The trial against the largest possible publisher in the world

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On August 1, a trial began in Washington against the takeover of the large Simon & Schuster publishing group by the even larger Penguin Random House. Both are part of the so-called “Big Five” of world publishing, the most important groups for the entertainment book market, and together they publish 31 percent of all books of this genre (excluding school and technical texts, therefore) sold in the United States. The administration of President Joe Biden is trying to block the merger in court because it believes it would create monopsony, that is, a situation where a company has too much power over its suppliers, in this case the authors of books, and therefore can force them to accept lower wages.

If concluded, the merger between Simon & Schuster and Penguin Random House will change the world of American publishing, with repercussions also at an international level given the influence of the English book market in other countries and the multinationality of the largest publishing groups. . At that point we would talk about “Big Four”, “The big four”, or even “Big One and the other three”, “The big one and the other three”, as said by an expert in the sector quoted by New York Times (the other three are Hachette, Macmillan, and HarperCollins).

The prospect has created various concerns among insiders since the agreement between the two publishing groups was announced at the end of 2020. The main fears were two: the leveling of competitiveness among publishers, which could lead to a decrease in revenues of the authors, and the impoverishment of the publishing offer. The first is what the US government is trying to avoid and it would be mostly about the very successful writers, the ones who sell millions of copies and get more than $ 250,000 for a book.

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The publishing rights of a book that is expected to sell a lot are bought through so-called publishing auctions: each interested publisher makes an offer to the literary agent, ie the author’s representative. If there are more publishers interested, the cost of selling will go up, if there are fewer the writer’s revenues will decrease. This is why many agents and writers and the US Department of Justice fear that reducing the number of large publishers, those with the financial means to buy the rights to coveted books, will decrease competition at auctions and lower advances, i.e. the writers who are agreed in the contract phase – and to whom further revenues are eventually added in the event that the book sells so much that it exceeds the expectations of those who publish it. “Fewer authors will be able to make a living from writing,” says the Justice Department.

Currently Penguin Random House allows its imprint, that is to the different publishing brands that are part of the group, to compete for the rights of the same book, provided that a third party publisher also participates in the tender; if it fails, the writer can choose to go out with his or her favorite brand of the group. The company has promised literary agents that the competition will also be valid for Simon & Schuster.

During the trial Thursday, Justice Department attorney John Read asked Markus Dohle, chief executive of Penguin Random House, if this promise has any legal value: Dohle said no, but he also said the group he will respect you because otherwise it will damage his reputation.

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According to the defense of Penguin Random House, the acquisition will increase competition in the publishing sector and the forms of efficiency it will allow will allow authors to pay more, which will push competitors to do the same.

The other concern about the merger is that large publishers are increasingly trying to grab potential bestsellers predominantly to the detriment of average and minor authors, a trend that has actually been around for some time. In 2021, according to data from NPD BookScan, which tracks copies of paper books sold by most retailers, 38 percent of the highest-selling books were published by Penguin Random House; 11 per cent from Simon & Schuster.

Among those who care about the so-called independent publishers, the smaller ones, there is also Stephen King, the famous author of horror novels. Despite being a Simon & Schuster author, King spoke at the trial as a witness to the Justice Department: he believes that greater consolidation of large publishing groups harms other publishers, those who have historically discovered and published new literary talent.

At the same time, part of the defense of the merger is based – implicitly – on the idea that a larger publishing group can more oppose Amazon, in recent decades seen as the main danger to the ecosystem of book production.

The large e-commerce site is the leading book retailer in the United States (in Italy online bookstores sell just over 40 percent of books and Amazon is the one with the largest share) and for this reason it has had and has a position dominant to negotiate on book prices and order size. For years, the idea has been circulating among the large publishing houses that the balance of forces can be reversed with a larger publishing group.

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The trial on the possible merger will last until August 19 and the sentence is expected in November. If the acquisition is blocked, Penguin Random House will have to pay a penalty of approximately $ 200 million (more than € 195 million) to Paramount Global, the group that owns Simon & Schuster.

The real problems, however, will be those that Simon & Schuster itself will have to face: Paramount Global, which owns a series of television networks such as CBS, is not interested in continuing to invest in the publishing market and is focusing mainly in the field of streaming video content. You will therefore continue to look for someone to buy Simon & Schuster.

However, if the acquisition is blocked, other large publishing groups – such as HaperCollins, which is part of Rupert Murdoch’s News Corp and had made an offer for Simon & Schuster beaten by Penguin Random House – are unlikely to come forward. An investment company could therefore propose itself as a buyer, a hypothesis that scares those who work for Simon & Schuster because it could lead to staff cuts and a reduction in the group’s publishing activities.

For this reason, among the experts there are those who comment, joking up to a certain point, that perhaps the best buyer would be Amazon.

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