What would have been a major reshaping of the global book publishing industry has been scuppered by a US judge.
Penguin Random House, which is owned by the German media giant Bertelsmann, had been looking to buy Simon & Schuster from Paramount, the US media and entertainment combine, for $2.18bn (£1.9bn).
The deal, first announced in November 2020, would have turned the big five global English language book publishers into a big four.
It would have brought together the first and third largest book publishers in the United States and, in the UK, would have combined the first and eighth largest players.
It would have united under the same roof authors such as John Le Carré, George Orwell, Margaret Atwood and AA Milne from Penguin Random House with the likes of Stephen King, Ernest Hemingway and Jackie Collins from Simon & Schuster.
Deal breaker or ‘a victory for authors’
But US federal judge Florence Pan last night agreed with the US Department of Justice (DoJ) that the takeover would lessen competition.
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Her ruling is a fascinating one because, usually, takeovers like this tend to be blocked on the grounds they would hurt the interests of consumers.
In this case, the DoJ had argued it would hurt the earnings of authors by leading to less competition for blockbuster books.
Jonathan Kanter, Assistant Attorney General in the Justice Department’s anti-trust division, called the ruling “a victory for authors, readers, and the free exchange of ideas”.
He added: “The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy.”
Penguin Random House – which ceased having British ownership three years ago – had argued the deal would benefit consumers because it would create a bigger book publisher capable of standing up to the online retail giant Amazon.
It also said Simon & Schuster’s authors would benefit by having their titles distributed more efficiently.
Markus Dohle, the chief executive of Penguin Random House, said: “If we allow Simon & Schuster books to be plugged into our market-leading supply chain, it would make their books more available on the shelves of more sales outlets, domestic and international, and result in higher sales.”
The company also claimed the various imprints owned by the two companies would continue to compete against each other.
Literary criticism
But its case was badly undermined by one of the pair’s most famous authors when the case came to trial in August this year.
Citing an Authors Guild survey from 2018, which suggested the typical author earns just $20,300 (£17,700) a year, Mr King argued consolidating the industry would be bad for competition.
The horror author said independent publishers were increasingly being squeezed by the big publishers and told the court: “The reason they’re being squeezed is because they don’t get the shelf space that they used to – because the majors take a lot of that shelf space.”
Mr King, whose best-selling novels include Carrie and The Shining, scoffed at the notion that the imprints owned by the two companies would continue to compete with each other.
He added: “You might as well say you’re going to have a husband and wife bidding against each other for the same house. It’s a little bit ridiculous. It would be sort of very gentlemanly and sort of ‘after you’, ‘no, after you’.”
Mr King was one of a number of critics of the deal, which included various bodies representing authors, including the Authors Guild itself and the National Writers Union.
“Multiple dangers to American democracy”
The Open Markets Institute, a liberal think tank, said the deal posed “multiple dangers to American democracy” and the US book publishing sector was already too concentrated.
Just as trenchant in their criticism were other members of the big five.
Michael Pietsch, chief executive of Hachette – the French owner of publishers including Hodder & Stoughton, Orion, John Murray Publishing and Little, Brown – said the merger would have created a “gigantically prominent” rival.
And Robert Thomson, chief executive of News Corporation, the owner of Harper Collins, accused Bertelsmann of “not just buying a book publisher, but buying market dominance as a book behemoth”.
News Corp, whose other media assets include The Sun, The Times, The Australian and the Wall Street Journal, indicated at the trial it would be interested in buying Simon & Schuster were its takeover by Penguin Random House to be blocked. It previously expressed an interest in buying the business when Paramount put it up for sale in March 2020.
What makes this ruling so significant – apart from its unusual nature and the fact it resulted in a rare anti-trust trial – is that it was a test of US President Joe Biden‘s trust-busting credentials.
After decades in which both Democrat and Republican governments took a laissez-faire approach to big business deals, the Biden administration has proved far more interventionist.
The president issued an executive order in July last year in which he argued there had been too much consolidation across too many industries, hurting workers, consumers and start-ups and widening inequalities for race, income and wealth.
Yet he has suffered a number of setbacks in seeking to pursue his aims. The courts have recently blocked attempts by the DoJ to block deals in the healthcare, agriculture and defence sectors.
So this decision is a major victory for the Biden administration – and not least because another trial, in which the DoJ is seeking to block a partnership between American Airlines and JetBlue Airways, has just got underway.
