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U.S. v. Bertelsmann SE & CO. KGaA: The Publishing Trial of The Century

Post Authored By: Natalie Elizaroff

In Fahrenheit 451, Ray Bradbury said, “You don’t have to burn books to destroy a culture. Just get people to stop reading them.”[1]

As all eyes are trained on U.S. v. Bertelsmann SE & CO. KGaA, et al. and it feels like the fate of authors, books, and readers is on the line.  Stemming from the proposed merger between Penguin Random House (PRH) and Simon & Schuster (S&S), the book publishing trial of the century is quickly unfolding. Although at first glance the trial revolves purely around issues of antitrust, monopolies, and stifling the competitive market – the real elephant in the room is Amazon’s domination and vice grip on the economy.

Who are the players?

The case begins with the Department of Justice (DOJ), representing the interests of the United States government and pursuing this matter against several parties in the publishing industry. Specifically, this action is commenced against Bertelsmann, Penguin Random House, ViacomCBS, and Simon & Schuster (collectively, the “Defendants”). Bertelsmann is an international media and services company with numerous subsidiaries, including PRH and the Bertelsmann Printing Group, a major supplier of book printing services in the United States. PRH is a Big Five publishing company that was formed from the 2013 merger of Penguin and Random House, which were founded in 1935 and 1927, respectively. Currently, PRH is the largest U.S. trade book publisher. ViacomCBS is an international media and entertainment company, which includes Simon & Schuster in its assets. S&S is a wholly owned subsidiary of ViacomCBS that was founded in 1924. S&S is the fourth-largest U.S. trade book publisher.

What are the facts?

Around November 2020, PRH struck a deal to acquire its rival S&S for approximately $2.2 billion. This merger would effectively shrink the number of major publishing houses to four. The major publishing houses that exist currently are known as the Big Five, which include Simon & Schuster, Penguin Random House, HarperCollins, Hachette Book Group, and Macmillan. [2]

The DOJ brought this action under Sections 15 and 7 of the Clayton Antitrust Act. For those unfamiliar, the Clayton Act was passed in 1914 by the U.S. Congress and serves to define unethical business practices. Simply put, the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” [3] Accordingly, this trial will ultimately decide whether Penguin Random House is allowed to buy Simon & Schuster.

What has happened in the trial?

Oral arguments were scheduled to begin on August 1st. A lot of compelling testimony has been heard. One voice on behalf of the government stood out when Stephen King took the stand. King, a bestselling author, took the stand against his publisher to say: “I came because I think consolidation is bad for competition. That’s my understanding of the book business, and I’ve been around it for 50 years.” He continued, “[w]hen I started in this business, there were literally hundreds of imprints, and some of them were run by people with extremely idiosyncratic tastes, one might say. Those businesses were either subsumed one by one or they ran out of business. I think it becomes tougher and tougher for writers to find enough money to live on.” [4]

King’s testimony provided an author’s perspective on the deal, arguably, one of the more crucial perspectives to be heard in this case. His testimony was later supported by an independent survey conducted by the Association of American Literary Agents (AALA). The AALA was founded in 1991 and has focused on the interests of agents, authors, and other rights holders. As the trial commenced, the AALA surveyed its membership to collect insights and thoughts regarding the proposed merger between PRH and S&S. Their survey found that “87.6% of respondents reported being against Penguin Random House’s bid for Simon and Schuster, with 4.1% supporting the acquisition. The remaining 8.3% express mixed feelings.” [5] Many respondents were concerned for the same reasons listed by King as to why the acquisition was in bad taste. It would provide authors with less competition, lower advances, and weaker bargaining power.

On behalf of the Defendants, the testimony largely focused on supporting the idea that the proposed merger can deepen industry competition, not dilute it. Dan Petrocelli, PRH’s head lawyer, is quoted saying, “Penguin Random House’s acquisition of Simon & Schuster will strengthen the already vigorous competition among publishers to find and sell the books readers most want to read.” [6]

Other testimonies for the Defendants included Alex Berkett, chief corporate development and strategy officer, who discussed that advances do not play into the marketing decisions and were not likely to be affected by the merger. In that same vein, John Glusman, vice president and editor in chief of the nation’s largest independent/employee-owned publisher, stated in his opinion a merger would increase, not decrease, advances.

Despite the reassurances by various corporate officers, alongside promises from PRH and S&S, many authors view the merger unfavorably. All of this to say that it might just come down to the economics of it and whether the Defense can mount a convincing reason for the Judge to rule in their favor.

