The DOJ Challenges Penguin Random House’s Acquisition of Simon & Schuster

The DOJ Challenges Penguin Random House’s Acquisition of Simon & Schuster

Gavin Martin

Associate Editor

Loyola University Chicago School of Law, JD 2023

In the United States, “The Big Five” denote the largest five publishing houses. These publishing empires print everything from medical textbooks to children’s books and together control over eighty percent of the publishing market. The Big Five includes Penguin Random House, HarperCollins, Simon & Schuster, Hachette, and Macmillan. In November of 2020, Viacom announced the sale of Simon & Schuster to Penguin Random House for $2.175 billion. A year later on November 2, 2021, the U.S. Department of Justice announced a lawsuit challenging the acquisition to ensure “fair competition in the U.S. publishing industry.”

Market consolidation

Publishing with one of The Big Five is viewed as prestigious and coveted. The advantage of publishing your book with The Big Five is the resources they provide. For example, they can regularly offer high advances, extensive marketing campaigns, and specialized editorial support. This makes these houses the best option for authors who wish to publish top-charting books with a promise of future success. These advantages are called into question with a larger share of the market, given the possibility of no longer having an incentive to outperform other competitors and being able to set a market standard for production.

The Department of Justice has taken similar steps to block these corporate consolidations, including the merger of telecom giants AT&T and T-Mobile. The DOJ notes that Penguin Random House’s approach to the American publishing market is as an “oligopoly” and that this acquisition is meant to “cement” its position as the primary publishing house in the United States.

The Antitrust Division of the Department of Justice has regulatory guidelines as they relate to horizontal mergers. Horizontal mergers are mergers between firms or corporations that sell the same product or offer the same service. Published in August of 2010, the Department of Justice outlined what qualifies as a horizontal merger in their “Horizontal Merger Guidelines.” When assessing these potential monopolies (or monopolies in the making), the DOJ uses what they call “the hypothetical monopolist test”. This test requires that a product market contain enough substitute products so that it could be subject to the post-merger exercise of power within its specified market. This post-merger exercise of power must significantly exceed that existing absent the merger. In the Viacom sale of Simon & Schuster, Penguin Random House has the largest market share at twenty-four percent of the publishing market and Simon and Schuster have nine percent. As such, the test requires that a hypothetical future seller (as a combined thirty-three percent of the market) would be able to push a small but significant and non-transitory increase in price on a product in the market (for example, even a small portion of the market such as a certain type of book), not subject to price regulation, on at least one product in the market. Bringing the suit indicates that the DOJ believes that the future Penguin Random House (with the acquired Simon & Schuster) would qualify as a monopoly. Simply put, the two publishers will stop competing against each other and as a result, would have the ability to impact market prices on publishing products unilaterally. These implications mean having the ability to pay authors less, possibly diminishing the variety and quality of books, past a point of market self-correction.

Potential Senate Committee Hearings

Questions regarding Senate Committee hearings linger with Penguin Random House’s potential acquisition of Simon & Schuster. Senator Amy Klobuchar, the Chairwoman of the Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights’, ran her 2020 presidential campaign on a message of being tough on enforcing antitrust regulations. Similar hearings have recently taken place before the committee, regarding ‘Big Tech’ data consolidation practices and the hospital and health system mergers across the country. These committee hearings act as a tool to ward off predatory monopolistic practices through the public theatre of Congress. If successful in bringing Penguin Random House or Viacom before the Senate subcommittee, public support might grow for the dissolution of the acquisition deal.

Members of Congress have been focused on monopolies as they relate to Big Tech. And, with legislation being introduced in both the House and Senate to curtail Big Tech’s acquisition and merger process (for instance the American Choice and Innovation Online Act or the Augmenting Compatibility and Competition by Enabling Service Switching Act) and position companies away from monopolies in tech. But this market-specific legislation does not capture all the possible regulatory needs in other markets, such as printing and publishing.