Why was Penguin Random House’s $2.1 billion deal blocked by a US judge?

The trial to determine whether book publisher Penguin Random House can buy another of the “big five” publishers, Simon & Schuster, has come to an end after three months of legal wrangling, with a US judge blocking the sale.

The big five publishing houses — Penguin Random House, Hachette Book Group, HarperCollins, Simon & Schuster and Macmillan — publish 60 per cent of all English-language books globally.

The deal would have reduced that number to create the “big four”, with Penguin Random House, which recently announced it will be publishing Prince Harry’s memoir, Spare, and Simon & Schuster controlling 25 per cent of the market.

Small publishers are being squeezed

As part of the trial, horror writer Stephen King testified as a witness for the US government’s Department of Justice, against the deal.

“I came because I think consolidation is bad for competition,” King reportedly said during his testimony on August 2. “That’s my understanding of the book business, and I’ve been around it for 50 years.”

King also spoke about the effect of conglomerates on smaller, independent publishers, saying: “The reason they’re being squeezed is because they don’t get the shelf space that they used to because the majors take a lot of that shelf space.”

King, the author of classics such as Carrie, It, and The Shining, spoke about how early on in his career he saw competition undermined by the big publishing houses.

Authors’ leverage would be adversely affected

Publishing used to be dominated by the “big six”, until the merger of Penguin and Random House in 2013.

In November 2020, Paramount Global announced it would be selling Simon & Schuster — publisher of bestselling writers such as Sandra Brown, Mary Higgins Clark and Martin Cruz Smith — to Random Penguin House — which publishes John le Carre, Margaret Atwood and Marian Keyes among others — in a $2.1 billion deal.

The US Justice Department sued to block the merger, stating that it would harm existing and new authors by reducing their leverage and bargaining power.

“Penguin Random House would control close to half of the market for the acquisition of publishing rights to anticipated top-selling books,” it wrote.

In her two-page order at the end of the trial, US Circuit Court Judge Florence Y Pan wrote: “The Court finds that the United States has shown that ‘the effect of [the proposed merger] may be substantially to lessen competition’ in the market for the US publishing rights to anticipated top-selling books.”

Median annual income for US authors drops to $6,080

While huge book deals and advances for famous authors such as Stephen King, J K Rowling, Gillian Flynn, Dan Brown and John Grisham make headlines, most authors barely make the minimum wage.

Pre-pandemic, the Authors Guild of America revealed that professional writers have all seen their income drop, particularly fiction authors — a 2019 survey found that their earnings have reduced by 43 per cent since 2013.

While J K Rowling’s net worth is estimated by the 2021 Sunday Times Rich List to be £820 million ($943.6m), the median annual income in all categories of US authors, collected pre-pandemic, in 2017, was $6,080, according to the Guild. A reduction of more than half since the average of $12,850, recorded in the guild’s first earnings survey in 2007.

Amazon, too, has had a huge impact on the global book sales market. According to Forbes, Amazon accounts for 85 per cent of the self-publishing market — authors who do not go the traditional route of finding an agent and securing a book deal, but instead publish their works online and do their own marketing.

“It forces publishers to accept narrower margins and those losses get passed on to authors through lower advances and royalties,” said Forbes.

Random Penguin House called the ruling a “setback”.

“We strongly disagree with today’s decision, which is an unfortunate setback for readers and authors, and we will immediately request an expedited appeal.”

Updated: November 01, 2022, 9:21 AM