As we reported last month, the United States Department of Justice filed a lawsuit on November 2, 2021 to stop the proposed merger of Penguin Random House and Simon & Schuster, citing concerns that the deal could lessen competition, lead to a highly concentrated publishing market, and reduce advances for authors, especially of “anticipated top-selling books.”
PRH filed their initial response in December 2021, countering that the DoJ “invents a market for rights to ‘anticipated top-selling books’ that excludes the vast majority of authors and lacks any basis in either the real world or accepted market-definition analysis…. DOJ defines this market according to the amount of advance royalties the author receives, but does not identify the market-defining amount. There is no identifiable advance level above which only certain publishers compete for book rights. DOJ’s failure to identify any such market-defining ‘price’ is critical: like any antitrust plaintiff, DOJ cannot claim harm to a market without identifying the essential facts that define the alleged market.”
The filing also disagrees with the DoJ’s assertion that the Big Five “are the only participants” in bidding for major books: “The combined company will still be competing for the rights to those books against not only the other remaining largest publishers, but also the many small and mid-size publishers that often compete in – and often win – bidding for the most valuable properties…. DOJ also ignores how easily many publishers outside the ‘Big Five’ – which include such media heavyweights as Disney, Amazon, and Scholastic, as well as brand-name publishing ‘imprints’ like Norton and Abrams and new entrants like Zando – could increase their participation in high-end bidding.”
The DoJ expressed concern that the merger would harm the market by “leaving hundreds of authors with fewer alternatives and less leverage.” PRH says the top-selling authors the DoJ seems concerned about will be fine: “These are the most sought-after books, where authors and their sophisticated agents have the greatest negotiating leverage. The merger will neither reduce that leverage nor lessen the incentives of Penguin Random House and its competitors to make aggressive offers for the most coveted books.”
PRH insists the merger would be good for the book business: “Penguin Random House’s extensive supply capabilities are increasingly important to neighborhood book stores as they strive to compete with Amazon’s almost infinite book selection and highly efficient delivery capabilities. Expanding Penguin Random House’s supply chain to include Simon & Schuster authors ultimately provides greater income for authors and more choices for readers.” PRH also says they will use “savings from the merger to grow title acquisitions and continue its support of brick-and-mortar booksellers.” They position an expanded PRH as the only way to fight off Amazon: “Some employees have publicly suggested that the merger is necessary to compete with Amazon because Amazon is the largest company facilitating self-publishing, is increasingly aggressive in contract negotiations, and has leverage over the industry due to its strength as a bookseller.”
The DoJ and PRH had settlement talks, but couldn’t reach an agreement. Both parties have requested an expedited court schedule, aiming for a trial date of August 1, 2022. PRH’s deal with S&S parent company ViacomCBS “may be terminated if the transaction does not close by November 2022,” two years after they made the deal in November 2020.
This article and more like it in the January 2022 issue of Locus.
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