What Happens When a Publisher Becomes a Megapublisher?
When Penguin Random House said last year that it planned to buy Simon & Schuster for more than $2 billion, the entire publishing industry snapped to attention.
The merger of two of the largest publishers in the United States — Penguin Random House is already the biggest by almost any metric — has the potential to touch every piece of the book business, including how much writers get paid, which books get priority at printing plants and how independent bookshops are run. All this comes amid an atmosphere of increased attention on the dominance of large companies like Facebook and Google, and a new Justice Department to evaluate them.
“We don’t know what the Biden administration’s antitrust approach will look like,” said Erik Gordon, a professor at the University of Michigan Ross School of Business. “But this one will get careful scrutiny.”
One of the main questions federal regulators will look at when deciding whether to approve the deal, Mr. Gordon said, is how big the two companies would be if combined. Publishing is a fragmented business: There are general interest publishers and academic publishers, big companies and small ones, as well as people who self-publish. All that makes it difficult to get an accurate read on how dominant any one player is.
Penguin Random House says that the two companies combined would generate less than 20 percent of the general interest publishing revenue in the United States. Those numbers come from the Association of American Publishers, a trade association, which based its estimate on the complete U.S. book market. NPD’s BookScan, which tracks paper copies sold through most retailers, put the combined company at about 28 percent of all books sold last year; that figure rises to about 34 percent including the books the companies distribute for other publishers.
With 15,000 titles published annually, Penguin Random House is a dominant force in the industry. Half of this week’s New York Times best sellers are its books, including Glennon Doyle’s “Untamed,” which has been on the list for nearly a year, and Barack Obama’s memoir. Simon & Schuster is a powerful player as well, publishing more than 2,400 books a year, including Mary L. Trump’s 2020 memoir, “Too Much and Never Enough,” which sold more than 1.35 million copies in its first week.
Perhaps the industry’s biggest concern about the merger, especially among agents and authors, is what it will mean for book deals. An agent representing a promising author or buzzworthy book often hopes to auction it to the highest bidder. If there are fewer buyers, will it be harder for agents to get an auction going for their clients, and ultimately, will it be harder for authors to get an advantageous deal?
Penguin Random House operates about 95 imprints in the United States, like Vintage Books, Crown Publishing Group and Viking, and these imprints are allowed to bid against one another, as long as another publisher is bidding as well. If the third party drops out, the bidding stops, and the author selects an imprint from within Penguin Random House in what the industry likes to call a “beauty contest.”
A spokeswoman for Penguin Random House said the practice of allowing imprints to compete would continue but that it was too early to say whether Simon & Schuster and its imprints would still count as a third party. Some publishers only offer house bids and do not allow internal competition.
Mary Rasenberger, the executive director of the Authors Guild, a writers’ group that opposes the merger, said that while her organization is pleased about the internal bidding rules, it doesn’t do much to alleviate their concerns. Policies can change, after all.
“You have to think about the long term,” she said. “What’s the next management going to look like? And there’s no going back. Once there are only four big publishers, I just don’t see, at least in the foreseeable future, that we’re going to get back up to more.”
Concerns in the industry stretch beyond those initial handshakes between authors and editors. Penguin Random House employs about 10,000 people globally, while Simon & Schuster’s full-time work force is about 1,350. If the companies combine, how many jobs will be lost? Will imprints fold? Will they publish fewer books? And if the megapublisher demands priority at printing plants, where capacity has been under extraordinary strain, will that happen? (Bertelsmann, Penguin Random House’s parent company, last year bought two printing plants. Penguin Random House said this investment kept printing capacity available to the industry as a whole. The company does most of its printing elsewhere.)
Penguin Random House has worked closely with independent booksellers during the pandemic, offering flexible or deferred payments to help them through such a challenging year. Still, some are anxious about narrowing competition in a world where their choices are already constricted. Gayle Shanks, one of the owners of Changing Hands bookstores in Tempe and Phoenix, Ariz., said that while Penguin Random House has been supportive of independent bookstores, she worries that with fewer big publishers to work with, she’ll have less leverage and opportunity to negotiate.
“Sometimes I’m able to go to one publisher and say, I’m doing this promo with this other publisher and I’m wondering if you’d be willing to do that, too,” she said. With fewer options, she added, “I am going to have fewer ways to staying profitable and sustainable.”
Nihar Malaviya, Penguin Random House’s chief operating officer, said that a fairly recent publishing tie-up should offer solace to many in the business: the 2013 merger of Penguin and Random House. Since then, the number of U.S. employees at the company has remained stable, a spokeswoman said, as had the number of imprints.
“The industry is healthier than it’s ever been, and all those fears raised at the time of the Penguin and Random House merger, none of them ever ended up materializing,” Mr. Malaviya said. “The key reason why we haven’t done the things people were afraid of is that it’s not in our interest. We want to keep independent bookstores open. We don’t want the market more dominated by a single retailer. ”
Indeed, throughout publishing, apprehension about this merger tends to wither in comparison to fears about Amazon, which has become only more powerful in the book world during the pandemic.
“In today’s market, they are very much a force for good and protection and normalization,” James Daunt, the chief executive of Barnes & Noble, said of Penguin Random House. “I’m spending much more time talking about Amazon than I am talking about Penguin Random House, or Penguin Random House plus Simon & Schuster.”
Jonathan Karp, chief executive of Simon & Schuster, said in a statement that joining up with Penguin Random House was “the best possible outcome” for his company. “Our combined resources will allow us reach even more readers, while also maintaining the kind of editorial and entrepreneurial independence that Penguin Random House has long championed among its publishers.”
Bertelsmann, which owns Penguin Random House, seems confident that the merger will be approved, and the deal includes what’s called a termination fee that Bertelsmann must pay if the Biden administration does not approve the deal. But there is still much for regulators to untangle, and plenty for antitrust lawyers to do.
“It’s a good kind of lawyer to be, because it’s a big argument,” said Mr. Gordon, the University of Michigan professor. “And in the end, boy, you cross your fingers, because it’s a judgment call.”
Edmund Lee contributed reporting.
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