Explainer: an attempt to prevent the merger of books fighting competition

Washington (AFP) – At a time of mega-mergers and high-tech company buy-outs, the plan of the largest US book publisher to buy the fourth-largest company for just $2.2 billion may seem a little strange. But the deal is such a major test of the Biden administration’s antitrust policy that the Justice Department is calling an extraordinary witness to The Stand: extraordinary author Stephen King.

In Penguin Random House’s proposed acquisition of rival Simon & Schuster, which would reduce the role of the “Big Five” for US publishers to four, management is working to sharpen its antitrust capacity and fight against corporate concentration.

The Justice Department filed a lawsuit to prevent the merger. The trial begins Monday in federal court in Washington.

The government claims the merger would hurt authors, and ultimately readers, if German media giant Bertelsmann was allowed to buy Simon & Schuster from US media and entertainment company Paramount Global. She says the deal will stymie competition and give Penguin Random House a huge influence over books published in the United States, likely reducing the amount paid to authors and giving consumers fewer books to choose from.

The appearance at some point of King, whose work was published by Simon & Schuster, would be very unusual for an antitrust trial and would attract wide attention.

Publishers are fighting the lawsuit. They responded that the merger would boost competition among publishers to find and sell the best books. They say it will benefit readers, booksellers, and authors.

A look at the case:

Posting with heavy weights:

Both New York-based publishers have impressive stables of great authors who have sold several million copies and racked up multi-million dollar deals. Within the Penguin Random House constellation are Barack and Michelle Obama, whose memoir deal totaled $65 million, Bill Clinton (he took $15 million for his memoirs), Toni Morrison, John Grisham and Dan Brown.

Simon & Schuster counts Hillary Clinton (received $8 million for her salary), Bob Woodward and Walter Isaacson.

And the king. His post-apocalyptic novel The Situation, published in 1978, was about a deadly armed influenza pandemic.

Bruce Springsteen Divides the Difference: His book “Rebels: Born in the United States” with Barack Obama, published by Penguin Random House; His memoirs by Simon & Schuster.


Throw books at them

In its lawsuit, the Department of Justice alleges that, as now, No. 1 Penguin Random House and No.4 Simon & Schuster (in terms of total sales) are vying fiercely for the rights to the anticipated bestselling books. If allowed to merge, the combined company would control roughly 50% of the market for those books, she says, hurting competition by reducing advances paid to authors and reducing production, creativity and diversity.

The Big Five – the other three being Hachette, HarperCollins, and Macmillan – dominate publishing in the United States. The government court filing says they make up 90% of the projected bestseller market. “The proposed merger would increase consolidation in this focused industry, make the largest player larger, and potentially increase coordination in an industry with a history of coordination between major publishers,” she says.

The DOJ case goes beyond the traditional antitrust concern of focusing on raising prices for consumers, citing the impact on consumers’ choices and viewing authors as workers as well as sellers of products in the global marketplace of ideas. The idea is that fewer buyers (publishers) compete for the same pool of talent, less bargaining power for sellers (authors).

The case “potentially creates a precedent that can be used in the business,” says Rebecca Allensworth, an antitrust expert and professor of law at Vanderbilt University.


Biden’s Crusade

The Biden administration is laying new ground on business focus and competition, and the government’s case against publisher mergers can be seen as an important step.

President Joe Biden has made competition a pillar of his economic policy, denouncing what he calls the massive market power of a range of industries and stressing the importance of strong competition for the economy, workers, consumers, and small businesses. Federal regulators, notably the Department of Justice and the Federal Trade Commission, have called for increased scrutiny of large corporate groups.

Biden issued an executive order a year ago targeting what he called anticompetitive practices in technology, health care, agriculture and many other parts of the economy, laying out 72 actions and recommendations for federal agencies. Targets range from hearing aid prices to airline baggage fees.

Another trial over competition begins Monday in federal court: The Department of Justice has filed a lawsuit to prevent UnitedHealth Group, which runs the largest health insurance company in the United States, from acquiring health tech company Change Healthcare. The government maintains that the $13 billion deal will hurt competition and put too much information about health care claims into the hands of one company.


Publishers make their case

Wait, say Penguin Random House and Simon & Schuster as they prepare to enter the trial: The merger will in fact enhance competition between publishers to find and sell the best books, by enabling the combined company to offer authors greater compensation.

Publishers say this will benefit readers, booksellers and authors by creating a more efficient company that will lower book prices. The companies say the government has failed to show the damage to consumers as readers because the merger will not raise prices.

“The publishing industry in the United States is very strong and competitive,” they say in their filings. More readers are reading books than ever before, and the number is increasing every year. Publishers compete aggressively to reach these readers, and the only way they can compete effectively is to find, acquire, and publish books that most of their readers want to read. … the merger in question will in this case encourage further competition and growth in the US publishing industry.”

Companies reject the government’s central focus on the expected market for bestsellers — defined as those obtained for an author advances of at least $250,000. It represents only a very small piece, about 2%, of all books published by commercial companies, according to the companies filing.


Follow Marcy Gordon at https://www.twitter.com/mgordonap