Lawyers for the Justice Department and Penguin Random House gave closing arguments on Friday in a lawsuit to determine whether the country’s largest publisher can buy one of its rivals, Simon & Schuster.
The case, which will be decided in the fall by Justice Florence Y. Pang, will focus on the impact of consolidation on the publishing industry, an industry already dramatically reshaped by recent mergers.
The government has sued to stop the deal, citing antitrust laws, saying it would reduce competition among big companies and slow progress for some authors. , argued that their supply chain and sales force would bring a longer list of authors to their advantage. enterprise. Judge Pan expressed skepticism about some of Penguin Random House’s main claims.
Beyond legal debates, the three-week trial offered an unusual glimpse into the world of publishing, offering observers a parade of notable publishing executives, agents and authors, and how books are made. I was candid and documented about the dolphins.
Here are some of the things we learned.
What will be the bestsellers?
No one, even at the top of the publishing industry, understands the combination of factors that guarantee a bestseller.
Markus Dohle, head of Penguin Random House, says the book business is all about “random.” Judge described the industry as one of “risk taking” and said all books were “gambling”. A major imprint publisher who called the business “whimsical”.
The difficulty of predicting success was a consistent theme throughout the trials. The world of publishing stands apart from many industries where past sales of similar products such as washing machines and cereals can be used to predict future sales. But since every book is unique, we can make educated guesses, especially about established authors, but no one knows what the future holds for any particular project.
“Everything is random in publishing,” Dole said on the stand, speaking of the company’s origins. “That’s why we have that name. So the founder thought: Everything is random. Success is random. Bestsellers are random. That’s why we’re Random House.” ”
How do publishers decide how much to pay authors?
The amount publishers offer book authors is usually a closely guarded secret. That number is loosely based on sales projections, project competition, and highly subjective factors like how much editors want it.
During the trial, some of these payments, called advance payments, were discussed very openly.
Understanding Penguin’s Random House Merger Case
The US government has filed a lawsuit to prevent the publisher from acquiring competitor Simon & Schuster. A verdict will be handed down in the fall.
Jennifer Bergstrom, publisher of Simon & Schuster’s Imprint Gallery, said it paid “millions” more for comedian Amy Schumer’s book than sales estimates indicated.
Several writers, like actor Jamie Foxx and The New Yorker writer Jayan Huang, were discussed by name at the trial. Did.
“Author A is a reality TV star,” Bergstrom said. “She’s a Broadway housewife — excuse me, Broadway? She wants. Bravo.
She continues: I paid £175 for that. “
Penguin Random House executives said that upfront payments of $1 million or more would require the approval of Penguin Random House US CEO Madeline McIntosh, and payments over $2 million would require the approval of Dohle. I testified that there is. Any upfront payment of $75 million or more would require Mr. Dole to get approval from Bertelsmann executives.
What books drive industry profits?
In most respects, publishing is flourishing. Hundreds of publishers in the United States publish approximately 60,000 books each year. From 2012 to 2019, he said, print sales increased more than 20%, from 9 billion to 11 billion, Dole testified. Book sales have also been strong during the pandemic, with an additional 20% increase from 2019 to 2021, he said.
However, this trial brought to light a surprising fact. A very small percentage of books generate most of the profits.
Management at Penguin Random House said in testimony that only 35% of the books the company publishes are profitable. A very small portion of the revenue-generating titles, just 4%, account for 60% of those profits.
“That’s the risk to our business,” said Dole. “It’s a book that becomes a runaway bestseller without paying much.”
The trial presented an example of a book that a publisher bought for a relatively modest amount, and it turned out to be a big hit. Sally Kim, publisher of Penguin Random House imprint Putnam, said she bought “Where The Crowdad Sing” for “mid-six figures.” The book has sold about 15 million copies worldwide.
This problem is industry-wide and is exacerbated by the rise of online retailers, which tend to increase the visibility of bestsellers. In 2021, less than 1% of his 3.2 million titles tracked by BookScan will have sold more than 5,000 copies.
How will the merger affect publications and authors?
The publishing industry has been transformed in recent years by consolidation. Large media conglomerates have swallowed up smaller companies, offering them huge catalogs and giving them a competitive edge over small and medium-sized publishers who are often barred from auctions of blockbuster books by branded authors. I’m here.
The impact of these changes was hotly debated during the trial.
The Justice Department’s allegations highlighted the growing influence of the so-called Big 5 publishers: Macmillan, HarperCollins, Penguin Random House, Hachette, Simon & Schuster. The Justice Department said in a pretrial brief that the Big Five accounted for his 90% of the market for “anticipated best-selling books.”
“They are the only companies with the capital, reputation, editorial power, marketing, publicity, sales and distribution resources to consistently obtain the best-selling books expected,” the Justice Department attorney wrote. I’m here.
Bertelsmann’s lawyers offered a very different view, emphasizing that some medium-sized independent publishers are thriving and gaining market share. In his testimony, Dole said about half of the books sold in the US in 2021 will come from publishers other than the Big Five.
Penguin Random House also argued that reducing the number of major publishers would not hurt authors. Penguin Random House and Simon & Schuster. They also said the savings from the merger would give them more money to spend on books, allowing the company to “offer higher upfront payments” and “bid for more books from more authors,” in a pretrial briefing. claimed.
Judge Pang questioned these allegations. On Wednesday, she said a key piece of Penguin Random House’s allegations — evidence that combining the two companies would lead to cost savings and efficiencies that would ultimately benefit the authors — was independently verified. Therefore, it was ruled that it was not acceptable.
Judge Pang was skeptical of the argument by Penguin Random House economist witness Dr. It seemed to be. She said publishers don’t have to make a positive decision to lower their upfront payments, but they will do so anyway because there will be less competition.
“I don’t think it will be less competitive,” Snyder said.
Judge Pang replied, “That’s the ultimate question.”