Update: Antitrust and the Proposed Penguin Random House and Simon & Schuster Merger

Posted July 29, 2022
Photo by Sasun Bughdaryan on Unsplash

In November 2021, Authors Alliance published a blog post about antitrust and the publishing industry, focusing on a recent antitrust investigation intended to block the merger of two of the largest publishers in the country: Penguin Random House (“PRH”) and Simon & Schuster. The case is currently the subject of antitrust proceedings, with the Department of Justice (“DOJ”) on one side, and PRH, who is the party that would be purchasing Simon & Schuster, on the other. On August 1st, 2022, this case is scheduled for oral argument in the District Court for the D.C. circuit before Judge Florence Pan. In today’s post, we will provide an update on the case and share some thoughts about what it might mean for authors.

Witness Lists

Last week, the lists of witnesses for each side were announced. Both PRH and the DOJ included many prominent authors and publishing industry professionals on their witness lists. Literary agents and publishers will testify for both sides. Perhaps surprisingly, each party’s witness list also includes well-known authors. Bestselling author Stephen King will testify on behalf of the government, for example, whereas Andrew Solomon will testify on behalf of Penguin Random House. Penguin Random House also plans to call an economist to testify, likely as to potential economic effects of the merger. 

Parties’ Final Briefs

Then, earlier this week, both PRH and the DOJ submitted their final briefs in the case before it proceeds to oral argument. In its brief, the DOJ argues that a merger between PRH and S&S would violate antitrust laws based on the huge market share of bestsellers that the new firm would have, which it estimates will be nearly 50%. The DOJ also postulates that this would result in lower advances for authors, as there would be fewer publishers to “bid” on anticipated bestsellers, and ultimately, that the merger would lessen creative output and mean fewer authors could make a living from their writing. 

The DOJ’s brief also contextualized the merger within the longstanding pattern of publishing houses merging and consolidating, arguing that the industry as a whole is an “oligopoly” dominated by five major publishers, which cumulatively control 90% of the market for anticipated bestsellers (aside from Simon & Schuster and Penguin Random House, Hachette Book Group, Macmillan, and HarperCollins make up the rest of the so-called “Big Five”). Smaller publishers, which lack the resources of these major players, are generally unable to compete with the Big Five when it comes to anticipated bestsellers, as they often cannot offer the large advances bestselling authors come to expect. The DOJ concludes that because the planned merger would substantially lessen competition in the anticipated bestsellers market, it is presumptively illegal, a presumption which it states cannot be overcome by PRH’s arguments. The DOJ’s argument is also notable because it focuses on the harm to authors, not consumers. By including diminished creative output in the negative effects that might result from the merger, the DOJ’s brief signals that incentivizing authorship and supporting authors are important interests to be weighed when considering reorganization within the publishing ecosystem. 

PRH, for its part, argues that the relevant “market” in the case should not be the market for anticipated bestselling books, but market for books published overall. It further alleges that the “anticipated bestsellers” market (which the DOJ defines as books with advanances over $250,000) the DOJ discusses in its filings has no basis in industry classifications, and would only include approximately 85 books out of the more than 55,000 books published each year. PRH also challenges the government’s “presumption” of illegality, arguing that its prediction model is not adequate to show a likelihood of competitive harm. PRH argues that the merger would actually enhance competition by enabling the new firm to offer more attractive offers and incentivizing other large publishers to do the same in order to compete. It also states that the DOJ government misunderstands the publishing industry and book auctions, and that the DOJ’s predictions about competition within the publishing industry rest on false assumptions. For example, the brief explains that there is substantial uncertainty about how well a book will perform once it is published, making book auctions highly subjective and meaning that no “market price” can be set for book advances. Additionally, because authors have other priorities aside from maximizing financial gain, such as establishing strong relationships with their editors and ensuring that the publisher is a good fit for their work, it is not unheard of for authors to accept a bid that is not the highest offered due to these other factors. 

Overall, the parties’ final briefs in this case show that the book publishing industry is one beset by unusual characteristics and conditions: the offer and auction processes are not straightforward, sales predictions are unreliable, and the role of literary agents in book sales can obfuscate things further. And while publishing houses have steadily consolidated over time, antitrust efforts to make the industry less of an “oligopoly” have so far not been successful. 

As a general matter,  Author Alliance believes that more competition among publishers, and less consolidation of market power, will benefit authors. The trend that the DOJ observes about consolidation is true across the industry, including tradebook publishers but also academic publishers, textbook publishers and others, and substantially and negatively impacts all types of authors. It’s also true that more competition across the publishing ecosystem is needed, as shown by the pending ebook pricing fixing lawsuit against the Big Five publishers and Amazon. 

What’s Next?

Multiple sealed documents have been filed in the case, which makes it difficult to say with certainty what next steps are already in the works. Reports are that after initial oral arguments, trial will begin and is expected to last three weeks. The court has set a post-trial briefing schedule, suggesting that the upcoming hearing will not be the end of the story in this case. Authors Alliance will keep our readers informed about any updates as this antitrust case moves forward.