Why this matters?

This case really comes down to the concept of fighting fire with fire. Mergers and acquisitions are not new and when a merger goes well, the value of the dominant company appreciates, investors anticipate synergies, and revenues and cost savings increase. With regards to the PRH and S&S merger, it is about more than just synergies and cost savings at stake, it is the market share hold that the conglomerate company would acquire. This deal is as much about financial gain as it is about getting on equal footing with Amazon’s gargantuan influence and hold on the publishing industry. Amazon controls over 80% of the e-market, over 50% of the print market, and a good chunk of the audio market. [7] The reality of this is that other publishing houses simply cannot keep up. The American Booksellers Association published a brief wherein they stated, “Amazon’s dominance in the online bookselling submarket could force authors to publish with Amazon.” Further, in a 2014 interview with CNBC, technology attorney Bob Cohn predicted, “When [Amazon has] 90 percent of the market and you go to authors, even self-published ones, and say we don’t want to pay anymore, where are you going to get your book published? If Amazon has 90 percent share, there’s no place else to go.” [8]

To be clear, this is not the issue of having limited options between the Big Five publishing companies, it is having limited options between Amazon and the rest of the publishing industry. Lesser-known authors hardly have a choice when it comes down to Amazon or another publisher. If the Big Five turn down an author, a smaller publishing company simply cannot compete neither with Amazon nor a company like PRH.

What is the solution?

Acknowledgment and accountability are the first steps. It is no surprise that companies like Amazon, Disney, Google, Apple, and the likes arguably dominate and influence many major decisions. This comes as no surprise and as an example Disney’s influence was previously discussed in A Copyright Term Limit Lasting a Hundred Acres. [9] Regulatory actions that restrict Amazon’s business practices and reduce its monopolistic hold on the publishing industry are starting steps to reinvigorate the industry as a whole. Instead of pursuing mergers to level the playing field, legislature must reestablish a balance that puts the interests of authors and the marketplace of ideas ahead of economic forays.

This merger is an indicator of a much larger and more dangerous problem that persists in the marketplace. If left unchecked, Ray Bradbury’s words may very well reign true because when authors cannot publish, they stop writing, and when authors stop writing, people stop reading.

  1. Bradbury, Ray. Fahrenheit 451. New York: Simon and Schuster, 1967. Print.
  2. Alexandra Alter and Edmund Lee, Penguin Random House to Buy Simon & Schuster, N.Y. Times (Nov. 25, 2020),https://www.nytimes.com/2020/11/25/books/simon-schuster-penguin-random-house.html.
  3. The Antitrust Laws, Federal Trade Commission,https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/antitrust-laws.
  4. Misty Severi, Stephen King testifies publishing merger would scare off competition, Washington Examiner (Aug. 2, 2022), https://www.washingtonexaminer.com/policy/courts/stephen-king-testifies-publishing-merger-stifles-competition.
  5. AALA Survey Finds Literary Agents Strongly Against Penguin Random House’s Plan to Acquire Simon and Schuster, Association of American Literary Agents (Aug. 17, 2022),  https://t.co/WnJKFnFiXN.
  6. Feds and Penguin Random House set to square off over Simon & Schuster deal, CBS News (Aug. 1, 2022), https://www.cbsnews.com/news/penguin-random-house-antitrust-trial-us-government-simon-and-schuster/
  7. Porter Anderson, US Publishers, Authors, Booksellers Call Out Amazon’s ‘Concentrated Power’ in the Market, Publishing Perspectives (Aug. 17, 2020), https://publishingperspectives.com/2020/08/us-publishers-authors-booksellers-call-out-amazons-concentrated-power-in-the-book-market/.
  8. Drew Sandholm, Amazon’s ‘predatory pricing’ questioned, CNBC (June 30, 2014), https://www.cnbc.com/2014/06/30/amazons-predatory-pricing-questioned.html.
  9. Natalie Elizaroff, A Copyright Term Limit Lasting a Hundred Acres, CBA @theBar (Mar 11, 2022), https://cbaatthebar.chicagobar.org/2022/03/11/a-copyright-term-limit-lasting-a-hundred-acres/.

About the Author:

NatalieElizaroff - Headshot

Natalie Elizaroff graduated with a B.S. in Molecular Biology from Loyola University Chicago in 2016. She is a recent graduate of the UIC School of Law, currently working at Advitam IP where she handles trademark litigation, patents, and other IP-related matters. Natalie is looking forward to starting her career in the area of IP Law.

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