Deck the halls with affidavits
Fa-la-la-la-la, la-la-la-la
Welcome to the 129th edition of SHuSH, the weekly newsletter of Sutherland House Books. If you’re new here, hit the button—it’s free:
A PROGRAM NOTE: Barring more antics from omicron, I plan to celebrate the holidays long and hard. SHuSH will be on hiatus until the New Year.
Machine lunacy
It’s hard to know whether to be fearful or amused by the world of machine learning. Here’s what Amazon’s AI had to offer this reader:
A misbegotten lawsuit
If you haven’t been following the story, Penguin Random House (PRH) and Simon & Schuster (S&S) are two of the Big Five publishers in the US. More than a year ago, PRH struck a deal to buy S&S for $2.18 billion. A couple of months ago, the US Department of Justice sued to block the sale.
The deal has been controversial from the moment it was announced (I first wrote about it here) for a variety of reasons. A lot of the media commentators considered the capture of S&S by PRH a threat to the survival of a vibrant and diverse literature. They talked about preserving jobs in the publishing industry, resisting the blockbuster winner-take-all mentality of the dominant firms, and sticking up for the mid-list author. None of which matters much in antitrust terms.
The more salient objection, from a legal point of view, is that combining the two firms would give PRH an unfair competitive advantage in the publishing marketplace. Companies that dominate markets tend to abuse their dominance, bullying suppliers (in this case writers) and retailers (bookstores), suppressing wages for employees, raising prices on customers, delivering lower quality to consumers, stifling innovation, consumers, and behaving in other anti-competitive ways. Antitrust laws supposedly protect us from such outcomes.
I wrote about the DOJ suit five weeks ago after spending a whole evening reading up on US antitrust and analyzing the DOJ’s case, which is far more work than usually goes into SHuSH. And I wrote almost 4,000 words, which took a lot more time than I usually devote to the newsletter.
In that piece, I noted that the applicable law is Section 7 of the Clayton Act which prohibits one firm from buying another firm if the effect will be to substantially lessen competition or create a monopoly.
To establish whether the combined firm will be large enough to dominate a market unfairly, you first have to define the market. Are we talking about the market for trade books (the kind you find in a bookstore), or the broader book market, including self-published, religious, academic books, audiobooks, ebooks, etc.?
If you count every kind of book published, including reissues of old books, and self-published books, there are 3.5 million titles published annually in the US. PRH and S&S together would represent, at best, only a couple of percentage points of that market.
Media stories on the merger have tended to define the market as trade books, excluding self-published works as well as educational and technical publications, yet they disagree on the anticipated market share of the merged firm. The Wall Street Journal said that PRH and S&S would account for 27.3% of the US trade book market. The Atlantic said that the merged entity would control 33%. Bertelsmann, the owner of PRH, has been quoted as saying the combined market share would be “below 20%.”
Even if we take the high estimate of 33%, it’s not necessarily problematic. In many industries, a dominant firm has captured a higher percentage of the market without getting broken up by antitrust enforcers. AT&T, for instance, has 45% of the wireless market in the US; Nike (including its Jordan brand) has 52% of athletic footwear in the US.
How did the DOJ deal approach this problem in its PRH suit?
It didn’t. It made no real effort to define the total book market or the trade book market. It simply said that the combined firm of PRHS&S would be twice as big as the next largest competitor, HarperCollins, seemingly conceding that it couldn’t win by arguing that PRHS&S would be dangerously huge.
The DOJ instead built its case on a narrower point of law which holds that if a firm, by acquiring another firm, is better able to squeeze its supplier(s) on even one product line, the deal should be illegal.
The lawyers at the DOJ argue that PRH, by acquiring S&S, will be better positioned to squeeze big-time authors, who are suppliers of manuscripts for best-selling books. They argue that the combined firm would have the power to improve its profits by significantly and permanently lowering the advances it pays to authors of “anticipated top-selling books.”
As noted five weeks ago, it’s weird to see the DOJ going to war for sellers of “anticipated top-selling books,” the elite of the elite, the John Grishams and Margaret Atwoods, the .001% of the publishing world. But that’s the line of attack.
