A New Era in Antitrust Law? Take-Aways from the Blocked Penguin Random House and Simon & Schuster Merger
If you鈥檝e walked into a bookstore at some point in the last few decades, you鈥檝e probably seen the friendly penguin bedecking the spine of countless books. From popular fiction to classical Greek philosophy texts, the distinctive orange logo immediately apprises the reader that the book in front of them has been published by none other than Penguin Random House (or just Penguin, as it was known until 2013).
Despite the deceptively friendly penguin at its symbolic helm, Penguin Random House came under fire for its attempt to merge with rival publishing company Simon & Schuster in 2022. The proposed merger, which would give Penguin Random House control of 鈥溾��, generated significant buzz in the literary world.
The merger also attracted the attention of the U.S. Department of Justice (DOJ) which, citing concerns over the implications for competition, between Penguin Random House and rival Simon & Schuster on October 31, 2022. The move by the DOJ to block the merger is part of an in the DOJ鈥檚 antitrust division, and is expected to have significant implications for antitrust law as a whole.
This post outlines the timeline of events leading up to the DOJ鈥檚 judgment, as well as the key reasons in the decision. While the implications of this decision have yet to fully reveal themselves, this pivotal event gives us some indication of what can be expected in the future of U.S. antitrust law.
A Peek Inside the Publishing World
Penguin Random House and Simon & Schuster, owned by German media group Bertelsmann SE and Paramount Global respectively, are two members of the 鈥淏ig Five鈥� of publishing. Along with HarperCollins, Hachette, and Macmillan, the Big Five control for books in the US.
Following several smaller mergers鈥揳nd a historic that brought the then-Big Six down to the Big Five鈥揚enguin Random House became the biggest of the Big Five, with a .
When Simon & Schuster was , it was anticipated that one of the Big Five would acquire it. Penguin Random House and HarperCollins, the country鈥檚 second largest trade publisher, were the final bidders in the auction.
Shortly after, Bertelsmann announced it had to buy S&S for $2.175 billion. Subject to regulatory approval, the sale would combine the country鈥檚 largest and third largest trade publishers, for projected revenues of close to $3 billion.
The outcome, while not entirely unexpected, at the time spurred from the publishing and literary community. Parent company Bertelsmann and Penguin Random House were both highly optimistic about the forthcoming merger. Penguin Random House CEO Markus Dohle remarked that the merger of Penguin and Random House met little regulatory resistance, and the deal was closed in about eight months. While Dohle would not put a timetable on when the S&S deal would be completed, he reportedly expressed that he to arise.
Vox , 鈥淚t was clear that a new publishing house made of Penguin Random House and Simon & Schuster would dominate the industry in a way no one had seen before, but few in the industry appeared to believe that would actually care enough about the proposed merger to try to interfere.鈥�
The New Era in Antitrust: The DOJ Suit against PRH, S&S, Bertelsmann, and ViacomCBS
Looking back, things did not go as planned. On November 2, 2021, under the new Biden administration, against both Penguin Random House and Simon & Schuster, as well as parent companies Bertelsmann and ViacomCBS.
Among other things, the DOJ argued that the proposed acquisition 鈥渨ould likely harm competition in the publishing industry鈥�, and result in substantial harm to authors, particularly authors of anticipated top-selling books. If approved, Penguin Random House鈥檚 鈥�.鈥�
The suit illustrating that, 鈥渨hen measured by total advances paid to authors for rights to anticipated top-selling books, the combined Penguin Random House-Simon & Schuster (shown in dark blue and orange) would far outstrip the remaining Big Five publishers and the largest independent publishers (shown in lighter blue), and enjoy substantial market power in its negotiations with authors.鈥�
The suit also noted that by effectively reducing author compensation, the acquisition would also harm consumers. By reducing author pay, 鈥溾�� which, in turn, 鈥�,鈥� leading to an overall reduction in the quantity and variety of books published.
In an op-ed for Vox, Constance Grady aptly observed that while there are known implications for antitrust from monopolies, which drive up consumer prices, here the DOJ argued that in acquiring Simon & Schuster, Penguin Random House 鈥�.鈥�
Compared with a monopoly, where there is only one seller that can charge whatever they like, in a monopsony, there is only one buyer who can set their price at whatever they like. While monopsony is 鈥溾��, it has become increasingly mainstream, as detailed in of the American Bar Association's Antitrust magazine of Spring 2019.
David and Goliath Go To Trial
While Penguin Random House was already a powerhouse in publishing, and the acquisition of Simon & Schuster would provide them with even more leverage, observers were that 鈥渂oth publishers continually presented themselves as scrappy underdogs doing their best to ride out a tough market.鈥� Early on, the two companies that 鈥�.鈥�
Penguin Random House鈥檚 lawyer Daniel Petrocelli argued during trial that the deal would have 鈥溾�� for readers and authors alike since the imprints, or brands, owned by the two giants would continue to compete against each other.
However, experts were skeptical. Chris Sagers, law professor at Cleveland State University, claimed , and that both Amazon and book publishers have been permitted to grow too large and powerful. His sentiment was who testified on behalf of the government, including Stephen King.
Writing The Final Chapter: A Win for Antitrust?
On Monday October 31, 2022 the Department of Justice succeeded in blocking the proposed merger between Penguin Random House and Simon & Schuster.
Writing for the U.S. District Court for the District of Columbia, Judge Florence Pan said she found the Justice Department had shown the deal may substantially lessen competition "."
While Judge Pan鈥檚 decision was to those who had been following the trial, the outcome is nonetheless notable both for its impact on the multibillion-dollar book publishing industry and on the future of antitrust law. Indeed, the decision represents a 鈥溾��, especially as the .
Only three weeks later, the DOJ to Ticketmaster and parent company, Live Nation Entertainment. While the DOJ has been careful to emphasize that there is no imminent legal action being taken against either company, the recent outcome of the Penguin merger is but one reason to expect that stricter antitrust measures may soon become the norm.
Another indication of this comes from reports that the DOJ鈥檚 antitrust division of trial attorneys from Big Law firms in 2021. While this hiring boom partly reflects the the DOJ received in 2021, a number of these hires have been slotted in the antitrust division鈥檚 . This division is a surefire sign of the DOJ鈥檚 heightened readiness to litigate on antitrust issues.
Some have been too quick to attribute in federal antitrust enforcement strategy to politics alone. To be sure, President Joe Biden ordered, by way of a , stricter antitrust enforcement. However, others have attributed these stricter measures to broader changes in the market. In her 2021 book, Antitrust, that 鈥淭he effects of monopoly power can be felt everywhere, raising all sorts of questions for the American economy.鈥� Op-ed writer that the monopolistic power held by Live Nation is 鈥渆mblematic of where we are in terms of corporate power having far too much influence in our economies, our society, and our ability to make choices as citizens and consumers.鈥�
In short, the Biden administration鈥檚 stricter stance on antitrust may be a natural reaction to the growing reach of corporate power and consolidation over recent years. If this is the case, the big question is whether the blocked Penguin Random House merger may usher in a new era for antitrust not only in the United States, but in all advanced capitalist societies with similar experiences of expanding monopoly power.