Penguin Random House, Simon & Schuster Merger Blocked by Courts

This week, Judge Florence Pan of the U.S. District Court for the District of Columbia, ruled against a proposed merger of Penguin Random House and Simon & Schuster, siding with the U.S. Justice Department, which brought the suit that the deal would “substantially lessen” competition for publishing rights to top books and authors.

Both sides of the case argued that their position was in the best interests of readers and authors alike, with Penguin Random House claiming it would be good for competition, and that the two imprints would still be allowed to bid against one another for top manuscripts, while U.S. Assistant Attorney General Jonathan Kanter noted in a statement that, “The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy."

However, some of the most vocal opponents of the merger were the authors themselves, with Stephen King even testifying on behalf of the government during the trial this past summer. In response to the news, he tweeted, “I am delighted that Judge Florence Pan has blocked the merger of Penguin Random House and Simon & Schuster. The proposed merger was never about readers and writers; it was about preserving (and growing) PRH's market share. In other words: $$$.”

The proposed merger represented a $2.2 billion deal, and while Penguin Random House has said it plans to appeal the ruling — if higher courts uphold Judge Pan’s decision — it will still be on the hook for a termination fee of around $200 million to Simon & Schuster and its corporate parent, Paramount Global. Penguin Random House is owned by Bertelsmann, a German media group, which also has a large footprint in the printing industry, including the U.S.

Simon & Schuster CEO Jonathan Karp shared a memo with the Associated Press that went out to employees after the decision was announced, noting that, “despite this news, our company continues to thrive. We are more successful and valuable today than we have ever been, thanks to the efforts of all of you on behalf of our many magnificent authors.”

Other publishers also testified against the deal, including executives from HarperCollins and Hachette, both of which would only hold a fraction of market share compared to the combined entity, giving them both far less buying power in the market. In the current landscape, the largest five publishers in the United States control 90% of the market, with the proposed merger consolidating roughly half of that under a single entity.

In a brief submitted to the court before the trial began — which Publisher’s Weekly obtained the full 152-page report — the Justice Department noted that, “One entity’s control of almost half of the nation’s anticipated top-selling books threatens competition in multiple ways. Authors’ advances would fall — advances that they use to pay their bills and that reflect compensation for their work.”

One of the big takeaways from the trial and subsequent decision is that the government argued — and the judge agreed — that if the merger is allowed to proceed, there will ultimately be fewer books brought to market, and those that do will see authors paid far less, meaning they have even less incentive to produce new works. This is critical for book manufacturers, since fewer books picked up and produced means fewer books printed. It would also potentially limit the books made available for reprint rights, which would even further potentially limit the market for printed books across the board.

Today, Penguin Random House has around 100 imprints that produce approximately 2,000 new titles each year between them. Simon & Schuster has around 50 imprints of its own that it would bring to the deal. The book publishing market is worth around $29.8 billion in 2022, and size-wise is ranked 20 among information companies in the U.S., and is the 332^nd largest industry in the country. It is expected to grow around 2.2% by 2030; although academic books and materials will make up a strong portion of that demand, commercial books will continue to drive sales as well, especially as various imprints compete for book deals with celebrities of all types — competition that could slow down if the merger proceeds, according to the Justice Department.

This growth translates back into the print side of the business as well — this segment of the industry is expected to reach a value of around $49 billion by 2024 at the current pace, with a rise of digital, short-run technologies making printed books attractive to a wider range of authors, including smaller imprints and authors looking to self-publish. For printers specializing in the space, it continues to be a lucrative market that could take a hit in the long run if consolidation reduces publishers and suppresses the number of new titles coming to market.

One of the more interesting points of this trial is that the Justice Department didn’t focus overly much on the impact the proposed deal might have on consumers — instead, it focused almost entirely on how the deal would harm workers, authors, and even competitors, which in turn will cause the entire book publishing space to suffer harm. It wasn’t an approach that had been used before, although with the success of this case so far, expect the Justice Department to take a more unconventional approach to anti-trust lawsuits in the future as well.