From The Wall Street Journal:
A Justice Department lawyer delivered closing arguments Friday in an antitrust challenge to Penguin Random House’s planned acquisition of rival publisher Simon & Schuster, a test for the Biden administration’s aggressive approach to challenging corporate mergers.
“The merger will reduce the number of players in this market,” Justice Department lawyer John Read said, “and will clearly exacerbate the risk of coordination in the market.”
Lawyers for the publishers countered that the merger would benefit authors and consumers and that the government has failed to prove its case.
“It’s a good deal for all involved, including authors,” said Stephen Fishbein, a lawyer for Simon & Schuster, during closing remarks on Friday.
U.S. District Judge Florence Pan in Washington oversaw the three-week nonjury trial. She hasn’t said when she will rule on whether the publishing merger, valued at more than $2 billion, should proceed.
German media company Bertelsmann SE, which owns Penguin Random House, agreed in November 2020 to buy Simon & Schuster from ViacomCBS, now called Paramount Global.
The Justice Department sued a year later to block the deal, saying it would give Penguin Random House—itself the result of a 2013 merger—too much control over the industry.
Penguin Random House is the country’s largest consumer book publisher; Simon & Schuster is the fourth largest as measured by total sales.
In a pretrial brief, the Justice Department said the combined company would have a market share of 49% of what it described as “anticipated top-selling books,” which the government defines as titles that command advances of at least $250,000.
In his closing argument, Daniel Petrocelli, a lawyer for Penguin Random House, said no one in the industry views “anticipated top-selling books” as a distinct market. The government is focusing on this narrow slice of the industry because it can’t show the acquisition would harm consumers, Mr. Petrocelli said.
The defendants, in their pretrial brief, estimated that only 1,200 books a year, or 2% of the books published by commercial publishers, sell for advances of $250,000 or more.
Famed horror writer Stephen King testified during the first week of the trial, saying he opposed the sale of his publisher, Simon & Schuster, to Penguin Random House.
“Consolidation is bad for competition,” Mr. King said. “That’s my understanding of the book business. And I have been around it for 50 years.”
Mr. King testified that years of consolidation in the publishing industry and the failures of other independent publishers had combined to make it “tougher and tougher for writers to find enough money to live on.” He cited a 2018 survey that found full-time writers were earning an average of slightly more than $20,000 annually, which he described as “below the poverty line.” Mr. King has had a highly successful publishing career, having testified that he has written between 60 and 65 bestsellers.
Mr. King also said writers enjoyed specific benefits by signing with one of the country’s five largest publishers, a group that includes Penguin Random House and Simon & Schuster. Mr. King noted that the largest publishers can pay huge advances, raise awareness of new titles by sending out advanced copies to reviewers and orchestrate sophisticated media campaigns.
“Not every book is successful because of that, but when a publisher really gets behind a book, particularly a big publisher, the chances are that that book is going to probably succeed on some level,” he said.
Mr. King wasn’t cross-examined by an attorney for Penguin Random House.
Link to the rest at The Wall Street Journal
The key takeaway is both hidden and right out in the open:
I could engage in a long, complex argument regarding whether that’s an ordinary standard of persuasion in individual circumstances or an accurate statement of what the antitrust statutes say (or are founded upon). I could further pontificate that it both ignores the monopsony-versus-monopoly problem that is the core of the government’s case, and simultaneously misdefines who are the “consumers.” I could spend hours demonstrating the failures of Chicago School antitrust/economics and how they’re ultimately founded on ignoring the relationship between ends and means, especially when the subject matter is indistinguishable from the translation/transaction cost paradox of an inherently inefficient market that celebrates information asymmetries. I could step back to the really abstract theory (as if the preceding isn’t abstract enough!) of the normative imperatives involved in reifying “consumer price”/”consumer welfare” and in advancing efficiency as the objective while ignoring both the Second Law of Thermodynamics and that the entire role of “gatekeeper” publishing is to be Maxwell’s Daemon.
But I don’t have to go that far. The identity of the speaker (both individually and firm) is more than enough for anyone who has ever dealt with a dispute anywhere in the mass-reproduced arts as dominated by rights-transferees… and other bullies… in which their names are anywhere on the documents. The means do matter to the kinds of ends actually achieved.
And that’s before getting into the laughable factual assertion. Every author who has ever been dropped by an agent for not advancing regularly onto the bestseller list(s) is a refutation of the assertion that “no one in the industry views ‘anticipated top-selling books’ as a distinct market.”
He cited a 2018 survey that found full-time writers were earning an average of slightly more than $20,000 annually, which he described as “below the poverty line.”
If they want to make more, they can do something else. It’s not that hard. Zillions of people do it everyday, and if those people aren’t making more that $20,000 doing what they like to do, they do something else so they can eat. Books aren’t special. Neither are authors.
The low earnings indicate consumes don’t buy their stuff. But, I empathize. I have never been able to make a living as a RocknRoll Legend. Maybe Mick Jagger will testify about my plight.
But, there is a solution. Just publish a list of the anticipated top selling books for 2023. Then let’s see how it compares to actual sales.
This particular obsession with the high advance outliers reminds me of the Major League baseball union and its obsession with ensuring the top free agents (typically in their early 30’s and approching decline) get their 9 figure multiyear contracts while merrily trading away the earning potential of equally talented young players and newcomers, effectively forcing them to work for scale for most of their 20’s. (mine you, “scale” starts at $700K a year and generally escalates to the low-mid 7 figures by the time they hit free agency.)
After decades of this they woke up one day to realize the total share of revenues going to the players had slowly declined because teams discovered that the “good, not great” class of veteran players were fungible with similar no-name younger players and simply let them go and flood the Free Agent market in a game of musical chairs that left many unemp!oyed. So they set out to “fix” this in the latest round of negotiations. The league negotiators offered a guaranteed percentage of overall revenues in the form of a payroll floor, forcing smaller market and also-ran teams to maintain a minimum payroll…in return for a hard payroll ceiling. The union refused. They are determined to ensure the top half-percent or so players can get their big contracts, while the other 1150 players get squeezed.
A merged Penguin might be publishing 20,000 titles a year with maybe 300 authors getting six figure advances while the other 98% gets low four figures.
Makes you wonder what happens if, deprived of the Penguin cash, Paramount spin off S&S to sink or swim on its own, forcing it out of the made up “market for surefire bestsellers”.
The DOJ lawyers claim the merged Penguin would control 49% of tbat “market” while ignoring that tbey already control over 50% of BPH-published books after the rubber stamped Random House merger. And the world hasn’t ended.
Much ado over very little. Mostly the BPHs being hoisted by the petard of tbeir self important puffery.