Business

Antitrust trial puts book publishing industry in the dock

Antitrust trial puts book publishing industry in the dock

NEW YORK (AP) — The Justice Department’s attempt to block the merger by Penguin Random House and Simon & Schuster is not just a showcase for the Biden administration’s tougher approach to corporate consolidationit’s a rare moment that the publishing house itself is docked.

During the first week of an expected two- to three-week trial in US District Court in Washington, top publishers from Penguin Random House, Simon & Schuster and elsewhere, along with agents and authors like Stephen King, have shared opinions, relived disappointments, and revealed financial figures they would otherwise rather have discussed privately or trusted with reporters in the background.

“I apologize for the impassioned language,” Penguin Random House CEO Markus Dohle testified of correspondence exhibited in court that reflected tensions between him and other Penguin Random House executives. “These are private text messages to my closest associates in the company.”

The government is trying to show that the merger will lead to less competition for bestselling authors, reduce their advance payments and reduce the number of books. The Justice Department argues that the top publishers, including Hachette, HarperCollins Publishers and Macmillan, already dominate the market for popular books and writers, in fact making it nearly impossible for a smaller publisher to break through.

Penguin Random House and others argue that the market is dynamic and unpredictable, with competitors from college presses to Amazon.com potentially delivering best-sellers.

Like any community in its own right, book industry professionals speak in a sort of shorthand and follow customs that are instinctive to them and sometimes unclear to outsiders. For U.S. District Court Judge Florence Y. Pan and attorneys on both sides, the trial was partially a translation project.

It was also a chance to hear some of the industry leaders under oath.

William Morrow Group president and publisher, Liate Stehlik, confided that she was making only a limited attempt to acquire fiction from Dean Koontz, which has been published at Amazon.com, as his sales have declined.

Award-winning author Andrew Solomon explained that he chose to publish his acclaimed “Noonday Demon” with Scribner, a Simon & Schuster imprint, in part because Scribner has the kind of sales and marketing resources that smaller companies don’t.

Penguin Books president and publisher Brian Tart agreed with the judge’s suggestion that profit and loss assessments for potential book acquisitions are “truly fake” and do not reflect the true cost. Tart also testified that he turned down the bidding on Marie Kondo’s million-selling “The Life-Changing Magic of Tidying Up” because he “didn’t know what to think.”

Simon & Schuster CEO Jonathan Karp acknowledged that a popular industry term, “mid-list writer,” long associated with a broad and intrepid corps of non-commercial authors, a sort of middle-class publishing house, is essentially fictitious and a polite way of no one to label a “low-list” writer.

Questioned by the judge, Karp also said that while publishers value any books they acquire, books acquired for an excessive advance — money guaranteed to the author regardless of how the book sells — require special consideration.

“If you really like the book, you have to jump through hoops,” he said.

Sometimes it may have taken a glossary to follow some common industry terms:

– To deserve. This is when a book sells enough to recoup the advance paid and the author can start collecting royalties, although some books can make a profit for the publisher even if they don’t earn. (Most new books, executives admit, don’t make money.)

—Return list. This refers to older books, an invaluable resource for publishers, who rely on them as steady sources of income.

-Beauty contest. This is when two or more publishers offer similar benefits and non-financial terms such as marketing skills or the appeal of working with a particular editor determine who wins.

-10% refill. This refers to when an agent asks the publisher to not only match the highest competitive offering, but add 10% more.

—All Access Books: As defined by Dohle, these are books that are so cheap, like the books Amazon.com offers through its e-book subscription service Kindle Unlimited, that they hurt the industry at large by lowering prices and, inevitably, the advancement of the author.

Witnesses from Dohle to the CEO of Hachette Book Group, Michael Pietsch, spoke at length about their love for the company and what they believed to be the higher mission of bringing ideas and stories to the public. But publishing is a profitable business, and even the most idealistic authors and executives are alert to the bottom line.

Through internal emails, testimonials, and both live and videotaped testimonials, the process has uncovered internal rules and strategies about book acquisition and the disappointments when a desired book goes elsewhere.

At Simon & Schuster, editors must submit “justification reports” to senior management to get approval for deals worth $200,000 to $250,000 or more. At the William Morrow Group, a division of HarperCollins, the number is $350,000. Tart also requires approval for deals of $250,000 and above, while Dohle testified that he must sign deals of $2 million or above.

Publishers love to share stories about favorite acquisitions. Pietsch’s range from David Foster Wallace to Keith Richards. Karp’s include the late Senator Edward Kennedy, D-Mass., and Bruce Springsteen.

But the trial has revealed disappointments and missed opportunities—a source of “gallows humor,” as Tart called it. He passed on not only Kondo’s book, but also Delia Owens’ blockbuster “Where the Crawdads Sing.” At Hachette, they keep a list of “The Ones That Got Away,” deals where the publisher offered $500,000 or more, but still lost.

Karp testified that Simon & Schuster were outbid by Hachette in a new book by Ben Carson, the famed neurosurgeon who was former President Donald Trump’s housing secretary. At one point, the Justice Department cited internal emails to point out that Simon & Schuster had lost three bidding matches to Penguin Random House in one week.

Karp also spoke of a book he did acquire, a work expected by a spiritual leader with a significant following.

“Unfortunately, his followers didn’t follow him to the bookstore,” Karp said.

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AP Business Writer Marcy Gordon in Washington contributed to this report.