DOJ's Antitrust Case Against Publishers is an Overreach
The U.S. Department of Justice’s (DOJ) antitrust suit to stop the merger of publishers Penguin Random House and Simon & Schuster has not gained as much attention as cases targeting “Big Tech” companies, but it nevertheless illustrates antitrust authorities’ renewed confidence that they can use the law to stop any mergers between large companies. Yet, the case also reveals the weakness of such an approach to competition, and suggests that, far from seeking to strengthen antitrust law, policy makers should be looking to weaken it.
Both Penguin Random House (itself the result of a recent merger) and Simon & Schuster are currently owned by conglomerates, respectively the German giant Bertelsmann and ViacomCBS. The latter has bet its future on streaming services and is looking to sell its publishing arm. As The New York Times reports, “The top three contenders were Bertelsmann, Rupert Murdoch’s News Corp, which owns HarperCollins, and Vivendi” (a French company with a stake in publisher Hachette, which publishes J.K. Rowling). In other words, whichever contender come out on top, there would be a degree of further consolidation within the industry. The “Big 5” publishers would become the Big 4.
This potential consolidation has the Justice Department spooked. Its lawsuit alleges that the merger will affect two relevant markets — for authors shopping around their manuscripts and for best-selling authors sought after by publishers. Other things being equal, a reduction in the number of big publishers should affect these markets, but all other things are not equal.
To begin with, the market for books has changed dramatically in the last decade. I know this as a published author myself. The most important thing to know is that the number of books sold in all formats has exploded dramatically. There are 4 million books published annually in the U.S. today — 10 times the figure in 2007. Consumers are spoiled for choice, which is why the Justice Department’s assertion that the merger would “lead to a reduction in the quantity and variety of books published” is nonsense. However, 2007 was also the peak year for sales, and the number of books sold has fallen since. One reason is the rise in self-publishing, which allows authors to cut out the publisher middleman.
The average book now sells only 1,000 copies in its lifetime, so the publishing industry has had to change to adapt. As noted, publishers are consolidating. Advances have shrunk considerably other than for the top-selling authors, and publishers have shifted much of the burden of marketing onto authors themselves.
So, the Justice Department’s claim that the market for shopping around manuscripts will shrink ignores that the market is shrinking anyway, and will likely continue to do so. If anything, consolidation will allow some shoring up of that market, as the new combined entity will have a larger backlist of bestselling titles to help pay for advances.
This all highlights a serious weakness in antitrust law — it tries to stop companies in a disrupted industry from working together to react to changing circumstances. An agreement among publishers to maintain prices, for instance, would be regarded as collusion. A merger to provide a stronger bastion against market changes is also right out. In the current environment, publishers need to consolidate or emerging authors will suffer even more.
As for the big names, the Justice Department claims that “this merger would make it harder for authors to earn a living by writing books.” Yet, these authors have been the big winners from the market changes. As a leading agent told The New York Times, “The book that would have sold for $500,000 might go for a million,” adding that big publishers “would rather go in bigger for the thing that they have the most consensus on.”
There is no reason why this bidding up of rights for top sellers will not continue. In virtually all the examples given by DOJ, Simon and Schuster loses out to Penguin Random House, which clearly is willing to pay top dollar to attract bestselling authors. Even if the Justice Department is correct, its argument comes down to the notion that multimillionaire authors might get smaller advances, which they don’t really need to make a living while writing a new book. This action is the antitrust equivalent of tax cuts for the rich.
Iain Murray is Vice President for Strategy at the Competitive Enterprise Institute, a free market think tank.