Penguin Random House, Simon & Schuster trial defined

The largest antitrust trial to hit the publishing trade in latest reminiscence kicked off this week, and at present the King of horror had his day in court docket.

On Monday, Penguin Random House, the most important writer within the nation, entered a federal courthouse in Washington to defend its deal to amass Simon & Schuster, the fourth largest, towards a Division of Justice emboldened underneath President Biden to implement antitrust legal guidelines aggressively.

If Decide Florence Y. Pan guidelines within the writer’s favor, the merger would drastically change the publishing world, whittling down the variety of main publishing homes, referred to as the Massive 5, to 4. The query Pan is deciding is whether or not, because the DOJ argues, this can curtail competitors and suppress guide advances for high-earning authors.

Testifying for the federal government on Tuesday was Stephen King, one of the vital profitable and distinguished novelists on this planet. Writer of bestsellers together with “The Shining’’ and “The Stand,” King has been publicly crucial of the deal and brazenly objected to the involvement of his longtime writer, Simon & Schuster.

How did it come to this go? All of it started in November 2020, when Paramount International (previously referred to as ViacomCBS) introduced it had agreed to promote Simon & Schuster to Bertelsmann’s Penguin Random House for $2.18 billion. Final fall, the Division of Justice sued to dam the deal on the grounds that an excessive amount of consolidation was unhealthy for authors and, finally, for readers.

Different witnesses within the trial, anticipated to final roughly three weeks and be determined in November, embody Simon & Schuster’s Chief Govt Jonathan Karp, Penguin Random House Chief Govt Markus Dohle and different authors, brokers and executives from different publishing homes.

Right here’s what King mentioned at present and what it is advisable to learn about publishing’s unprecedented antitrust lawsuit.

What did Stephen King should say?

“I came because I think that consolidation is bad for competition,” King mentioned Tuesday in entrance of a full courtroom (and an overflow room close by). “That’s my understanding of the book business. The more companies there are, the better it is.”

Throughout 45 minutes of testimony, King laid out the modifications he’s witnessed over a half-century profession in collaboration with numerous completely different publishers. He described impartial publishers changing into more and more “squeezed” by conglomerates. “The reason they’re being squeezed is because they don’t get the shelf space that they used to because the majors take a lot of that shelf space.”

He described his early years with indie publishers because the glory days, recalling his telephone ringing nonstop throughout auctions as his agent fielded presents from smaller publishers. However he finally migrated to what’s now change into the Massive 5 due to their wider distribution networks and deeper pockets.

Bertelsmann’s Penguin Random House needs to purchase Simon & Schuster, however the Division of Justice is attempting to dam the deal.

(Michael Sohn/ Related Press)

“I was able to pay the mortgage and I was able to put money away for the kids’ education,” mentioned King. “I didn’t have to finance the car. As far as I was concerned, I was living the dream: I was writing full time. I enjoyed what I was doing. That was a big deal…. There comes a point where if you’re very, very fortunate, you’re able to stop following your bank account and start following your heart. And that’s what I did. It was wonderful and it was great.”

However most writers at present aren’t so lucky. The common writer solely makes round $20,300, which is under the poverty line, mentioned King, citing a 2018 Authors Guild survey. He put the blame for shrinking advances squarely on trade consolidation.

“There were literally hundreds of imprints and some of them were run by people who had extremely idiosyncratic tastes,” he added. “Those businesses, one by one, were either subsumed by other publishers or they went out of business.”

The dynamics, he argued, have reversed; massive enterprise isn’t serving to the following technology of Stephen Kings. “I think that it becomes tougher and tougher for writers to find enough money to live on.”

Why is the merger such an enormous deal?

The New York-based Simon & Schuster and Penguin Random House are among the many largest publishing homes within the nation, identified within the publishing world because the Massive 5. (The opposite three are Hachette, HarperCollins and Macmillan).

Penguin Random House is the results of one other megamerger, between Random House and Penguin, in 2013 (at which level the Massive Six turned the Massive 5). Penguin’s roster of blockbuster authors, who generate huge gross sales of “backlist” titles, contains John Grisham, Toni Morrison, Dan Brown and former White House occupants Invoice Clinton and Barack and Michelle Obama — all of whom have offered thousands and thousands of copies worldwide.

Simon & Schuster has leaned lately towards massive nonfiction, publishing heavyweight writers corresponding to Bob Woodward and Hillary Clinton. If the merger goes by, the Massive 5 would shrink to the Massive 4 — one in all them considerably bigger than the remaining.

