Stop the Merger
Penguin Random House and Simon & Schuster being joined is not good for the books ecosystem.
There’s a trial currently going on that probably isn’t on the radar of the average reader, but which may have a significant future impact on which books come into the world, how much authors are paid for their books, and even the overall health of the larger publishing ecosystem.
The case is U.S. v. Bertlesmann, Penguin Random House, ViacomCBS, and Simon & Schuster, more colloquially known as the United States Justice Department’s attempt to block the sale of Simon & Schuster to Penguin Random House1.
Penguin Random House (PRH) is the #1 publisher in the U.S.; Simon & Schuster is #4. The $2.17 billion acquisition would cement PRH as the #1 publisher, and shrink what is known as the “Big Five” to the “Super Big One” and the “Big, but not Nearly as Big Three” (Hachette, Harper Collins, Macmillan).2
The most thorough coverage is coming from John Maher at Publishers Weekly, which is where I’ve gleaned the vast majority of what I know about what’s going on inside the courtroom. The government is alleging that the joining of the two companies will not create a monopoly - these companies publish lots of books, but not a dominant share of the overall marketplace - but a “monopsony,” which means a limited market for buyers, specifically buyers for books that receive large ($250,000 and above) advances3. The government alleges that by removing one of the most prominent competitors for these books, authors will be harmed, because even though Simon & Schuster imprints will continue to exist inside of the PRH empire, it seems sensible to believe that the executives at the top will not let their sister companies get in a bidding war over the same titles.
The government’s case has the benefit of being exceedingly logical.
Very very few books receive advances at the $250,000 and above level. I’ve received advances on nine books, including books published by PRH, and even collectively they don’t come close to approaching that number. At the same time, books with big advances are a disproportionate share of the overall number of books sold, with something like 4% of books providing 60% of revenue, and most of those books had large advances. The bets that publishers make on big advances have both the highest stakes and the highest potential payout, and a big advance often means the publisher will put more muscle behind a book in terms of marketing and promotion.
One of the chief witnesses making the case against the merger is Michael Pietsch, CEO of Hatchette, a legendary editor and publisher who has worked with Donna Tartt, David Foster Wallace, Malcolm Gladwell, David Sedaris, James Patterson, and Malala, among numerous others. As reported by Maher, Pietsch delivered common sense testimony about the realities of publishing. Paying out large advances requires significant resources, and the only companies with those resources are the Big Five. A significant source of those resources is the “backlist,” the previously published books that continue to sell year-after-year with little to any additional marketing and promotion. Hachette derives a third of its revenue ($300 million) from its backlist. Having that war chest is what allows the Big Five to be big and get bigger. It is literally impossible for a new publisher to build this kind of backlist absent acquiring other publishers with extensive catalogs.
Many new small publishers enter the world all the time, but without backlists, they could never hope to compete against the incumbent companies. When publishers pay out big advances, they’re not just looking for a best seller, but are also hoping that they may have landed on a future backlist seller. To Kill a Mockingbird reportedly still sells hundreds of thousands of copies a year. If it were eligible, it would be a perennial end-of-year best seller.
The other chief witness testifying against the merger was none other than Stephen King, a Simon & Schuster author (primarily) under their Scribner imprint. King testified from the writer’s point of view, observing that advances are already shrinking, and further contraction would make it even harder for unknown writers to get started.
(Not that it’s ever been easy. King testified that he was paid a $10,000 advance for Carrie and The Shining combined. Adjusted for inflation that’s a little under $35,000 today, which would simultaneously be a thrilling advance for someone like me, and obviously not enough to live on.)
PRH and S&S executives seem to be countering with a strategy that positions them as true lovers of literature who would never consider doing anything to harm their precious relationships with authors and their agents, and who also don’t really know what they’re doing, business-wise, even though we’re talking about multi-billion dollar companies.
Jonathan Karp, CEO of Simon & Schuster, testified on the same day as King, and (again, as reported by Maher) tried to demur over the competition between S&S and PRH, apparently being sufficiently disingenuous to have the DOJ lawyers enter his own previous deposition testimony into the record to impeach what he’d said on the stand in the courtroom.
Karp was also hemmed in by the fact that he’d sent a 2020 email to the writer John Irving stating, “I’m pretty sure the Department of Justice wouldn’t allow Penguin Random House to buy us, but that’s assuming we still have a Department of Justice.”
In his testimony, Markus Dohle, CEO of Penguin Random House, likened PRH to the private equity investors in Silicon Valley backing startups. “We are angel investors in our authors and their dreams, their stories. That’s how I call my editors and publishers: angels.”
Pardon my French, but…barf. Seriously?
Look, I do not doubt that the figures at the tops of these companies have a genuine love of books and publishing, but they are also long past the notion that they are acting as benevolent fairies making the dreams of aspiring writers come true. As the full case title near the top makes clear, PRH is part of the multinational conglomerate Bertelsmann (headquartered in Germany), with revenues of over 18 billion Euro per year. S&S is owned by Paramount Global, the brand new name of what used to be ViacomCBS, a conglomerate of its own with revenues of $28 billion per year.
Pietsch and Dohle tried to “just shucks” their way through their testimonies, just a couple of guys who love books and want to make dreams come true, but it’s obvious that the love of publishing and books has nothing to do with why these companies want this merger to happen. It’s purely financial.
The strange and funny thing is that these claims from the publishing executives that advances don’t necessarily mean that much in terms of sales, and that the publishing business isn’t wholly determined by who can acquire the biggest books are actually kind of believable. While there are all kinds of things that happen inside of publishing houses that bring a veneer of rationality to the process, there’s also lots of evidence that publishing is enough of a crapshoot that all that business-like activity isn’t necessarily dispositive when it comes to the sales fate of a particular book.
