US Federal Court blocks merger of PRH and S&S

9.11.22

A US Federal Court has blocked the proposed merger between Penguin Random House and Simon & Schuster, finding that the effect of the merger may substantially lessen competition in the market for the publishing rights to anticipated top-selling books.

The antitrust trial was launched by the US Department of Justice a year ago on the basis that the merger would result in a monopsony, where, with fewer buyers in the market and therefore less competition, the publishers could substantially reduce the size of advances made to authors. The DOJ’s expert witness estimated that the combined market share of the publishers would have been 49 percent.

US Assistant Attorney General of the DOJ Antitrust Division, Jonathan Kanter, said ‘The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy.’

This decision comes a few months after the trial that captured the attention of book industry professionals around the world, in which, interestingly, the publishers' defence rested on presenting themselves as gamblers in an unpredictable market.

The case provided a fascinating spotlight on the unpredictability of publishing, which was presented at trial as largely instinctive rather than scientific. A recent article in The Conversation discussing the US case reveals how Australian publishers rely on their gut, commercial nous, experience, and knowledge of market trends. But ‘hit and miss lists’ are the norm across all publishing houses, suggesting that luck plays a significant part. 

US Authors Guild President, Doug Preston, said, ‘This decision is a major victory for authors. This is the first time a court has recognized what authors and the Authors Guild have been arguing for decades: that consolidation among publishers hurts authors. It leaves authors with fewer potential buyers of their manuscripts, which restrains their power to negotiate advances and other terms.’

The Authors Guild previously noted a broader concern about consolidation in publishing in that the number of decision-makers - the gatekeepers - determining what gets published becomes more concentrated: ‘Fewer publishers also mean less diversity.’

Author Stephen King, who gave evidence in the trial, reacted to the decision by tweeting that he was delighted the merger had been blocked.

Both Penguin Random House and Simon & Schuster have shared their disappointment with the ruling. They had maintained that, due to publishing houses’ imprint model where one imprint may bid against another for the same title, the merger would not stifle competitive bidding. In a post-trial brief, the defence team asserted that the DOJ had not shown that there would be harm to consumers as an effect of the merger, nor that authors at large would be harmed, stating the government ‘paid no heed to whether the merger would improve the sales, distribution, and visibility of books written by the many thousands of other authors who receive less than $250,000 for their hard work and creative efforts.’

A Penguin Random House statement said, ‘We strongly disagree with the decision, which is an unfortunate setback for readers and authors, and we will immediately request an expedited appeal. As we demonstrated throughout the trial, the Department of Justice’s focus on advances to the world’s best-paid authors instead of consumers or the intense competitiveness in the publishing sector runs contrary to its mission to ensure fair competition. We believe this merger will be pro-competitive, and we will continue to work closely with Paramount and Simon & Schuster on next steps.’

Penguin Random House’s parent company, Bertelsmann, has issued a statement announcing they plan to appeal the decision.