Hold the presses: Feds say publishing merger would create monopoly

WASHINGTON (CN) — In an effort to bust up a $2.175 billion merger, the Biden administration filed suit Tuesday to stop America's largest book publisher, Penguin Random House, from acquiring the fourth-largest, Simon and Schuster.

The merger was arranged by the publishing groups’ parent companies last year when Penguin Random House’s owner, German media group Bertelsmann, agreed to buy Simon and Schuster from ViacomCBS. The acquisition would give Penguin Random House access to a barrage of Simon and Schuster’s bestselling authors, such as Stephen King and Bob Woodward, as well as classic titles like “The Great Gatsby” and “Fahrenheit 451.”

In its 26-page complaint, filed Tuesday in Washington, the Justice Department warns against the anticompetitive consequences of such a deal.

“If Defendants’ proposed merger is allowed to proceed,” U.S. Attorney John Read and his colleagues wrote in the 26-page federal complaint, “Penguin Random House would be, by far, the largest book publisher in the United States, towering over its rivals. The merger would give Penguin Random House outsized influence over who and what is published, and how much authors are paid for their work.”

Both publishing groups contested these allegations in a joint statement Tuesday.

“DOJ’s lawsuit is wrong on the facts, the law, and public policy,” the groups’ attorney Daniel Petrocelli of O’Melveny & Meyers said. “Importantly, DOJ has not found, nor does it allege, that the combination will reduce competition in the sale of books. The publishing industry is strong and vibrant and has seen strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will promote, not harm, competition.”

The companies insist that they would still face competition after the merger from both large-trade publishers as well as Amazon, “and a range of mid-size and smaller publishers all capable of competing for future titles from established and emerging authors.”

To the Department of Justice, however, the suggestion that the publishers must join to compete with Amazon strains credulity. “Penguin Random House’s Global CEO privately admitted that he ‘never, never bought into that argument’ and that one ‘[g]oal’ after the merger is to become an ‘[e]xceptional partner’ to Amazon,” according to the complaint, which does not specify its source for CEO Markus Dohle’s statements.

Just five major publishers control the U.S. publishing industry today, and each regularly offers authors high advances and extensive marketing, as well as editorial support, to create best-selling books. While smaller publishers occasionally sign anticipated top sellers, they often can’t shoulder high author advances required and face greater financial turbulence when such books that don't sell as expected. 

If the merger proceeds as planned, Penguin Random House would control roughly half of the book publishing market, according to the complaint. “Penguin Random House’s next largest competitor would be less than half its size,” the suit says.

Attorney General Merrick Garland warned Tuesday that the anticipated merger could further stifle competition.

“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,” Garland said in a press release rolled out alongside the complaint. “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.”

The proposed merger comes behind decades of publishing industry consolidation, including Penguin and Random House’s merging in 2013. 

Both Penguin Random House and Simon and Schuster have said that their publishing groups will continue to compete against one another for books after the deal closes, and that Penguin Random House is not planning to reduce the number of books acquired or the amounts paid for the book deals.

“Our goal is for the new combined company to be truly greater than the sum of its parts,” Dohle, of Penguin Random House, said Tuesday, “and our focus is to grow our community of distinct imprints that will operate independently and autonomously and will continue to compete vigorously among themselves and with outside competitors, a process that best serves the objective that every author finds the right editor and the best imprint for their work to develop and flourish.”

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