Why is the Biden administration combating it?

The federal government argues that the merger would scale back market competitors and finally hurt writers. If the deal goes by, the merged firm would management practically 50% of the bestseller market, which might finally end result, the DOJ contends, in authors receiving smaller advances and worse contract offers. “[F]ewer authors will be able to earn a living from writing,” the DOJ argued in a pretrial transient.

Collectively, the Massive 5 make up 90% of the marketplace for bestselling books within the U.S., in response to the federal government’s court docket submitting.

“The proposed merger would further increase consolidation in this concentrated industry, make the biggest player even bigger, and likely increase coordination in an industry with a history of coordination among the major publishers,” the submitting mentioned.

The DOJ additionally argues that readers will inevitably be harmed. “[B]y reducing author compensation, the quantity and variety of books published will fall as well… reducing author compensation will likely reduce the output of books published and limit consumer choice by limiting what stories readers hear.”

How are the publishers defending the deal?

Penguin and Simon & Schuster say, on the contrary, that the merger would bolster competitors within the publishing trade and permit them to pay authors extra. “[B]y making the combined entity a stronger bookselling competitor, the merger will incentivize other publishers to compete even harder for consumer attention,” the publishers mentioned of their pretrial briefing.

This argument depends on a standard piece of logic in publishing — that the rising dominance of Amazon in bookselling makes it much more mandatory for publishers to consolidate, the higher to set phrases with the net retail behemoth from a place of energy.

In addition they contend {that a} bigger, extra environment friendly firm would scale back guide costs, finally benefiting readers, booksellers and authors.

The publishers criticized the federal government’s give attention to anticipated bestselling books — the 1,200 or so books bought yearly for writer advances of no less than $250,000. At 2%, they make up a tiny piece of all of the books printed by industrial corporations.

Furthermore, the publishers say they’ll proceed to function independently and be allowed to bid towards one another for books, sustaining competitors among the many imprints inside the conglomerate.

On Tuesday, Karp, Simon & Schuster’s CEO, pushed again towards the federal government’s emphasis on auctions between his firm and Penguin Random House that had raised advances, noting the numerous auctions he’d misplaced to different publishers as nicely.

Requested whether or not the Massive 5 had an insurmountable advertising and marketing benefit, Karp mentioned, “I think that that is a prevailing piece of conventional wisdom and I’m not going to disagree,” earlier than including, “I do think that a lot of us believe that a good editor, a good publicist, and a sales rep is enough.”

Jonathan Karp, President and CEO of Simon & Schuster, Inc.

Jonathan Karp, President and CEO of Simon & Schuster, Inc., testified Tuesday in protection of the merger between his firm and Penguin Random House.

(Michael Benabib / Simon & Schuster / AP)

What’s at stake, in response to a lawyer

Many market-watchers are taking a look at this trial as a take a look at of the Biden administration’s resolve towards company consolidation.

“There has been a lot of criticism over the years about the government being too willing to take settlements in merger cases and not stopping mergers fully,” mentioned Harry First, a regulation professor at New York College.

“It’s one thing to give speeches about policies, it’s another thing to go into court and actually litigate and win cases,” he added.

The federal government’s focus right here on the labor market somewhat than shoppers can be an fascinating one, he mentioned — one which’s according to the Biden administration’s emphasis on bettering circumstances for staff.

“[A]ntitrust enforcement is one aspect of that,” mentioned First. “This is not quite the first test of this, but it’s the first test of this in a merger setting for this administration, so that also makes this an important case to watch.”

So what’s at stake for the publishers? Some huge cash. When the deal was introduced in 2020, Simon & Schuster proprietor ViacomCBS informed The Instances that German conglomerate Bertelsmann, which owns Penguin, agreed to pay a termination payment if the deal was blocked, however wouldn’t disclose its measurement. If the merger doesn’t undergo, Simon & Schuster should discover an alternate purchaser.

How uncommon is the lawsuit?

Though the publishing trade has steadily consolidated through the years, the pattern has accelerated lately. There was the Penguin-Random House merger in 2013, and simply final 12 months, two publishing homes made main acquisitions: HarperCollins bought Houghton Mifflin Harcourt’s commerce guide department for $349 million, and Hachette Ebook Group purchased Workman Publishing for $240 million, in response to a court docket submitting.

Earlier main mergers have sailed previous regulators with comparatively little resistance. A change within the climate on the DOJ portends a panorama by which consolidation might not all the time be a given.

Dorany Pineda reported from Los Angeles. Freddy Brewster from Washington D.C.