When Penguin Random House, the country’s largest publisher, struck a deal to acquire rival Simon & Schuster in the fall of 2020, publishing executives and antitrust experts said the merger was subject to government regulation. He predicted that he would be subject to strict scrutiny from the authorities.
The merger dramatically changed the literary world, reducing the number of major publishers known in the industry as the Big Five to just four. (Or, as one industry analyst put it, The Big One and the other he can create three.)
The government asked the government to testify in court that such changes could ripple across the industry and affect books that reach smaller publishers, authors and ultimately readers. criticized novelist Stephen King said in an email.
“The more big publishers consolidate, the harder it is for indie publishers to survive,” said King. “And that’s where good writers are starting and learning their chops right now.”
Last fall, the Biden administration filed a lawsuit to block a $2.18 billion sale as part of a new, more aggressive stance on corporate consolidation. The trial begins Monday with oral argument in the US District Court for the District of Columbia presided over by Judge Florence Pang.
The Department of Justice and Bertelsmann, parent company of Penguin Random House, called the parade of prominent publishing executives as witnesses. They include Marcus Doll, CEO of Penguin Random House, Jonathan Karp, CEO of Simon & Schuster, and other publishing executives, literary agents, and a handful of writers. It is included.
Here’s what we know about this incident and its impact on the book business.
Why is the government trying to block this deal?
The Justice Department says the merger will unduly promote consolidation in the publishing industry and create so-called monopolies. A monopoly is when the seller has too much power over the consumer. Monopolies have too much power over their suppliers. In this case, the government says, these suppliers are authors of anticipated top-selling books that publishers purchase with upfront payments of $250,000 or more.
The Biden administration has said that by reducing the number of large publishers whose budgets most often compete for large books, there will be less competition for those titles. Down payment will be reduced. As a result, “fewer writers will be able to make a living writing,” the Justice Department argued in its pretrial opinion.
What is Penguin Random House’s claim to this deal?
Bertelsmann, owner of Penguin Random House, argues that the acquisition will increase competition within the industry, benefiting both authors and readers.
The deal will give Simon & Schuster’s authors access to Penguin Random House’s supply chain and distribution network, widely considered to be the best in the industry. Combining the two companies can increase efficiency, pay authors more, and encourage other publishers to make more offers to compete.
The publishing industry claims to be more than just the Big Five. Other publishers include Amazon, Disney, and “myriad” medium and small publishers. We believe the government’s claims about competition and author compensation exaggerate the role auctions play in publishers purchasing manuscripts and exaggerate the frequency of head-to-head confrontations between Penguin Random House and Simon & Schuster. ing.
Additionally, Bertelsmann claims that the authors still have plenty of potential bidders, as Simon & Schuster can bid on the book against other Penguin Random House publications.
How will the sale affect the publishing industry?
The merger of two of America’s largest publishers will undoubtedly have a profound impact on the business and culture of publishing.
Like Hollywood, the book business has become increasingly dependent on blockbusters for revenue, with companies betting huge sums of money on brand names such as John Grisham, Elle James, Margaret Atwood and Nora Roberts. Get to buy books from novelists, celebrities and public figures like Barack and Michelle Obama (all published by Penguin Random House).
Penguin Random House, the largest publisher in the United States, has over 90 imprints and releases approximately 2,000 books annually. The merger would give Simon & Schuster over 30 imprints and approximately 1,000 titles per year.
The combined company will account for a disproportionate share of top-selling books, according to industry analysts.Penguin Random House titles accounted for 38% of the top 100 best-selling books last year, according to NPD BookScan. , and Simon & Schuster’s books accounted for 11%.
Penguin Random House, which already has industry-leading printing, shipping and distribution capabilities, will also acquire Simon & Schuster’s warehouse and distribution business for a network of smaller publishers.
The merger will leave three other major publishers (Hachette, Macmillan and HarperCollins) remaining, further consolidating the industry as others scale to compete with even bigger rivals. may proceed.
What if a court blocks the transaction?
For Penguin Random House, breaking up the deal would be costly. Under the sale agreement, Penguin Random House would have to pay approximately $200 million in fees to Paramount Global, the conglomerate that owns Simon & Schuster, if the transaction does not go through.
For Simon & Schuster, closing the sale would leave the company in limbo. According to court filings, evidence presented at the trial indicates that Simon & Schuster will be “sold in one way or another” from Paramount Global.
It is unclear whether other major publishers, such as HarperCollins and Hachette, will risk avoiding regulatory scrutiny by bidding. A private equity firm could buy the company, but publishing industry insiders are concerned that the workforce could be cut significantly and Simon & Schuster’s book count could decline.
What are the implications of antitrust laws?
The lawsuit will test whether the government can bring further antitrust lawsuits aimed at the effects of corporate concentration on the wages of workers (in this case, major book writers).
A group of progressive academics, lawyers and economists argue that a declining number of employers is limiting workers’ choices, which is hurting wages. The fate of government lawsuits will show how such arguments play out in court.
They’re not the only lawyers trying. For years, a group of mixed martial artists has filed a class action lawsuit against the Ultimate Fighting Championship. They have claimed that the UFC is so dominant in promoting the sport that they can keep wages low, a claim the UFC denies. A court ruled last year that combatants can proceed with most of their cases as a group, but the merits of the cases have yet to be considered.
What does this case say about the Biden administration’s approach to antitrust enforcement?
This case is yet another example of the administration’s aggressive stance on competition policy, drawing praise from the left.
In June 2021, President Biden signed an executive order aimed at promoting competition across the economy by urging the Federal Trade Commission to focus on where concentration can harm workers. signed. In the order, he considered new rules limiting non-competition agreements that activists say are making it harder for workers to offer better jobs, and for employers to share wage information with each other in order to bring down wages. I asked the agency to stop sharing.
The FTC and Department of Justice have also attempted to test novel legal theories in court. The US Federal Trade Commission (FTC) on Wednesday filed an injunction blocking Meta, formerly known as Facebook, from acquiring a virtual reality studio. This reflects a renewed focus on how tech giants acquire startups. The Justice Department also challenged United Health Group’s acquisition of a health-tech company, arguing it would give insurers access to sensitive data about their competitors. I don’t know yet.