The Great PRH-S&S Antitrust Trial

A Summer Sizzler

Well, so much for a quiet August. There are daily events of historic consequence.

For those of us in and around the publishing world, the antitrust trial underway in the courtroom of Federal District Court Judge Florence Pan in Washington is especially fascinating. The Department of Justice is making the case that a merger of Penguin Random House and Simon & Schuster should be blocked because future authors would be significantly harmed.

Daily coverage in the press has been sparse, but Publishers Marketplace, a lively trade newsletter (paywall) has been running stories and posting excerpts for which we should be appreciative. They have also posted the briefs prepared by the opposing legal teams, which I have read with interest – greater even, for me, than the cascade of news breaks in the stream of Trump books still coming from some of the best reporters in the business.

So, what should we make of this case?

Here is the piece I wrote when the merger was announced

With the trial underway, do you have a considered viewpoint?

I think the DOJ brief and the testimony being presented reflects the fact that the Biden-era antitrust division knows very little about the publishing industry and what they consider the most important issues are wrongheaded.

The burden of the case is that the merger would mean that a category the DOJ invented called “Anticipated Top-Selling Books” would be impacted because there would be fewer head-to-head auctions for them.

Tens of thousands of books are published in the United States each year. About 2 percent of these, according to the data, are ATSB. Publishers Marketplace releases a weekly list of title acquisitions reported to it, and these run into the hundreds each week, from publishers of all sizes and shapes. One thing they all have in common is that the authors and the publishers want the books to succeed, one way or another.

The DOJ position is like assessing the music business on the basis of Beyoncé, Billie Eilish, and the “dynamic” pricing of $5,000 Bruce Springsteen tickets.

Wouldn’t PRH-S&S be a behemoth that would overwhelm other publishers of scale – HarperCollins, Hachette Book Group, and Macmillan, as well as leading independents like Norton, Scholastic, and Amazon’s book publishing operation – and diminish the potential profits for them?

No. General Motors and General Electric were the twentieth-century behemoths in their respective industries, and then, for a variety of reasons, they were not. Elon Musk (the world’s richest man) and Jeff Bezos (the runner-up) created enterprises from scratch that have or will upend core aspects of our economy in major ways. Innovation is not finite and even in books, the last quarter-century has provided the ebook, the digital audiobook, and booksellers large and small that are viable, if not necessarily a way to get rich.

Statistics on the earnings of authors reflect a range of compensation that goes from negligible to ridiculously high.

Would blocking the merger change that spectrum?

According to the DOJ, at the top end it would. For the rest of the books, its case is essentially quiescent. My view is that the DOJ and its experts just don’t understand how the acquisition process and advances really work.

Are you in favor of the merger?

As the founder of PublicAffairs twenty-five years ago (a publishing house acquired by Hachette in 2016 when it bought the independent Perseus Books Group), my view is that the entrepreneurial instinct in publishing is alive and, in some ways, impressive.

If the merger is approved and the boundaries for collaboration and “efficiencies” are clearly specified, meaning that the hundreds of imprints in the company would maintain their identity, I can say yes. After all Alfred A. Knopf has been an imprint of Random House since 1960 and has certainly held its own. Since being bought by Random House in 1988, the Crown Publishing Group has been enormously strengthened.

And if the merger is blocked?

Then Paramount Global, Simon & Schuster’s current owner, will still sell the publishing house to the highest bidder, with unknown implications for its destiny. The company has already been sold seven times or so since Mr. Simon and Mr. Schuster started it in 1924.

I was surprised to see that the government’s lead witness in opposition to the merger was Michael Pietsch, the CEO of Hachette, as skilled a publisher as he is an editor. But he said if the transaction does not go through, he’d like to see his company, the third-or fourth (depending on the year) largest in the United States, make the acquisition – something of a paradox.

Are we learning anything about how publishing works?

Actually, quite a bit. For example, literary agents make the argument that the only thing that really matters for authors (and themselves) is the size of the advances, which is why so much emphasis is put on them. In fact, these “advances” are essentially guarantees of income, because the majority of books do not earn them back and therefore pay no additional royalties.

 On the other hand, the trial’s testimony has revealed that roughly half of all books are profitable, and the advance is only one factor in that result. Maybe there is another way to scale payments than the advance?

The majority of trade books are represented to publishers by agents and the DOJ case emphasizes their power over the acquisition process. That is not always true, however, if I may indulge a humblebrag. Over the years, PublicAffairs has published books by Vernon Jordan, George Soros (who does not need the money), Muhammad Yunus, Andy Rooney, and Paul Volcker, luminaries all, who did not have agents and each of whose advances were less than $100,000.

Jordan, Soros, Yunus, and Rooney were national bestsellers and Volcker should have been.

What is your conclusion?

The real attraction of books over the centuries has been the way they are written, the stories they tell, and the facts they assemble. How they are published has always been varied and doubtless will continue to be, whatever the outcome of this trial and the appeals that will probably follow.

The history of cases of this magnitude is that they can take years to resolve. Meanwhile, Simon & Schuster, which has been doing exceptionally well in recent years, will remain in limbo, which is a pity.