DOJ Challenges Corporate Merger Based on Harms to Authors Dashboard Dashboard

Here’s what this rare case could mean for writers in the entertainment industry.

(10/25/2022)

In August, the U.S. Department of Justice (DOJ)’s attempt to block the acquisition of Simon & Schuster (S&S) by Penguin Random House (PRH), on grounds that it violates antitrust law, went to trial and a decision is expected in the coming months. The results will have a profound impact on how the federal government can pursue mergers, and on the all-too-powerful employers in our industry.

If the court declares the merger illegal and blocks it, this would demonstrate to legislators and regulators that pursuing company actions based on how they harm workers can be a viable legal strategy under current antitrust law. If the government does not prevail, that could further illustrate the urgency of overhauling our federal antitrust law to better facilitate antitrust enforcement against worker harms.

The DOJ is trying to block the combination of two of the biggest players in the publishing industry, a sector whose structure and dominance by a few large companies has many parallels with media. The “Big Five” publishers—PRH and S&S, along with HarperCollins, Hachette Book Group, and Macmillan—have bought up smaller publishers and their “imprints” (akin to genre labels) over time and now wield tremendous leverage over authors.

The DOJ’s view is that combining these two major publishers would reduce competition for authors’ work and depress the overall number of book titles, harming workers by increasing companies’ leverage and allowing them to drive down wages.

This concept—also known as a type of “monopsony,” or concentrated buyer market power—is one that federal agencies have historically ignored, instead focusing on whether a given merger would raise prices for consumers in the short term. As the WGAW has argued, this tunnel vision has had disastrous consequences for entertainment industry workers; a host of anti-competitive mergers have been approved on the basis that they would create “efficiencies” for the companies that would theoretically benefit consumers in the form of lower prices or better products.

But “efficiencies” tend to mean “ways to squeeze labor costs,” which the companies can do through means such as layoffs or—in our industry—by selling affiliated content to themselves for a low license fee. The WGAW, and many other organizations, is pushing for antitrust enforcement agencies to more explicitly focus on how employer market power can hurt workers, and this case is a clear illustration that the Biden administration is taking up the charge.

Specifically, the DOJ argues that the Simon & Schuster/Penguin Random House merger would reduce competition in the broader U.S. book-selling market and the market for “anticipated best-selling books,” meaning authors who receive $250,000 or more in advances. This reduced competition would “likely result in authors earning less for their books” and “likely lead to fewer authors being able to make a living from writing and fewer and less diverse books being published,”¹ the complaint states.

Currently, PRH and S&S compete a lot—they are often the top two bidders for books—and the DOJ’s economist estimates that the two companies have a combined share of 49% in the anticipated best-sellers market, more than twice the next-largest competitor (HarperCollins).

Along with expert economists, the DOJ’s case was supported by testimony from author Stephen King, who took the stand against his own publisher to share his view that “consolidation is bad for competition,” and that in contrast to when he started out as a writer in the 1970s, consolidation has meant “it becomes tougher and tougher for writers to find enough money to live on.”

PRH and S&S, meanwhile, are marshalling all of the company claims typical in merger cases: that they actually get a lot of competition from smaller publishers, that big publishers are less powerful than the government claims, and that the merged company will offer authors comparable or richer deals.

As illustrated in the WGAW’s 2021 report, “Broken Promises: Media Mega-Mergers and the Case for Antitrust Reform,” we know just how these kinds of “company promises” tend to work out: companies use their increased leverage to squeeze workers, to reduce the availability and variety of content, and to pocket the profits.

Now that the trial has concluded, the WGAW and other observers await the judge’s decision, expected in the coming months. Either way, the outcome of this case will inform WGAW strategy in this core policy area, as we continue to work to oppose additional concentration and vertical integration of our employers.

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¹U.S. Department of Justice Complaint in United States of America v. Bertelsmann SE & Co KGaA, Penguin Random House, LLC, ViacomCBS, Inc. and Simon & Schuster, Inc., Case 1:21-cv-02886 U.S. District Court for DC.