The second day of the DOJ's trial to block Penguin Random House from acquiring rival Big Five publisher Simon & Schuster featured a little star power: bestselling author Stephen King took the stand, telling the court about his rise from struggling freelance writer to mega-bestselling author, and bemoaning the continued consolidation of the publishing industry—which, he contends, is hurting writers.
But in terms of the case before the court, the highlight of the day was the testimony of S&S CEO Jonathan Karp. Karp took the stand with what Judge Florence Pan referred to as a "very impressive binder," which held the contents of his lengthy 14-hour deposition, and proceeded to joust with DOJ attorney Jeff Vernon, who ran Karp through a litany of examples (anonymized for open court) in which S&S editors competed directly against Penguin Random House for books—winning some, losing some, but in each case driving up the author's advance.
Throughout, Karp remained equivocal, insisting that authors "benefit from competition among all publishers," and denying that the competition between S&S and PRH editors was especially robust. At each government inference that the relationship between PRH and S&S was particularly competitive, Karp demurred or generalized. And when asked whether his company competed primarily against the other Big Five houses at auctions, he also equivocated, insisting that smaller publishers do compete for works, before conceding that "at the higher" end it "seems" like S&S often competes mostly against Big Five publishers.
Meanwhile, the "impressive binder" played a significant role in Karp's testimony, with DOJ attorneys frequently having to refer Karp back to his previous testimony to counter statements made on the stand. DOJ attorneys entered portions of Karp's deposition into evidence at least four times to impeach Karp's testimony. “You seem to have a lot of examples of me saying things I don’t remember,” Karp quipped after several such exchanges.
In two of the more notable moments, the government revealed Karp as the author of a 2020 email to author John Irving in which he wrote: "I'm pretty sure the Department of Justice wouldn't allow Penguin Random House to buy us, but that's assuming we still have a Department of Justice." And in another email to the ViacomCBS employee overseeing the sale of S&S, Karp expressed a preference for the company not to be sold to a competitor, noting that a "financial" buyer would be better for S&S employees and for the publishing business. Despite this opinion, DOJ attorneys noted, ViacomCBS agreed to sell S&S to its "largest competitor."
During cross-examination by ViacomCBS attorney Stephen Fishbein, Karp had more breathing room to state his (and the defense's) case: competition is generally growing in the book business despite consolidation, and one fewer Big Five publisher isn't going to diminish author advances. At one point, Karp chafed at the colloquial term Big Five publisher, saying he doesn't use the term "Big Five" himself: "I think it’s parochial and ethnocentric," he said. "There are a lot of really good publishers all over the country. I don’t think it’s all about us."
Meanwhile, in terms of the competition from self-publishing and Amazon, Karp offered a tantalizing tidbit: three weeks ago, S&S was involved in a "seven-figure" competition with Amazon Publishing.
In another notable moment, Karp downplayed the relationship between high advances and sales, noting that the amount of an advance doesn't predict whether a book will be successful. He noted that many books with high advances flop, including one seven-figure deal with a "spiritual leader" who had a large following. "Unfortunately, his followers didn't follow him to the bookstore," Karp said. Publishers "have to work just as hard on every book because you have no idea which one is going to break out," he added, suggesting at one point that many in the company are often unaware of the size of an author advance, including the sales team, which caused Judge Pan to step in with her own line of questioning.
“If you pay a lot for a book—like one of these million dollar books—you’re not going to market that book harder...than your run-of-the-mill books?” she asked. Karp conceded that, yes, the publisher would feel more pressure to sell books in which the company has invested heavily in.
At another point, Pan asked Karp if more competition and more competitors necessarily leads to higher bids for book rights. S&S doesn't typically ask how many parties are bidding on a book, Karp explained, adding that the answer doesn't really impact how S&S will bid anyway, as how much S&S will spend is a determination that is made in-house. “When you want [a book], it doesn’t matter how many people are competing against you,” Karp said, sounding very much like a well-resourced Big Five publisher.
