On the evening of Oct. 31, Judge Florence Pan handed down her decision on DOJ vs PRH: the government had proven its case that harm would come to authors of anticipated top-selling books if Penguin Random House were to acquire Simon & Schuster.
All along, I’ve said in this newsletter (and elsewhere) that I don’t think this case has much or any bearing on the average author’s earnings. While I can’t speak to the legal merits of the government’s case, I’ve never been convinced that blocking this merger would save anything of value that wasn’t already lost decades ago, when industry consolidation began. Nor is anyone arguing, as far as I’ve seen, that preserving the advances of authors who receive $250k+ will have positive trickle-down effects for the entire literary ecosystem.
Judge Pan writes in her ruling: “It is the Big Five who have the backlists and the marketing, publicity, and sales advantages necessary to consistently provide the high advances and unique services that top-selling authors need. It is precisely those specialized needs that make the authors of anticipated top-selling books vulnerable to targeting for price reductions.”
So, it’s a feel-good story for top-selling authors and their agents (around 1,200 authors, based on this case’s definition), and maybe it’s truly a win in the face of Big Bad Corporate Publishing. But the rest of us face the same constraints and problems of yesterday. What has really been gained aside from preserving the status quo for a while longer? I find this a sad celebration.
That said, the judge did call out a serious injustice that affects every type of author in Big Five book deals of all sizes. Pan writes, “Recent years have seen the industry-wide standardization of certain contract terms—involving payment structure, audio rights, and ebook royalties—in ways that favor publishers over authors, suggesting that the top publishers have engaged in coordinated conduct. Advances used to be paid to authors in two installments, but publishers uniformly moved to paying them in three installments and then four installments. … After audiobooks became a significant source of revenue for the industry, publishers uniformly refused to acquire books without audio rights included, thereby limiting authors’ ability to maximize their compensation and preventing authors from diversifying their sources of income. In addition, during the early years of ebooks, publishers uniformly shifted ebook royalty rates from 50 percent to 25 percent, thereby reducing authors’ compensation. Thus, in an industry where the competition to acquire anticipated top sellers is intense, the competing publishers nevertheless choose, almost always, not to gain advantage by offering more favorable contract terms. This phenomenon bespeaks a tacit agreement among the publishers to compete only on the basis of advance levels because it collectively benefits them not to yield on other contract terms.”
Of course, none of that “standardization” is subject to change with this ruling; it shall continue no matter who acquires Simon & Schuster.
This case was brought by a US Department of Justice that wants to turn the page on how antitrust battles are fought. The focus is on worker welfare rather than consumer welfare. Longtime book critic Ann Kjellberg commented, “The ruling presented a rare victory for a justice department positioning itself to redefine antitrust cases. It is notable that the leader of this effort, Federal Trade Commission (FTC) chair Lina Khan, cut her antitrust teeth on a historic paper identifying Amazon as behaving monopolistically, youthfully challenging a decades-dominant view of antitrust practice laid out by otherwise quiescent jurist Robert Bork: that consumer benefit (low cost) is the sole metric for measuring excessive influence over markets. … A dawning realization that such an apparently consumer-centric antitrust regime may deliver inexpensive goods but create very detrimental effects for workers, resources, and society as a whole has been percolating for a while in politics.” Her full piece is worth your time.
So, perhaps this case will open the door to action against Amazon. The New York Times article (gift link) announcing the judge’s decision concludes with this quote from Barry Lynn, the executive director of the Open Markets Institute, an antitrust think tank: “The target immediately moves over to Amazon. Once you’ve come in and said that this kind of consolidation and these kinds of actions are bad for authors and for readers, then you look over at Amazon and see a corporation that has 80 percent market share, there’s only one conclusion.”
Another industry giant often escapes scrutiny but wields tremendous power: book wholesaler and distributor Ingram. During the trial, some pointed to Ingram as a greater or equal threat in the publishing landscape. In his commentary after the ruling, industry analyst Mike Shatzkin wrote, “The biggest winner with today’s decision is Ingram. The list of titles distributed and managed under their auspices can continue to grow because Ingram doesn’t buy the companies or own the titles under their umbrella.”
Penguin Random House and Simon & Schuster may appeal the decision. However, Paramount Global (parent company of Simon & Schuster) has to agree to give Bertelsmann (parent company of PRH) time to appeal and conclude the deal. Paramount may decide it’s better to seek another buyer, especially given that the judge’s ruling—quite scathing against the Big Five—could make an appeal feel like a time-wasting effort.
Plus, Simon & Schuster is on track to hit $1 billion in sales for the first time ever in 2022 and remains an attractive acquisition. A private equity buyer may be up next, but the judge explicitly left room for another Big Five house like HarperCollins, suggesting in her ruling that instead of a private equity deal, “It is just as likely that another publishing company will prevail in a future sale.”
Regardless of who prevails, I remain skeptical we will see a better outcome for S&S’s employees, authors, and partners—or the industry. Stephen King seems confident, though, that literary culture will be preserved as a result of the judge’s decision. He told The New York Times he was “delighted with the outcome,” adding that “publishing should be more focused on cultural growth and literary achievement and less on corporate balance sheets.” Last time I checked, Big Five publishers remain corporations operating in a capitalist society. Any new owner of Simon & Schuster will continue to scrutinize the balance sheets on a regular basis. (For more on what a new owner might do, I recommend publisher Kenneth Whyte’s article, This Settles Nothing.)
Bottom line: In his first comments after the judge’s ruling, PRH’s Markus Dohle said, “I think the ruling is utterly wrong” and made mention of a “political agenda.” One can indeed imagine this case turning out very differently if it had happened at another time, under another administration. I’m keeping a close eye on what other cases the DOJ might bring next. But I don’t expect publishers or author earnings to meaningfully change. As Shatzkin wrote, “The Big Five will continue to operate as shrinking but very profitable entities for a long time.”
Jane Friedman has spent her entire career working in the publishing industry, with a focus on business reporting and author education. Established in 2015, her newsletter The Bottom Line provides nuanced market intelligence to thousands of authors and industry professionals; in 2023, she was named Publishing Commentator of the Year by Digital Book World.
Jane’s expertise regularly features in major media outlets such as The New York Times, The Atlantic, NPR, The Today Show, Wired, The Guardian, Fox News, and BBC. Her book, The Business of Being a Writer, Second Edition (The University of Chicago Press), is used as a classroom text by many writing and publishing degree programs. She reaches thousands through speaking engagements and workshops at diverse venues worldwide, including NYU’s Advanced Publishing Institute, Frankfurt Book Fair, and numerous MFA programs.
