The U.S. Department of Justice filed a civil antitrust lawsuit today to block Penguin Random House’s proposed acquisition of its close competitor, Simon and Schuster.
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As alleged in the complaint filed in the U.S. District Court for the District of Columbia, this acquisition would enable Penguin Random House, which is already the largest book publisher in the world, to exert outsized influence over which books are published in the United States and how much authors are paid for their work.
As described in the complaint, publishers compete to acquire manuscripts, which they edit, package, market, distribute and sell as books. Publishers pay authors advances for the rights to publish their books. In most cases, the advance represents an author’s total compensation for their work.
The publishing industry is already highly concentrated, as the complaint details. Just five publishers, known as the “Big Five,†are regularly able to offer high advances and extensive marketing and editorial support, making them the best option for authors who want to publish a top selling book. Most authors aspire to write the next bestseller and selling their rights to the Big Five offers the best chance to do so.
While smaller publishers occasionally win the publishing rights to anticipated top selling books, they lack the financial resources to regularly pay the high advances required and absorb the financial losses if a book does not meet sales expectations.
Today, Penguin Random House, the world’s largest publisher, and Simon and Schuster, the fourth largest in the United States, compete head to head to acquire manuscripts by offering higher advances, better services and more favorable contract terms to authors.
However, as the complaint alleges, the proposed merger would eliminate this important competition, resulting in lower advances for authors and ultimately fewer books and less variety for consumers.
The complaint alleges that the acquisition of Simon and Schuster for $2.175 billion would put Penguin Random House in control of close to half the market for acquiring publishing rights to anticipated top selling books, leaving hundreds of individual authors with fewer options and less leverage.
According to its own documents as described in the complaint, Penguin Random House views the U.S. publishing market as an “oligopoly†and its acquisition of Simon and Schuster is intended to “cement†its position as the dominant publisher in the United States.
As the complaint makes clear, this merger will cause harm to American workers, in this case authors, through consolidation among buyers a fact pattern referred to as “monopsony.â€
The Antitrust Division’s Horizontal Merger Guidelines lay out a straightforward framework to analyze monopsony cases, and under those guidelines this transaction is presumptively anticompetitive.
Simply put, if Penguin Random House acquires Simon and Schuster, the two publishers will stop competing against each other. As a result, authors will be paid less for their work. Authors who are paid less write less, which, in turn, means that the quantity and variety of books diminishes too. ■