The federal government’s antitrust challenge to the $2.2 billion merger of Penguin Random House with Simon & Schuster that kicked off this week will be a test of the Biden administration’s focus on the harm to labor markets from consolidation. But in this case, lawyers for the publishers have said, the challenge is based on a fiction.
Calling it a “made-for-litigation” market, the publishers’ attorneys, in their response to the complaint the Department of Justice filed late last year, said there’s no such thing as a market for authors of anticipated top-selling books, which is the market segment DOJ has argued will be harmed should the two publishers merge.
“The Department of Justice does not allege that the merger will reduce competition in the market for book sales or raise prices for consumers,” said the attorneys, led by Daniel Petrocelli of O’Melveny & Myers. “DOJ professes a different concern: it wants to protect the most successful authors, those with sophisticated agents and the most lucrative book contracts. To secure that protection, DOJ invents 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.”
Antitrust focus
DOJ’s case is consistent with an executive order President Biden issued last year to make aggressive use of the government’s antitrust authorities to curb mergers, both horizontal and vertical, that harm not just consumers but labor participants.
“It is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry … especially as these issues arise in labor markets,” Biden said.
Since the book-publisher merger will reduce the number of companies that can realistically bid for big-name authors, competitive pressure will drop and so too will the amounts the winning bidder will need to offer, DOJ has argued.
“A hypothetical monopsonist of the U.S. publishing rights to books would profitably decrease the advances paid to authors by a small but significant, non-transitory amount,” the agency said.
A monopsonist is a company that can set prices at which it buys a service or a good because it effectively controls the market.
“Post-merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage,” DOJ said.
Publishing King
To help it make its case, DOJ has reportedly secured the help of Stephen King, whose 350 million book sales make him one of the best-selling authors of all time and a representative of the labor market the government is trying to protect.
“By reducing author pay, this merger would make it harder for authors to earn a living by writing books,” DOJ said.
The publishers’ attorneys say DOJ is betting on the idea that best-selling authors sell the rights to their work in a market distinct from all other authors, but the market doesn’t make that distinction.
“The publishing industry does not divide the market for book rights into distinct categories based on the author’s compensation for the book or whether it is anticipated to be a top seller,” the attorneys said. “DOJ’s failure to identify any such market-defining ‘price’ is critical: like any antitrust plaintiff, DOJ cannot claim harm to a market without identifying the essential facts that define the alleged market.”
The trial is set to run Aug 1-19 in the U.S. District Court for the District of Columbia.
