U.K. Watchdog Investigating Penguin Random House’s Acquisition of Simon & Schuster
The UK competition watchdog has launched an investigation into Penguin Random House’s $2bn (£1.45bn) takeover of Simon & Schuster, a deal rivals have warned will create a “behemoth of books” with too much power in the global publishing industry.
The deal would bring together a who’s who of starry authors from Dan Brown, Hillary Clinton and Stephen King to Barack Obama, Bob Woodward and John Grisham. An equally impressive combined back catalogue spans titles and authors including Gone With the Wind, Catch-22 and the works of Ernest Hemingway.
On Monday, the Competition and Markets Authority said it was considering whether the deal, which cements PRH’s position as the world’s biggest book publisher, would result in a “substantial lessening of competition within any market or markets in the United Kingdom for goods or services”.
German media group Bertelsmann triumphed in a bidding war against rivals including Rupert Murdoch’s News Corp, which owns the book publisher HarperCollins, sealing the deal less than a year after it took full control of PRH.
The News Corp chief executive, Robert Thomson, subsequently said the deal showed “anti-market logic” and would lead to an anti-competitive “behemoth of books” that would control one-third of the US book market. Bertelsmann has said the merged entity would have a US market share of less than 20%, making the deal clearly “approvable”
In the US, the Authors Guild and the National Writers Union, along with four other writers’ groups and the nonprofit Open Markets Institute, sent a letter in January urging the Department of Justice to block the deal.
Concerns raised include that the scale of Bertelsmann’s book empire would be such that it could gazump rivals in deals to secure prime book rights. Shrinking the amount of competition in the market, reducing the global “big five” book publishers to four, could also mean that smaller writers will have fewer imprints to pitch to and bid for their work. On the high street, Bertelsmann will have more muscle to negotiate terms with booksellers.
“The deal will make Penguin Random House the biggest publisher by quite a long way, and it already is the biggest,” said Nicola Solomon, the chief executive of the Society of Authors. “We have nothing against the practices of either company but combined there is that potential for market dominance. Our concern is just that it isn’t in anyone’s interest to have someone in a monopoly position.”
Simon & Schuster publishes about 2,000 books a year, on top of a catalogue of 35,000 titles, and employs about 1,350 staff. Penguin Random House publishes 15,000 titles a year, and has a workforce of about 10,000 people globally.
As with many areas disrupted by the rise of Silicon Valley giants, global consolidation has been a hallmark of the industry in recent years. In the era of Amazon, which dominates ebook, audio book, and print sales, as well as the growth of self-publishing, the major players have sought scale to drive cost efficiencies and profits. In an interview, last year Thomas Rabe, the chief executive of Bertelsmann, said that swallowing S&S would not change the fundamental power dynamic of Amazon’s dominance of the market. “We need them more than they need us,” he said. “And the transaction doesn’t change that.”
Bertelsmann owned Random House before acquiring Penguin from Pearson, the former owner of the Financial Times, forming Penguin Random House as a joint venture in 2013 and creating the world’s biggest publishing house. European regulators looked at the impact of the deal on the competition before leading it. Pearson sold its remaining 25% stake in Penguin Random House to Bertelsmann in 2019.
The CMA will now have until 19 May to decide whether to proceed to a second phase of the investigation, which would signal more serious concerns about competition. Financial analysts have said that the fallout of the regulatory scrutiny could result in Penguin Random House having to sell some assets in some markets; the US is where most of the major competition concerns have been raised.
“The risk always was that the deal would attract regulatory scrutiny,” said Citi in a note to investors on Monday. “This is important not so much because it will lead to the deal being blocked outright but rather because it might lead to one forced disposals, which in turn may be helpful for peers.”