Why the Penguin Random House Merger Is Also Related to Amazon

Amazon is not on trial in a big books case. But its strength.

The US government is filing a lawsuit to prevent book publisher Penguin Random House from buying a rival company, Simon & Schuster. The government says the merger, which will reduce the number of large US publishers of mega-books from five to four, will hurt some authors by reducing competition for their books.

A trial in the government lawsuit began this week, and my colleagues wrote a helpful explanation of the legal issues and what’s at stake for the companies involved, writers, and book lovers.

This case, which concerns more than just the books and earnings of big-name authors, is another example of the debate about how to deal with big companies — including the biggest digital forces — shaping our world.

The elephant in the room is amazon. Book publishers want to get bigger and stronger in part to have more influence on Amazon, which is by far the largest seller of books 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 bookselling monopoly.

As the dominant way to find and buy books, Amazon could, in theory, direct people to titles that generate more revenue for the company. If authors or publishers don’t want to sell their books on Amazon, they may disappear into obscurity, or fake works may spread. But if the publisher is big enough, the theory goes, it has leverage over Amazon to stock books on the prices and terms the publisher prefers.

“Their argument is that in order to protect the market from Amazon’s monopoly, we will monopolize the market,” said Barry Lane, executive director of the Open Markets Institute, an organization that wants stricter antitrust laws and enforcement.

Penguin Random House is not saying it wants to buy a competitor to defeat Amazon in the power game, which is legally irrelevant to the government’s lawsuit. But Lin told me that if Amazon’s dominance is hurting book publishers, readers, authors, or the American public — and he thinks it is — allowing a book company to become more powerful to bully Amazon is counterproductive. The best approach, he said, is to restrict Amazon with laws and regulations.

We know that quite a few tech companies – including Amazon, Google, Facebook and Apple – have a huge impact on entire industries and our lives. We are all trying to figure out the ways in which their power is good or bad for us, and what government policy and law should do about the downsides, if any. This disputed merger of book publishers is one example of a reckoning with these core issues.

It is not uncommon for companies to justify acquisitions by saying that they need more power to level the playing field. When AT&T bought the media and entertainment company then called Time Warner a few years ago, one of the company’s explanations was that it wanted to become an alternative to digital advertising powers like Google and Facebook. Music companies have consolidated over the past 15 years in part to gain weight as digital services like Spotify are changing the way we listen to music.

A decade ago when German firm Bertelsmann bought a rival to create Penguin Random House, this merger was one solution to Amazon’s impact on book sales.

Today, Penguin Random House says another acquisition will make book publishing more competitive and help authors and readers. In a twist, he cites Amazon’s rapidly growing book publishing business as an example of fierce competition in its industry.

Lane’s criticism of Penguin Random House and Amazon reflects a particularly poignant view among left-leaning economists, public officials, and lawyers that America has erred in its approach to big business, especially digital companies. The criticism is that the increasing consolidation of industries such as airlines, banking, digital advertising, news media and meatpacking is harming shoppers, workers and citizens.

Some Republican politicians agree with the left in their desire for more government control of digital stars. Congress is also debating a bill that would require potentially large-scale changes to the businesses of Amazon and other tech giants, although it is unlikely to become law immediately. Similar laws have been passed elsewhere in the world.

Chris Seiger, a law professor at Cleveland State University who has written a book on a previous government antitrust lawsuit in the book industry, tells me that the outcome of this case probably won’t matter much. In his view, the book industry is already charging readers extra fees and paying authors less. He believes that both Amazon and book publishers have been allowed to grow too big and strong.

This legal case regarding book publishing is a window into deep-rooted problems in the American economy that have taken decades to make and will take a long time to change.

“There is already a lot of market consolidation everywhere,” Seiger wrote in an email. “Once the economy is allowed to reach this point, there is very little that any antitrust law (or other regulatory intervention) can hope to do.”

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A classic scene from “Singin’ in the Rain” but with Velociraptor instead of Gene Kelly. (Thanks to my colleague Jane Coston to share this tweet.)

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