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November 4, 2021

Sue you! US justice department files suit to stop Penguin Random House/Simon & Schuster mega-merger

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Last November, it was announced that Bertelsmann has agreed a $2.2bn deal to buy Simon & Schuster from owner ViacomCBS. The deal would see Penguin Random House (PRH) merge with Simon & Schuster (S&S), meaning the Big Five publishers (PRH, S&S, HarperCollins, Hachette and Macmillan) would be reduced to become the Big Four. PRH is already America’s biggest book publisher, and in 2019, according to analysis done by Publishers Weekly (as reported by The New York Times), PRH and S&S had a combined 49.3 percent of hardcover best sellers.

The threat of one mega-corporation controlling a majority of all book publishing caused an uproar within the industry. In January, the Open Markets Institute and the Authors Guild wrote a letter of objection to the Department of Justice (DoJ), claiming:

“The deal would bring well more than half of key U.S. book markets under the control of a single corporation, which poses a variety of potential threats to freedom of speech and democracy in the United States.”

The letter goes on to say that the takeover would result in Bertelsmann controlling a 70% market share in the literary and general fiction market in the United States, which would:

“lead to increased leverage and price squeezing over authors, increased concentration of power over independent retailers, and a sharp curtailing of the “diversity and quality of carefully written, well-edited books available to the public.”

A year after the acquisition announcement and the Biden administration is taking the matter seriously, filing its first major antitrust action to stop Bertelsmann’s planned merger. Attorney general, Merrick Garland, justified the decision in a statement, saying (as reported by the Guardian):

“If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry. American authors and consumers will pay the price of this anticompetitive merger—lower advances for authors and ultimately fewer books and less variety for consumers.”

However, PRH is fighting back on the decision. Daniel Petrocelli, PRH’s lead trial attorney (who has also previously defended Donald Trump and Harvey Weinstein), responded:

“DoJ’s lawsuit is wrong on the facts, the law, and public policy. Importantly, DoJ has not found, nor does it allege, that the combination will reduce competition in the sale of books. The publishing industry is strong and vibrant and has seen 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 harm, competition.”

PRH and S&S also put out a joint statement saying:

“Blocking the transaction would harm the very authors DoJ purports to protect. We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”

Will the DoJ be able to stop the merger? Back in March, the UK’s Competition & Markets Authority (CMA) announced it was investigating the takeover, considering whether it would result in “substantial lessening of competition within any market or markets in the United Kingdom for goods or services”. They investigated… and cleared the anticipated acquisition. Will the DoJ fare any better? If not, the future could be grim, according to a scenario the Authors Guild lay out in their letter, which states:

“Many predict that the remaining three of the current “Big 5” will be forced to merge with each other to stay in the game, leaving the United States—a powerful and diverse nation of 330 million people—with two dominant publishers.”

If Penguin and Random House were allowed to merge, can a further absorption of Simon & Schuster really be stopped? Is it a case of two little, too late? And where will things end? The letter ends with a further warning, pointing not just to the dangers of publishing monopolies, but of retail monopolies, stating:

“The Department of Justice must begin today to proactively restructure the entire U.S. market for books in ways that also deal with the danger posed by Amazon. In this way alone will the Department fulfill its mission of protecting the interest of the public as a whole, and of every reader and author in the United States, from dangerous concentrations of power and control over America’s authors, editors, booksellers, and readers, and over public debate itself.”

 

 

Nikki Griffiths is the managing director of Melville House UK.

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