Thu Aug 11

The US government is trying to stop the merger of two of the world's biggest publishers – but will it help authors?

Written by Agata Mrva-Montoya, Lecturer, Department of Media and Communications, University of Sydney

When Allen Lane set out to make cheap paperbacks for commuters in the 1930s, no one imagined he was building what would become the biggest publishing house we’ve ever seen.

The company he founded became Penguin Books, which in turn became Penguin Random House, following a merger in 2013 ^[1]. Now, in a deal first announced in November 2020, Bertelsmann, the parent company of Penguin Random House, wants to buy another publishing behemoth, Simon & Schuster.

The proposed merger has caught the eye of the Biden administration. The US Department of Justice has filed an antitrust lawsuit, arguing that the merger will drive down author advances, result in fewer books being published, and provide less variety for consumers.

The court case ^[2], which began on August 1, is set to continue over three weeks. It has featured evidence from bestselling author Stephen King ^[3], who testified in support of the Department of Justice.

The publishers and their attorneys argue ^[4] the deal will create “efficiencies” that will lead to “better offers to more authors”.

The proposed acquisition of Simon & Schuster is the latest in the long history of mergers and acquisitions in what has been described in the New York Times ^[5] as “increasingly a winner-take-all business in which the largest companies compete for brand-name authors and guaranteed best-sellers”.

If allowed to take place, the merger of Penguin Random House and Simon & Schuster will reduce the number of big US publishers from five to four. It raises the question of how big is too big.

Bestselling author Stephen King arrives at federal court in Washington DC to testify for the US Department of Justice, 2 August 2022. Patrick Semansky/AP

Why the merger?

Since the early 1960s, many independent publishing companies operating in the Anglo-American trade sector have become imprints of multinational corporations as the result of a succession of mergers and acquisitions.

As John Thompson writes in the Book Wars: The Digital Revolution in Publishing ^[7], the scale of these large publishing corporations gives them access to financial backing of their parent company and the ability to offer high advances and extensive marketing and editorial support for big name authors, in return for multi-book deals.

Larger publishers also have the leverage to negotiate with large retailers and other entities in the book publishing chain.

The typical sale of a publishing house happens as result of its founder retiring or for financial reasons. This is not the case with Simon & Schuster. The attempt by Penguin Random House to acquire Simon & Schuster is a buyer-driven merger, with the ability to better compete against Amazon given as the key rationale.

Simon & Schuster’s revenue ^[8] rose 10% over 2020 to just under US$1 billion in sales in 2021. The Bookseller ^[9] reported that the $2.2 billion bid for Simon & Schuster aims to recoup Penguin Random House’s lost market share and “cement” the publisher’s number one status in the USA.

The market share of Penguin Random House and Simon & Schuster in the US has been estimated variously from 20% to 50%. In Australia ^[10] it is around 30%.

According to author Mike Shatzkin ^[11], the consolidation is a logical outcome of the fact that “the ‘trade’ itself is shrinking and the total sales made by those publishers constitute an ever-diminishing share of the total market”.

As Publishers Weekly ^[12] reported, the plan is to maintain the Simon & Schuster imprints, and allow Penguin Random House and Simon & Schuster editors to bid against one another for books at auction. But as Penguin Random House CEO Markus Dohle admitted, there was no “legally binding way” to ensure that promise is kept.

According to Franscois McHardy, until recently Head of Publishing at Booktopia ^[13],

Promises of editorial autonomy being made by Bertelsmann are not to be trusted. They made them in the late 90s when Bantam Doubleday Dell/Transworld was merged with Random House, and although Transworld has maintained a separate building in the UK, they were quickly merged in all other markets. The same has happened with the Penguin Random House merger where people now routinely only talk about “Penguin” in reference to the merged company, and Random House imprints are being phased out.

Fewer imprints means fewer opportunities for mid-list authors and new writers without a proven track record.

CEO of Penguin Random House Markus Dohle at the PEN Literary Gala in New York, May 2018. Evan Agostini/AP

What’s at stake

The protection of bestselling authors is one of the key arguments in the antitrust case. The Department of Justice’s pre-trial brief ^[14] states that the merger is likely to diminish author advances of $250,000 and above and lead to “fewer authors being able to earn a living from writing”.

The complaint and the court case are being presented by the US government ^[15] as “the latest demonstration of the Justice Department’s commitment to pursuing economic opportunity and fairness through antitrust enforcement”. But they ignore the key player undermining fair competition in the US publishing industry.

Amazon ^[16] has approximately 50% of the print book market, at least 75% of publishers’ ebook sales (in addition to Amazon’s own ebook publishing business), and over 41% of the US audiobook market through its subsidiary Audible ^[17].

Hence, the merger is not about Penguin Random House being in competition with other publishers; it is about giving them heft in the negotiations with other players in the book publishing circuit.

These include Amazon and other platform retailers, streaming services for audiobooks (publishers are trying to avoid music-industry style streaming services in favour of a restricted credit model), and libraries that are disputing ^[18] high prices and restrictive licensing terms for digital works.

Penguin Random House are seeking to own enough of the market so they can begin to make structural decisions that will provide a bulwark against disadvantageous changes in book distribution.

A consolidated Penguin Random House and Simon & Schuster may enable that publisher to stand up to Amazon for longer, but the continued growth of the latter suggests this is likely to be a losing battle.

Few authors will ever receive a high advance from the big four or five publishers, so the outcome of the court case is not likely to have an impact on most authors’ ability to earn a living from writing, which is becoming increasingly difficult.

According to a survey conducted by the US Authors Guild ^[20], the median income of full-time authors was $20,300 in 2017, a figure that combined book income with related activities, such as speaking, teaching and reviewing. The Australian Society of Authors ^[21] has reported in 2020 that 53.6% of full-time writers earned “less than $15,000 per year from their creative practice”.