Penguin Random House-Simon & Schuster Merger “Must Be Stopped,” Justice Department Attorney Tells Judge As Antitrust Trial Of Publishing Giants Begins

Penguin Random House-Simon & Schuster Merger “Must Be Stopped,” Justice Department Attorney Tells Judge As Antitrust Trial Of Publishing Giants Begins

Attorneys for the Justice Department and Penguin Random House squared off on Monday in the first day of an antitrust trial, as the government challenges the publishing giant’s proposed $2.2 billion acquisition of Simon & Schuster.

“This proposed merger must be stopped,” John Read, the Justice Department’s attorney, said in opening arguments, as he outlined a case that will rely heavily on testimony of rival CEOs, book agents and authors, including Stephen King.

The trial. at U.S. District Court in Washington, D.C., is being closely watched by authors and writers, as well as content creators generally, as the government’s case hinges on the premise that the merger will diminish advances for high profile titles, or anticipated best selling books. King is expected to testify in the case this week, perhaps on Tuesday.

The case is not just a test of the Biden administration’s effort to more strictly scrutinize proposed mergers, but to challenge them for their impact on labor and employees, not solely consumers.

The DOJ claims that the transaction will create a publishing behemoth that commands 49 percent of the market for best sellers.

Penguin Random House contends that the DOJ’s case is rooted in the false premise of a relevant market that is not recognized in the real world of publishing — the bidding that takes place for anticipated best sellers.

Read said that if the two publishers merge, they will command almost half of the market for the best selling titles.

But Read told Judge Florence Pan that the 2% of best selling books command $1 billion of the major publishers’ annual spending. The DOJ’s case is focused on the impact of the merger on author advances of $250,000 or more.

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He ran through an undisclosed author’s bidding process for a memoir, in which Penguin Random House and Simon & Schuster emerged as the top bidders, with the former winning at $825,000. Hachette dropped out at $650,000. His point was to show that “competition results in authors being paid more.”

Read also argued that one of Penguin Random House’s promises, to have its subsidiaries compete against each other in the bidding process, was unenforceable. He also said that reducing the number of big publishers from five to four increases the likelihood of “tacit” coordination between the rivals.

Dan Petrocelli, representing the publishers, will deliver opening arguments later on Monday.

ViacomCBS, now Paramount Global, announced its sale to Penguin Random House in 2020. The Justice Department sued to block the deal in November.

More to come.

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