The problem with the complaint, as I saw it, was that the DOJ, supposedly pursuing a new “evidence-based approach” to prosecutions, building them on credible empirical economic evidence of harms to competition, was vague about the size and shape of the market for “anticipated top-selling books.”
The market consists of “hundreds of authors,” according to the complaint. How large must an advance be to qualify as an “anticipated top-selling book?” The DOJ doesn’t specify. It merely asserts that if S&S is removed from bidding for those books, PRH will get them cheaper.
I pointed out that PRH had an easy rebuttal to that assertion: Random House bought Penguin a decade ago, eliminating one of its largest competitors for “anticipated top-selling books” and advances had done nothing but skyrocket since. Big-time book publishing has run on blockbusters for the last half-century (along with much of the rest of the entertainment industry), and the demand for “anticipated top-selling books” is unlikely to shrink much, if at all, with four leading firms instead of five.
Why are we replaying all this detail from my Nov. 5 newsletter? Because this week Bertelsmann, Penguin Random House, Simon & Schuster, and its seller Viacom answered the DOJ complaint in US District Court for the District of Columbia. I gave it a quick flip and came away convinced that I could mount a successful intellectual property case against the publishers’ lawyers.
Before I get to the details, I have to say that there are few revelations in the publishers’ response, although I did find this interesting little chart which shows small and medium publishers (the grey area) have been growing at the expense of the big guys in the US.
The lawyers take the chart to mean that PRH has its back against the wall and needs S&S to ward off the existential threat posed by the likes of Sutherland House.
Beyond that hilarity, the response contains a lot of blather about the noble work PRH and S&S do “discovering and nurturing authors, supporting authors’ creative efforts, and investing in authors’ careers,” not to mention propping up independent booksellers.
As for its substantive arguments, the response tracks SHuSH top to bottom. The publishing lawyers argue that the DOJ doesn’t present any real evidence of harms that can be expected from the merger. Instead, the DOJ “invents a market for rights to ‘anticipated to-selling books’ that excludes the vast majority of authors and lacks any basis in either the real world or accepted market-definition analysis.” The DOJ does not define its supposed market for anticipated top-sellers, or how big an advance has to be to qualify in the market. “There is no identifiable advance level above which only certain publishers compete for book rights.” Publishers outside the Big Five (or Four) often compete for and win rights to valuable properties.
The DOJ also fails to make a case that there will be any market-wide decline in advances or author compensation, or that PRHS&S would be any less motivated to pay top-dollar for “anticipated top-selling books.”
And there’s this:
DOJ tries to discount the competitive effect of smaller publishers by asserting that any one of them does not compete in high-end bidding today as often as the “Big Five” houses do. DOJ misses the point: what matters is that in bidding for any given book, at least one smaller publisher often competes. And in fact, the available data show that these publishers win bidding for books more often than Simon & Schuster does. DOJ also ignores how easily many publishers outside the “Big Five”—which include such media heavyweights as Disney, Amazon, and Scholastic, as well as brand-name publishing “imprints” like Norton and Abrams and new entrants like Zando—could increase their participation in high-end bidding. In short, after the merger, authors will still have a vast array of buyers for their book proposals, particularly for books expected to be “top sellers.”
In short, the DOJ, according to the publishers, misdefines the market, mischaracterizes its participants, and miscalculates market shares.
Like. I. Said.
If Penguin Random House can’t close its deal to acquire Simon & Schuster for $2.18 billion by this time next year, it expires. District Judge Florence Pan set the trial date for next August 1, which cuts things close.
Meanwhile, it doesn’t appear from the filings that the publishers and the DOJ have been talking about a pre-trial settlement. A lawyer from Random House says “the government decided they didn’t want to negotiate…. It was not for lack of trying on the part of [PRH].” There is a suggestion in the publishers’ filings that PRH made offers “to divest or license assets” prior to the DOJ launching its suits but was rebuffed.
If I was at the DOJ, I’d be begging the publishers to come back to the table and give me any kind of concession I could use to settle this embarrassment before Judge Pan laughs me out of her courtroom.
