Penguin-Random House (PRH) / Simon and Schuster (SS) Merger Lawsuit

Overview

Date of Trial: August 2022 (most of the month), verbal arguments ended August 22nd with a decision expected later this fall (Grady, 2022)

What: Justice department trying to stop PRH and S&S merger, antitrust suit [Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. This often involves ensuring that mergers and acquisitions don't overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies – (Twin, 2022)]

Why: Biden cracking down on corporate consolidation (Italie, 2022), justice department is concerned that the merger would make even less competition for bestsellers and decrease the chance of smaller publishers succeeding (Italie, 2022), advances would decrease because you would have less people entering bidding wars over a book

Significance: Publishing houses had to release financial information they haven’t thus far and it indicated that authors don’t do as well under the traditional publishing model as the ‘Big 5’ [the five publishers that control upwards of 80% of all books published in the US (Grady, 2022)] would like us to believe

Key Moments

During this trial, PRH and SS tried to position themselves as the underdogs we should be rooting for in a traditional publishing market that is increasingly being undermined by newcomers to the scene like Amazon’s ever evolving publishing services (Grady, 2022). To make their case, high-level employees of the companies testified to their own incompetence:

• Admitted that most new, traditionally published authors don’t ‘earn out’ (the point at which enough money is earned from book sales to pay back their advance and start earning royalties) (Italie, 2022); this means most new authors do not make an income off their work

• SS CEO, Jonathon Karp, testified that there is no such thing as a ‘midlist writer’ (writers who make moderate earnings from their books without reaching bestseller status); this was just a polite term used for ‘low list’ writers who were not earning enough from their publications to be of value to the publishing house (Grady, 2022)

• President of Penguin Books, Brian Tart, claimed that the profit/loss models they use when acquiring books are fake and that there is no way to predict which books will be successful and which will not (aka they don’t know if they can help authors succeed) (Italie, 2022)

• Despite testimonies that equal marketing efforts are made with all books because they have no way of knowing which books will succeed and which won’t, their financial statements indicated otherwise, with a small percentage of books receiving hefty advance payments and the lion’s share of publisher resources (Grady, 2022) (sometimes taken out of budgets originally allocated to emerging writers)

A Bad Business Model

The lawsuit has proven to be somewhat of a farce. In no other industry would the level of incompetence the publishers are testifying to be rewarded with the high level salaries of the company CEO’s and their continued acquisitions.

Stephen King testified early in the trial that the merger would hurt competition and drive down the bidding on author’s works (Italie & Gordon, 2022), resulting in authors being paid less; however, PRH and SS argued that hundred of imprints (smaller publishing houses owned and operated by the larger publishers but that operate individually) already exist under the Big 5 umbrella and that they bid against each other all the time, continuing to drive up the payments made to authors (Grady, 2022). As a business model, it feels a little ridiculous that companies all owned by one conglomerate would continue to drive up prices against themselves.

No One is Safe

Despite PRH and SS painting a picture of themselves as altruistic benefactors who care more about making writers’ dreams come true than ascertaining a profit (Grady, 2022), even successful authors are not safe if their sales start to wane.

The president of William Morrow Group admitted that they did not make an effort to acquire bestselling author Dean Koontz’s latest work because of declining sale, despite his strong publishing track record. Koontz moved on to take an exclusive five book deal with Amazon.

What This Means for the Industry

It’s our prediction that this lawsuit will hasten the changes already happening in an evolving industry, pushing more authors toward self-publishing. Traditional publishing offers many barriers, from the length of time it takes to get an agent to accept your work before you’re even allowed to solicit the big publishers, to the lack of diversity in traditionally published books, to the low chance of earning an income off your work after paying your agent and paying back your advance.

With the increasing availability of new technologies and services that give authors everything they need to publish and champion their own works, it’s hard to imagine why the mass exodus from traditional publishing wouldn’t be imminent.

Jonathon Karp (CEO of SS) testified that to be competitive in the market “all it takes is a publisher with a vision and a couple of good editors” (Grady, 2022) something that self-publishing authors have the power to source and invest in for themselves.

Authors no longer need to let the traditional publishing model dictate the worth of their book―they can go directly to the consumers, connecting their book directly to readers to develop niche markets of raving fans that, while unlikely to make them a best seller, can still provide a consistent enough readership to allow authors to make a career of their writing.

References

Grady, C. (2022, August 25). Book publishers just spent 3 weeks in court arguing they have no idea what they're doing. Vox. Retrieved October 31, 2022, from https://www.vox.com/culture/23316541/publishing-antitrust-lawsuit-merger-department-justice-penguin-random-house-simon-schuster

Italie, H. (2022, August 8). Penguin random house, Simon & Schuster Merger Trial: Everything that has happened so far. USA Today. Retrieved October 31, 2022, from https://www.usatoday.com/story/entertainment/books/2022/08/07/penguin-randomhouse-simon-schuster-trial-what-has-happened-so-far/10262307002/

Italie, H., & Gordon, M. (2022, August 3). Stephen King testifies against longtime publisher Simon & Schuster in books merger trial. USA Today. Retrieved October 31, 2022, from https://www.usatoday.com/story/entertainment/books/2022/08/02/stephen-king-testify-simon-schuster-penguin-random-house-merger-trial/10210565002/

Twin, A. (2022, June 8). Antitrust laws: What they are, how they work, major examples. Investopedia. Retrieved October 31, 2022, from https://www.investopedia.com/terms/a/antitrust.asp