Last month, the U.S. Department of Justice filed a civil lawsuit to block Penguin Random House’s acquisition of Simon & Schuster, claiming the proposed merger would “likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers.” The complaint detailed how writers rely on competition between publishing houses to drive up their advances—“the head-to-head competition between Defendants has allowed authors of anticipated top-selling books to secure higher advances and other favorable terms”—so the merger will “leav[e] hundreds of authors with fewer alternatives and less leverage.” After the merger, Penguin Random House’s competitor will be less than half its size; they will have undue control over who and what gets published, says the complaint.
Now, as of Monday, Penguin Random House and Simon & Schuster have filed a joint response in the United States Court for the District of Columbia, claiming that the government misunderstands the consequences of the merger—in fact, that the merger is pro-competitive rather than anticompetitive. “The government wants to block the merger under the misguided theory that it will diminish compensation to just the highest-paid authors,” Daniel Petrocelli, a lawyer representing Penguin Random House and its parent company, Bertelsmann, told The New York Times. “That is legally, economically, and financially wrong, and it ignores the vast majority of authors who will indisputably benefit from the transaction.”
The response claims the government is mischaracterizing the book industry by attributing to the “Big Five” publishers more power than they have; they say that on any given deal, a non-Big Five publisher will compete, “providing a competitive alternative to the largest publishing houses, foreclosing any possibility that the merger could diminish competition in the only plausibly relevant market.” The response cites data that after the 2013 merger between Random House and Penguin, the amount of books being published went up, and publishers outside the Big Five gained share in the retail market for book sales.
In addition, the response claims that that writers who aren’t already selling top-selling books actually have the opportunity to make more money because of the merger, as authors published by Simon & Schuster will then be plugged into the Penguin Random House supply chain, making their books “more discoverable, visible, and available.”
Besides wanting the merger to happen, Penguin Random House has another incentive to fight the DOJ’s lawsuit: according to the New York Times, if the merger doesn’t go through, Penguin Random House will have to pay ViacomCBS, Simon & Schuster’s seller, a termination fee of about $200 million.
Also, a highlight: