“I call it the Silicon Valley of media,” Penguin Random House CEO Markus Dohle said, referring to trade book publishing, to Department of Justice attorney John Read during roughly five hours of testimony on Thursday. “We are angel investors in our authors and their dreams, their stories. That’s how I call my editors and publishers: angels.”
The memorable line came in response to questions by Read, the DOJ's lead attorney in its case to block Bertelsmann's proposed acquisition of Simon & Schuster and merger with PRH, about a presentation PRH US CEO Madeline McIntosh gave to a “famous public figure” in order to convince them that her company was the best place for that figure to enter the book business. It was also a response to questioning by Read intended to push Dohle into confirming, under oath, the government's central argument in its case: that authors receiving a $250,000 advance or above represent a significant “sub-market” of the book business, and that the PRH-S&S merger would inevitably lower the advances paid to those authors.
McIntosh's presentation, which was displayed on a screen but not provided to press, explains that the top 4% of profitable titles in the book business drive 60% of its profitability, and that “higher advance levels are correlated with more book sales; however, there are always exceptions.” Dohle argued that the top 4% of books were “the books that you don’t pay a lot for and become runaway bestsellers.” Read, pushed back, arguing that books that receive higher advances are more likely to sell well. “There is a wide range, and some big advances flop completely and don’t sell well,” Dohle said, “but there should be a correlation.”
From a courtroom drama angle, one of the most fascinating aspects of this trial is a somewhat peculiar irony. The government's case relies in part on making publishers look extraordinarily savvy about the market in which they operate, in addition to benefiting from their sheer size. PRH's case relies on arguing that, actually, book publishing is a crap-shoot and that even the biggest, most powerful publishers are fortunate when a book they acquire becomes a bestseller. (Both, of course, have an element of truth.)
Much of the interchange between Read and Dohle hinged on Dohle's argument that Penguin Random House was, in fact, not the dominant publisher in the market that has been portrayed by the government because, based on PRH's internal numbers, the company had “lost market share almost the size of Simon & Schuster since the merger” between Penguin and Random House in 2013, a decline that has not hurt the company's profitability. Still, Read asked, if PRH combines with S&S, will that “cement” it as the top publisher in the market? Dohle, after some hedging about the wording, agreed that it would.
One argument the government made is that PRH is paying a lot of money to authors now to dominate the market, but once it’s acquired S&S, it will be so big as to have no reason to do so, and competition, books acquired, and author advances will all drop. (It would also, the government asserted-should author advances be reduced,-hurt the diversity of stories being published; Dohle agreed, provided that they were “significantly” reduced.) “After this merger, PRH US will not have as strong a need to grow share, correct?” asked Read. Dohle responded, “I don’t think it doesn’t speak to our performance” that PRH is paying “almost $2.2 billion” to “recoup our market share.” Forced to answer a yes or no question, Dohle conceded.
The government also spent time investigating the possibility of closing imprints after the deal is completed, and as an example, pointed to the merger of the Crown and Random House publishing groups. Read brought up the decision to close the Spiegel & Grau imprrnt. Dohle seemed doleful about the ordeal, even going so far as to say he “disagreed with the decision” to kill the imprint in 2019, suggesting it be moved to another imprint. That, obviously, did not happen, and asked by Read if it was shuttered because it wasn't profitable enough, Dohle said, “that is my understanding of the rationale.”
Continuing on the imprint line of inquiry, asked by PRH head lawyer Dan Petrocelli about the fate of imprints after the Penguin merger, Dohle said that, while some imprints were closed, others were opened, and that the overall number of imprints has stayed about the same. Also going back to the merger with Penguin, Petrocelli asked Dohle if he tried to reduce author compensation after the purchase was completed. "No, not at all," Dohle said.
Imprints also figured in the governments examination around Dohle's commitment to agents that he would “keep the ecosystem of imprints at Simon & Schuster together” and allow them to bid for manuscripts against imprints of PRH as if they were external bidders—that is, to continue to attempt to win the auction regardless of whether the only other bidder was an imprint of a combined PRH-S&S. Dohle said that remains his intention but that “unfortunately, we could not find a legally binding way” to solidify the commitment.
Asked later, in cross-examination, if he had a good reason to keep that commitment anyway, Dohle said: “My experience in almost 30 years in business and the publishing industry is, if you grant your partners, which in this case are agents and authors, an additional service, an additional advantage, you are practically unable to take it away. It would undermine that trustful relationship. I think it would damage our business, and that agents and authors would not appreciate it.”
At this point, Judge Florence Pan followed up, asking what he thought agents and authors would do if he reneged? “The agent community,” Dohle said, “would of course argue against it, because it was something that we granted them.” Judge Pan expressed skepticism that, even should Dohle fail to keep the commitment, agents would refuse to choose a PRH imprint if it were the highest bidder.