DOJ: A Penguin Random House / Simon & Schuster “Behemoth” Would Harm Authors and Consumers – Antitrust / Competition Law

The antitrust division is suing to block the deal. The publishers promise a vigorous challenge.

Claiming the deal would create a “publishing behemoth,” the US Department of Justice’s antitrust division filed an antitrust complaint on November 2 to prevent the world’s largest publisher, Penguin Random House (PRH), from acquire its rival Simon & Schuster (S&S). A combined corporation would be able to “exert disproportionate influence” over published books and the amount of authors’ remuneration for their work, according to the lawsuit.

The publishing industry is already very concentrated, largely controlled by the “Big Five” publishers. PRH (which owns Knopf Doubleday and others) is the world’s largest book publisher and S&S (which owns Scribner, Pocket Books, Folger Shakespeare Library and others) is the fourth largest book publisher in the United States- United. PRH, a subsidiary of the German company Bertelsmann SE & Co., publishes 2,000 new commercial books in the United States each year, generating $ 2.4 billion in 2019. S&S, owned by ViacomCBS Inc., publishes 1,000 annually new commercial books, for 2019 sales of $ 760 million. . The other major American publishers are Hachette Book Group, which includes Little, Brown & Company and is part of a French conglomerate; HarperCollins Publishers, an affiliate of Australian media mogul Rupert Murdoch’s News Corp; and Macmillan Publishers, which, like PRH, is owned by a German parent company.

The Big Five compete to acquire manuscripts and pay advance payments to authors for the rights to publish their books. In most cases, depending on the complaint, the advance is the author’s total compensation for his work. The best chance for a writer to make money is to get a lead from one of the Big Five. Smaller publishers can and do offer lucrative book deals, but are at a distinct disadvantage compared to the better players. If successful, the merger would reduce the Big Five to four and give the new company control of nearly half of the market, according to the government. This would leave “hundreds of individual authors with fewer options and less leverage.” The complaint alleges that PRH itself views the publishing market as an oligopoly, and said it intended to acquire its rival to “consolidate Penguin Random House as No. 1 in the United States. “.

In a statement accompanying the complaint, the government said the antitrust division’s horizontal merger guidelines “establish a simple framework for analyzing monopsony cases, and under those guidelines, this transaction is presumed anti-competitive.” Monopsony occurs when only one or a few buyers are present in the market. A monopsony has the economic power to lower prices below the competitive level in order to pay less for necessary inputs.

The complaint included a graph (below) showing the level of advances each publisher would pay to authors in the event of a merger. The merged entity would take control of nearly $ 550 million in author advances, more than the next three competitors combined.

PRH and S&S have pledged to fight the lawsuit, appointing nationally recognized trial lawyer Daniel M. Petrocelli of O’Melveny & Meyers to represent them. Petrocelli successfully defended AT&T and Time Warner against the Justice Department’s unsuccessful attempt to block their $ 100 million merger.

Publishers: The deal is good for the competition.

In a joint statement from the editors, Petrocelli said, “The DOJ trial is wrong about facts, law and public order. It is important to note that the DOJ has not found, nor alleged, that the combination will reduce competition in the sale of books. . The publishing industry is strong and dynamic and has experienced strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will promote, not hurt, the competition. “

The publishers justified the acquisition by saying that it “will bring PRH’s superior order fulfillment services to S&S titles, which will benefit consumers by making it easier to find new titles and reduce the risk of out-of-stock. particularly among local retailers and consumers, the reach of PRH in independent bookstores and specialty markets will drive sales of S&S titles, benefiting both authors and retailers. ”

Calling the publishing industry “very competitive,” PRH and S&S said they have many competitors, including “large commercial publishers, new entrants like Amazon, and a range of medium and small publishers, all of whom are capable. to compete for future titles from established and emerging companies. authors. “

According to statistics compiled by Statista, in 2020, the estimated net revenues of the US commercial book publishing industry were $ 16.67 billion, up from $ 16.23 billion in 2019. “Revenue increase every year since 2013 and five years of steady growth has led to an overall increase of over $ 1 billion during this period, ”reports Statista.

Is consumer harm really necessary in this case?

All successful antitrust lawsuits require a demonstration of competitive harm in a relevant product market. Here, the Antitrust Division alleges that the relevant markets are two “content acquisition markets”, in which authors sell the rights to their works (one for works of general interest and the other for bestsellers. ). The damage to competition that occurs in these markets is not borne by the consumers who buy books, but by the sellers of content, the authors.

This does not mean that consumers are not at risk of being harmed by the merger. Rather, it means that the retail book market would not directly harmed by the merger. If, as the complaint alleges, the merger will reduce competition for author’s works, consumers will suffer from lower efficiency in book publishing and fewer new book titles published each year.

We suspect that lawyer Petrocelli is well aware that the government is under no obligation to allege or prove that competition has occurred in the retail book market. Its observation that the DOJ does not conclude or allege that the combination will reduce competition in the sale of books only serves to distract from the real issue here: harm in the market for the sale of manuscripts. .

While this may seem contrary to popular notions of antitrust, the harm suffered by the consumer in this case is not a necessary element of the offense.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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