Why the federal government blocked the merger of two book publishers

Simon & Schuster and Penguin Random House had been angling to join up to the tune of $2 billion.

By Sean SaldanaMarch 1, 2023 3:02 pm, ,

In 1924, two entrepreneurs, Dick Simon and Matt Schuster, started producing something nobody ever really thought of before: crossword puzzle books. 

In an era before TV or cell phones, this made them incredibly rich. Within the first year of their business, they sold a million copies. Since then, that same business, Simon & Schuster, has become one of the biggest book publishers in the world, publishing thousands of books a year. 

And in the century since Simon & Schuster was founded, the number of companies that publish books has dwindled enough to catch the attention of the federal government. 

Last fall, the Justice Department blocked the $2 billion merger of Simon & Schuster and Penguin Random House, another massive book publisher. 

For more on why and what all this means for authors, publishers and readers, the Texas Standard was joined by Christian Lorentzen – Harper’s magazine contributing editor and author of the March cover story, “At Random.” Listen to the story above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: Why does the government care if two book publishers want to merge?

Christian Lorentzen: So publishers, before they can publish any books, they have to buy the rights to the manuscripts that they’re going to publish. And the argument that the government made was that for a section of the book market that they termed “anticipated top sellers” – which is to say books that receive an advance on royalties of $250,000 or greater than that – this merger, which would take the number of big corporate publishers in America down from 5 to 4, would have a depressing effect on those advances generally, and thus would stand to harm the class of authors that write those books by reducing their guaranteed level of compensation.

Well, that’s a pretty narrow number of authors, I would think. And in fact, in a case where you would expect to hear from a lot of authors, you write that the trial court heard from only three. 

There were only three authors who testified. All of them were mega bestsellers. But I think the overall mission of the government in this case was there are many ways they could have made the case. But their overall goal was to prevent what one witness called the “creation of a super dominant publisher,” which would result in a greater homogenization of the industry generally. 

You’re a freelance writer yourself. As you talk with others similarly situated, what were you hearing from writers and authors about this possible merger? Did most see this as a bad thing or not? 

In general, people are not in favor of having a super dominant publisher. However, there is, in the legal terms, what’s called an external concern – which is that Simon & Schuster, if not taken over by an existing publisher, might be taken over by a private equity firm, and that such a firm might not be a good steward for the book business. And in fact, could gut Simon & Schuster the way many private equity firms have gutted a lot of newspapers in this country.

Well, two of the three authors who testified at the trial seemed to be in favor of the merger. Could you say something about that? 

Their argument was that Penguin Random House and Simon & Schuster are both, in their ways, very good at serving authors and turning their books into bestsellers, and that authors generally who are lucky enough to be picked up by those publishers will be even better served by a bigger, stronger company. The flip side is what about the authors who are ignored by the big corporate publishers and get paid less because there’s less competition for their books? 

So in the end, the government was successful in quashing this merger. Where does that leave authors, and for that matter, readers, when it comes to diversity of content and that sort of thing?

Well, I think one of the upshots of this trial for anyone who observed it is that the publishing business is very corporate, it is very homogenous, and real originality in literature is probably going to come from other quarters of the industry – smaller independent presses. On the other hand, executives from the Big Five refer to those smaller presses as “farm teams” for their own publishing imprints. So a success on a smaller scale can lead to the big time. Some people want to be superstars right from the start, but that’s not always in the cards. 

We could still see something like a private equity takeover of the publishing business, no?

No, well, the fate of Simon & Schuster is still in the balance. The good thing that can be taken out of this is that the government has taken a step to prevent further consolidation in the publishing industry. And so that looming super dominant publisher will probably never come to exist.

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