Book-Industry Insiders Back the Biden Administration’s Bid to Stop a Publishing Mega-Merger

The news this week that the Biden administration is headed to courtroom to cease Penguin Random Home from buying Simon & Schuster added a brand new ripple of drama to the already feverish local weather of media M&A. Biden’s Division of Justice, which is taking a extra aggressive strategy to company consolidation, says that the proposed $2.18 billion merger would give Penguin Random Home, the world’s largest writer, “unprecedented management” over the book-publishing {industry}, and that it might lead to “decrease advances for authors and in the end fewer books and fewer selection for shoppers.” PRH and S&S argue that the merger wouldn’t scale back “the variety of books acquired” or the “quantities paid for these acquisitions,” and that the 2 publishing homes, each members of the so-called “Large 5,” would nonetheless be permitted to bid towards one another in auctions “as much as an advance degree nicely in extra of $1 million.” PRH has its boxing gloves on: The corporate has retained Daniel Petrocelli, the identical man who litigated AT&T and Time Warner’s successful battle with the Trump administration in 2018. (Cross the popcorn.)

As for the final response amongst publishing insiders, the sense I get is that a number of them—maybe apart from executives at PRH and S&S—assume DOJ is doing the correct factor. There’s one section of the {industry} specifically that’s unsurprisingly happy. “Clearly each agent is thrilled that the wheels is perhaps grinding to a halt on this,” a well-connected agent instructed me. A giant-league editor echoed that sentiment: “I don’t know anybody who would assume this can be a great point to occur. It’s arduous to make the case that it’s factor for the {industry}. You might actually make the case that it’s factor for Simon & Schuster”—which is owned by ViacomCBS, the results of a 2019 merger between Viacom and CBS Company—“as a result of what else are they gonna do within the brief time period?” (Penguin Random Home is owned by the German conglomerate Bertelsmann.)

One other editor agreed however added a splash of skepticism, contemplating that the merger apparently gained’t prohibit aggressive bidding besides on the uppermost echelons of the market, the place the massive million-dollar-plus auctions come into play. “In the event that they’re apprehensive in regards to the little writer dropping leverage or getting smaller advances, I don’t see how that may occur,” the editor mentioned. “The editors I do know at Penguin Random Home”—which fashioned from the 2013 merger of Penguin and Random Home, and encompasses a wide array of imprints—“are actually aggressive with each other. Additionally, I nonetheless don’t perceive this obsession with advances”—the lump sum an writer is assured no matter how a e-book sells—“as a result of the true cash is in royalties. When’s the final time Stephen King didn’t earn out an advance? I’d actually wish to know.” (For his half, King, one in all Simon & Schuster’s greatest authors, told The Wall Avenue Journal that he was “delighted” by the DOJ’s problem.)

The darkish view of the merger, as my sources defined it to me, is that it might create one other mega behemoth when the {industry} has already been upended by Amazon. The lawsuit, filed in U.S. District Courtroom for the District of Columbia, notes that the defendants “have publicly recommended that the merger is important to create a stronger counterweight to Amazon.” However the swimsuit alleges that Penguin Random Home CEO Markus Dohle has privately acknowledged that he “by no means, by no means purchased into that argument,” and that one “[g]oal” is to change into an “[e]xceptional companion” to Amazon, which wields immense energy over e-book gross sales (and is usually not considered companion for authors and publishers). “I feel among the penalties of the merger could possibly be years down the highway,” one in all my sources mentioned. “When Amazon first got here on the scene, we couldn’t have predicted what it might change into…. You might see the merger as two giants coming collectively to take a stand towards Amazon, however in a manner, it’s too late to face up towards Amazon.”

In a ready assertion distributed after the criticism was filed, Dohle mentioned, “Our aim is for the brand new mixed firm to be really larger than the sum of its components, and our focus is to develop our group of distinct imprints that can function independently and autonomously and can proceed to compete vigorously amongst themselves and with exterior rivals.” Simon & Schuster CEO Jonathan Karp individually despatched an electronic mail to the corporate’s authors: “The DOJ contends that PRH’s acquisition of S&S will scale back competitors for the acquisition of titles. Notably, DOJ has not alleged that the acquisition would hurt competitors within the sale of books. Simon & Schuster and Penguin Random Home strongly disagree with the DOJ that this transaction will hurt competitors.” The publishers collectively acknowledged, “Competitors to amass new titles is intense, together with Hachette, HarperCollins and Macmillan, in addition to dozens of mid-size and smaller publishers. PRH has a demonstrated dedication to permitting aggressive bidding amongst all its imprints. PRH and S&S imprints will proceed to compete towards each other for brand new books, even after the transaction closes.”

Along with capturing the eye of the literary world, the lawsuit is additional proof of the Biden administration’s promise to toughen up on antitrust enforcement. Over the summer time, it scuttled a $30 billion insurance-industry merger. In September, it filed swimsuit to dam the mixture of American Airways and JetBlue. Over the previous a number of years, the media {industry} has been a hotbed of merger exercise because it grapples with tectonic shifts in client habits, and there’s each expectation that additional consolidation is in retailer. The following main tie-up within the pipeline is that of WarnerMedia and Discovery, a $43 billion deal that was introduced in Might and is at present making its manner by way of the regulatory gauntlet. On Discovery’s earnings name this week, CEO David Zaslav mentioned, “We’re nicely on observe for a mid-2022 shut.” Inside Discovery and WarnerMedia, the DOJ swimsuit certainly raised eyebrows, however I’m instructed there aren’t any alarm bells ringing, given the character of the movie and tv panorama. “It’s a really aggressive market,” one supply mentioned. “There are simply so many choices for shoppers, creators, and expertise.”

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