial report.

Outside of her work at Pearson she is also paid for non-executive roles at Nokia, where she receives €150,000, and the MacArthur Foundation, where she received a further £140,000 last year.

Rona Fairhead, the chairman and chief executive of the Financial Times Group, has received a £1.15m pay out after announcing in November that she is to leave the company.

Fairhead announced her departure less than two months after missing out to replace Scardino.

"The [remuneration] committee and the board determined that her leaving employment was a consequence of the planned incorporation of the professional education division overseen by Rona into other parts of Pearson's education business, coupled with the smaller size of the Financial Times Group owing to recent major divestments," the company said.

Separately Fairhead received £2.12m in 2012 in pay, cash bonus and long term awards.

John Fallon, the head of Pearson's international education business took over as chief executive on 1 January.

Arculus said that the Pearson has moved to tighten restrictions on the level of pay outs for anymore top executives that might depart.

"We reviewed and amended the service agreements for those executive directors, including the chief executive, who will continue to serve throughout 2013," he said. "The consequence of this review has been to remove any entitlement to annual incentive from the calculation of any compensation that might be payable on termination of employment by the company without notice or cause."

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iSpeech could dramatically cut the cost of audiobooks. Shame the reading voice sounds like a bus announcement

Last week iSpeech, a text-to-speech startup, announced that it had acquired its first publishing client: Pearson. Claiming "the most natural-sounding TTS audio on the market" and previously known for driving-direction applications and audio cues for the home, iSpeech wants to help publishers automate the creation of audiobooks. The default voice on iSpeech is pleasantly lilting, but it's still definitely not human, and more akin to a pre-recorded bus announcement in its odd pauses and stumbles. Pearson intends to use the service primarily with textbooks; the robotic voice is definitely not ready for the emotional range and styles of fiction yet.

Text-to-speech has been tried many times before, but it's technically very difficult to pull off, and legally complex. Amazon got into trouble in 2009 when it rolled out basic text-to-speech for the Kindle. Publishers said that Amazon was abusing its copyright and it withdrew, much to the chagrin of, among others, the blind and partially sighted community, reliant on audiobooks, who briefly gained access to Amazon's vast library. The problem is the cost of creating an audiobook. This involves studio hire and voice talent and can reach thousands of pounds, which is often difficult to justify in sales, while iSpeech offers automation costing just fractions of a penny per word.

But while the cost of creating quality audiobooks prevents much contemporary work being made available, older work is being "acoustically liberated" by collaborators on the internet. LibriVox, founded in 2005, recently passed 6,500 books in its collection: all in the public domain, all recorded by volunteers. LibriVox's moderators assemble teams of participants who take a chapter each. While the tone might sometimes vary as much as iSpeech's robot, LibriVox's enthusiastic volunteers are now putting out three classic audiobooks a day, a victory for networking the passion of readers.

Pearson predicts difficult first quarter for newspaper, with total group revenues down 1% year on year to £1.2bn

Pearson has said that the Financial Times faced a "weak" advertising market in the first quarter of this year, but nevertheless managed to increase its digital subscriptions by 4% on the first quarter to 328,000, while Penguin has had a good start with strong sellers from authors including Jamie Oliver and Nora Roberts.

Overall, Pearson said total group revenues fell 1% year on year on an underlying basis to £1.2bn in the first quarter.

Pearson, which owns an international education business and book publisher Penguin, said the FT has been hit by the fact that a number of large advertising campaigns have been planned for the second quarter compared with last year, when they ran in the first three months.

The company, which is proposing a final dividend of 30p at its annual general meeting to be held on Friday, said that despite the weak trading conditions, the FT was "benefiting from resilient demand for content and services". The FT has a global paid and digital circulation of 602,000.

Pearson said Penguin, which is being merged with rival Random House, has had a good start with bestsellers from Harlan Coben, Nora Roberts, Jamie Oliver and John Green.

The company said that in its education operation, conditions remain generally weak in developed markets and stronger in emerging markets.

