Justice Department Seeks to Keep Penguin Random House from Acquiring Simon & Schuster

The U.S. Department of Justice (DOJ) began its case on August 1 to stop Penguin Random House from buying Simon & Schuster in a $2.18 billion deal. One of the government’s star witnesses was author Stephen King, who is expected to bolster the DOJ argument that the consolidation would harm both authors and overall industry competition.

Simon & Schuster Chief Executive Officer Jonathan Karp is also slated to testify. The Justice Department’s argument focuses on competition in the form of advances paid to best-selling authors, especially those given paychecks of $250,000 or more.

The publishers are two of the so-called U.S. Big Five: Penguin Random House (PRH), HarperCollins, Macmillan Publishers, Simon & Schuster (S&S), and Hachette Livre. PRH, owned by German media conglomerate Bertelsmann, is itself the result of the 2013 merger of Random House and Penguin Group. S&S is owned by media company ViacomCBS, which is now Paramount Global. HarperCollins is owned by News Corp.

Lawyer Daniel Petrocelli, leading the defense, argued that the contest for publishers to garner top-selling authors will be made more competitive by the proposed merger. According to research organization ProQuest, more than 4 million books were published in 2019 alone in the United States, but somewhere between half to two-thirds of those were self-published titles outside the traditional publishing world. And the pie appears to be shrinking: 2020 data indicate that U.S. publishing industry sales peaked in 2007 and have either fallen or been flat each year since.

In opening arguments, Petrocelli said the DOJ is trying to stop a merger that would affect “under a hundred books a year.” The publishers also will argue that they are “rarely the top two bidders” for potential best-selling works. Petrocelli previously defeated the Trump administration’s attempt in 2018 to keep AT&T from buying Time Warner (now WarnerMedia). Judge Florence Pan of the U.S. District Court for the District of Columbia is presiding over the case, which is expected to take two to three weeks.