Feds, Penguin Random House square off over Simon & Schuster deal

The government and publishing titan Penguin Random House are set to exchange opening salvos in a federal antitrust trial Monday as the Department of Justice seeks to block the biggest U.S. book publisher from absorbing rival Simon & Schuster.

At a time of mega-mergers and flashy high-tech corporate hookups, the biggest U.S. book publisher's plan to buy the fourth-largest for a mere $2.2 billion may seem somewhat quaint. But the deal represents such a key test for the Biden administration's antitrust policy that the Justice Department is calling an out-of-the-ordinary witness to "The Stand": horror master Stephen King.

The renowned author whose genre-transcending works are published by Simon & Schuster is expected to testify during the weekslong trial in U.S. District Court in Washington, D.C., and is likely to draw wide attention.

Penguin Random House's proposed acquisition of rival Simon & Schuster would reduce the "Big Five" U.S. publishers to four. The Justice Department filed the suit to block the merger in November 2021.

Paramount is the parent company of Simon & Schuster and CBS News.

The government contends that the merger would hurt authors and, ultimately, readers if German media titan Bertelsmann, of which Penguin Random House is a division, is allowed to buy Simon & Schuster from U.S. media and entertainment company Paramount Global. It says the deal would thwart competition and give Penguin Random House gigantic influence over which books are published in the U.S., likely reducing how much authors are paid and giving consumers fewer books to choose from.

The publishers counter that the merger would strengthen competition among publishers to find and sell the hottest books, by enabling the combined company to offer bigger advance payments and marketing support to authors. It would benefit readers, booksellers and authors, they say.

The two New York-based publishers have impressive stables of blockbuster authors, who've sold multiple millions of copies and have scored multimillion-dollar deals. Within Penguin Random House's constellation are Barack and Michelle Obama, whose package deal for their memoirs totaled an estimated $65 million, Bill Clinton, who received $15 million for his memoir, Toni Morrison, John Grisham and Dan Brown.

Simon & Schuster counts Hillary Clinton (she received $8 million for hers), Bob Woodward and Walter Isaacson.

And King. His post-apocalyptic novel "The Stand," published in 1978, swirled around a deadly pandemic of weaponized influenza.

Bruce Springsteen split the difference: His "Renegades: Born in the USA," with Barack Obama, was published by Penguin Random House; his memoir, by Simon & Schuster.

Opposing attorneys for the two sides will present their cases before U.S. District Judge Florence Pan.

The Big Five — the other three are Hachette, HarperCollins and Macmillan — dominate U.S. publishing. They make up 90% of the market for anticipated top-selling books, the government's court filing says. "The proposed merger would further increase consolidation in this concentrated industry, make the biggest player even bigger, and likely increase coordination in an industry with a history of coordination among the major publishers," it says.

Penguin Random House and Simon & Schuster argue the merger would actually strengthen competition among publishers to find and sell the hottest books, by enabling the combined company to offer greater compensation to authors.

It would benefit readers, booksellers and authors, the publishers say, by creating a more efficient company that would bring lower prices for books. The government has failed to show harm to consumers as readers because the merger wouldn't push up prices, the companies contend.

"The U.S. publishing industry is robust and highly competitive," they say in their filing. "More readers are reading books than ever before, and the number grows every year. Publishers compete vigorously to reach those readers, and the only way they can compete effectively is to find, acquire and publish the books readers most want to read. ... The merger at issue in this case will encourage even more competition and growth in the U.S. publishing industry."

The companies reject the government's central focus on the market for anticipated best-selling books — defined as those acquired for advances to authors of at least $250,000. They represent only a tiny sliver, about 2%, of all books published by commercial companies, according to the companies' filing.

The Justice Department case reaches beyond the traditional antitrust concern of concentration raising prices for consumers, pointing to the impact on consumers' choices and viewing authors as workers as well as sellers of products in the global marketplace of ideas. The notion is that fewer buyers (publishers) competing over the same talent pool reduces sellers' (authors) bargaining power.

The case "potentially creates a precedent that could be used in the labor area," said Rebecca Allensworth, an antitrust expert who is a law professor at Vanderbilt University.

The Biden administration is staking out new ground on business concentration and competition, and the government's case against the publishers' merger can be viewed as an important step.

President Joe Biden has made competition a pillar of his economic policy, denouncing what he calls the outsized market power of an array of industries and stressing the importance of robust competition to the economy, workers, consumers and small businesses. Biden, a Democrat, has called on federal regulators, notably the Justice Department and the Federal Trade Commission, to give greater scrutiny to big business combinations.