Pearson said it expects operating profits in the first six months to be down on the same period last year, but noted that the nature of its business is that revenue is "heavily weighted" to the second half of the year.

The company said that it has about £500m available to invest in "bolt-on" acquisitions this year.

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Company kicks off first three-month pilot of its Catalyst accelerator scheme while hailing 'laser focus' of education startups, including those fresh out of college

One of the more encouraging trends of the last couple of years has been the sight of traditional media companies breaking down some of the barriers between themselves and technology startups.

In the music industry, there was the OpenEMI scheme, where the then-major label created "sandboxes" of music and related content for developers to experiment with, promising easier and fairer licensing for the best ideas that resulted.

There are startup incubator or accelerator schemes in the worlds of television (Turner Broadcasting's Media Camp and BBC Worldwide's Labs) and newspapers (the New York Times' TimeSpace), while Bloomberg has launched a $75m venture capital fund, Bloomberg Beta.

In the UK, meanwhile, the Technology Strategy Board's IC tomorrow programme has been running contests for startups to pitch to music, TV, book publishing and games rightsholders. And then there's Pearson, with its Catalyst startup accelerator programme.

Launched earlier this year, it invited educational technology (EdTech for short) startups to apply for one of six places on a three-month pilot programme, with each place addressing a specific challenge within Pearson's business. Examples: health profession simulations, massive open online courses (MOOCs) and tools to identify student cheating.

"It's a slightly different approach to what people have done traditionally. We looked internally for challenges in the business that we knew could be addressed by partnering from the outside," says Diana Stepner, head of future technologies at Pearson.

More than 200 companies applied, with six chosen in June to start the scheme: mobile and web learning platform VLinks Media; science education website Spongelab; educational site Ace Learning Company; student-focused academic site ClassOwl; e-reading website ActivelyLearn; and big-data startup Full Stack Data Science.

The six startups are now on the three-month pilot, building out the apps and services to address the specific challenges identified by Pearson, while also jumping on conference calls once or twice a week with different teams within the company to learn about the business.

"We want to make sure they have as many opportunities to connect with groups within Pearson as possible," says Stepner. "The startups all have a good understanding of the technical side of things, but we found them well rounded in the business aspects too. We want to help them see other opportunities across Pearson internationally."

Stepner says that applicants for Catalyst came from around the world, including Japan and Latin America. However, it's notable that of the six chosen for the accelerator, five are from the US and one from Canada. Why wasn't the global nature of the applications reflected in the final six startups?

"It's a really good question. We had expected more interest from the UK for example: we would have thought one of the startups might have come from here," says Stepner, although she points to ClassOwl as an example of a US-based startup that has a development studio in Bucharest to show that the selection is more global than it may appear.

Catalyst is part of a wider strategy by Pearson to open its doors to technology startups. Its Plug & Play scheme to launch APIs for some of its key publishing brands, including Penguin Classics, DK and Pearson Education's "Brilliant" book series, has been running for some time.

Stepner says that Plug & Play and Catalyst have both already proved their worth in terms of business benefits for Pearson, just from the increased exposure the company's staff are getting to new startups, let alone the actual apps and services that may result.

"It's partly the speed: for us to see how quickly a startup can get something done helps us to reinvigorate the way we do projects," says Stepner.

"Partnering with a startup and working on their timeframes really energises people to pick up the pace and see what's possible. And the way startups see an opportunity, with almost a laser focus on being able to achieve an objective, I think that's really valuable for us as well."

Stepner is enthusiastic about what the 200+ applications to Catalyst says about the wider educational technology sector, with a growing number of startups – including plenty run by people who have only recently left the educational system themselves.

"What's fascinating is a lot of this is coming from students. They've grown up programming and having these digital skills, they're setting up startups within their college and university years, and when they graduate they're continuing with those," she says.

"It's a rising trend: they're in school, have identified some way they can make the school experience better, so they're starting companies, graduating and then sharing that knowledge. These are kids that are going to change the world."

