A federal court has blocked Penguin Random House's acquisition of rival Big Five publisher Simon & Schuster. At press time, Judge Florence Y. Pan's opinion was not yet public as the parties still need to agree on redactions to protect confidential information, but in a brief two page order Pan enjoined the merger.
"Upon review of the extensive record and careful consideration of the parties’ arguments, the Court finds that the United States has shown that 'the effect of [the proposed merger] may be to substantially to lessen competition' in the market for the U.S. publishing rights to anticipated top-selling books," Pan's order states. "Accordingly, judgment shall be entered in favor of the Plaintiff and the merger shall be enjoined."
The parties now have until November 4 to file proposed reactions, after which the court will issue a public version of Pan's Memorandum Opinion.
In a statement, PRH officials said they "strongly disagreed" with the decision and would be requesting an "expedited" appeal, (although in later comments by PRH and S&S officials an appeal appeared less certain).
"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," the statement reads. "We believe this merger will be pro-competitive, and we will continue to work closely with Paramount and Simon & Schuster on next steps."
In comments made at the Sharjah International Book Fair, PRH CEO Markus Dohle suggested the ruling was "political" in nature and said PRH was "considering" an appeal.
“I think the ruling is utterly wrong,” Dohle said, reiterating his belief that the merger would have been pro-competitive. "We would have been able to sell more Simon & Schuster titles than they would have been able to sell on their own,” Dohle said, adding that the combined companies would have represented less than 20% of the overall book market, where “Amazon represents more than 50% of the retail market.”
In a message to staff, S&S CEO Jonathan Karp addressed the publisher's future.
"Although we are disappointed with this decision, I want to reassure all of you that, despite this news, our company continues to thrive. We are more successful and valuable today than we have ever been," Karp said. "I am sure that you are eager to know what the future holds for Simon & Schuster. As you may have heard, Penguin Random House has announced its intention to request an expedited appeal of the ruling. We are reviewing the decision and discussing next steps with Paramount, Bertelsmann and Penguin Random House."
The U.S. Justice Department, meanwhile, praised the decision.
“Today’s decision protects vital competition for books and is a victory for authors, readers, and the free exchange of ideas,” said assistant attorney general Jonathan Kanter of the Justice Department’s Antitrust Division. “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.”
Kanter also said the ruling was "a victory for workers" more broadly, reaffirming that "the antitrust laws protect competition for the acquisition of goods and services from workers.” Indeed, many observers have said the DOJ's suit to block the merger was a "test case" for an expansion of antitrust enforcement.
The order comes a little over two months since the conclusion of a blockbuster trial that captivated the publishing industry, and nearly two years since Penguin Random House parent Bertelsmann announced its proposed acquisition of Viacom CBS subsidiary Simon & Schuster for a hefty $2.175 billion.
On November 2, 2021, the U.S. Department of Justice announced its suit to block the deal, with U.S. attorney general Merrick Garland saying the deal, if consummated, would give Penguin Random House "unprecedented control over this important industry.”
Unlike more common monopoly cases, however, the Government's case did not rest on allegations of potential consumer harm but focused on author advance payments—an allegation of monopsony as opposed to monopoly. Specifically, the government argued that allowing PRH—already the largest U.S. trade publisher by a wide margin—to swallow up one of its major rivals for book rights would lead to fewer bidders for rights, causing author advances to suffer. And while the government alleged that author advances at all levels would likely be impacted, they especially homed in on the advances of a very small subset of authors earning advances over $250,000, defined by the government as "anticipated top-selling books."
“One entity’s control of almost half of the nation’s anticipated top-selling books threatens competition in multiple ways,” the DOJ argued in its 152-page "finding of fact" post-trial brief. “Authors’ advances would fall—advances that they use to pay their bills and that reflect compensation for their work. The contractual terms publishers offer authors would worsen. Authors would have one fewer independent outlet for their work, and, as PRH’s CEO acknowledged, as advances fall the diversity of stories being told would narrow. These are not abstract concerns. They are shared by many agents, authors, and even Defendants’ executives.”
In court filings and at trial, Penguin Random House attorneys hammered at the government’s claims, arguing that the DOJ's case was legally unsound, that the government failed to grasp the "the most basic elements of the book rights market,” and arguing that the merger would actually be pro-competitive.
In its 163-page post-trial "finding of fact" brief, PRH lawyers pointed out that the government did not allege any harm would flow to consumers from the merger. And in terms of harm to authors at large, 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,” DOJ attorneys argued.
Pan's decision was not unexpected. Over the course of the trial, it had become clear to observers that the judge was skeptical of Penguin Random House's claims.
Within the publishing ecosystem, PRH’s bid to acquire S&S has been the focus of intense criticism. But another realization has also set in over the last year: someone is going to buy Simon & Schuster. And of all the identifiable options at this point, some in the industry have (on background) questioned whether PRH may well have been the most preferable landing spot.
But the reaction to the decision on social media and across the industry has been to celebrate the decision as a long overdue move to slow the pace of industry consolidation.
In a tweet, bestselling author Stephen King, who testified against the merger at trial, celebrated the decision. "I am delighted that Judge Florence Pan has blocked the merger of Penguin Random House and Simon & Schuster," King tweeted. "The proposed merger was never about readers and writers; it was about preserving (and growing) PRH's market share. In other words: $$$."
In a statement, the Authors Guild (which strongly opposed the merger and has fought against industry consolidation for decades) also praised the decision.
“This decision is a major victory for authors,” said Authors Guild president Doug Preston. “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 decision is particularly exciting for us because it shows that the court understands that monopsonies—the concentration of power among one or a few large buyers—are as harmful to competition as monopolies where sellers control pricing,” added Authors Guild CEO Mary Rasenberger. “This is particularly true where the suppliers are authors or other creators who have almost no ability to negotiate most terms of their contracts. And in the case of books, it is particularly important since books are so crucial to the exchange of ideas necessary to support democracy.”
This story has been updated with additional comments and will be updated as more comments come in.