The real story behind the Penguin – Random House merger
Despite being one of the most important publishing and cultural stories of our lifetime, the news that the Department of Justice had approved the merger of Random House and Penguin yesterday would have been easy to miss. You’d have to do a search to find the New York Times story about it, for example, even though publishing is one of New York’s biggest industries. The Wall Street Journal report was similarly perfunctory, back pages stuff. Even PaidContent, which usually has the most insightful and detailed reportage, did little more than run Penguin owner Pearson’s statement crowing about the approval.
None of these reports looked at it very analytically. Indeed, what little analytic data there was seems to mark the beginning of The Big Downplay. Both the Times and WSJ stories, for example, said the new behemoth would control, as the Times put it, “25 percent of the English-language consumer book market.” Initial reports back in October (such as those I cited in a MobyLives story at the time) put it at 30 percent. Even that still seems low to me, but in any event certainly no one went any further with such analysis — estimating how that market share might play out over different kinds of publishing, say. I’d wager Penguin Random House will control at least 50 percent of literary fiction, for example.
And of course no one therefore discussed how that, in turn, would influence Penguin Random’s ability to control the retail market — how much harder is it going to be for a company like Melville House to get its novels into a store where one company controls half the fiction section? And what if a bookstore is a little short of cash one month? It’s gong to have to pay its biggest, most important account first. Penguin Random is going to control their floor space and their budget. It’s a safe bet it will get the lion’s share of media coverage, too.
Okay, so for whatever reason there’s no real analysis of the impact of this on the consumer marketplace. What about the fact that such market control would seem to fly in the face of anti-monopoly laws? What about consideration of the fact that, in a business that’s supposed to be about a diversity of voices, there’s now one very significant voice less?
That stuff just wasn’t part of the coverage.
But perhaps that’s to be expected, as none of the above was apparently relevant to the DOJ’s decision, either. Not that the DOJ was unaware of these issues. They certainly came up when Justice Department attorneys interviewed me about the merger as part of their investigation. But as with the Obama administration’s case against Macmillan, Simon & Schuster, Hachette, HarperCollins, and Penguin for trying to stop Amazon’s loss-leader pricing schemes — a case wherein the DOJ seemed to ignore antitrust laws such as the Leegin Creative decision, which okayed price controls to encourage competition, and the Robinson-Patman Act, which outlawed loss-leader pricing — the relevant antitrust laws just don’t seem to have mattered. So why should we have expected the principles supposedly behind such black-letter law — such as diversity being crucial to the protection of free speech — to have mattered, either?
So what was it about then? Like a lot of people, I at first thought the merger was a good thing in the fight against Amazon. Finally, a company with enough clout to stand up to Amazon’s thuggishness. Sure, Penguin Random will be a $3 billion company, whereas Amazon’s net worth last year was over $100 billion. Still, Penguin Random will control such a huge chunk of the market! How could Amazon function as a bookstore without them? As Random House distributes Melville House’s books, I thought, well, hell, maybe Melville House finally has a chance for a fair deal.
Until a book industry insider pointed out to me that I was an idiot. Random House will control 53 percent of the new company, he observed. “And what’s the first thing that’s going to happen?” he asked me when the news was first announced and I had offered up my theory. “Random House is going to tell Penguin to settle the case with the DOJ, that’s what,” he said. “The merger is nothing but good news for Amazon.”
Which is exactly what happened. And it is good for Amazon. The company once again controls 90 percent of ebook sales, for example, while the death-by-murder of agency pricing seems to have killed its only real competitor, Barnes and Noble.
And now, bingo, the merger has been given an amazingly fast approval by our government.
So what’s it actually about? As my friend the smart insider said, “Dark forces are at play.” For non-conspiracists, it’s at least clearly about this: Pearson simply wanted out of the low-margin book business. Random House simply saw a chance to gobble up its leading competitor. As for the government, Amazon simply … oh, hell, call me a conspiracist then.
Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.