There’s no way in hell this deal gets thwarted in any meaningful way in the US. I’m really coming around to the idea that this will be good, in the long run for American publishing. As the chart above indicates, and as I’ve argued in the past, buying Penguin a decade ago didn’t do anything to make Random House stronger. Its market share has been slipping post that expansion. Swallowing another major publisher in a decade is likely to leave PRH bloated and unwieldy. So, yes, PRHS&S will be huge but it will probably continue to lose ground against its competitors, and the second-tier publishers and independent houses will continue to gain at its expense.
Canada is another matter. A pretty colored chart like the one used by the publishers above would show the opposite effect in Canada: the big multinationals have been eating the lunch of independent publishing companies on this side of the border. Worse, we have only a Big Three, not a Big Five, of multinational publishing. If this deal goes ahead, it will be a Big Two. Foreign-owned PRHS&S will control roughly half of our trade publishing market, and Rupert Murdoch’s HarperCollins another 15-to-20 percent. It will be difficult to argue that our publishing scene is competitive.
There is a much stronger case available to the Department of Heritage and our Competition Bureau to block the merger in Canada. It remains to be seen if they’re at all interested in it.
More fun in the courts
Sorry to keep harkening back to previous SHuSHs but I can’t overlook the latest on the Andrew Cuomo shambles.
You’ll remember that now-disgraced former governor of New York, Andrew Cuomo, played dirty with his publisher and the public while landing a lucrative book contract. More specifically, he suppressed bad news about pandemic deaths in his state while coaxing a $5.1 million advance out of Penguin Random House for a book about his heroic activities as a COVID-19 fighter.
I mentioned that it was astonishing that the governor of America’s hardest-hit pandemic state could produce a fat manuscript in just three months, and that media reports suggested his staff and a ghostwriter authored the book for him. The same reports said he was in danger of violating state ethics prohibitions against the use of state resources or personnel in producing his book.
I also noted that weeks after the grandly titled American Crisis: Leadership Lessons from the COVID-19 Pandemic was released in October 2020, Cuomo was hit with the first in a long series of sexual harassment allegations. He was forced to resign his office in August 2021. By then, it had also emerged that Cuomo’s office had covered up roughly half of the fatalities among state nursing home residents during the pandemic.
Penguin Random House took a bath on the project. American Crisis has sold only about 50,000 copies, about a tenth of what the publisher needed to cover the advance it paid the author.
This week it was Cuomo’s turn in the tub. An ethics panel ruled that he had broken his promises not to use state resources or government staff to write his self-congratulatory book, and gave him thirty days to hand over to the State of New York the $5.1 million he earned with the book.
‘Tis the season to be jolly
Fa-la-la-la-la, la-la-la-la
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Our Newsletter Roll (suggestions welcome)
A new addition to the roll this week: Art Kavanaugh writes the biweekly newsletter Talk about books. He covers mostly fiction but has a wide range of interests, and he recently moved from Substack to Micro.blog, a platform about which I know nothing but I’m curious as to why he likes it better.
Art Kavanagh’s Talk about books: Book discussion and criticism.
Gayla Gray’s SoNovelicious: Books, reading, writing, and bookstores.
Esoterica Magazine: Literature and popular culture.
Benjamin Errett’s Get Wit Quick, literature and other fun stuff
Jeet Heer’s The Time of Monsters: political culture and cultural politics
Lydia Perovic’s Long Play: literature and music.
Tim Carmody’s Amazon Chronicles: an eye on the monster.
Jason Logan’s Urban Color Report: adventures in ink (sign-up at bottom of page)
Anne Trubek’s Notes from a Small Press: like SHuSH, but different
Art Canada Institute: a reliable source of Canadian arts info/opinion
Kate McKean’s Agents & Books: an interesting angle on the literary world
Rebecca Eckler’s Re:Book: unpretentious recommendations
Anna Sproul Latimer’s How to Glow in the Dark: interesting advice
John Biggs Great Reads: strong recommendations
THAT’S IT FOR THIS WEEK. THANKS FOR READING. PLEASE SIGN UP OR CONVINCE SOMEONE ELSE TO SIGN UP, OR SHARE, OR LEAVE A COMMENT:
Thanks for this newsletter. It really helped explain the problem of PRH buying S&S.