Will the largest publisher in the United States become even larger?

When the nation’s largest publisher, Penguin Random House, struck a deal in the fall of 2020 to acquire rival Simon & Schuster, publishing executives and antitrust experts predicted that the merger would come under heavy scrutiny from government regulators.

The merger will dramatically change the literary landscape, reducing the number of major publishing houses – known in the industry as the Big Five – to four. (Or, as one industry analyst put it, it could create Big One and the other three.)

Novelist Stephen King, who was summoned by the government to testify at the trial, said in an email that such a shift could spread across the industry, potentially affecting small publishers and authors, and eventually books that reach readers.

“The more standardized publishers are, the harder it is for independent publishers to survive,” King said. “And this is where good writers now start and learn their parts.”

Last fall, the Biden administration sued to block the $2.18 billion sale as part of its new and more aggressive stance against corporate consolidation. The trial will begin Monday with oral arguments in the US District Court for the District of Columbia, where Judge Florence Bane will preside.

The Department of Justice and Bertelsmann, the parent company of Penguin Random House, called a procession of prominent publishing executives as witnesses. They include Marcus Dohley, CEO of Penguin Random House, and Jonathan Karp, CEO of Simon & Schuster, as well as executives from other publishing houses, literary agents, and a handful of authors.

Here’s what we know about the case and its implications for the book’s business.

The Department of Justice says this merger will lead to a lot of consolidation in the publishing industry, creating what’s called a buying monopoly. Monopoly refers to the seller who has great power over the consumers; Buying monopoly has great power over suppliers. In this case, the government says, those suppliers are authors of expected bestsellers, which publishers buy for advances of more than $250,000.

The Biden administration says that by reducing the number of big publishers — who have the budgets to frequently compete for the biggest books — there will be less competition for those titles. This in turn would lower the advances paid to their authors. As a result, “fewer authors will be able to make a living from writing,” the Department of Justice argued in its pre-trial brief.

Bertelsmann, who owns Penguin Random House, argues that the acquisition would increase competition in the industry, and that it would benefit authors and readers.

It says the deal will give Simon & Schuster authors access to Penguin Random House’s supply chain and distribution networks, which are generally considered the best in the business. The efficiencies created by bringing the two companies together will allow authors to be paid more money, which will encourage other publishers to increase their offerings in order to compete.

He argues that the publishing industry is much more than just the Big Five. Other publishers include Amazon and Disney as well as countless mid-sized and smaller publishers. She believes the government’s argument about competition and author payouts exaggerates the role auctions play when publishers buy manuscripts, and inflates the number of times Penguin Random House and Simon & Schuster find themselves in outright bids.

Additionally, Bertelsmann maintains that Simon & Schuster will be able to bid against other Penguin Random House publications for the books, so the authors will still have plenty of potential bidders.

There is no doubt that the merger of two of the largest publishing companies in the United States will have a profound impact on the publishing business and culture.

Like Hollywood, the book trade has become increasingly reliant on blockbuster films for profit, and companies will gamble with huge sums of money to buy books by famous novelists such as John Grisham, Elle James, Margaret Atwood and Nora Roberts, or by celebrities and public figures. Like Barack and Michelle Obama (all published by Penguin Random House).

Penguin Random House is the largest publisher in the United States, with more than 90 publications and about 2,000 books released annually. If the merger takes place, it will have more than 30 fingerprints for Simon & Schuster and nearly 1,000 titles annually.

Industry analysts say the combined company will produce a disproportionate percentage of bestsellers. Last year, Penguin Random House books accounted for 38 percent of the top 100 bestselling books, according to NPD BookScan, while Simon & Schuster Books made up 11 percent.

Penguin Random House, which already has industry-leading printing, shipping and distribution capabilities, will acquire Simon & Schuster’s warehouse and distribution business for a network of small publishers.

The merger would leave three other large publishers remaining — Hachette, Macmillan and HarperCollins — and could lead to further consolidation in the industry, as other publishers gather to compete with a more formidable competitor.

For Penguin Random House, the collapse of the deal would be costly. Under the sale agreement, Penguin Random House will have to pay a fee of about $200 million to Paramount Global, the group that owns Simon & Schuster, if the deal does not close.

For Simon & Schuster, ending the sale would leave the company in limbo. According to court filings, evidence presented at trial will show Simon & Schuster “will somehow be stripped” of Paramount Global.

It is unclear whether another large publishing house, such as HarperCollins or Hachette, wants to risk censorship by regulators by making an offer. A private equity firm could buy out the company, but insiders fear that it could lead to deep staff cuts and lead to fewer Simon & Schuster titles.

The lawsuit will test whether the government can bring more antitrust cases targeting the effects of companies’ focus on how much workers are paid — in this case, the authors of the big books.

A group of progressive academics, lawyers, and economists have argued that a limited number of employers have limited options for workers and negatively affected their salaries. The government’s case fortunes will show how such arguments go in court.

They’re not the only lawyers trying: For years, a group of mixed martial artists have been pursuing a class action lawsuit against the Ultimate Fighting Championship. They have argued that the UFC is so dominant in promoting the sport that it is able to keep wages low, which the UFC denies. A court said in 2020 that the fighters could advance as a group with most of the case, but the merits of the case have yet to be considered.

This case is another example of management’s aggressive approach to competition policy, which has won praise from the left.

President Biden signed an executive order in June 2021 that aims to increase competition across the economy, in part by encouraging the FTC to focus on how focus can hurt workers. In the order, he urged the agency to consider new rules limiting imperfect agreements, which activists say make it more difficult for workers to get better job offers, and prevent employers from sharing wage information with each other in order to cut wages.

The Federal Trade Commission and the Department of Justice have also tried to test new legal theories in court. The Federal Trade Commission on Wednesday filed a lawsuit to block Meta, the company formerly known as Facebook, from buying the virtual reality studio, reflecting a new focus on how tech giants buy start-ups. The Department of Justice has also challenged United Health Group’s purchase of a health technology company, arguing that it would give the insurer access to sensitive data about its competitors. But it remains to be seen how the courts will respond to these efforts.

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