Here’s Why The Biden Administration Is Trying To Block Penguin Random House From Buying Simon & Schuster

Topline

The Justice Department could block two of the country’s biggest publishers from joining forces, as a trial kicks off Monday to determine whether Penguin Random House should be allowed to buy Simon & Schuster—a deal the federal government alleges would hurt readers and authors by resulting in fewer books being published and authors making less money.

Key Facts

Penguin Random House and Paramount Global, Simon & Schuster’s parent company (then known as ViacomCBS), announced in November 2020 that Penguin planned to buy Simon & Schuster for nearly $2.2 billion, and the Department of Justice filed suit in federal court a year later in November 2021 to block the deal.

The DOJ argues the acquisition would result in less competition between publishers, leading to authors getting paid less because there won’t be as many bidding wars for their manuscripts, which the government alleges “is likely to diminish overall output, creativity, and diversity among books published.”

If the deal goes through, it could “mean that fewer authors will be able to make a living from writing,” resulting in fewer books being published and less diversity in the books that do come out, the DOJ argued in a pre-trial brief based on expected testimony from Penguin Random House Global CEO Markus Dohle.

The publishers argue the deal would not harm competition as the DOJ claims, alleging it would actually “enhance competition” by allowing Penguin Random House and Simon & Schuster to pool their resources and make better deals to authors, which in turn will force other major publishers to “compete harder” to acquire titles.

They also note the best-selling author deals that the DOJ’s legal argument centers on—advances of at least $250,000 paid by either Penguin or Simon & Schuster—apply to only about 85 book deals each year (out of 55,000 books published annually by all publishers).

Penguin Random House and Simon & Schuster will also still be operating separately and allowed to bid against each other for book deals, the publishers argue, further going against the government’s argument it will reduce competition.

Key Background

Penguin Random Group and Simon & Schuster are two of what’s known as the “Big Five” publishers, along with Hachette Book Group, Harper Collins and MacMillan. Penguin Random House, owned by German media company Bertelsmann, is “by far” the largest publisher in the country, the Times notes, publishing more than 2,000 new titles each year across its more than 90 publishing imprints, according to a court filing. (Simon & Schuster publishes approximately 1,000 new titles across 30 imprints.) The company is itself the product of a major acquisition deal after Penguin and Random House merged in July 2013, which analysts said at the time was an attempt to better compete with tech companies like Amazon and the increasing influence of e-books and the Internet. The DOJ lawsuit is part of a broader antitrust effort by the Biden Administration, which has also taken aim at acquisitions by companies like Meta and UnitedHealth Group after President Joe Biden signed an executive order in July 2021 emphasizing the White House’s commitment to enforcing federal antitrust laws.

What To Watch For

The trial, taking place in federal district court in Washington, D.C., is expected to last two to three weeks, with a final ruling expected in November, CNN and Vanity Fair report. Among those slated to testify in the trial are famed author Stephen King—whose books have been published by Simon & Schuster—who is expected to testify on the government’s behalf after telling the Wall Street Journal in November 2021 he was “delighted” by the DOJ’s lawsuit. A number of other major literary agents and executives are also expected to testify, Vanity Fair reports, along with Pulitzer Prize-winning journalist and bestselling author Charles Duhigg.

What We Don’t Know

The outcome of the trial will be, and the ramifications either way. If the deal is allowed to go forward, it could result in other publishing heavyweights announcing their own mergers in an effort to better compete, the New York Times notes, and analysts cited by the outlet say Penguin Random House and Simon & Schuster would “produce a disproportionate percentage of the top-selling books” if they merge. If the deal gets blocked, however, Simon & Schuster’s fate may be in doubt. Paramount Global has already committed to divesting from it—which is what sparked the deal in the first place—meaning it’ll likely still have to find another buyer no matter what. Other major publishers could be less willing to acquire it and risk an antitrust lawsuit, the Times notes, suggesting it could go to a private equity firm that would likely result in layoffs and fewer book titles.

Further Reading

Justice Department Sues To Block Penguin Random House Acquisition Of Simon & Schuster (Forbes)

Bertelsmann Behemoth: ViacomCBS To Sell Simon & Schuster To Penguin Random House For Nearly $2.2 Billion (Forbes)

Will the Biggest Publisher in the United States Get Even Bigger? (New York Times)

The Antitrust Showdown To Determine Simon & Schuster’s Fate Is About To Begin (Vanity Fair)

Book-Industry Insiders Back the Biden Administration’s Bid to Stop a Publishing Mega-Merger (Vanity Fair)