Federal antitrust enforcement is typically viewed through the lens of the consumer. The logic is that if a mega-merger leads to lower prices and more choice, that’s good for competition and good for the economy. Conversely, if it leads to higher prices and fewer choices, it’s bad for competition and bad for the economy. Most deals approved by the government are approved under this view of antitrust law. That sole focus on consumer welfare is starting to change, though, which could be troubling news for Hollywood executives eyeing big deals.
In November, the Justice Department filed a lawsuit to prevent ViacomCBS from selling its Simon & Schuster publishing house to Penguin Random House. – largest American book publisher in Simon & Schuster. The DOJ lawsuit, led by prosecutor John Read, alleges harm to consumers — the government’s standard claim in antitrust cases for decades — in the form of less variety and fewer books. But that was not the main theory of the matter. They argue that the deal will harm employees by giving the newly merged entity “excessive influence over who and what gets published and how much authors are paid for their work.” It is an attempt to crack down on a so-called monopsony, a dynamic in which a single buyer dominates, allowing him to purchase labor below market value. “After the merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less influence,” the complaint reads.
Antitrust regulators under the Biden administration signal that they are looking beyond consumer well-being and taking into account labor exploitation, acquisition history and even supply chain resilience when examining potentially anti-competitive behavior. The renewed focus on limiting mergers of historically lenient antitrust enforcement officers amid massive consolidation of several industries by a handful of giants should discourage entertainment companies that have yet to get the green light for pending deals. Microsoft’s $68.7 billion bid for video game developer Activision Blizzard is at the forefront of mergers that could be reversed if the Federal Trade Commission wants to block the purchase.
“There is more risk for businesses across the board as the areas the government says it will investigate and the bases the government says they will challenge deals [on] expanded,” said Benjamin Sirota, a former prosecutor in the Justice Department’s antitrust division.
The DOJ suit to block the Penguin Random House/Simon & Schuster deal depends on how the merger will affect negotiations between authors and publishers. Authors are usually paid through advances. In a healthy, competitive market with a robust roster of editors across multiple publishers, authors can generate higher bids by allowing publishers to bid against each other. But mergers mean layoffs, and layoffs mean there will be fewer editors to whom authors can sell. In this tight market, authors have limited opportunities to publish their works and will generate lower offers for their books, according to the Justice Department.
The accused publishers disagree with the tenuous nature of the government bringing a monopsony case. They argue that antitrust laws are meant to protect consumers – not the highest paid authors who land more than six figures in book deals. In particular, the Justice Department does not claim that the merger will reduce competition in the bookselling market or increase prices for consumers, their lawyers wrote in a motion in response to the accusations from the prosecutors. “The DOJ claims another concern: It wants to protect the most successful authors, those with sophisticated agents and the most lucrative book contracts.” To allay the competition concerns, Penguin, led by CEO Markus Dohle, announced it would allow its units and Simon & Schuster to continue to compete with each other.
However, the government was not convinced by the offer. Part of the reason is the government’s pivot on how it will handle antitrust enforcement under the Biden administration. In January, Jonathan Kanter, assistant attorney general for antitrust, said regulators will block mergers they believe violate antitrust laws rather than seek complex settlements that “suffer from significant flaws” and “too often hit the target.” to miss”. The government is not concerned with controlling companies, he said, but with enforcing competition laws, even if that means blocking deals that have been approved in the past with certain promises.
In a next move that predicts tougher enforcement, the Justice Department and FTC launched a joint public inquiry in January seeking public comment on how to “modernize” merger guidelines. One of the questions they asked was whether too much emphasis has been placed on the “quantification of price effects”, noting that they are mainly interested in aspects of competition that the guidelines neglect, such as “labour market effects and non-price elements of competition such as innovation, quality, potential competition or any trend toward concentration.” The message was clear: Labor markets have endured decades of overly indulgent antitrust enforcement as a result of a hyperfocus on consumer well-being reflected in prices.
Sirota says the government is moving from “full adherence to consumer welfare standards” to embracing a theory of antitrust law responsible for “competitive harm felt through labor”.
If the DOJ has the upper hand to block the Penguin Random House/Simon & Schuster deal, it could limit consolidation. “Every block is a win, but especially this one. I see the Justice Department passing this on to the next parties who are trying to merge and say, ‘We’ve blocked this merger just because of the labor implications,’” said Steve Cernak, a partner at the antitrust firm Bona Law. “That’s a precedent they can use.”
A version of this story appeared in the July 27 issue of The Hollywood Reporter magazine. Click here to subscribe.