Penguin Random House’s attorneys responded today to the Department of Justice’s efforts to block its acquisition of Simon & Schuster, attacking the government’s main complaint, that the purchase would “likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers.”
In filing its suit to block the deal November 2, the DOJ said that a combined PRH-S&S, along with HarperCollins, “would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage.” PRH attacks this charge on several levels and begins by calling the theory of a “top-selling” category “fiction,” noting that the government doesn’t even identify what size of an advance it is referring to. “The publishing industry does not divide the market for book rights into distinct categories based on the author’s compensation for the book,” PRH’s lawyers said.” “The royalty advance for a proposed book is driven mainly by the reader demand a particular editor anticipates for that particular book.”
The PRH reply argued that the failure by the DOJ to identify the range of the size of the market it is talking about is “critical,” arguing, “The only potentially legitimate market in this context is the market for rights in all proposed books. And as to that market, DOJ barely makes any allegations at all. Most important, DOJ alleges no cognizable competitive harm—it does not even suggest that the merger will cause a market-wide decline in royalty advances or in overall author compensation.”
The PRH reply further states that the government is wrong in its claim that only the Big Five are able to publish top-selling authors, noting that, “in each of the past three years, three of the top ten highest selling authors according to BookScan have been published by publishers other than the so-called Big Five.”
PRH also attacks the suggestion that a merged PRH-S&S would control tool much of the trade market, pointing to BookScan data that shows the two companies’ combined share of print unit sales fell from 33.3% in 2014 to 29.4% in 2020, while the share of non-Big Five publishers rose from 44.1% in 2014 to 49.7% last year.
PRH’s lawyers insist that the market for all titles, even by “top-selling” authors, will remain vibrant post merger, pointing to data that shows that publishers other than the Big Five, “win bidding for books more often than Simon & Schuster does.” PRH also competes against “such media heavyweights as Disney, Amazon, and Scholastic,” for books PRH states, adding that established publishers like Norton and Abrams and new entrants like Zando—”could increase their participation in high-end bidding. In short, after the merger, authors will still have a vast array of buyers for their book proposals, particularly for books expected to be ‘top sellers.’ ”
The reply further argues that the government discounts the fact that by it own arguments books written by top-selling authors are in high demand, thus giving publishers an incentive to acquire them, while also giving the agents for these books leverage to find the best deal.
The PRH reply also highlights a number of positive things its acquisition of S&S will bring to the industry. Most notably, PRH said it plans to reinvest the cost savings generated by the merger to increase the number of books it buys as well as continuing to invest in programs to support bricks-and-mortar booksellers. “By giving Simon & Schuster authors access to Penguin Random House’s highly efficient supply chain, their books will be more discoverable, visible, and available—online, internationally, and down the street,” the filing said. “Penguin Random House’s extensive supply capabilities are increasingly important to neighborhood book stores as they strive to compete with Amazon’s almost infinite book selection and highly efficient delivery capabilities. Expanding Penguin Random House’s supply chain to include Simon & Schuster authors ultimately provides greater income for authors and more choices for readers.”
“Penguin Random House’s acquisition of Simon & Schuster is procompetitive in every respect. It will benefit authors, booksellers, and readers for generations to come,” said Dan Petrocelli of ‘Melveny & Myers and lead attorney for PRH and Bertelsmann. “DOJ wants to block the merger on the misguided theory it will diminish compensation to the highest paid authors. This is not only legally, factually, and economically wrong, but it also ignores the vast majority of authors who indisputably will benefit from the transaction. We are fully confident that this merger will only enhance competition across the entire spectrum of the publishing industry.”
Petrocelli told PW it is possible some sort of settlement between PRH and the government could come if, during discovery, new information comes to look. “We are open to it,” he said, but added that such deals are rare. He reiterated that PRH is confident in its position, stressing that the DOJ isn’t arguing that the purchase would result in fewer books being published or higher prices for consumers.
PRH and the government are meeting tomorrow to work out a schedule for a trial with a trial date target of August 2022.