Justice Department Sues Penguin Random House Over Simon & Schuster Deal

From a New York Times story by Elizabeth A. Harris, Alexandra Alter, and David McCabe headlined “Justice Dept. Sues Penguin Random House Over Simon & Schuster Deal”:

The Biden administration on Tuesday sued to stop Penguin Random House, the largest publisher in the United States, from acquiring its rival Simon & Schuster, as part of a new drive in Washington against corporate consolidation.

In a publishing landscape dominated by a handful of mega corporations, Penguin Random House towers over the others. It operates more than 300 imprints worldwide and has 15,000 new releases a year, far more than the other four major U.S. publishers. With its $2.18 billion proposed acquisition of Simon & Schuster, Penguin Random House stood to become substantially larger.

The deal, announced a year ago, has been under review by the government, which is increasingly scrutinizing the power wielded by big companies like Amazon and Facebook.

Earlier this year, President Biden signed an executive order focused on spurring competition across the economy. He has appointed skeptics of corporate concentration to the Federal Trade Commission and his economic policy team. His nominee to lead the Justice Department’s antitrust division, Jonathan Kanter, is a lawyer who represented critics of the tech giants….

Tuesday’s antitrust lawsuit, filed in the United States District Court for the District of Columbia, is a sign that the administration is willing to make more aggressive cases against corporate giants in court. It argues that the acquisition, because it would merge two publishers that are often the final bidders on the same books, would be detrimental to authors and result in lower advances.

The lawsuit focuses much of its attention on the market for the rights to books publishers believe will be top sellers, and documents several bidding wars between Penguin Random House and Simon & Schuster that went into high six and seven figures.

“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,” Attorney General Merrick B. Garland said. “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.”

Penguin Random House said it planned to fight the challenge and hired Daniel Petrocelli as its trial lawyer. Mr. Petrocelli successfully defended AT&T and Time Warner against the Justice Department when it tried to block their $100 billion merger.

In response to the Justice Department’s decision, Penguin Random House and Simon & Schuster issued a joint statement noting that Penguin Random House had not planned “any reduction in the number of books acquired or in amounts paid for those acquisitions.” The rationale for bringing the companies together, they said, was to find efficiencies that would save money on the back end, and that it had no plans to reduce the number of books it acquires or the amounts it pays for them….

The department’s focus on the advances paid to authors — rather than what a consumer pays for a book — signals a significant shift. For decades, courts have largely judged mergers on whether or not they will result in higher prices for customers. But a growing cadre of lawmakers, activists and academics say that focus is too narrow. Instead, they say prosecutors should consider harms to competitors, workers and suppliers.

Many of the most sought-after books sell at auction, with multiple publishing houses bidding against one another. But some publishers don’t allow different imprints within the same company to compete at an auction.

The rules at Penguin Random House have allowed for some internal competition, but only if there was also an outside party involved — say, Knopf and Riverhead, both owned by Penguin Random House, could compete as long as there was another publishing house in the game.

In September, Markus Dohle, Penguin Random House’s chief executive, held a virtual meeting with literary agents in an effort to address these concerns, with books by Barack and Michelle Obama — some of the most enormous blockbusters of recent years — visible behind him.

He said that imprints at Penguin Random House and Simon & Schuster would still be able to bid against one another if they became part of the same company. In its statement on Tuesday, Penguin Random House said this would hold true “up to an advance level well in excess of $1 million.”

Some in publishing consider these internal bidding rules to be cold comfort given the scale Penguin Random House has already achieved and how much more of the market it would gain if the two companies combine.

“It’s basically closing the barn door after the horse has bolted,” said Ayesha Pande, founder of the Ayesha Pande Literary agency.

Penguin Random House, which is owned by the German media conglomerate Bertelsmann, has said that it and Simon & Schuster together would account for less than 20 percent of the United States’ general-interest publishing revenue….

Antitrust prosecutors said that private statements from executives at the two companies undercut their own arguments for the deal. The companies have hinted that they saw the merger as a way to combat the power of Amazon, according to the lawsuit, but a Penguin Random House executive said that he had “never, never bought into that argument” and that a goal of the deal was for the combined companies to be a great “partner” to the online retail giant.

“I’m pretty sure that the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice,” a Simon & Schuster executive wrote to an author when the company was put up for sale in March 2020, according to the complaint. The sale to Penguin Random House was announced in November.

Reaction among industry groups was mixed on Tuesday. The American Booksellers Association, which represents independent bookstores, applauded the Biden administration’s approach….

The book business has been transformed by mergers and acquisitions in the past decade, a shift that accelerated with the merger of Penguin and Random House in 2013.

This year, HarperCollins made a deal to acquire Houghton Mifflin Harcourt Books and Media, the trade publishing division of Houghton Mifflin Harcourt, for $349 million. Hachette Book Group also went on a buying spree, with its acquisition of Perseus Booksin 2016, and its deal to buy Workman Publishing this year.

One side effect of growing consolidation could be fewer editors who operate their own imprints according to their tastes, and ultimately a less varied literary landscape.

“There’s less diversity of thought within the industry to generate new exciting ideas,” said Matt Keliher, the manager and book buyer at SubText bookstore in St. Paul, Minn. “You can see it when you come into the shop and all the book covers look the same. Everything gets flattened.”

Regardless of what happens in this case, ViacomCBS, the current owner of Simon & Schuster, still plans to sell, and it’s not clear who would buy it. The decision came as a shock to people in the industry who were confident that the deal would go through.

In a memo to Simon & Schuster employees, Jonathan Karp, its chief executive, sought to reassure his staff.

“For all of us, this news is unsettling: Nobody likes to work in an atmosphere of uncertainty,” he wrote. “We will carry on as the creative and industrious jewel of the publishing industry that made us attractive to buyers in the first place.”

Elizabeth A. Harris writes about books and publishing for The New York Times. Alexandra Alter writes about publishing and the literary world. Before joining The Times in 2014, she covered books and culture for The Wall Street Journal. Prior to that, she reported on religion, and the occasional hurricane, for The Miami Herald. David McCabe covers tech policy. He joined The Times from Axios in 2019. 

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