Penguin Random House bidding policy questioned by judge in S&S merger trial

Claims Penguin Random House and Simon & Schuster imprints will still bid against each other and the companies will avoid “co-ordination” have been questioned by a judge presiding over the antitrust trial in Washington DC.

The US Department of Justice (DoJ) is attempting to block the $2.2bn deal in court and its case has centred around a merged PRH and S&S reducing competition for “anticipated top-selling books”—titles whose authors earn $250,000 in advances or more.

However, defence economic expert Dr Edward Snyder, professor at the Yale School of Management, told the court the industry cannot be effectively modelled as the DoJ has attempted to do, Publishers Lunch reported.

He said of his own attempts: “I concluded it wasn’t possible to get insights into important elements in a model—market share, willingness of authors and agents to make substitutions, and the potential response of rivals.”

The defence argues a market for $250,000 advances or above has been invented by the government and Snyder suggested concentration happens instead at $50,000, and that this would have been a better market to study. He was challenged on this by Judge Florence Pan, who said “the evidence reflects that at $250,000 you are less likely to get non-Big Five competitors” and other publishers are being “priced out” at higher advance levels. She asked: “Can it be a different market just because at certain levels people are not likely to compete? Can that help define a market?”

Snyder responded this was possible but the figures suggested something different. He said: “The numbers show more than 30 publishers securing contracts above $250,000.” 
Under cross-examination, he admitted: “There’s a comfort level for potential bestselling authors among the Big Five. That doesn’t mean that those individual Big Five competitors don’t face a lot of competition, I believe they do.”

Asked if competition would be affected by one firm “who dwarfs all the other players”, he responded: “My view on that is, yes, there is a general relationship out there between concentration of market shares and lessening of competition. Given the competition within the Big Five now, Big Four going forward, given the potential role for entry and imprint competition, we’re not at a point where that relationship changes.” 

Snyder was asked about a 2018 document in which PRH US c.e.o. Madeline McIntosh had written about “increased background co-ordination in auctions to leverage internal demand information better and avoid internal upbidding”, Publishers Lunch reported. Judge Pan asked him if that affected his analysis, saying: “They have appointed someone to internally co-ordinate bidding”. She pointed to emails from editors who had agreed to put in the same bid or not to bid above particular amounts.

Snyder stressed editors were entrepreneurial and competitive, but did say: “It could have an effect on some situations, based on what I’m hearing this morning.” 

Penguin Random House c.e.o. Markus Dohle has vowed imprints from S&S and PRH will still be allowed to bid against one another for books. In his own testimony during the trial, Dohle said the company planned to keep bidding "external and independent”. 

Snyder was also asked about the DoJ’s claims that “co-ordination” between publishing firms on policies like splitting author payments into four and hanging onto audio rights would be easier with one fewer major player, suggesting companies might also agree not to poach authors.

Judge Pan said: “We’re interested in whether the co-ordination can happen. Your answer seems to be focused on why this is a bad idea, and we’re focused on whether the co-ordination can happen.” 

Snyder said editors would resist agreeing not to poach and there would be no mechanism by which to achieve it. He concluded: “What would the Big Five be doing? They would just be hurting themselves.”

Closing arguments in the case are scheduled to be made today (19th August), although a final decision from Judge Pan is not expected until November.