Will the largest publisher in the US get even bigger?

When the country’s largest publisher, Penguin Random House, reached an agreement in the fall of 2020 to acquire its rival Simon & Schuster, editorial executives and antitrust experts predicted the merger would attract close scrutiny from the authorities. government regulation.

The merger would drastically alter the literary landscape, reducing the number of major publishing houses – known in the industry as the Big Five – to four. (Or, as an industry analyst put it, it could create the Big One and the other three.)

Such a shift could ripple in the industry, potentially impacting publishers, authors, and ultimately books reaching readers, novelist Stephen King, who was called by the government to testify in the email, said in an email. process.

“The more big publishers become established, the harder it is for independent publishers to survive,” King said. “And this is where good writers are currently starting and learning their skills.”

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 Pan will preside.

The Department of Justice and Bertelsmann, the parent company of Penguin Random House, called a parade of high-profile editorial executives as witnesses. They include Markus Dohle, CEO of Penguin Random House, and Jonathan Karp, CEO 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.

The Justice Department says this merger would create excessive consolidation in the publishing industry, creating what is called a monopsony. A monopoly refers to a seller who has too much power over consumers; a monopsony has too much power over suppliers. In this case, the government says, those suppliers are authors of books that are supposed to be the best sellers, which publishers buy with advances of more than $ 250,000.

The Biden administration says that by reducing the number of big publishers – who have the budgets to compete more frequently for the biggest books – there would be less competition for those titles. This, in turn, would lower the advances paid to their authors. As a result, “fewer authors will be able to make a living by writing,” the Justice Department said in a preliminary brief.

Bertelsmann, who owns Penguin Random House, argues that the acquisition would increase competition in the industry and benefit both authors and readers.

He says the deal will give Simon & Schuster authors access to Penguin Random House’s supply chain and distribution networks, which are generally considered to be the best in the business. The efficiencies created by merging the two companies will allow it to pay authors more, which would then encourage other publishers to increase their bids to compete.

He argues that the publishing industry is much more than the Big Five; other publishers include Amazon and Disney, as well as “countless” small and medium-sized publishers. He believes that the government’s arguments about competition and authors’ remuneration overstate the role auctions play when publishers buy manuscripts and exaggerates how often Penguin Random House and Simon & Schuster find themselves bidding head-to-head.

Additionally, Bertelsmann claims that Simon & Schuster will be able to bid against other Penguin Random House brands for the books, so the authors will still have plenty of potential bidders.

There is no doubt that a merger between two of the largest publishing houses in the United States would have a profound impact on the business and publishing culture.

Like Hollywood, the book business has become increasingly dependent on blockbusters for profits, and companies will bet huge sums of money to buy books from branded novelists like John Grisham, EL James, Margaret Atwood and Nora Roberts, or from celebrities and personalities. audiences like Barack and Michelle Obama (all published by Penguin Random House).

By far the largest publisher in the United States, Penguin Random House has more than 90 brands and publishes approximately 2,000 books a year. If the merger takes place, it will get Simon & Schuster’s over 30 footprints and its roughly 1,000 titles a year.

The combined company would produce a disproportionate percentage of the best-selling books, industry analysts say. Last year, Penguin Random House titles accounted for 38% of the top 100 best-selling paper books, according to NPD BookScan, while Simon & Schuster books accounted for 11%.

Penguin Random House, which already has industry-leading printing, shipping and distribution capabilities, would also gain Simon & Schuster’s warehouses and its distribution business for a network of smaller publishers.

The merger would leave three other major publishers left – Hachette, Macmillan and HarperCollins – and could foster further consolidation in the industry as other publishers step up to compete with an even more massive rival.

For Penguin Random House, the failure of the deal would be costly. Under the sales agreement, Penguin Random House will have to pay a commission of approximately $ 200 million to Paramount Global, the owner conglomerate of Simon & Schuster, if the deal is not closed.

For Simon & Schuster, the termination of the sale would leave the company in limbo. According to court documents, the evidence presented at the trial will show that Simon & Schuster “will be sold one way or another” by Paramount Global.

It is unclear whether another major publishing house, such as HarperCollins or Hachette, wants to risk regulatory scrutiny by making an offer. A private equity firm could buy the company, but insiders fear that this could lead to huge staff cuts and result in fewer stocks in Simon & Schuster.

The lawsuit will examine whether the government can initiate more antitrust cases targeting the effects of the corporate concentration on how much workers – in this case, the writers of major books – are paid.

A group of progressive academics, lawyers and economists said that fewer and fewer employers have limited options for workers and have negatively impacted their pay. The fate of the government case will show how such arguments behave in court.

They aren’t the only lawyers trying: For years, a group of mixed martial artists has been filing a class action lawsuit against the Ultimate Fighting Championship. They claimed that the UFC is so dominant in promoting the sport that it is able to keep wages low, which the UFC denies. A court ruling said in 2020 that fighters could proceed as a group with most of the case, but the merits of the case have yet to be considered.

This case is another example of the administration’s aggressive approach to competition policy, which has garnered praise from the left.

President Biden signed an executive order in June 2021 that aimed to increase competition across the economy, in part by encouraging the Federal Trade Commission to focus on how the merger can harm workers. In order, he pushed the agency to look into new rules limiting non-compete agreements, which activists say make it difficult for workers to accept better job offers and prevent employers from sharing wage information among themselves at the order to reduce wages.

The FTC and the Justice Department have also tried to test new legal theories in court. The FTC on Wednesday filed for an injunction to prevent Meta, the company formerly known as Facebook, from buying a virtual reality studio, reflecting a new focus on how tech giants buy start-ups. The Justice Department also contested the United Health Group’s purchase of a health technology company, arguing that it would allow the insurer access to sensitive data about its competitors. But it remains to be seen how the courts will receive these efforts.

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