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Not So Fast: DOJ Sues To Block Acquisition of Simon & Schuster

By Gary Symons
TLL Editor in Chief
The US Dept. of Justice has filed suit to block the $2.2 billion acquisition of publishing giant Simon & Schuster by Bertelsmann, the parent company of its larger rival Penguin Random House.
DOJ lawyers allege the takeover of the ViacomCBS subsidiary “would result in substantial harm to authors,” reducing competition, and creating a single publishing entity that makes decisions on almost all books published in the United States.
The outcome of the lawsuit is also critical to the licensing industry, as many films and TV series are based on novels or other books. The downstream impact of so much control of original content is part of the reason the DOJ opposes the takeover.
As reported earlier in The Licensing Letter, the American Booksellers Association also opposes the merger, saying it puts too much power in the hands of the publisher, as opposed to booksellers and authors. The lawsuit by the DOJ is partly based on complaints from booksellers and authors since the merger was first announced.
The lawsuit was filed in the United States District Court for the District of Columbia on Nov. 2. The suit claims the acquisition would “enable Penguin Random House, which is already the largest book publisher in the world, to exert outsized influence over which books are published in the United States and how much authors are paid for their work.”
In actuality, PRH is the third largest publisher globally, but it is true that it is the largest publisher of trade books.

The DOJ bases most of its arguments on the impact for authors, who would have fewer choices when seeking a publisher. “If consummated, this merger would likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers,” the DOJ filing says. “Post-merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage.”

But US Attorney General Merrick Garland also talked about the control PRH would have over the content created by authors. “Authors are the lifeblood of book publishing in America, but just five publishers control the U.S. publishing industry,” Garland said. “If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry.”

The DOJ and both major parties in the US have expressed concerns about the concentration of ownership in the content space, including Google’s control of online content, Meta’s (formerly Facebook) control of social media and news content, and Amazon’s ownership of newspapers, the world’s largest book store, and now streaming video and video games. That concern also extends to books.

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PRH CEO Markus Dohle has argued, however, that his company is taking steps to ensure that the two proposed divisions would act independently. For example, Dohle said editors at Penguin Random House and Simon & Schuster would bid against each other for new properties, and there would be no collusion on contract pricing or terms.

PRH has also made the argument that the merger would allow it to have more leverage when dealing with Amazon, which dominates the book selling business in the US. DOJ has essentially rejected both those arguments, saying PRH plans to work even more closely with Amazon after the merger, and that it found it hard to believe PRH would essentially allow the two divisions of the same company to compete against each other and reduce profits on particular book properties.

Nevertheless, PRH and Simon & Schuster jointly issued a statement saying they would defend the merger deal in court.

“This is a pro-consumer, pro-author, and pro-book seller transaction, which will allow increased investment in the publishing programs of both S&S and PRH,” the companies said. “The transaction will bring PRH’s superior order fulfillment services to S&S’s titles, benefiting consumers by making it easier to discover new titles and less likely that books will be out of stock, particularly at local retailers. Beyond the benefits to consumers, PRH’s reach into independent bookstores and specialty markets will boost the sales of S&S titles, benefiting both authors and retailers.”

They also said DOJ is misguided in its stated concern for authors, saying, “Blocking the transaction would harm the very authors DOJ purports to protect. We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”

Daniel Petrocelli, the lead trial attorney for PRH, argues the DOJ is simply mistaken when it claims the deal will curb competition in the book industry.

“DOJ’s lawsuit is wrong on the facts, the law, and public policy,” said Petrocelli. “Importantly, DOJ has not found, nor does it allege, that the combination will reduce competition in the sale of books. The publishing industry is strong and vibrant and has seen strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will promote, not harm, competition.”

Penguin Random House, a subsidiary of Bertelsmann, publishes 2,000 new trade books in the U.S. annually and reported revenues of $2.5 billion from U.S. publishing in 2020. Simon & Schuster, a subsidiary of ViacomCBS, publishes 1,000 new trade books in the U.S. annually, and reported revenues of $901 million from U.S. publishing in 2020.

 The full lawsuit can be read here.

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