WASHINGTON — The head of publishing giant Penguin Random House on Thursday defended his company’s deal to acquire rival Simon & Schuster against government claims it would thwart competition. However, he acknowledged that the merger would strengthen his company’s position as the largest US publisher by expanding its market share.
During questioning in a federal antitrust case, CEO Markus Dohle also admitted that while he had promised to continue allowing the two merged companies to bid each other for deals with authors, Penguin Random House’s German parent company Bertelsmann BTG,
has no legal obligation to comply with this obligation.
Dohle commented on a key government argument, acknowledging that lower upfront payments to authors can result in fewer books being published. Advances, which run into the millions for best-selling authors like Stephen King and James Patterson, are guaranteed payments to authors that can impact a book’s profitability. Dohle admitted that books that sell well would have received larger advances.
On Simon & Schuster’s bidding position after a merger, Dohle said, “We want to keep them as external and independent as possible.” Dohle has assured agents that he would allow bidding competitions between Simon & Schuster and Penguin Random House imprints, even if no one else did publisher would be an extension of the current PRH policy of allowing bids between imprints while outside competitors are still in the running. Not only did Dohle concede that his pledge was not legally binding, but his successor would not be required to continue the bidding competition between the imprints should he ever leave Bertelsmann.
The US Department of Justice has sued to block Penguin Random House’s proposed $2.2 billion merger with Simon & Schuster, the fourth largest US publisher, bringing the so-called “Big Five” of US publishers to four would be reduced. The other three are HarperCollins Publishers, Hachette Book Group and Macmillan.
The government claims that allowing Bertelsmann to buy Simon & Schuster from US media and entertainment company Paramount Global PARA,
would thwart competition and give Penguin Random House an outsized influence over what books are published in the US and how much authors are paid, leaving fewer books for consumers to choose from. The new company, if approved, would be by far the largest book publisher in US history.
The publishers counter that the merger would increase competition among publishers to find and sell the hottest books by allowing the combined company to offer authors greater advances and marketing support. It is said that readers, booksellers and authors would benefit from this.
The publishers’ pledge to keep the two companies competitive after a merger was met with skepticism by an unusual witness at Tuesday’s trial – King, who testified for the government despite being published by Simon & Schuster.
“You might as well say that a man and a woman will bid against each other for the same house,” he joked. “It would be kind of very gentlemanly and kind of ‘after you’ and ‘after you,'” he said, gesturing with a polite arm movement.
Stimulated by questions from defense attorney Daniel Petrocelli, who represented Bertelsmann and Penguin Random House, Dohle was stimulated and passionately praised the creativity of the publishing industry, which he portrayed as a highly competitive market.
The biggest threat to the publishing industry doesn’t come from consolidation, but from the explosion of subscription-based or cheap content like e-books in recent years, Dohle said, calling it “all-access.” He specifically quoted Amazon AMZN,
with around 50 million available book titles and Disney DIS,
“I think it’s the biggest threat to the industry and especially to writers’ income,” he said. “It will have a tectonic impact on the industry’s revenue pool.”
The impact on authors’ compensation may reduce the variety of stories published, and physical booksellers are also at risk.
Dohle compared Penguin Random House to “angel” investors from Silicon Valley: “We invest in thousands of ideas and dreams every year, and only a few of them make it to the top. … Every book is unique and there are many risks.”
Penguin Random House itself reflects the wave of consolidation in the publishing industry and emerged in 2013 from the merger between the almost 100-year-old company Random House and Penguin. This combination was approved by the Justice Department during President Barack Obama’s administration, under which President Joe Biden served as Vice President. The Penguin Random House trial is widely seen as part of a growing trend by the Justice Department during the Biden administration to take a tougher stance on mergers.