Stephen King's Stand
"My name is Stephen King. I'm a freelance writer," the bestselling author opened his testimony, before offering the court a recap of his remarkable career. His first two books, he noted, Carrie and Salem's Lot, were sold to Doubleday for modest advances without an agent. Both became bestsellers, with more than 60 bestsellers to come.
Saying he felt loyalty to Doubleday, King recalled the day his new agent presented his proposal for a new contract to Doubleday executive Robert Banker over lunch: a $2 million multi-book deal. Banker laughed and walked out of the restaurant, King recalled. Elaine Koster at New American Library, a paperback publisher eventually made the deal, selling hardcover rights to Viking. Judge Pan later asked King whether Banker ever expressed regret over his misjudgment. "Mr. Banker retired shortly thereafter," King said, to laughter in the courtroom.
Following his career recap, King was asked why he decided to voluntarily testify against his own publisher (King has been published by Scribner, a S&S imprint, since 1998). He didn't hold back: "I came because I think consolidation is bad for competition. That’s my understanding of the book business, and I’ve been around it for 50 years," King said. "When I started in this business, there were literally hundreds of imprints, and some of them were run by people with extremely idiosyncratic tastes, one might say. Those businesses were either subsumed one by one or they ran out of business. I think it becomes tougher and tougher for writers to find enough money to live on.”
As for whether the bidding would be good for authors should PRH acquire S&S, at first, King made the government's point succinctly. "The more companies there are, the better competition there is," he said, adding: "it’s a tough world out there now. That’s why I came." King compared the Big Five to Major League Baseball teams—far from the first comparison to the Great American Pastime in this trial, and an ironic one, considering the MLB's own antitrust exemption—King said that, in the book business, there were simply fewer places for authors to go. Then he mentioned how hot the market is in Hollywood for good writing—and good writers—calling it a "gold rush."
Perhaps the most consequential moment arrived when it came time for King's cross examination. "I'd love to sit down and have a coffee with you someday," Dan Petrocelli, principal lawyer for the defense, said to King after nearly an hour's worth of testimony on behalf of the government. "But I have no questions for you today."
The move clearly showed how little the defense believes King's testimony had any bearing on the merits of the case, beyond injecting a little star power and getting the proceedings some public attention.
Pande, Zacharius, Eulau also Testify
In addition to King and Karp, Day Two also heard testimony from three other witnesses.
Literary agent Ayesha Pande finished her testimony from Monday, offering a basic primer on the role of agents, as well as some perspective on the challenges of the market facing authors.
Most notably for the government's case, Pande drilled home the point that the best bids and the most lucrative deals for authors come from the Big Five publishers. And having one less Big Five publisher, she said, would likely impact her ability to negotiate higher advance deals. “Overall, I think it will limit the choice and number of editors and imprints and publishing houses that would be a good home for my clients," she observed, noting the effect could be especially pronounced for her clients because her agency focuses on "underrepresented" voices.
On cross examination, however, the defense ran through a list of 33 of Pande’s books, how they were acquired, and by who. The takeaway, defense lawyers pointed out: not a single one of these book deals would be affected by a PRH and S&S merger.
In other testimony, the public heard a short, 20-minute portion of a deposition tape from Kensington CEO Steve Zacharius, before the courtroom was cleared for confidentiality reasons. In the public portion, Zacharius said he expected author advances would go down, since there will be less competition for those authors.”
In addition, S&S CFO Dennis Eulau took the stand. However, Eulau was used primarily to validate a largely confidential document written by the late S&S CEO Carolyn Reidy, a memo to her Viacom bosses in which she offered an overview of the publishing business—and in which she opined that S&S competes mostly with the Big Five publishers.
Jonathan Karp will finish his testimony today, and then the government is expected to begin calling its economic experts. PRH CEO Markus Dohle is expected to testify Thursday.