DOJ Gets It Backward on Antitrust Issues with Printing Sector Merger

In a bizarre irony, the Department of Justice (DOJ) has concluded a pending merger in the printing industry somehow violates antitrust laws. 

Here’s why it’s so ironic:  The printing industry has battled sales declines for years while traditional customers of the printing sector - books, newspapers, magazines, catalogues and advertisers - have moved to a digital and online world,  a sector that actually is dominated by a handful of giant companies that more and more policymakers in Washington now consider monopolies.

Despite that reality, the DOJ has inexplicably chosen to block the merger of Quad Graphics and LSC Communications, announced in late 2018.  Opponents contend that the merger between two of the few remaining companies that still possess the resources to handle the biggest printing runs for national magazines, catalogues and books will create an $8.1 billion monopolist.  The shareholders of each company, who understand the industry and their respective companies, and who have skin in the game, don’t see it that way.  Quite the contrary, they understand the merger as essential to survival, and merely one among many mergers that the industry has seen over the last decade as its participants struggle to stay afloat.

Tellingly, the DOJ hasn’t objected to those other mergers, nor have publishers or other printers  raised objections.  And that’s for good reason.  Namely, allowing printers the flexibility to adjust to rapid and ongoing market changes is more important than ever.  It’s therefore difficult to see why the DOJ would seek to stymie this deal.

If its purported concern is that consumers would be harmed by the lack of competition, then DOJ lawyers can take heart that a lot of competition remains in the print sector.  Even with frenzied abandonment of print for online publishing, hundreds of printing companies exist out there.  As Quad Graphics and LSC highlight, the top 400 printing companies together account for less than half of the total U.S. print industry, and neither company possesses more than a 5% share of the industry’s overall revenue.

While it’s true that neighborhood print shops and some larger operations can’t take on printing a million copies of a glossy weekly magazine run the way Quad and LSC can, that doesn’t mean that only these two companies can do those jobs.  The print-publishing ecosystem is a lot more complex than that.  As just one illustration, publishers sometimes farm out portions of large print jobs to smaller competitors, which provides leverage to negotiate the best prices.  Moreover, it makes business sense for publishers to not put all of their eggs in one basket, since a printing facility could suffer a catastrophe of some kind or other unforeseen inability to perform.

Additionally, publishers and printers have worked together to use technology to increase innovation and reduce costs.  In addition to splitting up large jobs, such as government manuals on Medicare or books, printing companies sometimes customize and reduce the volume of print runs, often teaming up with smaller companies.  All of those examples illustrate innovative market responses within an industry under siege as most of what we read becomes digitized.

It’s also worth noting that when the merger was unveiled, the projected  revenue declines of the new combined company reached approximately $1.5 billion.   The stark reality is that the creation of a stronger company that operates efficiently will help smaller companies adjust and succeed as well. Blocking the merger could actually hurt the industry.

Even in today’s increasingly digitized market, however, many publishers prefer to continue publishing printed editions of magazines and books, as opposed to shifting to publishing entirely online.  If this merger can help contain the cost of printing, then keeping print versions of magazines and newspapers will be more economically feasible.  Accordingly, more businesses/consumers possess a stake in this than just the two companies involved.

This is the market at work.  Lead players in an industry buffeted by the digital revolution see how merging will create a company with needed synergies and state-of-the-art capabilities that will be more efficient and offer potential customers more competitive prices and options.  Plenty of companies of varying size and capabilities will be better able to hang on with technological innovation and banding together in new ways to compete for business. 

Antitrust laws exist to prevent market distortions that harm consumers, not hamper efforts by companies to stay agile and survive amid revolutionary changes in print – changes brought about, ironically, by online giants with immense power to distort the marketplace.  The overzealous application of such laws by the DOJ, which fails to understand the intricacies of the printing world, will only inflict a crippling blow to competition and the printed word.  It actually hurts the industry.  Let’s hope a judge will recognize that and void DOJ’s baffling decision.

Timothy H. Lee is Senior Vice President of legal and public affairs at the Center for Individual Freedom