Why the Penguin Random House merger is also about Amazon

Amazon is not in court in a major book lawsuit. But his power is.

The US government wants to prevent the book publisher Penguin Random House from buying its competitor Simon & Schuster. The government says the merger, which will reduce the number of major American publishers of mass books from five to four, will hurt some authors by reducing competition for their books.

A trial in the government’s lawsuit began this week, and my colleagues have written a helpful explanation of the legal issues and what’s at stake for the companies, writers and book lovers involved.

This case, with much more at stake than books and the earnings of big-name authors, is another example of the debate over how to deal with the big corporations – including the biggest digital powers – that shape our world.

The elephant in the room is Amazon. Book publishers want to get bigger and stronger, in part to have more leverage over Amazon, by far the largest book retailer in the United States. One version of Penguin Random House’s strategy boils down to this: Our book-publishing monopoly is the best defense against Amazon’s book-selling monopoly.

As the dominant way Americans find and buy books, Amazon can theoretically steer people to titles that generate more revenue for the company. If authors or publishers don’t want their books to be sold on Amazon, they can be forgotten or fakes can proliferate. But if the publisher is big enough, the theory goes, then it can leverage Amazon to stock books at the prices and terms the publisher prefers.

“Their argument is, to protect the market from Amazon’s monopoly, we will monopolize the market,” said Barry Lynn, executive director of the Open Markets Institute, an organization that calls for tougher antitrust laws and enforcement.

Penguin Random House does not say it intends to buy a competitor to beat Amazon in the power game, which is not legally relevant in the government’s lawsuit. But Lynn told me that if Amazon’s dominance hurts book publishers, readers, authors, or the American public — and he believes it does — then allowing a book company to get stronger to bully Amazon is counterproductive. The best approach, he said, is to restrict Amazon with laws and regulations.

We know that some technology companies – including Amazon, Google, Facebook and Apple – have a tremendous impact on entire industries and our lives. We are all trying to figure out in what way their power is good or bad for us and what, if anything, government policy and law should do about the disadvantages. This controversial merger of book publishers is an example of reckoning on these substantive issues.

It’s not uncommon for companies to justify acquisitions by saying they need more power to level the playing field. When AT&T bought then-media and entertainment company Time Warner a few years ago, one of the company’s statements was that it wanted to become an alternative to digital advertising powers like Google and Facebook. Music companies have partially consolidated over the past 15 years to have more clout as digital services like Spotify transform the way we listen to music.

And when German conglomerate Bertelsmann bought a competitor to create Penguin Random House a decade ago, that merger was a response to Amazon’s influence on book sales.

Today, Penguin Random House says another acquisition would make book publishing more competitive and help authors and readers. Amazon’s fast-growing book publishing business is cited as an example of the fierce competition in its industry.

Lynn’s criticism of Penguin Random House and Amazon reflects an influential view, particularly among left-leaning economists, officials and lawyers, that America has botched its approach to large businesses, especially digital ones. The criticism is that increasing consolidation in industries such as airlines, banks, digital advertising, news media and meatpacking is hurting shoppers, workers and citizens.

Some Republican politicians agree with leftists that they want more government restraint on digital superstars. Congress has also been debating a bill that would potentially require major business changes for Amazon and other tech giants, though it’s unlikely to become law immediately. Similar laws have been enacted elsewhere in the world.

Chris Sagers, a law professor at Cleveland State University who wrote a book about a previous government antitrust lawsuit in the book industry, told me the outcome of this case is unlikely to matter much. In his view, the book industry is already overtaxing readers and underpaying authors. He believes both Amazon and book publishers have been allowed to grow too big and powerful.

This book publication legal case is a window into deep-rooted problems in the US economy that have taken decades to develop and will take a long time to change.

“There’s really significant consolidation going on across the markets,” Sagers wrote in an email. “Once you let an economy get to that point, there’s very little an antitrust law (or other regulatory intervention) could hope for.”

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A classic scene from the movie Singin’ in the Rain, but with a Velociraptor instead of Gene Kelly. (Thanks to my colleagues Jane Coast for sharing this tweet.)

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