WASHINGTON (CN) — Prosecutors grilled the global CEO of Penguin Random House on Thursday over market growth plans in hopes of convincing a federal judge to block the company’s $2.175 billion bid to buy Simon & Schuster, arguing it will harm the U.S. publishing industry.
After confirming that Penguin Random House’s U.S. market growth loss in recent years is tied to its publishing operations, Markus Dohle was quizzed about why he encouraged the U.S. CEO to spend more on book advances within the $250,000 to $500,000 segment.
“We want to pay more for acquisitions in order to get the books and stop the market share drain and publish more books that are in demand and that readers like,” Dohle said.
As the Justice Department narrowed its case on the specific book advance segment, Dohle acknowledged there are “enough” books in the $250,000 tier of book advances that “would make a difference” in U.S. market share for Penguin Random House.
When the prosecutor questioned whether the CEO wants Penguin Random House to be paying “a little more” for advances to win book deals, Dohle took it a step further and said, “or even a lot more.”
According to the Justice Department, Penguin Random House would have control over more than half of the U.S. publishing market if U.S. District Judge Florence Pan, an Obama appointee, does not block the merger.
Attempting to tie the merger to Dohle’s market growth goals, the prosecutor then asked if one way to increase the company’s market share is to outbid, and if another is to “purchase a company,” which the CEO conceded is correct.
As the Justice Department sees it, the merger would turn Penguin Random House into a “monopsony” – a situation in which there is only one buyer in a given market – in violation of federal antitrust laws.
With Penguin Random House as the top publisher in the U.S. and Simon & Schuster ranking fourth, U.S. Attorney General Merrick Garland warned in 2020 that “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.”
Asked about potential post-merger strategies, Dohle confirmed Penguin Random House would not have as strong of a need to grow market share in the U.S. and acknowledged that the deal’s approval would cement the company’s position as the nation’s dominant publisher.
While the government claims Penguin Random House’s plan to buy Simon & Schuster will harm competition in the already ailing publishing industry, Dohle insisted on Thursday that an even bigger problem is afoot: all-access subscription models.
Attempting to shift the judge's focus, the CEO said those models, which give consumers access to books and audiobooks online, will have even worse consequences than the merger.
“We think it’s going to destroy the publishing industry,” he said. “And it will have a huge effect on author income, and with that, on the diversity of stories that will be published.”
He added, “We have had multiple discussions with the agent community, and by and large, they support that view.”
The CEO confirmed that Penguin Random House is currently not participating in any all-access subscription models, in an effort to slow their growth.
But he did not rule out the possibility, acknowledging that despite Penguin Random House’s hesitation, all-access subscriptions are still growing and if the end consumer prefers it over a single book, then “we might participate.”
Dohle's testimony came on the fourth day of the federal antitrust bench trial, which is expected to last up to three weeks.
Earlier in the week, Simon & Schuster CEO Jonathan Karp was called to testify and bestselling author Stephen King took the stand voluntarily for the government, arguing that the merger would be "bad for competition."
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