”A lot of the talk and the fear and the anger is about things that are none of the business of the law,“ one merger expert says
Move over, Hollywood. Merger mania has come for the book publishing industry.
On the tail of massive acquisitions in the entertainment and media space, such as AT&T’s $85 billion purchase of Time Warner in 2018, thew 2019 re-merger of ViacomCBS and Disney’s $71 billion acquisition of 21st Century Fox in 2019, major book publishers are embarking on their own consolidations in an effort to cement their place in an increasingly competitive environment. But are any of these major acquisitions anti-competitive, as critics have argued?
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On Monday, News Corp. completed a $349 million acquisition Houghton Mifflin Harcourt’s books and media division, adding titles like J.R.R. Tolkien’s “Lord of the Rings” trilogy and popular children’s books like “Curious George” and “The Little Prince” to News Corp.’s HarperCollins.
The acquisition came four months after Penguin Random House said it would purchase Simon & Schuster for $2.18 billion from ViacomCBS, sending shockwaves through the book publishing world about the prospect of two of the industry’s biggest publishers coming together that would change the moniker for the top publishers from the Big Five — Hachette, HarperCollins, Macmillan, Penguin Random House and Simon & Schuster — to the Big Four.
While the major publishers who aren’t a part of the merger Hachette, Harper Collins and Macmillan may feel the heat with the prospect of a newly combined Penguin Random House Simon & Schuster (whew, that’s a mouthful), the U.S. government’s antitrust laws are not meant to protect those other publishers from their competition, Erik Gordon, a professor at the University of Michigan’s Ross School of Business who specializes in acquisitions and mergers, told TheWrap.
“There’ll be some sense in which they’re a threat. But in the U.S., the antitrust laws aren’t about protecting one company from other companies becoming bigger and more powerful. It’s to protect against a company having monopoly-like power,” Gordon said.
Though it may seem like the soon-to-be Big Four are the only publishers out there, there are hundreds of independent publishers and small presses that would make an antitrust argument moot, Gordon noted. “There’s no legal protection to make it easier for you to get your book published. So a lot of the talk and the fear and the anger is about things that are none of the business of the law,” he said.
If anything, Gordon said, the merger is “actually good for competition to get higher because then everybody has to up their game.”
Well, maybe except for the companies that have to “up their game.”
Shortly after the announcement of the acquisition last November, competitors like HarperCollins’ parent company News Corp. — which, ironically, lost its bid to acquire Simon & Schuster — slammed the deal and said it would create antitrust issues.
“There is clearly no market logic to a bid of that size — only anti-market logic,” Robert Thomson, the CEO of News Corp., said at the time. “Bertelsmann is not just buying a book publisher, but buying market dominance as a book behemoth. Distributors, retailers, authors and readers would be paying for this proposed deal for a very long time to come.”
Thomas Rabe, the CEO of Penguin Random House’s parent company, Bertelsmann, said last November that the company had seriously considered the potential for antitrust issues arising but found that the combined revenue of PRH and S&S would amount to less than 20% of the U.S. market, based on figures from the American Association of Publishers. Rabe also said larger publishers have lost market share in the past few years and pointed to Amazon, which has had an increasingly powerful presence in the retail space.
But according to NPD Bookscan, a data service that tracks retail sales of trade print books in the U.S., Penguin Random House — the largest publisher — had a 24% share of the market in the U.S. last year, while Simon & Schuster had 9% and HarperCollins had 11%.
Authors have also aired their concerns about how the creation of uber-publishers could negatively impact writers, independent bookstores and readers.
In a letter to the Department of Justice in January, a group of eight authors’ guilds and nonprofits argued that the PRH/S&S merger would reduce competition for manuscripts and the diversity of books that get published, have a negative impact on independent publishers and their access to printing plants, change the inventory that independent bookshops buy to sell to their customers and lead to “price squeezing” when it comes to how much writers are paid.
“Bertelsmann’s acquisition of Simon & Schuster is a threat to democracy and must be stopped,” the joint letter said.
The situation may look a little different in Europe, however. In the U.K., a watchdog group has already launched an investigation into the PRH/S&S acquisition to determine if it would lead to a “substantial lessening of competition within any market or markets in the United Kingdom for goods or services.” (Bertelsmann, PRH’s parent company, is based in Germany.)
C. Kerry Fields, a professor at USC’s Marshall School of Business, told TheWrap that the European Commission — which has a different, and often longer, process for evaluating and regulating mergers and acquisitions — could potentially throw a wrench in the deal’s U.S. approval through the Federal Trade Commission.
“If Europeans quash the merger, it will not go forward in the U.S. because you can’t have a company that can operate only on North America that cannot operate in Europe,” Fields said. “But I think the Europeans are going to look at it and say, this merger, although in principle we don’t like it, in practice we need to have a more viable company left in the marketplace to compete against the size of a publishing entity that Amazon itself could present.”
In the U.S., the PRH/S&S deal is a matter of when, not if. As for when? It could take anywhere from four to 12 months to be approved by the FTC, according to experts who spoke with TheWrap.
As larger publishers find ways to compete with one another and Amazon increasingly eats into the publishing world where authors can self-publish, Gordon — a bookworm himself who reads three to four books a week — said he was most concerned about the impact on small and independent publishers, even though there was no viable antitrust argument to be made at this point.
“Maybe it’s in the hands of the readers, as opposed to the resources of the small presses. The sentimental side of me says, I’m not sure how I feel about that,” Gordon said. “But the analytic side of me says, wow, this sounds better, in some ways, not worse.”