(Bloomberg Opinion) -- Who cares about the A-listers?
Penguin Random House has gone for the apparent weak spot in the U.S. Department of Justice’s attempt to block the publisher’s $2.2 billion takeover of Simon & Schuster – a deal that would cement its dominance in the book world.
To recap, the DOJ is mainly concerned that combining these two publishing houses among the “Big Five” would mean that auctions for the hottest manuscripts had fewer bidders. The worst victims? The celebrities and established authors who would get lower advances.
Yet bidding can already reach millions of dollars, and readers probably won’t have much sympathy if famous people don’t get quite so much.
The DOJ’s preoccupation with these authors is also legally adventurous. It’s rare for antitrust cases to be about vendors being paid less for something (rather than consumers paying a higher price), according to Bloomberg Intelligence litigation specialist Jennifer Rie. The DOJ's focus — on "rights to anticipated top-selling books" — may be too narrow, she adds.
No surprise then that Penguin argued this week that the DOJ’s entire approach is flawed. It points out that the agency doesn’t even say how high advances for potential best-sellers are. If you're going to circumscribe a market by the price of its goods, you surely need to specify a dollar amount. And Penguin rejects the idea that markets should be defined by premium pricing (as opposed to the nature of the goods themselves, or the region where they’re sold).
It’s far from clear Penguin’s challenge will work. For one, it shouldn’t be too hard for the DOJ to say it’s talking about advances over, say, $250,000 (but the lower the number, the trickier to posit a shortage of bidders). And there are precedents for trustbusters focusing on premium or discount price. The U.S. Federal Trade Commission has agreed to settlements in cases relating to cheap wine and "super-premium" ice cream, says Rie.
Still, Penguin has further defenses. It claims the acquisition of the rights to potential best-selling books doesn’t proceed much differently than the purchase of other manuscripts. Big and small publishers across the industry bid on everything, it says. So if two big players merge, it doesn’t change bid dynamics.
This counter-attack will ultimately turn on the evidence. The DOJ — with the benefit of a headstart and full investigation — provided juicy details of some heated auctions where Penguin and Simon & Schuster fought it out in the final round. Penguin has yet to flesh out its argument that smaller publishers regularly win the rights to the most valuable manuscripts too.
The Bertelsmann SE-owned firm also dodges the issue of the broader impact of increased concentration. The industry has a record of collusion. In 2013, Apple Inc. was found to have conspired with publishers including Penguin (prior to its acquisition of Random House) and Simon & Schuster to fix the price of e-books. The risk of tacit coordination between publishers looks real — including the possibility that it becomes the norm for big publishers to insist that authors sell global rights to their work in a single bundle.
Of course, the DOJ faces the burden of proof. It has to demonstrate any harm exceeds the benefits that Penguin touts in terms of giving Simon & Schuster authors stronger distribution and marketing than they have already. But while Penguin is in the storytelling business, its case could do with more show to go with the tell. The next chapter could be a page-turner.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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