• Company is exploring possibility of selling off financial intelligence business
• Chief executive John Fallon insists Financial Times remains valued part of business and is not for sale
• FT Group reports flat revenues of £217m in first half of year
• Pearson reports £2.75bn in revenues, up 7% year on year, with adjusted operating profits down 26% to £137m

Pearson has put its FT Group business Mergermarket up for sale, but insisted the Financial Times remains a valued part of its business.

The company said on Friday that it is to explore the possibility of selling off the FT Group financial intelligence business, which makes £100m in revenues annually, and has appointed JP Morgan to handle the process.

The announcement re-ignited City speculation that Pearson might also now consider the future of the Financial Times.

John Fallon, the chief executive of Pearson, once again stressed that the paper was not for sale. The FT's future has been the subject of on-off speculation since Pearson announced that Fallon was replacing Dame Marjorie Scardino as chief executive last autumn.

"As I said at our last results presentation in February, the Financial Times is a valued and valuable part of Pearson," he said. "The FT is not for sale, there has been no process or any discussions about selling the FT and there have been no approaches regarding the FT."

Fallon said that Mergermarket has "flourished" as part of FT Group, but unlike the Financial Times he could not see the industrial logic of the business fitting into Pearson's goal to be a market-leading education company.

"Mergermarket is a strong growing business that has flourished as part of the FT Group," he said. "However, while we are clear that the Financial Times itself is both a strong business in its own right and one that has a very important role to play in our merging professional learning strategy, we can't see Mergermarket forging similar strategic or operational links with our education company."

Pearson said that digital subscriptions at the Financial Times grew 14% year on year to 343,000 in the first half, with total paid circulation showing a "modest increase" over the same period last year.

Mobile usage has "grown sharply", accounting for more than half of FT.com subscriber readership, more than a third of total page views and 24% of new digital subscriptions.

FT Group, which also includes Pearson's 50% stake in Economist Group, reported flat revenues of £217m in the first half of the year.

The company said that the division managed a creditable 24% year-on-year increase in adjusted operating profit to £26m, despite "tough" advertising markets. Advertising accounts for 36% of FT Group revenues.

Pearson said that the Economist Group reported "strong growth" in digital, which accounted for 39% of total revenues in the year to 31 March.

The Economist's non-advertising revenues now comprise 60% of the total, up from 44% five years ago.

However, Pearson said that factors including a decline in print advertising revenues are "likely to reduce earnings" this year from the Economist.

Book publisher Penguin, which Pearson merged with Bertelsmann-owned Random House on 1 July, reported a strong first half with revenues up 16% to £513m and adjusted operating profit up 27% to £28m.

Ebook income accounted for 21% of Penguin's global revenue in the first half, up from 19% in 2012, with the US leading the way at 33%.

Pearson said that Penguin has managed such a good start to the year despite "challenging" market conditions, thanks to bestsellers in all major territories including John le Carré's A Delicate Truth and Khaled Hosseini's And the Mountains Echoed.

Overall Pearson reported £2.75bn in revenues, up 7% year on year, with adjusted operating profits down 26% to £137m, in line with analysts' forecasts.

"In trading terms, 2013 has begun much as we expected," said Fallon. "In general, good growth in our digital, services and developing-market businesses continues to offset tough conditions for traditional publishing. Our strategy is to transform Pearson into a single operating company that is sharply focused on the biggest needs in global education and on measurable learning outcomes."

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The new Penguin Random House will control a quarter of world book publishing, and this has many in the industry, from writers and agents to smaller publishers, worried

This year's longlist for the Man Booker prize drew the usual gripes about star writers being "snubbed" in favour of the "obscure" and unknown, but the judges hailed it as the most diverse selection ever.

"These 13 outstanding novels range from the traditional to the experimental, from the first century AD to the present day, from 100 pages to 1,000, and from Shanghai to Hendon," said Robert Macfarlane, chair of this year's judges.

It was a good list for the big publishing houses, which have in previous years been eclipsed by smaller independent rivals. Unexploded by Alison MacLeod – published by Penguin imprint Hamish Hamilton and set in 1940s Brighton, when a German invasion appeared imminent – is an early favourite, even before its publication in September. The independents have not done badly, however, with Granta, Bloomsbury and tiny Highland publisher Sandstone Press also on the list.

