Why did the government block a major book publisher merger?

0

What is the cause that can bring Joe Biden and Stephen King closer? Save the book industry from over-consolidation, to begin with.

A federal judge this week blocked a merger between two of America’s largest book publishers, Penguin Random House and Simon & Schuster. The Biden administration had sued to stop the deal on antitrust grounds — the country would end up with just four major publishers if the merger went through — and King was just one of the “industry luminaries from bookdom who testified. He was staunchly anti-merger: “Publishing should be more about cultural growth and literary achievement and less about corporate balance sheets.” he said The New York Time.

The two book publishers disagreed, calling the judge’s decision “an unfortunate setback for readers and authors”. Why has this merger caught the eye and what will it mean for the future of the book industry? Here’s everything you need to know:

Why do publishers want to merge?

The number of publishers has been declining for years. Indeed, the very name of one of the companies involved in the merger – Penguin Random House, the result of a 2013 merger – shows how far that process has already gone. As Constance Grady explains to Voice, the trend has left the country with five major publishers controlling 80% of the book market in the United States. (HarperCollins, Hachette and Macmillan are the other three not involved in the merger.) Penguin Random House is already the biggest of this jackpot, with a 25% market share.

“When parent company ViacomCBS put Simon & Schuster up for sale in 2020, smart money was on another major publisher acquiring the house,” Grady writes. Penguin Random House won the tender.

Why did the government oppose the merger?

The Biden administration argued it was bad for just about everyone involved with the books except the editors. Federal officials argued that the merger “will reduce author advances, result in fewer books being published, and provide less variety to consumers.” The conversation reports. Why? Because there would be fewer publishers to bid on the work of new authors, which means they would probably end up receiving less pay for writing – and that, in turn, would probably mean fewer new books and new authors for the pleasure of readers.

The Federal Antitrust Act of 1914 known as the Clayton Law “prohibits mergers if the effect of the transaction “may be “materially to lessen competition”, government lawyers wrote in a pre-trial brief. The book industry is “already highly concentrated and the merging parties’ market shares are significant”, meaning they fit the bill.

Was it unusual?

Yes. As Franklin Foer writes at Atlanticantitrust policy has been guided in recent decades by the so-called consumer welfare standard, which argues “that the size of a firm does not matter as long as the firm does not abuse its power to raise prices”. If customers get cheaper products from a merger, so much the better. The case against the publishing merger was prosecuted under a different, older theory of antitrust law: “A healthy economy – and a healthy democracy – cannot just protect consumers; it must also protect producers.” (This way of thinking about monopolies and mergers has sometimes been called “hipster antitrust“, because it recalls the ideas of Supreme Court Justice Louis Brandeis, who last held office in 1939.) In other words: the ability of authors to break into the industry and earn their lives were threatened by the merger, and the government saw this as a violation of antitrust law.

Will there be spin-offs for other industries?

Maybe. “The ruling is an extraordinary step forward for proponents of an antitrust revival, with seismic ramifications that extend far beyond the publishing world,” Alex Shepard writes to The New Republic. He said the government could use the precedent set by the stalled merger to go after other hugely powerful companies, like Facebook. And Foer says the Justice Department should use that approach to crack down on Amazon, which sells more than half of all books. But the Biden administration isn’t always successful in its aggressive antitrust efforts, The Associated Press reports: He may have won the book case, but he lost two other recent cases involving mergers in the healthcare and sugar sectors.

What’s next for publishers?

The purchase agreement between Penguin Random House and Simon & Schuster expires at the end of November, the Time reports. It is unclear whether these companies will extend the deal and appeal the judge’s decision. Either way, the book industry could face tough times ahead – sales have already fallen from their pandemic highs, and the possibility of a recession could have a further impact. “The value of being a legacy publisher like Penguin Random House becomes less important every year,” Shepard writes at The New Republic. “There is little in this verdict that changes that.”

Share.

About Author

Comments are closed.