Why the Penguin Random House merger is also about Amazon
Amazon is not being tried in a ledger lawsuit. But its power is.
The US government is suing to prevent book publisher Penguin Random House from buying competitor Simon & Schuster. The government says the merger, which will reduce the number of major US consumer book publishers from five to four, will hurt some authors by reducing competition for their books.
A lawsuit in the government’s lawsuit began this week, and my colleagues have written a helpful explanation of the legal issues and stakes for the companies involved, writers, and book lovers.
This case, which is about much more than books and big-name authors’ earnings, is another example of the debate over how to handle the big corporations — including the biggest digital powerhouses — that shape our world.
The elephant in the room is Amazon. Book publishers want to get bigger and stronger, in part to get more traction on Amazon, by far the biggest book seller in the United States. One version of Penguin Random House’s strategy boils down to this: our book publishing monopoly is the best defense against Amazon’s book selling monopoly.
As the dominant way for Americans to find and buy books, Amazon can, in theory, direct people to titles that generate more revenue for the company. If authors or publishers don’t want their books sold on Amazon, they may fade into obscurity, or counterfeits may proliferate. But if the publisher is big enough, the theory goes, then they have leverage on Amazon to stock books at prices and terms the publisher prefers.
“Their argument is that to protect the market from being monopolized by Amazon, we’re going to monopolize the market,” said Barry Lynn, executive director of the Open Markets Institute, an organization that wants tougher antitrust laws and enforcement.
Penguin Random House is not saying it wants to buy a rival to beat Amazon at the power game, which is not legally relevant in the government’s lawsuit. But Lynn told me that if Amazon’s dominance hurts book publishing companies, readers, authors, or the American public — and he thinks it does — allowing a book company to become more muscle to intimidate Amazon is counterproductive. The best approach, he said, is to restrict Amazon with laws and regulations.
We know that a few tech companies – including Amazon, Google, Facebook and Apple – have enormous influence over entire industries and our lives. We are all trying to figure out in what ways their power is good or bad for us, and what, if anything, government policy and law should do about the downsides. This disputed merger of book publishers is an example of awareness of these essential issues.
It’s not uncommon for companies to justify acquisitions by saying they need more power to level the playing field. When AT&T bought the media and entertainment company that was called then Time Warner, one of the company’s explanations was that it wanted to become an alternative to digital advertising powerhouses like Google and Facebook. Music companies have consolidated over the past 15 years in part to have more clout as digital services like Spotify transform the way we listen to music.
And a decade ago, when German conglomerate Bertelsmann bought a competitor to create Penguin Random House, the merger was a response to Amazon’s influence on book sales.
Today, Penguin Random House says another acquisition would make book publishing more competitive and help authors and readers. In a twist, he cites Amazon’s fast-growing book publishing business as an example of fierce competition in its industry.
Lynn’s criticism of both Penguin Random House and Amazon reflects an influential view, particularly among leftist economists, civil servants and lawyers, that America has botched its approach to big business, especially those digital. The criticism is that the growing consolidation of industries such as airlines, banks, digital advertising, news media and meatpacking is hurting shoppers, workers and citizens.
Some Republican politicians agree with leftists in wanting more government restraint on digital superstars. Congress has also been debating a bill that would require potentially big business changes for Amazon and other tech giants, though it’s unlikely to become law immediately. Similar laws have been passed elsewhere in the world.
Chris Sagers, a law professor at Cleveland State University who wrote a book about a previous government antitrust lawsuit in the book industry, told me the outcome of that case probably won’t have much impact. ‘importance. According to him, the book industry already overcharges readers and underpays authors. He thinks Amazon and book publishers have been allowed to get too big and too powerful.
This book publishing court case is a window into deep-rooted problems in the American economy that have taken decades to develop and will take a long time to change.
“There is really substantial consolidation in markets everywhere,” Sagers wrote in an email. “Once you’ve let an economy get to this point, there’s very little that antitrust law (or any other regulatory intervention) can hope to do.”
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