The Random House Antitrust Suit Revealed How Out of it Book Publishers Really Are

The proposed merger of Penguin Random House and Simon & Schuster was slapped down by a federal judge. But the trial exposed the strange, contradictory ways of the publishing industry.

(Photo by Justin Sullivan/Getty Images)
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(Photo by Justin Sullivan/Getty Images) Getty Images

On Halloween night (Boo!, as The New York Times’s books news editor put it) United States District Court judge Florence Y. Pan enjoined Penguin Random House, America’s largest book publisher, from acquiring Simon & Schuster, its fourth largest book publisher. When the deal was announced in the fall of 2020, observers expected it to go through without a hitch, as the marriage of then largest and second-largest publishers Viking Penguin and Random House had in 2013, to form the country’s largest book publisher in history.  The consolidation of book publishing into ever-larger modules, controlled by ever-larger conglomerates in media and other unrelated industries, has been the state of play in book publishing since the 1980s, when it was justified by a perceived need to create negotiating partners substantial enough to secure favorable terms with the then-dominant bookstore chains—just as now executives of both firms justified the merger as a needed defense for authors against the mighty power of Amazon. Bigger players seem to summon forth opposing bigger players: the fortunate few future authors of the promised juggernaut Penguin-Random-House-Simon-Schuster would also secure favorable terms with the also-consolidated, supply-chain-stressed paper, printing, and book distribution industries. (Amazon founder Jeff Bezos had given the effort his own assist by culling the field of the “sickly gazelles” of smaller publishers.)

The three-week August trial offered followers of the book business the riveting spectacle of publishing’s mightiest executives trying to articulate their opaque business practices. Where the government argued that a merger incentivized them to use their dominance to suppress outlays for the most potentially lucrative projects, the publishers seemed to counter that they were ready to not act in their business interest, in those cases when they even knew what their business interest was, which they often didn’t. Random House CEO Marcus Dohle insisted that the combined entity would continue to treat its own Simon & Schuster employees as autonomous in bidding situations—“our publishers and editors see their colleagues as some of their fiercest competitors”—and Simon & Schuster Publisher Jonathan Karp assured the judge that marketing decisions were based on love and instinct rather than up-front financial investment, and only half the time bore fruit. When the judge offered that “there must be some correlation” between a publisher’s investment in a book project and expectation for its success, “or else you wouldn’t be in business,” Karp replied, “Well, it’s a precarious business,” according to industry watcher Publishers Lunch.

Antitrust is evolving

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. This doctrine had turned out to shelter many rewards of market dominance that could be sneaked through the door behind low prices: for example, the current tech giants who crush or assimilate their competitors while providing customers with a product that appears to be free, even as they quietly hoover up an ever larger share of users’ priceless data and attention.

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. Senators Amy Klobuchar and Charles Grassley introduced legislation in 2020 empowering the FTC to pursue antitrust action with monopoly’s effect on media specifically in mind; Zephyr Teachout, corruption scholar and author of Break ’em Up: Recovering Our Freedom from Big Ag, Big Tech, and Big Money, ran for governor in New York back in 2014 with “Net Neutrality” pioneer Tim Wu as her running mate; Lena Khan’s arguments against Amazon had predecessors in the work of the think tanks like the Institute for Local Self-Reliance (specifically a 2016 report on “Amazon’s stranglehold”) and Khan’s former boss Barry Lynn of the Open Markets Institute, which broke with big tech funders over support for antitrust action. But Judge Pan’s ruling is the first legally binding measure of this shift, and it’s significant that it comes in the area of thought and ideas. The FTC’s suit announced this summer against Facebook’s acquisition of virtual reality software company Within many offer a next round.

Although lawyers for the publishers tried limply to turn the judge’s attention back in the direction of the consumer, the government’s case hinged narrowly on whether a merger would place a downward pressure on the earnings of authors of “anticipated top selling books.” The trial skirted around acknowledging that many of the “advances” authors receive against future royalties for the most lucrative deals are not even expected to “earn out”: publishers’ own margins are substantial enough for them to profit handsomely even if their authors never earn enough in royalties to surpass their advance, giving the sought-after author—such as former New York governor and Teachout adversary Mario Cuomo, who received an “advance” of $5.2 million on real-life royalty earnings likely under $300,000—a de-facto bonus. The judge determined that the publishers had not presented sufficient evidence that reducing the number of businesses capable of offering such sweeteners by a fifth would not reduce competition for those books. The DOJ offered a presentation drafted by PRH US CEO Madeleine McIntosh stating that “the top 4 percent of profitable titles drive 60 percent of profitability.”

It was perhaps a stretch for some of us in the book business to shed a tear for those whose advances (already inflated historically by consolidation’s increasing tendency to go after a smaller number of—inevitably—bigger earners; more on that below) would dip down a few hundred thousand out of their millions. But those watching the case for trends in the antitrust reasoning note that the ruling creates an analog to any merger in which integration within and even across industries reduces alternatives for employment and competitive pressure on employment terms. Within publishing, behind the vanguard of the high earners stood all the authors (“creators”) who would not come out ahead as industry’s resources are channeled toward fewer, richer deals allocated at the discretion of fewer people—however beneficial the experience (coordinated publicity, marketing, production, distribution) may be for those few.

