Feds and Penguin Random House set to square off over Simon & Schuster deal

The government and publishing titan Penguin Random House are poised to trade opening salvos in a federal antitrust trial Monday as the Justice Department tries to block America’s biggest book publisher from absorbing rival Simon & Schuster .

In a time of flashy high-tech mega-mergers and corporate tie-ups, America’s largest book publisher’s plan to buy the fourth largest for just $2.2 billion may seem a little quaint. But the deal represents such a key test of the Biden administration’s antitrust policies that the Justice Department is calling an unusual witness to “The Stand”: horror master Stephen King.

The renowned author whose genre-crossing works are published by Simon & Schuster is expected to testify during the week-long trial in US District Court in Washington, DC, and is likely to draw attention.

Penguin Random House’s proposed acquisition of rival Simon & Schuster would reduce the “Big Five” US publishers to four. The Justice Department filed a lawsuit to block the merger November 2021.

ViacomCBS is the parent company of Simon & Schuster and CBS2.

The government says the merger would harm authors and ultimately readers if German media titan Bertelsmann, of which Penguin Random House is a division, is allowed to buy Simon & Schuster from the media and entertainment company USA Paramount Global. He says the deal would stifle competition and give Penguin Random House gigantic influence over which books are published in the U.S., likely reducing the amount paid to authors and giving consumers fewer books to choose from.

Publishers counter that the merger would strengthen competition among publishers to find and sell the most popular books by allowing the combined company to offer larger upfront payments and marketing support to authors. It would benefit readers, booksellers and authors, they say.

Publishing heavyweights

Both New York-based publishers have impressive stables of highly successful authors, who have sold several million copies and secured multi-million dollar deals. Within the Penguin Random House constellation are Barack and Michelle Obama, whose package for their memoirs totaled about $65 million, Bill Clinton, who received $15 million for his memoirs, Toni Morrison, John Grisham and Dan Brown.

Simon & Schuster has Hillary Clinton (she got $8 million for hers), Bob Woodward and Walter Isaacson.

And the King His post-apocalyptic novel “The Stand,” published in 1978, revolved around a deadly pandemic of weaponized influenza.

Bruce Springsteen split the difference: his “Renegades: Born in the USA,” with Barack Obama, was published by Penguin Random House; his memoirs, from Simon & Schuster.

Opposing attorneys for both sides will present their cases before U.S. District Judge Florence Pan.

The Big Five—the other three being Hachette, HarperCollins and Macmillan—dominate American publishing. They hold 90% of the market for advance bestsellers, according to the government’s court filing. “The proposed merger would further increase consolidation in this concentrated industry, make the largest player even larger and likely increase coordination in an industry with a history of coordination among major publishers,” he says.

Publishers make their case

Penguin Random House and Simon & Schuster argue that the merger would actually strengthen competition among publishers to find and sell the most popular books, allowing the combined company to offer greater compensation to authors.

It would benefit readers, booksellers and authors, publishers say, by creating a more efficient company that brings lower prices for books. The government has not shown harm to consumers as readers because the merger would not raise prices, the companies say.

“The US publishing industry is robust and highly competitive,” they say in their presentation. “More readers are reading books than ever before, and the number is growing every year. Publishers are competing vigorously to reach these readers, and the only way they can compete effectively is to find, acquire and publish the books that readers most want to read … The merger at issue in this case will further encourage competition and growth in the American publishing industry.”

The companies are rejecting the government’s central focus on the advance bestseller market, defined as those acquired by advances to authors of at least $250,000. They represent only a small part, about 2%, of all books published by commercial companies, according to the companies’ filing.

The dress treads new ground

The Justice Department’s case goes beyond the traditional antitrust concern of concentration raising prices for consumers, noting the impact on consumer choices and viewing authors as workers and sellers of products in the global marketplace of ideas. The idea is that fewer buyers (publishers) competing for the same pool of talent reduces the bargaining power of sellers (authors).

The case “potentially sets a precedent that could be used in the labor area,” said Rebecca Allensworth, an antitrust expert who is a law professor at Vanderbilt University.

The Biden administration is breaking new ground on business concentration and competition, and the government’s case against the publishing merger can be seen as an important step.

President Joe Biden has made competition a pillar of his economic policy, denouncing what he calls excessive market power in a range of industries and stressing the importance of robust competition to the economy, workers , consumers and small businesses. Biden, a Democrat, has called on federal regulators, particularly the Justice Department and the Federal Trade Commission, to give greater scrutiny to large business combinations.

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• bill clinton
• toni morrison
• Hillary Clinton
• bruce springsteen
• Joe Biden
• judgment
• Michelle Obama
• john grisham
• barack obama