Before a book is acquired by a publisher, it will be subjected to something called a P&L Statement (Profit & Loss), which is an attempt to predict how many copies a book might sell. (My former editor, Jane Friedman, has the best available breakdown of how a P&L Statement works.)
While some segments of a P&L, like printing costs, are grounded in reality, the most important figure - how many books the title might sell - is an example of what we call a WAG, a wild-ass guess. Some of it is based on comp titles. Some of it is based on knowledge of the target audience market, but there is no actual formula that carries any degree of certainty, something Pietsch and Dohle emphasized in their testimonies.
It’s not quite throwing stuff at the wall to see what sticks, but it’s not not that either.
Part of the rationale for the merger is simply increasing scale so that the failures sting less when it comes to the bottom line. Will this negatively affect the advances authors are paid, which in many cases is all the money they’ll see when they publish a book?
Almost undoubtedly. I think the question is whether or not it’s on a scale large enough that a judge decides the merger can’t go forward.
Longtime readers are now anticipating the turn towards me articulating what I believe to be a superior way of looking at the business of books, and that’s exactly what I’m going to do. Those same readers will recognize that I’ve said the things I’m about to say before.
The fundamental flaw of the P&L is that it is inherently backward looking, asking how a book will sell based on the past, rather than providing a framework for discussion about how a book might find new audiences, or expand the reach of the company’s offerings. Every other consumer product on the planet is thinking, “How can we get more customers.?” Large publishers do not operate this way.
As I wrote previously, “originality is undervalued,” and the P&L makes no space to consider the benefits of originality.
It also does nothing to nurture the culture of books and reading that the publishing CEOs likely do sincerely cherish, but have perhaps lost sight of given the exigencies of being CEO of a multi-billion dollar company. I think ultimately, in a category like publishing you need to be doing as much as possible to keep the atmosphere and ecosystem as healthy as possible, and to grow it at every opportunity.
I’d have a slot on my P&L where folks have to answer, “Among the people who haven’t read a book in the last six months, who is going to want to read this book and why?” If we’re going to put a new product into the world, let’s consider the book at hand more than the books in the past. At the very least, this might get people thinking more creatively about the challenge of launching books.
Big publishers have been rather bad at this, which is why there has been plentiful space for small publishers to come in and claim some territory for themselves. Those small publishers are a pimple on the backs of the Big Five when it comes to the bottom line, but they are also vital to maintaining the culture that allows the Big Five to reap all that revenue.
Karp and Dohle seem to understand this on some level, claiming that they would never deliberately do something that would harm their partners - agents and authors - since they are dependent on them for the products they publish.
I think they’re sincere, but I also think if the bottom line “demands” that advances be trimmed and there aren’t sufficient competitors to punish them by acquiring and publishing the books instead, those partnerships will be a casualty of meeting profit and loss expectations.
This would be shortsighted. It would decrease the overall health of the ecosystem, but since when has that stopped a business from doing something when there’s a quarterly balance sheet to report?
We’ll find out what the judge thinks soon enough.
This week at the Chicago Tribune I look at the biggest new book prize of recent vintage: Barack Obama’s Summer Reading List.
I missed this when it was first published. A list of “The 10 Best 21st Century Chicago Novels.”
A beautiful photo essay from the New York Times of people enjoying books out in public.
This is a great career consideration of Christopher Hitchens by one of my favorite book critics, Christian Lorentzen
The full story of early 70’s drug scare classic, Go Ask Alice, is sort of unbelievable. At Slate, Rebecca Onion digs in on it as told in the new book, Unmask Alice: LSD, Satanic Panic, and the Imposter Behind the World’s Most Notorious Diaries.
A Room of One’s Own bookstore has made a handy flowchart on which book to choose if you’re thinking of reading something by James Baldwin.
Affiliate income is flat week-to-week at $173.60 for the year.4
1. The Omnivore’s Dilemma by Michael Pollan
2. City of Scoundrels by Gary Krist
3. The ABCs of Socialism by Bhaskar Sunkara
4. Dialogue with Death by Arthur Koestler
5. Cool Gray City of Love by Gary Kamiya
Chris C. - Chicago, IL
Bit of a tough one for me because even though it’s been over a month since we moved, my nonfiction is all still in boxes and I don’t have the visual reminders to choose a good book for Chris. You know what? I’m going to go with a book I’ve praised her multiple times (because it deserves it), and which I think touches on a number of areas that Chris seems to be interested in: Ancestor Trouble by Maud Newton.
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Sorry this is a little later than usual today. Sometimes the old noodle just doesn’t work at the optimum speed.
Perhaps I should disclose that my book The Writer’s Practice is published under the Penguin imprint of PRH, though given that, as will become clear, I am against the merger PRH is pushing for, this isn’t a disclosure so much as an admission that maybe I’m an idiot for publicly advocating against something my publisher would like to do.
The Big Five were the Big Six prior to the merger of Random House and Penguin in 2013. Someone will have to explain to me the decision to go with Penguin Random House post merger, as opposed to the obviously superior, Random Penguin.
For those who don’t know, an “advance” is an advance against future royalties, a guaranteed amount that the publisher agrees to pay the author. Royalties are calculated as a percentage of sales, the percentage varying depending on the book format and sometimes the book category. (Hardcovers pay a larger royalty than mass market paperbacks.) Most books do not earn back their advances, but a book can still be profitable for a publisher, even if it doesn’t earn back an advance.
I’ll match affiliate income up to 5% of annualized revenue for the newsletter, or $500, whichever is larger.