But this "wonderfully various" list comes as British publishing – all Man Booker prize entrants must be published in the UK – becomes a little less diverse, following the mega-merger, completed earlier this month, between Penguin and Random House.

The giant company, known as Penguin Random House, will control 25% of the world book business. With a back catalogue ranging from 19th-century master stylist Henry James to kinky novelist EL James, and nearly 250 separate imprints, Penguin Random House will publish 5,000 new titles a year.

The group unites two of the most illustrious names in the book industry. Penguin dates from 1935, when publisher Allen Lane, after being unable to find anything to read at Exeter station, decided to start selling paperback editions of Ernest Hemingway and Agatha Christie for the price of a packet of cigarettes. Random House was founded by Bennett Cerf and Donald Klopfer in New York in 1924, to bring the classics to a mass audience. Both companies won legendary victories against censorship: Penguin battled in the courts for Lady Chatterley's Lover, while in the US, Random House defended James Joyce's Ulysses against charges of indecency – the American judge helpfully listed the pages containing "obscene" content, much to the amusement of the author.

The merger of these big names into a powerhouse with £2.6bn in sales a year was one of the biggest events in the publishing world since Jeff Bezos started selling books over the internet from his garage back in 1994.

And it is Amazon, with its formidable pricing power, that is the gorilla in the book industry jungle. Last week the giant online retailer reported sales totalling $15.7bn in three months – of which $4.4bn came from books, music and DVDs. Its publishing division recently announced that German novelist Oliver Pötzsch had become its first million-sales author, in print and e-books, for The Hangman's Daughter and its sequels, about a 17th century Bavarian executioner-turned-detective.

"When mergers like this happen, it is a response to the competitive situation they find themselves in," says Richard Mollet, chief executive of the Publishers Association.

The new company, led by Random House's Markus Dohle, is 53%-owned by German media conglomerate Bertelsmann, while Penguin's owner, Pearson, takes 47%. Its headquarters will be in New York, and key British staff have been moved out of the frontline. John Makinson, head of Penguin Group since 2002, has moved upstairs to be chairman of the new group. Dame Gail Rebuck, one of the most respected figures in UK publishing, is stepping back from the day-to-day running of Random House UK to another chairmanship job.

As the Booker longlist titles get piled up in shop windows and on special-offer tables, these changes are unlikely to catch most readers' attention. But insiders worry the tie-up will be bad for authors, depressing their advances and reducing the care and attention they get from their publisher.

"It is bad news for writers," says Andrew Franklin, founder and managing director of independent British publisher Profile Books. "How do you publish 15,000 books well every year? How do you make each distinctive and important each year and make the author feel their book really matters? I have no idea and I think they have no idea either."

The Society of Authors is worried writers with modest sales will fall down the priority list. "As publishers get bigger, it may not be economical for them to support authors [selling] 2,000 or 3,000 books, or promote the back catalogue," says Nicola Solomon, the society's chief executive. "My guess is they are much more likely to put that money into something that might make a super-profit for them, something new or sexy that might be a runaway success."

And although Penguin Random House insists it will continue to compete in auctions for authors' work, not everyone is convinced. For serious non-fiction works, when Penguin and Random House's Bodley Head are often the only two in the auction, competition will cease, says literary agent Clare Alexander. "They will continue to compete with each other unless they are the only two in the auction, but often for serious non-fiction, they are the only two in the auction. It will definitely diminish advances in the UK."

Penguin Random House dismissed these concerns: "In the UK and worldwide, Penguin Random House will encourage healthy competition between its imprints."

The merger has also heightened concerns about an exodus of talented women at the top of publishing. Rebuck's move away from control of Random House comes after the shock departure of Victoria Barnsley, chief executive of Rupert Murdoch's HarperCollins for 13 years.

"There is a default to the male mode," says Alexander. "Publishing is full of women, and it will continue to be full of women, but not at the executive level, and that worries me considerably. It is not a personal thing about who is coming in; it is a general thing about an industry that has managed very well under these women, and now they are gone."

