September 27, 2022


NEW YORK (AP) — The Justice Department’s effort to block the merger of 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 for the publishing industry itself to take the stand.

During the first week of an expected two-to-three-week trial in U.S. District Court in Washington, top publishing executives at Penguin Random House, Simon & Schuster and elsewhere, along with agents and authors such as Stephen King, they shared opinions, relived frustrations and revealed financial figures they would otherwise prefer to discuss privately or share their background with reporters.

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

The government is trying to make the case that the merger will lead to less competition for bestselling authors, reducing their advances and reducing the number of books. The Justice Department argues that the top publishers, which also include Hachette, HarperCollins Publishers and Macmillan, already dominate the market for popular books and authors and have effectively made it nearly impossible for any smaller publisher to penetrate.

Penguin Random House and others argue that the market is dynamic and unpredictable, with competitors from university presses to Amazon.com capable of becoming bestsellers.

Like any other self-sustaining community, book professionals speak in a kind of shorthand and follow customs that are instinctive to them and sometimes obscure to outsiders. For U.S. District Court Judge Florence Y. Pan and lawyers on each side, the trial was in part a translation project.

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

William Morrow Group president and publisher Liate Stehlik confided that she has made a limited effort to acquire fiction from Dean Koontz, who has published on Amazon.com, because his sales are declining.

Award-winning author Andrew Solomon explained that he chose to publish his acclaimed Noonday Demon with Scribner, an imprint of Simon & Schuster, in part because Scribner has the sales and marketing resources that smaller companies lack.

Penguin Books president and publisher Brian Tart agreed with the judge’s suggestion that profit and loss estimates for potential book acquisitions are “really bogus” and do not reflect actual costs. Tart also testified that he passed on the bid for Marie Kondo’s million-selling “The Life-Changing Magic of Tidying Up” because he “didn’t know what to do with it.”

Simon & Schuster CEO Jonathan Karp has acknowledged that a popular industry term, “midlist author,” long associated with a broad and fearless body of noncommercial writers, a sort of publishing middle class, is essentially fictitious and a polite way of not labeling any writer “low list.”

Asked by the judge, Karp also said that while publishers appreciate all the books they acquire, books acquired for excessive advances — money guaranteed to the author regardless of how the book sells — require special consideration.

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

At times, a glossary may have been needed to follow some common industry terms:

— Winning. 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 when they don’t. (Most new books, executives acknowledged, don’t win.)

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

-BEAUTY CONTEST. This happens when two or more publishers offer similar advances and non-financial terms such as marketing skills or the attractiveness of working with a particular editor determine who wins.

—10% overlap. This refers to when an agent asks the publisher to not just match the highest competitive offer, but to add 10% more.

— All Access Books: As Dohle defines, these are books so cheap, like those offered by Amazon.com through its Kindle Unlimited e-book subscription service, that they hurt the industry as a whole by driving down prices and, inevitably, authors moving on.

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

Through internal emails, depositions, and live and videotaped testimony, the trial revealed internal rules and strategies about book acquisition and the frustrations 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 or more, while Dohle testified that he must sign deals of $2 million or more.

Publishers love to share stories of beloved acquisitions. Pietsch’s series from David Foster Wallace to Keith Richards. The Karps include the late Sen. Edward Kennedy, D-Mass. and Bruce Springsteen.

But the trial highlighted frustrations and missed opportunities — a source of “gallows humor,” as Tart called it. It not only passed Kondo’s book but also Delia Owens’ blockbuster Where the Crawdads Sing. At Hachette, they maintain a list of “The Ones That Got Away,” deals for which the publisher bid $500,000 or more, but lost.

Karp testified that Simon & Schuster had outbid Hachette for 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 show that Simon & Schuster had lost three bidding contests to Penguin Random House in a single week.

Karp also talked about a book he acquired, an expected work by a spiritual leader with a large 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.



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