A federal judge on Monday blocked a bid by Penguin Random House, the United States’ largest book publisher, to buy one of its main competitors, Simon & Schuster, in a significant victory for the Biden administration trying to push the boundaries of antitrust law Enforcement.
Judge Florence Y. Pan, hearing the case in the U.S. District Court for the District of Columbia, said in an order that the Justice Department had established that the merger could “materially” impair competition in the U.S. publishing rights market the likely best-selling books.
The full order, including Judge Pan’s reasoning, is temporarily classified as containing confidential information and will be released later after redactions have been filed by both parties.
Penguin Random House and its parent company Bertelsmann announced on Monday that they intend to appeal.
In a statement, Penguin Random House called the decision “an unfortunate setback for readers and writers,” arguing that “the Justice Department’s focus on advances to the world’s highest-paid authors rather than consumers, or the intense competition in the publishing sector, is contrary to its mission.” , to ensure fair competition.”
The victory is remarkable for the Justice Department. Judges have ruled against several of his previous corporate transaction challenges, including UnitedHealth Group’s purchase of a technology company.
The trial, which stretched over three weeks in August in the US District Court for the District of Columbia, was a test case for the government’s new, more aggressive approach to containing consolidation. She was closely watched by the literary world, revealing what was going on inside the industry and the impact of consolidation on the publishing industry, already transformed by mergers in recent years.
Understand the Penguin Random House merger case
The US government sued to stop the book publisher from buying a competitor, Simon & Schuster. A judge blocked the merger on October 31.
Industry luminaries, including powerful literary agents and best-selling authors, testified. Penguin Random House and Simon & Schuster executives supported the deal, arguing that the merger would benefit authors since the publishers’ merger would result in cost savings, allowing the company to spend more on books.
The government had a high-profile witness on its side in author Stephen King, who testified that the merger would be particularly damaging to writers just starting out and took a contrasting position with his own publishing company, Scribner, which owns Simon & Schuster .
“I came because I think consolidation is bad for competition,” King said. The way the industry has evolved has “made it increasingly difficult for writers to find money to live on,” he said.
Executives from other major publishers, including the heads of Hachette and HarperCollins, also testified against the deal.
In an attempt to block the merger, the government argued that the deal would give authors fewer options for publishing their works, result in reduced advances for authors, and even lead to a reduction in the number and variety of titles published.
“One entity’s control of almost half of what is expected to be the best-selling book in the country threatens competition in several ways,” the Justice Department wrote in a brief following the trial. “Authors’ advances would decrease – advances they use to pay their bills and reflect remuneration for their work.”
Penguin Random House has around 100 imprints, which together publish more than 2,000 new titles per year. The merger would have added around 50 more imprints from Simon & Schuster.
The Justice Department’s focus on author revenue rather than consumer harm marked a shift in the way the government applies antitrust laws. For decades, antitrust policy has largely been guided by a desire to prevent large corporations from imposing higher costs on consumers, rather than focusing on the impact a monopoly might have on workers, suppliers, or competitors. By focusing on the potential harm to authors, the Justice Department signaled that it was taking a broader view of the potential impact of the consolidation.
“The Biden administration wants to be aggressive to protect the broader market, and not necessarily just to protect consumers,” said Eleanor M. Fox, an antitrust expert at the NYU School of Law.
The decision put a damper on Penguin Random House’s expansion efforts at a moment when the company is facing declining market share and a stagnant economy. Although Penguin Random House remains by far the largest publisher in the United States, it has struggled to maintain its revenue share in recent years.
The government focused its arguments on a narrow segment of the market, arguing that authors of books expected to be among the best-selling books receiving advances of US$250,000 and more would see their earnings fall if fewer major publishers attended auctions would compete for their books. They identified deals where Simon & Schuster and Penguin Random House were the top two bidders and cranked up the advance.
In its defense, Penguin Random House tried to convince the judge that the Justice Department had fundamentally misunderstood the dynamics of the publishing industry. The company said there was no separate market for writers earning advances of $250,000 or more, stressing that direct bidding wars between the two companies are rare.
Judge Pan was undeterred by these arguments.
When the $2.175 billion deal was first announced in 2020, most of the publishing industry assumed it would close after regulatory review. Many were stunned when the government blocked them. However, as the trial progressed, Judge Pan’s skepticism about Penguin Random House’s position became increasingly apparent.
The study’s outcome could have profound implications for the industry, with repercussions extending beyond the two companies.
In recent decades, the publishing business has already undergone a series of mergers and acquisitions as large publishers have bought out mid-sized companies and competitors and the number of large publishers has dwindled to five. When Penguin and Random House merged in 2013, the deal accelerated the race for mass. Competing companies like HarperCollins and Hachette also went on a buying spree, buying smaller companies to expand their catalogs and backlists.
But the Justice Department’s decision to block Penguin Random House from buying Simon & Schuster suggests future mergers could also come under government scrutiny, particularly if it’s an attempt by one of the so-called Big Five publishers to buy a competitor.
Some antitrust experts saw the verdict as a line in the sand that could slow down further consolidation in the industry.
“The government’s argument was based on a narrow slice of the book market, but the decision preserves competition on a broader scale by keeping two huge houses separate,” Erik Gordon, a professor of business administration at the University of Michigan, said in an email and called the verdict “a great asset to writers”.
Miscellaneous Experts say the outcome of the trial also raises questions about whether the government might decide to challenge another big player in the book business: Amazon.
“The target immediately moves to Amazon,” said Barry Lynn, executive director of the Open Markets Institute, an antitrust think tank. “Once you come in and say that this type of consolidation and this type of action is bad for writers and readers, you look at Amazon and you see a company with 80 percent market share, there’s only one conclusion.”
David McCabe contributed reporting.