Amazon's influence may be unsettling the traditional players, but not everyone thinks that is an insurmountable problem. One industry insider points out that Amazon is only the latest bogeyman, following worries about supermarkets – and, in an earlier age, WH Smith – driving down prices.

"No one is really in publishing to make big margins," the insider says, "which is why you don't have too many venture capitalists. But it is a business that is stable and growing very nicely."

Unlike CDs and printed newspapers, the public's appetite for fiction shows no sign of waning. Paperback fiction sales rose 3% in 2012, reaching £502m, while digital sales have skyrocketed, up 66% in 2012 on the previous year, to £411m.

"It is a great time to be a very small and dynamic independent publisher," says Jamie Byng, managing director of Canongate, which had a Booker prize- winning hit with Life of Pi.

He thinks the indies have nothing to fear from the Penguin Random House merger, arguing that it will expand the market for books and help the industry emulate the success of Facebook and Apple in reaching consumers: "[Penguin Random House] are going to combine a lot of their thinking and clout to bring about innovations – new ways of reaching people, more use of digital communications to connect authors with their readers. The industry is in an incredible state of flux. No one has a clue what it will look like in 10 years' time."

Predicting the shape of the industry is almost as tricky as calling who will walk away with this year's Man Booker Prize – winning a £50,000 prize and an assured sales bonanza. Jim Crace is the bookies' early favourite for Harvest (Picador), a tale of peasants forced off the land in the late-medieval enclosures; while Colm Tóibín's The Testament of Mary (Viking) is also a frontrunner.

Any book on the longlist can expect a lift in sales of at least 10,000, according to Byng, although the real boom in sales does not kick in until later on. "It doesn't really get interesting until the shortlist."

Dame Marjorie Scardino's successor at Pearson has a tough act to follow – and questions linger over a Financial Times sell-off

Job: chief executive, Pearson
Age: 51
Industry: publishing, education, digital media
New entry

Farewell then, Dame Marjorie Scardino, an ever-present in this list since 2001 who stepped down as chief executive of Pearson after 16 years. True to her word, she never did sell the Financial Times, despite persistent speculation to the contrary. But will her successor, John Fallon?

Fallon, the former head of Pearson's hugely profitable educational division outside north America, said the Financial Times was a "valuable part of the company" and was "not for sale".

But don't expect the questions to follow Scardino out of the door, with the Financial Times moved into a new division earlier this year and further speculation prompted by the "for sale" signs going up at another part of the FT Group, financial intelligence business, Mergermarket.

It was all change at Pearson's publishing division Penguin, which merged with Random House to create the world's biggest book publisher, Pearson retaining a 47% stake in the new business.

Fallon, who took over the top job at the start of this year, joined Pearson as director of communications in 1997, having previously been director of corporate affairs at Powergen. Scardino, who tripled Pearson's sales to more than £6bn and increased profits threefold, will be a tough act to follow.

The Financial Times is in good shape, according to today's trading update by its owner, Pearson.

It reports that the FT, across print and online, has achieved its highest circulation in its 125-year history at nearly 629,000, which is up 5% year on year.

Digital subscriptions have grown strongly, says Pearson's nine-month interim statement. They are up 24%, to almost 387,000, over the nine-month period.

The FT's strong digital growth comes within weeks of the announcement by editor Lionel Barber that the paper will be revamped in the first half of next year when it launches a single global edition.

Perhaps the most eye-catching statistic is that newspaper circulation "has achieved profitability this year for the first time". It means that, despite falling print sales, the revenue exceeded the cost of print production and distribution.

This is surely due to the cover price increases in January 2012, when weekday issues were raised to £2.50 and the Saturday issue went up to £3.

Advertising is said to remain weak and short-term, but the group has registered growth in digital and luxury advertising, including a 23% increase in mobile.

One notable success is its glossy magazine's online offshoot, HowtoSpendit.com, where advertising revenues grew 41% year-on-year on the nine-month period up to September.

Sources:Pearson/Private information