Dive Brief:
- U.S. District Judge Florence Pan on Monday agreed with the Department of Justice that a merger between two of the five biggest publishers in the country would harm the small segment of writers whose books generate much of the book industry’s sales. The decision came after a three-week bench trial in August.
- “The United States has shown that ‘the effect of [the proposed merger] may be substantially to lessen competition’ in the market for the U.S. publishing rights to anticipated top-selling books,” Pan wrote in her order, referencing the Clayton Act. “The merger shall be enjoined.”
- By one estimate, top-selling writers negotiating with Penguin Random House, the country’s largest publisher, could see their advances drop 4%, and those negotiating with Simon & Schuster, the third largest publisher, could see their advances drop 11% if the two companies combined. Advances are considered a crucial part of writers’ income because if sales don’t reach a certain point, royalty payments don’t kick in.
Dive Insight:
As part of a broad antitrust approach introduced early in his term, President Biden said he wants to curb mergers not just based on their potential to raise prices and reduce choices for consumers but on their impact on labor markets.
The approach has seen mostly setbacks, with DOJ losing high-profile wage-fixing cases in the healthcare sector and anti-poaching cases in the agriculture and other sectors earlier this year.
“The closely watched government campaign to criminally prosecute labor-related antitrust matters has run into a major roadblock — juries,” Bruce Sokler and Tinny Song of Mintz said in an analysis of the healthcare cases.
That makes the court’s decision against the publishing giants a milestone.
“The decision is … a victory for workers,” Jonathan Kanter, DOJ’s top antitrust official, said in a statement. “It reaffirms that the antitrust laws protect competition for the acquisition of goods and services for workers.”
DOJ argued that much of the profit in the publishing industry comes from the small top-seller market, accounting for only about 2% of deals but as much as 70% of sales. It defined that market as deals in which authors secure advances of at least $250,000.
In their arguments, lawyers for the publishers called the $250,000 a threshold that existed only in DOJ’s mind.
“It is an arbitrary price line with no practical, competitive, or legal significance,” they said in their post-trial findings of fact.
Defining the market is key, because if DOJ can’t do that, it can’t show harm to the market.
”DOJ [has invented] a market for rights to ‘anticipated top-selling books’ that excludes the vast majority of authors and lacks any basis in either the real world or accepted market-definition analysis,” Daniel Petrocelli of O’Melveny & Myers, a lead attorney for the publishers, has said.
But DOJ said any deal that comes in with a $250,000 advance is considered, within the industry, a potential top seller and typically requires an additional layer of management review. What’s more, at Simon & Schuster and two trade imprints under which Penguin Random House publishes, a deal at that amount can’t go forward without high-level sign-off within the company.
“Both [Simon & Schuster] and two of the three [Penguin Random House] adult divisions require high-level approval for offers that include an advance of $250,000 or more,” DOJ said.
This market is already highly concentrated, DOJ argued, with Penguin Random House and Simon & Schuster together controlling almost 50% of deals while the three other publishers that constitute what the industry calls the Big 5 control about 40%, leaving only 10% of the deals to smaller publishers.
In addition to Penguin Random House and Simon & Schuster, the other publishers in the Big 5 are HarperCollins, Hachette and Macmillan.
Penguin Random House and Simon & Schuster said they will appeal the decision.
"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," officials from Penguin Random House said in a statement reported by Publishers Weekly. "We believe this merger will be pro-competitive.”
The opinion hasn’t been made public yet. Judge Pan has given the parties until November 4 to agree on redactions to protect confidential information before it’s released.
