Penguin Random House CEO defends merger, says e-books and Amazon are a greater threat than consolidation

WASHINGTON (AP) — The head of publishing titan Penguin Random House on Thursday defended his company’s deal to acquire rival Simon & Schuster against the government’s claim it would thwart competition. But he recognized that the merger would strengthen his company’s position as the largest publisher in the US by expanding its market share.

Under questioning in a federal antitrust lawsuit, CEO Markus Dohle also admitted that while he promised to allow the two merged companies to continue to bid each other for author deals, Penguin Random House’s German parent company, Bertelsmann BTG,
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You are under no legal obligation to honor that commitment.

Commenting on what has been a central argument of the government, Dohle admitted that smaller advance payments to authors may lead to fewer books being published. The advances, which run into the millions for best-selling authors like Stephen King and James Patterson, are guaranteed payments to writers that can hurt a book’s profitability. Books that sell well are more likely to have received larger advances, Dohle acknowledged.

Speaking of Simon & Schuster’s position in the bidding after a merger, Dohle said: “We want to keep them as external and independent as possible.” Dohle has assured agents that it would allow competitive bidding between Simon & Schuster and Penguin Random House imprints even if no other publishers were in contention, an expansion of PRH’s current policy of allowing inter-label bidding as long as there are outside competitors in the running. the race. . Dohle not only recognized that his promise was not legally binding, but that if he ever left Bertelsmann, his successor would not be obligated to continue the competition between the labels.

The US Department of Justice has filed a lawsuit to block Penguin Random House’s proposed $2.2 billion merger with Simon & Schuster, the fourth-largest US publisher, that would cut calls to four ” big five” U.S. publishers. The other three are HarperCollins Publishers, Hachette Book Group, and Macmillan.

The government contends that allowing Bertelsmann to buy Simon & Schuster from the American media and entertainment company Paramount Global PARA,
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it would frustrate competition and give Penguin Random House great influence over what books are published in the US and how much authors are paid, giving consumers fewer books to choose from. The new company, if approved, would be by far the largest book publishing entity in US history.

The publishers counter that the merger would strengthen competition among publishers to find and sell the most popular books by allowing the combined company to offer greater advancement and marketing support to authors. It would benefit readers, booksellers and authors, they say.

The publishers’ promise to continue competitive bidding from the two companies after a merger was met with skepticism by an unusual witness at trial on Tuesday: King, who testified for the government even though Simon & Schuster publishes him.

“You could also say you’re going to have a husband and wife bidding against each other for the same house,” she joked. “It would be very gentlemanly and something like ‘After you’ and ‘After you,’” she said, gesturing with a polite wave of her arm.

Prompted by questions from defense attorney Daniel Petrocelli representing Bertelsmann and Penguin Random House, Dohle took heart and paid passionate tribute to the creativity of the publishing industry, which he described as a fiercely competitive market.

The biggest threat to the publishing industry comes not from consolidation but from the explosion in recent years of cheap or subscription-based content such as e-books, Dohle said, calling it “full access.” He specifically quoted Amazon AMZN,
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which has some 50 million book titles available, and Disney DIS,
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“I think it’s the biggest threat to the industry, and especially to authors’ income,” he said. “It will have a tectonic influence on the revenue stream of the industry.”

The effect on authors’ compensation may reduce the diversity of stories being published, and physical booksellers are also in jeopardy.

Dohle compared Penguin Random House to Silicon Valley “angel” investors: “We invest every year in thousands of ideas and dreams, and only a few make it to the top. … Each book is unique, and there is a lot of risk involved.”

Reflecting the waves of consolidation in the publishing industry, Penguin Random House itself is the product of a 2013 merger between Random House and the nearly 100-year-old Penguin. That combination was approved by the Justice Department during the administration of President Barack Obama, under whom President Joe Biden served as vice president. The Penguin Random House trial is widely seen as part of a growing trend by the Justice Department during the Biden administration to take a tougher stance on mergers.

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