US Department of Justice sues to block Bertelsmann's S&S deal

The Biden administration is suing to stop Penguin Random House owner Bertelsmann from acquiring its rival Simon & Schuster in a $2.2bn deal. 

The Department of Justice (DoJ) said the acquisition could be detrimental to authors in an antitrust case filed against PRH in the United States District Court for the District of Columbia on Tuesday (2nd November). Both publishers have vowed to fight the lawsuit "vigorously".

The 26-page case DoJ filing reads: “If Defendants’ proposed merger is allowed to proceed, Penguin Random House would be, by far, the largest book publisher in the United States, towering over its rivals. The merger would give Penguin Random House outsized influence over who and what is published, and how much authors are paid for their work.” 

The Department of Justice said the sale would harm authors, arguing: “Penguin Random House’s proposed acquisition of Simon & Schuster would result in substantial harm to authors, particularly authors of anticipated top-selling books. Today, Penguin Random House and Simon & Schuster compete vigorously to acquire publishing rights from authors and provide publishing services to those authors." 

Attorney General Merrick B Garland said: “The complaint filed today to ensure fair competition in the US publishing industry is the latest demonstration of the Justice Department’s commitment to pursuing economic opportunity and fairness through antitrust enforcement. 

“Books have shaped American public life throughout our nation’s history, and authors are the lifeblood of book publishing in America. But just five publishers control the US publishing industry. If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry. American authors and consumers will pay the price of this anticompetitive merger – lower advances for authors and ultimately fewer books and less variety for consumers.” 

Acting assistant Attorney General Richard A Powers said that, in stopping PRH from extending its control, the lawsuit “will prevent further consolidation in an industry that has a history of collusion”. 

The complaint alleges the proposed merger would eliminate the “important competition” between PRH and S&S, putting one company in control of close to half the market in publishing rights, resulting in lower advances for authors and ultimately fewer books and less variety for consumers, leaving hundreds of individual authors with fewer options and less leverage. Suggestions both publishers would continue to bid against each other at auction would be "unenforceable", the suit states. It goes on to claim the merged firm would be able to pay authors less and “extract more” from them, quoting a senior PRH executive who told a colleague: “I would not want to be a big author at Simon & Schuster now...” 

It also alleges both firms recognised the merger could lead to “substantial antitrust risk”. It quotes S&S c.e.o. Jonathan Karp as saying when it was announced his firm was up for sale: “I’m pretty sure that the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice.”

It had been claimed by the firms the merger would create a stronger counterweight to Amazon, but this is also contested by the DoJ. The suit quotes PRH executives saying one "goal" after the merger is to become an “[e]xceptional partner” to Amazon.

In a joint statement both publishing houses said: “This is a pro-consumer, pro-author, and pro-bookseller transaction, which will allow increased investment in the publishing programs of both S&S and PRH. 

"The transaction will bring PRH’s superior order fulfillment services to S&S’s titles, benefiting consumers by making it easier to discover new titles and less likely that books will be out of stock, particularly at local retailers. Beyond the benefits to consumers, PRH’s reach into independent bookstores and specialty markets will boost the sales of S&S titles, benefiting both authors and retailers. 

"The publishing industry is, and following this transaction will remain, a vibrant and highly competitive environment. PRH and S&S compete with many other publishers including large trade publishers, newer entrants like Amazon, and a range of mid-size and smaller publishers all capable of competing for future titles from established and emerging authors. 

"Blocking the transaction would harm the very authors DOJ purports to protect. We will fight this lawsuit vigorously and look forward to PRH serving as the steward for this storied publishing house in the years to come.”

Last November, Bertelsmann announced it had reached a $2.2bn deal to buy S&S from owner ViacomCBS. The merger would see S&S continue to be managed as a separate publishing unit under the PRH umbrella. 

The UK's Competition & Markets Authority investigated the sale but cleared it in May. However, it has faced greater opposition in the US where the Authors Guild and other writers groups called for the DoJ to take action. 

In a statement after the DoJ's announcement, the Authors Guild said: "Today’s decision by the DOJ was unexpected given that so many other major mergers and acquisitions in the publishing industry have gone through recently and over the last few decades with nary a raised eyebrow, leaving us with only a handful of companies dominating the industry. More importantly, the decision raises the bigger question that goes beyond traditional publishers to the consolidation of distribution channels and Amazon’s monopsony of book retail.  We look forward to working with the Biden administration on antitrust reform that gets to the root of the problems in the industry, whereas the proposed merger was just a symptom.”