When Penguin Random House, the nation’s largest publisher, signed an agreement to acquire rival Simon & Schuster in the fall of 2020, publisher executives and antitrust experts said the merger was a government regulator. I predicted that I would be closely monitored by.
The merger will dramatically change the literary outlook, reducing the number of major publishers known as the Big Five in the industry to four. (Or, as one industry analyst said, you could create a Big One and three others.)
Novelists asked by the government to testify in court that these changes could spread throughout the industry and affect small publishers, authors, and ultimately books that reach readers. Stephen King said in an email.
“The more major publishers integrate, the harder it is for indie publishers to survive,” King said. “And that’s where great writers are now learning their chops for the first time.”
Last fall, the Biden administration urged to block the sale of $ 2.18 billion as part of a new, more aggressive stance on business integration. The trial will begin on Monday and oral arguments will be held in the United States District Court for the District of Columbia, which is presided over by Judge Florence Pan.
Bertelsmann, the parent company of the Justice Department and Penguin Random House, called a parade of prominent publisher executives as witnesses. They include Markus Dohle, CEO of Penguin Random House, Jonathan Karp, CEO of Simon & Schuster, and executives from other publishers, literary agents, and a few writers. ..
This is what we know about this case and how it affects the book business.
Why is the government trying to block this deal?
The Justice Department states that the merger will over-integrate the publishing industry and create a so-called monopoly. A monopoly is a seller who has too much power over the consumer. Monopsony has too much power over its suppliers. In this case, the government states that these suppliers are the authors of books that are expected to become top sellers, and publishers will purchase with a prepayment of $ 250,000 or more.
The Biden administration says that by reducing the number of large publishers that have the budget to compete most often for the largest books, competition for those titles will be reduced. It will, in turn, lower the prepayment paid to their authors. As a result, the Justice Department argued in a pre-trial summary that “fewer authors will be able to make a living by writing.”
What are your claims about Penguin Random House transactions?
Bertelsmann, who owns Penguin Random House, claims that the acquisition will intensify competition in the industry and benefit both authors and readers.
The deal will give Simon & Schuster authors access to the Penguin Random House supply chain and distribution network, which is generally considered the best in business. The efficiency created by combining the two companies will allow authors to pay more, which will encourage other publishers to increase their offers to compete.
The publishing industry claims to be more than just the Big Five. Other publishers include Amazon, Disney, and “countless” small and medium-sized publishers. We believe that the government’s debate over competition and author payments exaggerates the role that auctions play when publishers buy manuscripts, and how often Penguin Random House and Simon & Schuster bid directly. ..
In addition, Bertelsmann claims that Simon & Schuster can bid on other Penguin Random House book publishers, so the author still has many potential bidders.
How will the sale affect the publishing industry?
There is no doubt that the merger of the two largest publishers in the United States will have a significant impact on the publishing business and culture.
Like Hollywood, the book business has become more and more dependent on blockbusters for profit, and companies are famous novelists or celebrities such as John Grisham, EL James, Margaret Atwood, and Nora Roberts. And bet huge amounts of money to buy books from celebrities, like Barak 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 publishers and publishes about 2,000 books annually. In the event of a merger, we will win approximately 1,000 titles annually with more than 30 Simon & Schuster publishers.
According to industry analysts, the merged company will create an disproportionate proportion of top-selling books. Last year, Penguin Random House titles accounted for 38% of the top 100 best-selling printed books, and Simon & Schuster’s books accounted for 11%, according to NPD BookScan.
Already with industry-leading printing, shipping and distribution capabilities, Penguin Random House will also win a distribution business for Simon & Schuster’s warehouses and networks of small publishers.
The merger will leave three other major publishers (Hachette, Macmillan and HarperCollins) behind, which could drive further integration of the industry in order for other publishers to compete with larger rivals.
What if the court blocks the transaction?
For Penguin Random House, the collapse of transactions will be costly. Under the sale agreement, Penguin Random House will have to pay approximately $ 200 million to Paramount Global, a conglomerate that owns Simon & Schuster, if the transaction is unsuccessful.
For Simon & Schuster, the end of the sale will stalemate the company. According to court filings, the evidence presented at the trial shows that Simon & Schuster will be “sold in either way” by Paramount Global.
It’s unclear if another major publisher, such as HarperCollins or Hachette, wants to risk regulatory oversight by bidding. Private equity companies can buy the company, but publisher insiders are concerned that it could lead to significant staff cuts and fewer Simon & Schuster titles.
What is the impact on antitrust law?
The proceedings test whether the government can further increase antitrust proceedings targeting the impact of corporate concentration on the amount paid to workers (in this case, major book writers). ..
A group of progressive scholars, lawyers and economists argue that the declining number of employees limits workers’ options and negatively impacts wages. The fate of a government case will show how such a debate works in court.
Lawyers aren’t the only ones trying. For years, a group of mixed martial arts have filed class actions against the Ultimate Fighting Championship. They argued that the UFC was so dominant in sports promotion that it could keep wages down, but the UFC denies this. The court ruled last year that fighters could proceed as a group in most cases, but the benefits of the cases have not yet been considered.
What does this case say about the Biden administration’s approach to antitrust enforcement?
This case is another example of the government’s aggressive approach to competition policy, which has been praised from the left.
In June 2021, President Biden aimed to intensify competition across the economy by encouraging the Federal Trade Commission to focus on ways concentration could harm workers. I signed the order. In that order, he urged the agency to consider new rules that limit non-compete obligations.
The FTC and the Department of Justice have also tried to test new legal theories in court. FTC has suspended the purchase of virtual reality studios by Meta, formerly known as Facebook, on Wednesday, reflecting a new focus on how tech giants buy startups. I submitted an order. The Justice Department also challenged UnitedHealth Group’s acquisition of a health tech company, arguing that it would give insurers access to sensitive data about its competitors. However, it remains to be seen how the court will receive these efforts.
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