Is the largest publisher in the United States getting bigger?

Is the largest publisher in the United States getting bigger?

When the nation’s largest publisher, Penguin Random House, made a deal in the fall of 2020 to acquire its rival Simon & Schuster, publishers and antitrust experts predicted that the merger would gain intense scrutiny from government regulators.

The merger would dramatically change the literary landscape, shrinking the number of major publishing houses — known in the industry as the Big Five — to four. (Or, as one industry analyst put it, it could create the Big One and the other three.)

Such a shift could flow through the industry and potentially affect smaller publishers, authors and ultimately the books that reach readers, novelist Stephen King said in an email, called on by the government to testify at the trial. .

“The more the big publishers consolidate, the harder it is for indie publishers to survive,” King said. “And that’s where the good writers currently start and learn their chops.”

Last fall, the Biden administration sued for blocking selling $2.18 billion as part of its new and more aggressive attitude against corporate consolidation. The trial begins Monday, with pleadings before the U.S. District Court for the District of Columbia, where Judge Florence Pan presides.

The Department of Justice and Bertelsmann, the parent company of Penguin Random House, called a parade of leading publishers as witnesses. They include Markus Dohle, the director of Penguin Random House, and Jonathan Karp, the director 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 bookstore.

The Justice Department says this merger would lead to too much consolidation in the publishing industry, creating a so-called 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 expected to be top sellers, who buy publishers for advances of more than $250,000.

The Biden administration says that by reducing the number of major publishers — who have the budgets to compete most often for the biggest books — there would be less competition for those titles. That, in turn, would reduce advances paid to authors. As a result, “fewer authors will be able to earn a living writing,” the Justice Department argued in a preliminary ruling.

Bertelsmann, owner of Penguin Random House, says the acquisition would increase competition in the industry and benefit authors and readers alike.

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

It argues that the publishing industry is much more than just the Big Five; other publishers include Amazon and Disney, as well as “countless” medium and smaller publishers. It believes the government’s argument about competition and author pay overstates the role auctions play when publishers buy manuscripts, and exaggerates how often Penguin Random House and Simon & Schuster meet in bidding.

Additionally, Bertelsmann claims that Simon & Schuster will be able to bid against other Penguin Random House prints for books, so 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 culture of publishing.

Just like Hollywood, the bookstore has become more and more dependent on blockbusters to make a profit, and companies will gamble huge sums of money to buy books from well-known novelists such as John Grisham, EL James, Margaret Atwood and Nora Roberts, or from celebrities and public figures such as Barack and Michelle Obama (all published by Penguin any house).

Penguin Random House, by far the largest publisher in the United States, has more than 90 imprints and publishes approximately 2,000 books a year. If the merger takes place, Simon & Schuster’s will have more than 30 imprints and about 1,000 titles per 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 percent of the 100 best-selling print books, according to NPD BookScan, while Simon & Schuster’s books made up 11 percent.

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

The merger would leave three other major publishers — Hachette, Macmillan and HarperCollins — and could spur further consolidation in the industry as other publishers pile up to compete with an even bigger rival.

For Penguin Random House, the collapse of the deal would be costly. Under the sale agreement, Penguin Random House must pay approximately $200 million in compensation to Paramount Global, the conglomerate that owns Simon & Schuster, if the deal is not closed.

For Simon & Schuster, the termination of the sale would leave the company in the dark. According to court records, the evidence presented at the trial will show that Simon & Schuster “will somehow be divested” from Paramount Global.

It’s unclear whether another major publishing house, such as HarperCollins or Hachette, would want to risk regulatory scrutiny by making a bid. A private equity firm could buy the company, but publishing insiders worry it could lead to massive employee discounts and fewer titles at Simon & Schuster.

The lawsuit will test the government’s ability to pursue more antitrust cases targeting the effects of corporate concentration on how much employees — in this case, big book writers — get paid.

A group of forward-thinking academics, lawyers and economists has argued that a shrinking number of employers have limited opportunities for employees and negatively impact their wages. The fortunes of the government’s case will show how such arguments fare in court.

They’re not the only lawyers trying: For years, a group of mixed martial artists has been waging a class action lawsuit against the Ultimate Fighting Championship. They have argued that the UFC is so dominant in promoting the sport that it can keep wages low, which the UFC denies. A court ruled last year that in most cases the fighters could continue as a group, but the merits have yet to be considered.

This case is another example of the government’s aggressive approach to competition policy, which has been praised by the left.

President Biden signed an executive order in June 2021 that aimed to increase competition across the economy, including by encouraging the Federal Trade Commission to focus on how concentration can harm workers. In the injunction, he urged the agency to look into new rules restricting non-compete clauses, which activists say make it difficult for employees to take better job offers, and to prevent employers from sharing wage information with each other. to lower 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 stop Meta, the company formerly known as Facebook, from buying a virtual reality studio. a new focus on how the tech giants buy start-ups. The Ministry of Justice has also challenged United Health Group’s purchase of a health technology company, on the grounds that it would give the insurer access to sensitive data about its competitors. But it remains to be seen how the courts will receive these efforts.