When the country’s largest publisher, Penguin Random House, struck a deal in the fall of 2020 to acquire its rival Simon & Schuster, publishing executives and antitrust experts predicted the merger would draw intense scrutiny from government regulators.
The merger would dramatically change the literary landscape, reducing the number of major publishing houses – known in the industry as the Big Five – to four. (Or, as one industry analyst put it, it could create the Big One and the other three.)
Such a change could ripple through the industry, potentially affecting books reaching smaller publishers, authors and ultimately readers, said novelist Stephen King in an email, who was asked by the government to testify at trial. had called.
“The more large publishers consolidate, the harder it is for indie publishers to survive,” King said. “And that’s where good writers are currently starting out and learning their art.”
Last fall, the Biden administration sued to block the $2.18 billion sale as part of its new and more aggressive stance against corporate consolidation. The trial will begin on Monday, with oral arguments in the United States District Court for the District of Columbia, where Judge Florence Paine will preside.
The Justice Department and Penguin Random House parent company Bertelsmann called a parade of high-profile publishing executives as witnesses. These include Markus Dohle, chief executive of Penguin Random House and Jonathan Karp, chief executive of Simon & Schuster, as well as executives from other publishing houses, literary agents, and a handful of authors.
Here’s what we know about the case and its implications for the book business.
Why is the government trying to stop the deal?
The Justice Department says the merger would lead to a lot of consolidation in the publishing industry, known as Monopony. Monopoly refers to a seller who has a lot of power over the consumers; A monopsony has a lot of power over the suppliers. In this case, the government says, those suppliers are authors of books that are expected to be top sellers, which publishers buy for an advance of more than $250,000.
The Biden administration says that by reducing the number of big publishers — which have the budget to compete most often for the biggest books — there will be less competition for those titles. This, in turn, would reduce the advances given to their authors. As a result, “fewer writers will be able to earn a living from writing,” the Justice Department argued in a pretense succinct.
What is Penguin Random House’s rationale for the deal?
Bertelsmann, owner of Penguin Random House, argues that the acquisition will increase competition in the industry, and will benefit both writers and readers.
It says the deal will give Simon & Schuster writers access to Penguin Random House’s supply chain and distribution network, which are generally considered to be the best in the business. The efficiencies created by combining the two companies would allow it to pay authors more, which would then encourage other publishers to increase their offerings to compete.
It argues that the publishing industry is much more than just the Big Five; Other publishers include Amazon and Disney as well as “countless” midsize and smaller publishers. It believes that the government’s argument about competition and author salaries outweighs the role of auctions when publishers are buying manuscripts, and exaggerates how often Penguin Random House and Simon & Schuster find themselves in face-to-face bidding. Huh.
Furthermore, Bertelsmann argues that the Simon & Schuster books will be able to bid against other Penguin Random House raids, so the authors will still have a lot of potential bidders.
What effect will sales have on the publishing industry?
There is no doubt that the merger of the two largest publishing companies in the United States will have a profound impact on the business and culture of publishing.
Like Hollywood, the book business has increasingly become dependent on blockbusters for profits, and companies spend huge sums of money to buy books from brand-name novelists or celebrities and public figures such as John Grisham, E.L. James, Margaret Atwood and Nora Roberts. Will gamble. Like Barack and Michelle Obama (all published by Penguin Random House).
By far the largest publisher in the United States, Penguin Random House has over 90 imprints and releases about 2,000 books a year. If the merger takes place, it would take over 30-plus impressions of Simon & Schuster and its nearly 1,000 titles a year.
Industry analysts say the combined company will produce a disproportionate percentage of best-selling books. Last year, Penguin Random House titles accounted for 38 percent of the top 100 best-selling print books, according to NPD Bookscan, while Simon & Schuster books accounted for 11 percent.
Penguin Random House, which already has industry-leading printing, shipping and distribution capabilities, will also acquire Simon & Schuster’s warehouses and its distribution business for a network of smaller publishers.
The merger would leave three other large publishing companies — Hachette, Macmillan and HarperCollins — and could drive further consolidation in the industry, as other publishers bulk up to compete with an even bigger rival.
What happens if the court puts the deal on hold?
For Penguin Random House, the collapse of the deal would be costly. Under the sale agreement, Penguin Random House will have to pay a fee of approximately $200 million to Paramount Global, which owns Simon & Schuster, if the deal does not close.
For Simon & Schuster, the termination of the sale would leave the company in limbo. According to court filings, evidence presented at the trial will show that Simon & Schuster will be “withdrawn in some way or another” from Paramount Global.
It is unclear whether another large publishing house, such as HarperCollins or Hatchet, would want to risk scrutiny from regulators by bidding. A private equity firm could buy the company, but publication insiders worry that staff could be drastically cut and Simon & Schuster could have fewer titles.
What are the implications of mistrust?
The lawsuit will test whether the government can mount more antitrust cases targeting the effects of corporate concentration, in which case, how much the authors of major books get paid.
A group of progressive academics, lawyers and economists have argued that a limited number of employers have limited options for workers and have had a negative impact on their wages. The fate of the government’s case will tell as to the impact of such arguments in court.
They aren’t the only lawyers who are trying: For years, a group of mixed martial artists have been running a class-action lawsuit against the Ultimate Fighting Championship. He has argued that the UFC is so influential in promoting the sport that it has been able to keep wages low, which the UFC denies. A court ruled last year that fighters can proceed as a group in most cases, but the merits of the case have yet to be considered.
What does this case say about the Biden administration’s approach to antitrust enforcement?
The case is yet another example of the administration’s aggressive approach to competition policy, which has been praised by the Left.
President Biden signed an executive order in June 2021 that was intended to encourage the Federal Trade Commission to focus on concerns that concentration could harm workers. In the order, he pushed the agency to look at new rules limiting non-competitive agreements that activists say make it difficult to offer better jobs to workers, and asking employers to reduce wages for each other. To prevent sharing salary information with.
The FTC and the Justice Department have also tried to test novel legal theories in court. The FTC on Wednesday filed an injunction to prevent Meta, formerly known as Facebook, from buying a virtual reality studio, illustrating how the tech giant buys start-ups. The Justice Department has also challenged the purchase of a health tech company by United Health Group, arguing that it would give the insurer access to sensitive data about its competitors. But it remains to be seen how the courts receive these efforts.