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DOJ Sues to Block Penguin Random House and Simon & Schuster Merger – Deadline

The Justice Department has taken legal action to block Penguin Random House’s proposed merger with Simon & Schuster, arguing the deal would create a giant publisher that could cut payments to authors and “reduce quality, service , choice and innovation ”.

The trial (read the here), filed in U.S. District Court for the District of Columbia on Tuesday, sets up another large-scale antitrust battle in the media industry.

“The merger would give Penguin Random House inordinate influence over who and what is published, and how much authors are paid for their work,” the DOJ said in its complaint.

In the complaint, the government claimed the merger is “presumed illegal”, relying heavily on the fact that it would combine the largest book publisher, Penguin Random House, with the fourth in the market, Simon & Schuster, creating a company with two the income of its next closest competitor.

Attorney General Merrick Garland said in a statement: “If the world’s largest book publisher is allowed to acquire one of its biggest rivals, it will have unprecedented control over this important industry. American authors and consumers will pay the price for this anti-competitive merger – less progress for authors and ultimately less books and less variety for consumers. “

Acting Deputy Attorney General Richard A. Powers said the lawsuit “will prevent further consolidation in an industry with a history of collusion.”

The lawsuit claims that the $ 2.175 billion purchase of Simon & Schuster by Penguin Random House, currently a unit of ViacomCBS, would give the new company nearly half the market for the most anticipated books.

The DOJ said when announcing the lawsuit: “According to its own documents as described in the lawsuit, Penguin Random House views the US publishing market as an ‘oligopoly’ and its acquisition of Simon & Schuster is intended to “consolidate” its position as the dominant publisher in the United States.

The lawsuit focuses on the impact the transaction would have on payments to authors, rather than consumer prices, as it identifies a multitude of instances where the two publishers have competed for US rights to the books.

“Penguin Random House and Simon & Schuster are frequently invited by agents to auction for the rights to these books, and they are often the last two bidders. Competition between Penguin Random House and Simon & Schuster has resulted in greater advances, better services and more favorable contractual terms for authors.

The lawsuit also reflects promises by Joe Biden’s administration to take a stronger stance on antitrust law enforcement, even though the president’s candidate to take the reins of the antitrust division, Jonathan Kanter, has not. yet been confirmed. Biden’s choice to head the Federal Trade Commission, Lina Khan, has also argued for tough enforcement, especially in the tech industry. The FTC is currently reviewing Amazon’s proposed acquisition of MGM.

Penguin Random House and Simon & Schuster released a statement in which they said, “The publishing industry is, and after this transaction, will remain a dynamic and highly competitive environment. PRH and S&S compete with many other publishers including large commercial publishers, new entrants like Amazon, and a range of midsize and small publishers, all capable of competing for future titles from established and emerging authors.

The editors added, “Blocking the transaction would harm the very authors the DOJ claims to protect. We will fight vigorously against this lawsuit and look forward to PRH being the steward of this legendary publishing house in the years to come. “

The editors have retained Daniel Petrocelli of O’Melveny & Myers as lead counsel. He represented AT&T when the Justice Department filed a lawsuit to block its merger with Time Warner. After a trial judge ruled in favor of AT & T-Time Warner, a federal appeals court upheld the decision.

He gave an overview of his defense in the case of publishers. In a statement, he argued that the Justice Department “has not found, and is not alleging, that the combination will reduce competition in the sale of books. The publishing industry is strong and dynamic and has experienced strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will help and not hurt the competition. “

But unlike the AT & T-Time Warner operation, the merger of the two publishers is horizontal, ie it would remove a direct competitor from the market and reduce the “big five” publishers to four. These horizontal transactions have traditionally been easier to block for the federal government.

The government also gave an indication of some of the evidence it would present in his case. In his complaint, he noted that when it was announced that Simon & Schuster would go on sale, “its current CEO wrote to one of its bestselling authors: ‘I’m pretty sure the Department of Justice wouldn’t allow Penguin Random House to buy us, but that assumes we still have a Department of Justice.

The DOJ also noted that the chairman of Bertelsmann, the parent company of Penguin Random House, “acknowledged that Penguin Random House posed more ‘antitrust risks’ than any other potential buyer from Simon & Schuster. As a result of this risk, Bertelsmann understood that he would have to pay a significant premium over other bidders to acquire Simon & Schuster. “

The government has also targeted one of the arguments for the merger, that it would be a check on Amazon’s purchasing power. The DOJ claimed that internal documents showed the combined company “plans to embrace Amazon even more closely after the merger.”

“For example, in seeking approval from Bertelsmann’s supervisory board to sue Simon & Schuster, executives at Penguin Random House said the acquisition would advance their ‘[g]oal to be a ‘[e]exceptional partner for Amazon ”, indicates the complaint.

The government has defined two “relevant markets” to assess the impact the merger would have on competition: the acquisition of US publishing rights to books from authors and a narrow landscape of acquisition of publishing rights. Americans on the best-selling books. In the complaint, the DOJ argued that “a hypothetical monopsony of anticipated best-selling books would cost-effectively reduce advance payments to advance best-sellers by a small but significant and non-transitory amount.”

The trial’s focus on perpetrators was hailed by public interest groups as a welcome development, given that much of antitrust law enforcement has focused on the impact that mergers will have on consumers. “While the damage this merger would cause to readers is real, all too often antitrust discussions overlook the damage to creators caused by consolidation,” said Alex Petros, policy advisor at Public Knowledge. The DOJ and the FTC are planning a workshop next month on competition in labor markets.

The publishers noted, however, that the Justice Department was not alleging that the combination would harm competition in the sale of books, arguing that the “market for book sales is not concentrated and the combined shares are well below the levels of concern “.

“DOJ alleges that authors who focus on those who tend to receive six- or seven-figure cash advances are harmed by this agreement, with the parties allegedly purchasing nearly half of their books,” the publishers said. “Not only is this percentage overestimated, it also ignores the stiff competition from many publishers who are vying for advancements at all levels, including higher level advancements.”

Penguin Random House also said that it does not anticipate any reduction in the number of books acquired or the amounts paid for the work of authors, and that it will continue to compete with Simon & Schuster for rights to the books, even if they would be under the same corporate umbrella. .

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