Penguin Random House's Fantastical Tale of Intra-Firm Competition
Penguin Random House's Fantastical Tale of Intra-Firm Competition
The largest book publisher in the world defends federal anti-trust lawsuit by insisting that in-house competition is the equivalent of real world competition.
If someone wrote this plot line in a book, it would be rejected by an editor as utterly unbelievable.
But Bertelsmann SE & Co. KGaA, a German company that is the sole owner of Penguin Random House, is claiming it would continue to compete against Simon & Schuster for publishing deals if it was permitted to acquire Simon & Schuster, one of its few remaining competitors.
If the deal goes through, it is estimated that Bertelsmann would own 70% of the U.S. literary marketplace.
Penguin Random House, already the largest book publisher in the world, claims its multiple imprints “individually” decide whether to participate in auctions for books and whether and how much to raise their bids if they are outbid.
According to the theory, if Bertelsmann can secure the rights to a book for a low-ball price, it would permit its own imprints to raise the bidding at an auction. Apparently, the sky’s the limit!
The U.S. Dept. of Justice last year filed a civil antitrust lawsuit to block Penguin from acquiring Simon & Schuster for $2.175 billion to ensure fair competition in the U.S. publishing industry. The DOJ says the merger would diminish the quantity and variety of books available to American consumers.
The DOJ compared Bertelsmann’s theory of in-house competition to a husband and wife bidding independently to buy a house - there is no incentive to outbid the other when the marital unit pays the mortgage.
Currently, five publishers dominate the publishing market because they alone have the power to offer big advances to authors.
What Money Can Buy
Last week, eight (8) lawyers who represent Bertelsmann/Penguin Random House sought to prevent the DOJ from preventing them from raising the argument that Bertelsmann would maintain Simon & Schuster “as an independent bidding entity” so the proposed merger would have no anti-competitive impact
The DOJ argues the theory of “intra-firm” competition is not credible and, if allowed, would permit “firms in any industry [to] just merge to monopoly and then go scot-free with a promise to act like competitors.”
The Author’s Guild supports the DOJ, arguing that book publishing plays a “uniquely important role in protecting democratic freedoms of speech and expression, which in turn makes anti-monopoly enforcement of the utmost importance.”
Robert Thomson, the CEO of NewsCorp, which owns #2 book publisher HarperCollins, said “Bertelsmann is not just buying a book publisher, but buying market dominance as a book behemoth. Distributors, retailers, authors and readers would be paying for this proposed deal for a very long time to come. The literary leviathan would have 70 percent of the US Literary and General Fiction market.”
The eight attorneys representing Bertelsmann are from the firms of Arnold & Porter in Washington, D.C. and O’Melveny & Myers in Los Angeles, CA, and New York City, N.Y.
Penguin Random House has more than 300 imprints and brands on six continents, including the former independent publishing houses Doubleday, Viking and Alfred A. Knopf.