Stephen King makes for unlikely antitrust hero

NEW YORK, Nov 1 (Reuters Breakingviews) – A thwarted book publishing deal could open a messy chapter for mergers and acquisitions. A U.S. judge blocked Penguin Random House’s $2.2 billion acquisition of rival Simon & Schuster on Monday after the Department of Justice argued it would unfairly limit pay for top authors such as Stephen King. German media group Bertelsmann (BTGGg.F), owner of Penguin is going to appeal. But if the ruling prevails, future mergers may be vetted on their effect on workers as well as customers.

Last year, the regulators sued to stop Penguin Random House from buying Paramount Global’s (PARA.O) book division for an unorthodox reason: that the combination would reduce writers’ payments. Publishers often bid against each other for best-selling authors. Remove that competition and there’s less incentive for writers, which diminishes the selection of books coming to market. As horror author King said in his witness statement opposing the deal, it’s akin to “a husband and wife bidding against each other for the same house.”

Penguin Random House is already a giant in the United States. Adding Simon & Schuster would give it 70% of the literary nonfiction market, according to NPD Book Scan. There’s a decent case to be made that the combination would have the ability to raise prices for consumers – the standard argument against big deals, and the one that government trustbusters used against AT&T’s (T.N) 2011 bid for smaller telecommunications rival T-Mobile US (TMUS.O).

Instead, antitrust litigators took a novel approach. The argument that a mega-publisher could suppress author pay is unusual, but fits with a broader push under President Joe Biden’s administration to rethink principles of competition by factoring in a broad base of stakeholders. That strategy has had mixed results. Lina Khan’s Federal Trade Commission in September lost its attempt to stop gene-sequencing company Illumina (ILMN.O) from its $7 billion purchase of cancer detection test maker Grail (GRAL.O).

The trouble is that change can be confusing. The Department of Justice drew a line in its challenge to Penguin, distinguishing highly paid writers from the rest. The publishers argued in their defense that such a grouping includes just 2% of all books published commercially. Despite that, the Department of Justice on Monday called the ruling “a victory for workers more broadly.” The watchdog is attempting to rewrite the rule book; instead it has crafted a mystery.

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A U.S. judge on Oct. 31 ruled that a planned $2.2 billion merger of Penguin Random House and rival Simon & Schuster cannot go forward.

The Department of Justice had argued that the deal should be stopped because it would lead to less competition for blockbuster books and lower advances for authors who earn $250,000 or more.

German media group Bertelsmann, the owner of Penguin, agreed to buy Simon & Schuster from Paramount Global in 2020.

Bertelsmann Chief Executive Thomas Rabe said in a statement the court’s based its findings on “incorrect basic assumptions, including an inaccurate definition of the market.” Bertelsmann plans to file an appeal with the D.C. Court of Appeals.

U.S. Assistant Attorney General Jonathan Kanter said in a statement that the “decision is also a victory for workers more broadly.”

Editing by John Foley and Amanda Gomez

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