Will the largest publisher in the United States be even bigger?

When the nation’s largest publisher, Penguin Random House, struck a deal in the fall of 2020 to acquire rival Simon & Schuster, publishing executives and antitrust experts predicted the merger would draw intense scrutiny from regulators. governmental.

The merger would dramatically alter the literary landscape, reducing the number of major publishers, known in the industry as the Big Five, to four. (Or, as one industry analyst put it, you could create the Big One and the other three.)

Such a change could ripple through the industry, potentially impacting smaller publishers, authors and ultimately the books that reach readers, novelist Stephen King, who was called by the government, said in an email. to testify at trial.

“The more big publishers consolidate, the harder it is for independent publishers to survive,” King said. “And that’s where the good writers today are starting out and learning their skills.”

Last fall, the Biden administration sued to block the $2.18 billion sale as part of its new, more aggressive stance against corporate consolidation. The trial will begin Monday, with oral arguments in the United States District Court for the District of Columbia, where Judge Florence Pan will preside.

The Justice Department and Bertelsmann, the parent company of Penguin Random House, called a parade of high-profile publishing 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 publishers, 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 cause too much consolidation in the publishing industry, creating what is called a monopsony. A monopoly refers to a seller that has too much power over consumers; a monopsony has too much power over suppliers. In this case, the government says, those vendors are authors of expected best-selling books, which publishers buy for advances of more than $250,000.

The Biden administration says that by reducing the number of big publishers, which have the budgets to compete more often for the biggest books, there would be less competition for those titles. That, in turn, would reduce the advances paid to their authors. As a result, “fewer authors will be able to make a living writing,” the Justice Department argued in a pretrial brief.

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

It says the deal will give Simon & Schuster authors access to Penguin Random House’s supply chain and distribution networks, which are generally considered the best in the business. The efficiencies created by the combination of the two companies will allow it to pay authors more, which would 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” medium and small publishers. He believes the government’s argument about competition and paying authors exaggerates the role auctions play when publishers buy manuscripts, and exaggerates how often Penguin Random House and Simon & Schuster meet in head-to-head bidding. .

In addition, Bertelsmann says that Simon & Schuster will be able to bid for books against other Penguin Random House imprints, so authors will still have plenty of potential bidders.

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

Like Hollywood, the book business is increasingly reliant on blockbusters for profit, and companies will stake huge sums of money to buy books by big-name novelists like John Grisham, EL James, Margaret Atwood, and Nora Roberts. , or celebrities and public figures. 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 imprints and publishes around 2,000 books a year. If the merger goes through, you’ll get Simon & Schuster’s 30-plus prints and roughly 1,000 titles a year.

The combined company would produce a disproportionate percentage of 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 books accounted for 11 percent.

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

The merger would leave three other big publishers remaining — Hachette, Macmillan and HarperCollins — and could fuel further consolidation in the industry as other publishers get stronger to compete with an even bigger rival.

For Penguin Random House, the deal’s collapse would be costly. Under the sale agreement, Penguin Random House will have to pay a fee of approximately $200 million to Paramount Global, the conglomerate that owns Simon & Schuster, if the deal does not close.

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

It’s unclear whether another big publisher, 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 experts worry that could lead to big job cuts and result in fewer titles at Simon & Schuster.

The lawsuit will test whether the government can mount more antitrust cases that address the effects of corporate concentration on how much workers — in this case, top book writers — are paid.

A group of progressive academics, lawyers and economists have argued that a shrinking number of employers have limited options for workers and negatively affect their pay. The fate 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 filed a class action lawsuit against the Ultimate Fighting Championship. They have argued that the UFC is so dominant in promoting the sport that it is able to keep salaries low, which the UFC denies. A court ruled in 2020 that the fighters could proceed as a group with most of the case, but the merits of the case have not yet been considered.

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

President Biden signed an executive order in June 2021 that aimed to increase competition throughout the economy, in part by encouraging the Federal Trade Commission to focus on how concentration can harm workers. In the order, he pushed the agency to look at new rules limiting non-compete agreements, which advocates say make it harder for workers to accept better job offers and prevent employers from sharing pay information with each other to drive down wages.

The FTC and the Justice Department have also tried to test new legal theories in court. On Wednesday, the FTC sought 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 startups. The Justice Department also challenged United Health Group’s purchase of a health technology company, arguing 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.

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