Some observers, for example Jane Friedman, who covers publishing from the point of view of authors and self-publishers, and indeed PRH CEO Markus Dohle himself, have noted benefits of consolidation for authors, smaller publishers, and, with them, readers. The defection of the big publishers from the “midlist,” the publication of books with an audience in the thousands and even tens of thousands but perhaps not the hundreds of thousands and millions, has left a fruitful field for growth among smaller publishers and, in a time of increasing innovation and opportunity in self-publishing, authors themselves. Legendary editor Nan Talese, whose career in elite publishing spanned many decades, cited the wisdom of many of her contemporaries when she told an interviewer at the Library of Congress that the major publishers had moved away from midlist authors because of the pressures from corporate HQ to maximize returns, and that without the midlist there would be no proving ground for the writers of the future within major publishing.

Digital publishing is disrupting everything

The indifference of the executives testifying at the trial to the fate of these authors was matched by their negligence toward the new ways they are making themselves heard. Executive after executive said loftily they were not aware of any threat to their business from self-publishing. Dohle said in questioning, that he “saw little danger in Amazon’s self-publishing activities since PRH operated on a different quality level.” Only Brian Murray of HarperCollins (which now owns Harlequin and is also a significant publisher of Christian romance via its various religious imprints) acknowledged that Amazon’s self-publishing arm is significant competition “on the romance front.” PRH US CEO Madeline McIntosh described as a marketing success measures that had carved mass-market genre paperbacks, less expensive books targeted to non-bookstore-frequenting readers, out of their business. A recent investigation into the making of bestseller lists also indicated that the major publishers had found profits in drawing a share of their former paperback audience into hardcover bestsellers.

Meanwhile the CEO of the ebook platform Kobo, Michael Tamblyn, said at the Frankfurt Book Fair last month that self-published ebook sales represent “a whole other Penguin Random House sitting out in the market that no one sees”; late Random House CEO Carolyn Reidy told the same gathering as far back as 2017 that “the romance market, which used to be huge in mass market, has pretty much dried up and gone to digital original.” In addition to this invisible but apparently enormous growth in book-length self-published work, the executives did not contemplate the exponential growth of self-publishing in serial forms on platforms like WattPad, Storytel , Vella, and Patreon. These forms are especially popular among young people, the durability of whose reading habits has been celebrated as the best hope for the industry. These readers are known to read across platformsand to have their reading fertilized by different formats. But one did not hear much about experimentation in these areas from our woolly executives as they offered rosy scenarios of falling in love with new hardcover deals snatched from the jaws of their competitors and lavishing marketing dollars on them. The one digital innovation of which the trial publishers did express true terror was streaming or “all-access” subscription models, not that they have developed any sort of ideas about how to address that threat.

So even as the executives at the PRH/S&S trial argued that consolidation in the field of high-advance mega-bestselling hardcovers would benefit that business, they had little to offer in the way of a business model or public good beyond that market, and that way of doing business itself is fragile. In the days following the ruling industry watchers have been worrying about what will happen to Simon & Schuster without a sympathetic buyer from the world of books, even though, partly due to the self-propelled triumph of TikTok (and WattPad) sensation Colleen Hoover, Simon & Schuster has had a “blowout year, headed towards annual sales well above $1 billion for the first time ever.” No scenario seems visible in which the incentives will line up for more risk-taking and nurturing of talent among the likely suitors. And PEN produced a report last month lamenting the failure of the publishing industry to act on its promises for greater representation, given that it continues to rely on an underpaid labor force in an expensive metropolis and has yet to address itself seriously to reaching new audiences. Marketing consultant Kathleen Schmidt pointed out on Twitter that the executives’ testimony was all about sought-after authors and sales and nowhere about employees and talent: “The publishing industry’s leadership needs an overhaul. It has never been an employee-first industry. Before fighting for a merger and putting industry vets on the stand who dismiss marketing & publicity, create a sustainable workplace.”

Meanwhile, most of the work of uncovering and building the careers of new authors who will contribute significantly to the culture (and probably become some of the future bestsellers) is done in small and university presses, and the independent bookstores that advocate for those books, and by authors acting on their own, all of whom are operating on shoestring budgets with limited supports. Jane Friedman and Marcus Dohle are right to celebrate the successes of that ecosystem, which is producing many of the books that now win prizes and respect and influence. But such stalwarts of the prizes as Graywolf Press and Milkweed Editions live on donations to meet the bottom line. How can we not blanch at the spectacle of an industry openly betting on a lottery for books it mostly knows to be inconsequential as its lifeline, arguing that fewer and fewer people should be spinning the wheel, while the actual folks writing and publishing and translating and selling the books that will carry our society into the future are doing it pretty much on their own?

The Random House Antitrust Suit Revealed How Out of it Book Publishers Really Are