A big publishing merger was blocked, but brought the industry little clarity
By Elizabeth A. Harris and Alexandra A. Alter
A judge blocked the largest publisher in the country from absorbing a rival, thwarting further consolidation in an industry that has been deeply reshaped by mergers in recent years. But the decision brought little clarity about what lies ahead for the companies involved, or for the publishing world.
Penguin Random House, the larger publisher, vowed to appeal Judge Florence Y. Pan’s decision Monday to stop its purchase of Simon & Schuster, a deal that would have reduced the number of major publishers from five to four. Appealing, however, may not be so simple.
The purchase agreement between Penguin Random House and Simon & Schuster’s parent company, Paramount Global, expires at the end of November, according to court records. An appeal would require more time, and an extension of the arrangement. Neither company would confirm or comment on Tuesday on whether such an extension was in place.
The order laying out the judge’s reasoning is temporarily under seal because it contains confidential information. So Penguin Random House’s legal strategy, should they go forward with an appeal, is also unclear.
This uncertainty comes at what is already a tenuous moment for the industry, when many are worried about a looming recession and the drag on profits from inflation and supply chain constraints.
Sales have also started to slump, after a surprising surge of book sales that boosted publishers’ bottom lines during the pandemic. So far this year, sales of print books were down 6% compared to 2021 — a drop of more than 37 million units, according to NPD BookScan, though they are still well above 2019 levels. The Association of American Publishers reported recently that publishers’ revenues were down 2.5% for the first seven months of the year, based on data gathered from 1,368 publishers. Hardcover sales were especially weak, with a revenue drop of 10.5%, suggesting that the demand for new books is softening.
Some of the biggest companies, including Hachette and Penguin Random House, have reported results that are relatively modest this year, compared with 2021.
Simon & Schuster, however, has been having a very strong year, outperforming many of its rivals. Its revenue grew by 34% in the second quarter of the year, driven in large part by older books that have taken off on TikTok, including “It Ends With Us,” by Colleen Hoover. “The Last Thing He Told Me,” a novel by Laura Dave, spent a year on the bestseller list and has now sold 2 million copies, Simon & Schuster said. Ada Ferrer’s “Cuba: An American History” won a Pulitzer Prize.
Its recent success would make it attractive to potential buyers if Paramount were to abandon the Penguin Random House deal and put Simon & Schuster back on the market. If the deal does not go through, Paramount will walk away with a fee for their trouble of about $200 million, but even with that, it may be hard to match the $2.175 billion Penguin Random House has agreed to pay.
The Department of Justice sued to stop the acquisition on the grounds that it would hinder competition in the market for what it called “anticipated top-selling books” and lead to lower advances for authors. The trial was not about whether the deal would create a monopoly, but about whether it would lead to a monopsony, or too much control over suppliers — in this case, top-selling writers.
Penguin Random House and its parent company, Bertelsmann, argued that efficiencies created by the mergers would allow the company to pay authors more, not less, and it said the government was focusing on a very narrow slice of books at the top of the market.
“This transaction would benefit both Penguin Random House and Simon & Schuster by helping writers at all levels better share their stories with as many readers as possible through our industry-leading supply chain,” Markus Dohle, the CEO of Penguin Random House, said in a letter to employees sent after the ruling Monday night. “As it’s also my belief that the best long-term home for Simon & Schuster is a like-minded organization with a proud publishing history, I know we are their best possible steward.”
Pan, who heard the case in the U.S. District Court for the District of Columbia, sided with the Biden administration.
After the decision was issued, groups that had criticized the deal, including the Authors Guild and the American Booksellers Association, celebrated what they saw as a victory for writers and for the industry overall.
“This is a judgment that really took authors into consideration, and without authors, there would be no books,” said novelist Douglas Preston, the president of the Authors Guild. “The ruling is important not just for authors and the book business but really for the free flow of ideas in society.”
For Simon & Schuster, the collapse of the deal would leave it once again facing the uncertainty of a sale, after more than two years in limbo. In a letter sent Monday night, Jonathan Karp, the company’s CEO, sought to reassure Simon & Schuster’s staff. “Despite this news, our company continues to thrive,” he wrote. “We are more successful and valuable today than we have ever been.”
Some analysts speculated that the ruling would put a damper on major mergers and acquisitions, making it unlikely that other big publishing houses would escape antitrust scrutiny if they acquired it.
“It will make it very hard for any one of the big five to acquire any other of the big five,” said Mike Shatzkin, the founder and CEO of Idea Logical, which analyzes the book business. “It will be the same problem, it will be one more player taken out of the big money pot game.”