Justice Department Sues to Block Penguin Random House’s Acquisition of Rival Publisher Simon & Schuster

The U.S. Department of Justice filed a civil antitrust lawsuit today to block Penguin Random House’s proposed acquisition of its close competitor, Simon & Schuster. As alleged in the complaint filed in the U.S. District Court for the District of Columbia, this acquisition would enable Penguin Random House, which is already the largest book publisher in the world, to exert outsized influence over which books are published in the United States and how much authors are paid for their work.

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

“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 U.S. publishing industry,” the Attorney General continued. “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.”

“In stopping Penguin Random House from extending its control of the U.S. publishing market, this lawsuit will prevent further consolidation in an industry that has a history of collusion,” said Acting Assistant Attorney General Richard A. Powers of the Justice Department’s Antitrust Division. “I want to thank the Attorney General and senior leadership of the department for their support of antitrust enforcement.”

As described in the complaint, publishers compete to acquire manuscripts, which they edit, package, market, distribute and sell as books. Publishers pay authors advances for the rights to publish their books. In most cases, the advance represents an author’s total compensation for their work.

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The complaint alleges that the acquisition of Simon & Schuster for $2.175 billion would put Penguin Random House in control of close to half the market for acquiring publishing rights to anticipated top-selling books, leaving hundreds of individual authors with fewer options and less leverage. According to its own documents as described in the complaint, Penguin Random House views the U.S. publishing market as an “oligopoly” and its acquisition of Simon & Schuster is intended to “cement” its position as the dominant publisher in the United States.

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Penguin Random House LLC is a subsidiary of Bertelsmann SE & Co. KGaA and is headquartered in New York, New York. Penguin Random House publishes 2,000 new trade books in the United States annually. In 2019, Penguin Random House reported revenues of $2.4 billion from U.S. publishing.

Simon & Schuster Inc. is a subsidiary of ViacomCBS Inc. and is headquartered in New York, New York. Simon & Schuster publishes 1,000 new trade books in the United States annually. In 2019, Simon & Schuster reported revenues of $760 million from U.S. publishing.

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26 pages; PDF.

Updates

From The NY Times

Penguin Random House said it planned to fight the challenge and hired Daniel Petrocelli as its trial lawyer. Mr. Petrocelli successfully defended AT&T and Time Warner against the Justice Department when it tried to block their $100 billion merger.

In response to the Justice Department’s decision, Penguin Random House and Simon & Schuster issued a joint statement noting that the department “has not alleged that the acquisition would harm competition in the sale of books” and that the company had not planned “any reduction in the number of books acquired or in amounts paid for those acquisitions.” The rationale for bringing the companies together, they said, was to find efficiencies that would save money on the back end, and that it had no plans to reduce the number of books it acquires or the amounts it pays for them.

“Blocking the transaction would harm the very authors D.O.J. purports to protect,” the companies added. “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.”

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