The government's final full day in the driver's seat of its case to block the merger of Penguin Random House with Simon & Schuster saw the last of its major witnesses take the stand. HarperCollins CEO Brian Murray's testimony followed the format of those of HBG CEO Michael Pietsch and Macmillan CEO Don Weisberg before him, with a twist: Harper is, at present, the second biggest trade publisher in the U.S., and its parent, NewsCorp, was a serious bidder for S&S.
“I was shocked,” Murray said when he saw the size of the number, $2.18 billion, that Penguin Random House had offered to pay for the publisher. Comparing it to other mergers and acquisition activity in the book business over the past few years Murray said he found it far outside the range of other acquisitions, adding: “We’ve probably done five or so acquisitions, and we tend to be very disciplined in our financial model. We could not find a way to have a return at that price.”
In an overlap with Pietsch's testimony, Murray said that he did not believe that consolidation from five to four is itself anti-competitive, but that a combined PRH and S&S was. And, like Pietsch, he said that he'd still be interested in HarperCollins acquiring Simon & Schuster should the merger be blocked.
Murray also explained his concern over his company's ability to compete with an even bigger PRH, which, according to HC's in-house estimates, is “three to three and a half times” as big as HarperCollins. The company got that number, Murray explained to ViacomCBS lawyer Stephen Fishbein in his cross-examination, by comparing the PRH trade division to HC's trade business minus HarperCollins Christian Publishing and Harlequin.
Fishbein pointed out that Harper's internal plan for its 2021 fiscal year, used as one of the defense's exhibit in the cross-exam, included those two groups, which dropped the size differential to two times. Murray's justification for not including those two divisions in the overview was that Harper doesn’t often compete with other Big 5 publishers on series romance or Christian titles. He also, unlike other CEOs asked about the threat of Amazon, conceded that it was a contender “on the romance front.”
The cross-examination was particularly fraught, with Murray's flat tone and indirect answers clearly getting under Fishbein's skin. Murray's testimony was impeached as inconsistent with his deposition twice—including over Murray's statement, in deposition, that HC would keep bidding aggressively post-merger should it be approved, which he refused to commit to in his testimony—although Judge Florence Pan overruled one attempt.
In the afternoon, the government's expert economic witness, Nicholas Hill, once again took the stand. In his direct examination, he finally had the opportunity to speak to the role of the agent in acquisitions, with a zinger agents across the industry are likely to appreciate: "Agents feature in many different markets, your honor, and they don't have a magic wand," he said. While they know their advantages in selling their books to publishers and they know how to leverage them, "if there's significant reduction in competition, they can't fix that."
After concluding the government's lengthy direct examination, defense attorney Randy Oppenheimer began his lengthy cross-examination, which stretched into today. That cross-examination worked, principally, to undermine the foundations of Hill's models in the eyes of the judge—and seemed to succeed to some extent, although Judge Pan also reminded Oppenheimer multiple times, after questions about issues specific to book publishing that Hill was an expert on economics, not the book business.
In particular, the cross-exam brought to light that, although more than half of the acquisitions Hill studied for his model were bilateral negotiations between publishers and agents/authors, he did not factor them in when looking on the impact the PRH-S&S merger would have on advances. Rather, he focused on auctions in his model, the "Second Score Auction Model," which predicts that authors will be harmed by the merger if PRH and S&S “are the first and second highest bidder for that author” in an auction whose result is determined by the second highest bidding party dropping out.
Judge Pan asked why Hill's model did not include bilateral negotiations if they are more common methods of acquisition than the various forms of auctions, and Hill's response was, in effect, that he didn't have enough data. A “first-price auction” model, and an “omnibus” model, both proved unsolvable, Hill said.
Another line of Oppenheimer's inquiry was around the market share of all the other publishers outside the Big Five, which, he argued, in combination, amount to a publisher the size of S&S with a successful track record of acquiring books above the $250,000 point , and therefore should be considered a Big Six. Hill was not persuaded. “They're not one firm,” he said, adding: “If you were to merge them into one firm...the concentration in the market would go up."
Today's session, which will see Hill finish his testimony and include literary agent Christy Fletcher's deposition entered as the testimony of an adverse witness for the government, will conclude the prosecution's direct examinations, with the defense taking over later today.