Just over three months after a highly publicized trial, Judge Florence Y. Pan issued an opinion blocking the merger of two rival publishing houses, Penguin Random House (“PRH”) and Simon & Schuster (“S&S”). Both PRH and S&S are members of a group commonly referred to in the publishing industry as the “Big 5.” The “Big 5” consists of the largest publishing houses in the United States and tend to collectively dominate the market for both acquiring books from authors and selling books to consumers. The other members of the “Big 5” are Hachette Book Group, HarperCollins and Macmillan. It is estimated that in 2021, the “Big 5” held over 90% of the hardcover bestsellers.
HOW DID WE GET HERE?
While this suit generated a lot of controversy, it should be noted that the publishing industry is no stranger to consolidation. Throughout the last decade, the industry has seen several major mergers and acquisitions. For example, in 2013 the “Big 6” became the “Big 5” through the merger of Penguin and Random House, creating PRH. Additionally, Hachette Book Group (formerly known as Time Warner Book Group, prior to being acquired by the French conglomerate, Largardere) purchased Perseus Books in 2016, adding to their already large market share.
The proposed merger of PRH and S&S can be traced to the merger of Viacom and CBS. Shortly after the initial merger, ViacomCBS announced its intention to sell CBS’s publishing division, S&S. At the time of the announcement, many predicted that one of the other “Big 5” publishers would eventually buy S&S, creating the largest merger since the 2013 PRH merger.
In November 2020, Bertelsmann (the parent company of PRH) announced that it had successively bid for S&S at a price of $2.175 billion. Combined, PRH and S&S would likely reach annual revenues of close to $3 billion.
A year later, the Department of Justice (“DOJ”) filed a suit to block the proposed merger of PRH and S&S, citing “substantial harm to authors” should the merger go through. The DOJ notably focused its case on the market of authors selling their books to publishers instead of harm to consumers, making this a monopsony case rather than the more common antitrust monopoly case. Essentially, the DOJ argued that the proposed merger would result in one company controlling more than two thirds of the market and leaving authors with fewer alternatives and less leverage in book deals. PRH and S&S argued that their imprints would be run separately and would effectively bid against each other in book auctions. The DOJ rejected this argument given the history of collusion in the publishing industry.
WHAT DID THE COURT DECIDE?
Judge Pan’s full decision will be made available after the parties suggest redactions. However, the court released a memo on October 31, 2022, that stated:
Upon review of the extensive record and careful consideration of the parties’ arguments, the Court finds that the United States has shown that ‘the effect of [the proposed merger] may be to substantially to lessen competition’ in the market for the U.S. publishing rights to anticipated top-selling books.
WHAT DOES THIS DECISION MEAN FOR AUTHORS?
The PRH and S&S decision should be seen as great news for authors. Now that the merger is off (pending any appeals), authors can continue to expect the same number of publishing houses bidding on their books. If the sale had gone through, many industry insiders predicted less opportunities and advances for small or debut authors. Stephen King, one of S&S’s most prominent authors, testified against his publisher during the trial, stating that the merger would “make it harder for writers to earn a living.”
Despite this good news, authors should continue to track the industry for similar mergers. Many industry insiders have suggested that one of the other “Big 5” publishers with a market share smaller than PRH could make a bid for S&S. If this were to happen, authors would again face the same potential issues.
WHAT DOES THIS DECISION MEAN FOR READERS?
Some industry experts have voiced concerns that publisher consolidation will make it harder for smaller or first-time authors to have their books picked up. This would lead to less diversity in an industry already riddled with diversity issues.
However, this would have been an unlikely result of the PRH and S&S merger, given that PRH was most interested in purchasing the editorial skills and resources held by S&S. Any layoffs as a result of the merger would have likely been in the support departments such as contracts, managing editorial and other business-specific departments. If the merger had gone through, the average reader would not have noticed any substantial difference in the market. Now that the merger is off, readers will continue to see their favorite authors, along with new authors, on the bookshelves – just as they always have.
WHAT IS THE FUTURE OF S&S?
While nobody knows exactly what the future holds, there are several scenarios that might play out. One possibility is that PRH could appeal the court’s decision and seek a reversal that would allow the merger to go through. This would result in the former “Big 6” becoming the “Big 4” in under a decade. It would also likely result in the other major publishers racing to acquire mid-size and independent publishers to compete with PRH/S&S’s new behemoth market share.
An additional possibility is that ViacomCBS will look for other bidders to buy S&S. This could be either another company looking to diversify their portfolio with a publishing division, or one of the other “Big 5” trying to rival PRH’s current market share. For example, if HarperCollins were to purchase S&S, HarperCollins would reach an estimated $2 billion in sales rivaling PRH’s $2.5 billion in 2021. The least likely scenario is that ViacomCBS will decide to keep S&S.
CONCLUSION
While the publishing industry and its authors are safe from major consolidations for now, PRH may appeal the decision, or another major publisher may make a move to acquire S&S. Either way, if you are an author looking for an experienced publishing attorney to review your contract or an independent publisher looking for outside counsel, contact a member of our team today.
