Will the largest publisher in the United States continue to grow?

When Penguin Random House, the nation’s largest publisher, agreed to acquire rival Simon & Schuster in late 2020, publishing executives and antitrust experts predicted the merger would face heightened scrutiny from government regulators.

The merger will dramatically change the literary landscape, reducing the major publishing houses – known in the industry as the Big Five – to four. (Or, as one industry analyst put it, it could create the big one and the other three.)

Such a change could ripple through the industry, affecting small publishers, authors and ultimately books that reach readers, author Stephen King, who was called by the government to testify at the hearing, said in an email.

“The more big publishers get stronger, the harder it is for indie publishers to survive,” King said. “And that’s where good writers get their start now and learn their chops.”

Last fall, the Biden administration sued to block the $2.18 billion sale as part of a new and broader crackdown on corporate consolidation. The trial begins Monday with oral arguments in the U.S. District Court for the District of Columbia, presided over by Judge Florence Pan.

The Justice Department and Bertelsmann, the parent company of Penguin Random House, called a lineup of high-level publishing executives as witnesses. They include Penguin Random House CEO Markus Dohle and Simon & Schuster CEO Jonathan Karp, as well as executives from other publishing houses, literary agents and a few authors.

Here’s what we know about the case and its implications for the book business.

The Justice Department said the merger would create too much consolidation in the publishing industry, creating a so-called monopsony. A monopoly refers to a seller who has too much power over consumers; Monopsony has too much power over suppliers. According to the government in this case, those vendors are authors of books that are expected to be best sellers, and those that publishers buy for more than $250,000.

With the Biden administration reducing the number of big publishers — whose budgets are mostly for great books — there will be less competition for those titles. This in turn reduces the growth paid to their authors. As a result, “few authors earn a living by writing,” the Justice Department argued in a pretrial brief.

Bertelsmann, who owns Penguin Random House, argues that the acquisition will increase competition in the industry and benefit both authors and readers.

The deal gives Simon & Schuster authors access to Penguin Random House’s supply chain and distribution networks, which are generally considered the best in the business. The efficiencies created by combining the two companies will allow them to pay authors more, which will encourage other publishers to increase their offers to compete.

He argues that the publishing industry is more than just the big five; Other publishers include Amazon and Disney as well as “countless” medium and small publishers. He believes the government’s argument about competition and author fees overstates the role that auctions play when publishers buy manuscripts, and exaggerates how often Penguin Random House and Simon & Schuster participate in front-end auctions.

In addition, Bertelsmann Simon & Schuster can bid on books from other Penguin Random House publications, so authors still have plenty of bidders.

There is no doubt that the merger between the two largest publishing companies in the United States will have a profound impact on the publishing industry and culture.

Like Hollywood, the book business has become increasingly reliant on blockbusters for profit, and companies are willing to pay big bucks to buy books by famous novelists such as John Grisham, Elle James, Margaret Atwood and Norah Roberts. Like Barack and Michelle Obama (all published by Penguin Random House).

By far the largest publisher in the United States, Penguin Random House has more than 90 imprints and publishes nearly 2,000 books a year. If the merger happens, it will acquire Simon & Schuster’s 30-plus imprints and about 1,000 titles a year.

The combined company will produce a disproportionate percentage of the best-selling books, industry analysts say. Last year, Penguin Random House titles accounted for 38 percent of the best-selling print books, according to NPD BookScan, while Simon & Schuster books accounted for 11 percent.

Penguin Random House, which already has industry-leading printing, shipping and distribution capabilities, will acquire Simon & Schuster’s warehouse and distribution network for small publishers.

The merger could bring together the other three big publishing companies — Hachette, Macmillan and HarperCollins — and further consolidation in the industry, as other publishers ramp up to compete with a bigger rival.

For Penguin Random House, breaking up the deal would be costly. According to the sale agreement, Penguin Random House will have to pay approximately $200 million to Paramount Global, the owner of Simon & Schuster, if the deal does not close.

For Simon & Schuster, the sell-off leaves the firm reeling. According to court filings, the evidence presented at trial showed that Simon and Schuster were “extended one way or another” from Paramount Global.

It is unclear whether another major publishing house, such as HarperCollins or Hachette, would want to risk scrutiny from regulators by bidding. A private equity firm could buy the company, but printing out the insiders would result in significant staff cuts and fewer titles at Simon & Schuster.

The lawsuit also examines additional antitrust cases aimed at the effect of corporate concentration on how much the government’s employees — in this case, chief bookkeepers — earn.

A group of progressive academics, lawyers and economists have argued that the shrinking number of employers is limiting options for workers and negatively affecting their wages. The state’s case law shows how such arguments are found in court.

They’re not the only lawyers trying: For years, a group of mixed martial artists have been filing a class-action lawsuit against the Ultimate Fighting Championship. The UFC has denied that it was able to lower salaries because it dominates the promotion of the sport. A court ruled last year that the soldiers could proceed with most of the charges as a group, but the merits of the charges have yet to be determined.

This case is another example of the administration’s aggressive approach to competition policy that has drawn praise from the left.

President Biden signed an executive order in June 2021 aimed at increasing competition throughout the economy by encouraging the Federal Trade Commission, in part, to focus on ways it could hurt workers. In the order, he pushed the agency to consider new rules restricting non-compete agreements, which advocates say would make it harder for workers to get better job opportunities and stop employers from sharing salary information with each other to lower wages.

The FTC and the Department of Justice have tried to test new legal theories in court. The FTC on Wednesday asked Facebook to stop the company from buying virtual reality studio Meta, signaling a new focus on how the tech giant buys startups. The Justice Department has challenged UnitedHealth Group’s acquisition of a health tech company, arguing that it would give the insurer access to sensitive information about its competitors. But it remains to be seen how the courts will respond to these efforts.

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