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US Penguin head grilled on merger said to squeeze out smaller publishers

Federal prosecutors say the deal would effectively leave Penguin Random House as the sole buyer in irs given market.

WASHINGTON (CN) — A federal judge wielded the market share for books about Christianity to corner the U.S. CEO of Penguin Random House about the publisher’s $2.175 billion dollar bid to buy Simon & Schuster.

According to the Department of Justice, the Simon & Schuster acquisition 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. 

Madeleine McIntosh, U.S. CEO for Penguin, testified for the publisher Monday in day 10 of the federal antitrust trial slated to last three weeks.

On the stand, she faced questioning from U.S. District Judge Florence Pan about the extent to which Penguin competes with the nation’s second-largest publisher of trade books, HarperCollins, given that, in sales of Christian books, the playing field is uneven.

If you discount Christian sales, Pan pushed, Penguin Random House would be “like three times their size.”

Penguin CEO Madeline McIntosh tried to play down the gap.

“I do think they compete with us in Christian sales,” she said.

But Pan, an Obama appointee, said that’s why she made a point to highlight the fact that Penguin Random House has “so little” of the Christian book market share compared with HarperCollins.

“Well, we’ve been working to increase that over time,” McIntosh replied.

Probing the CEO, the judge again asked whether Penguin Random House’s trade book market share would be triple that of HarperCollins if Christian book sales were removed from the calculation.

McIntosh dodged the question, telling the judge she does not have the data required to answer.

The CEO pointed to lacking data as well Monday when Pan asked how often Penguin Random House loses a book to a publisher that bids lower.

As the U.S. CEO, McIntosh is required to approve any advances of $1 million or more. She acknowledged she has “certainly” heard of such cases but said she does not have data on how often it happens.

When pressed about whether it is rare, McIntosh conceded that it is.

Pan noted Monday that McIntosh’s testimony makes it seem that the publishing industry is “very much driven” by the speculative sales of books.

“I would say we spend a lot of time trying to guess the expected sales of books,” McIntosh said. “And we try to drive towards maximizing that number.”

And when it comes to determining how much Penguin Random House pays authors in advances for books, McIntosh said it is based on a combination of the expected sales, as well as the type of book.

The judge also heard testimony on Monday from Alex Berkett, chief corporate development and strategy officer for ViacomCBS, and Manuel Sansigre, senior vice president and head of global mergers and acquisitions for Penguin Random House.

Bestselling author Stephen King took the stand voluntarily for the government during the first week of the trial, arguing that the merger would be “bad for competition.”

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.” 

Last week, Macmillan Publishing CEO Don Weisberg testified that his “guess” is that the merger will lead to less competition, which “will bring the advance levels down.” Longtime literary agent Christy Fletcher voiced similar worried on the stand.

Meanwhile, Simon & Schuster CEO Jonathan Karp and Penguin Random House CEO Markus Dohle defended the merger when called to testify.

The bench trial is expected to resume Tuesday with direct testimony from Sansigre.

Follow @EmilyZantowNews
Categories / Business, Consumers, Media, Trials

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