Justice Department Sues to Block ViacomCBS Sale of Simon & Schuster to Penguin Random House

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The Justice Department has filed an anti-trust lawsuit against to block ViacomCBS‘ sale of publisher Simon & Schuster to Penguin Random House, asserting that it would give the enlarged company too much power over the book business.

ViacomCBS set a deal with Germany’s Bertelsmann, parent company of Penguin Random House, to sell Simon & Schuster for $2.1 billion in November 2020.

“Books have shaped American public life throughout our nation’s history, and authors are the lifeblood of book publishing in America. But just five publishers control the U.S. publishing industry,” Attorney General Merrick Garland said. “If the world’s largest book publisher is permitted to acquire one of its biggest rivals, it will have unprecedented control over this important industry. American authors and consumers will pay the price of this anticompetitive merger – lower advances for authors and ultimately fewer books and less variety for consumers.”

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“This is a pro-consumer, pro-author, and pro-book seller transaction, which will allow increased investment in the publishing programs of both Simon & Schuster and Penguin Random House,” both companies said in a lengthy joint statement.

Richard A. Powers, acting assistant general, went so far as to say that the suit is designed to “prevent further consolidation in an industry that has a history of collusion.”

Penguin Random House is the world’s largest publisher releasing about 2,000 titles a year, according to the suit. Simon & Schuster is the fourth-largest publisher with about 1,000 titles released each year.

The complaint asserts that Penguin Random House would have “outsize” influence to able to influence prices for book deals and author fees as well as determining which books get released.

The Justice Department said the case falls under the definition of “monopsony,” meaning a marketplace that has been squeezed through consolidation among buyers. According to the DOJ, “courts have long recognized that the antitrust laws are designed to protect both buyers and sellers of products and services, including, as relevant here, authors who rely on competition between the major publishers to ensure they are fairly compensated for their work.”

The Justice Department’s move to block the Simon & Schuster deal could be a warning shot to Big Media at a time when there is a frenzy of dealmaking conversations and the expectation of more consolidation to come.

“The complaint filed today to ensure fair competition in the U.S. publishing industry is the latest demonstration of the Justice Department’s commitment to pursuing economic opportunity and fairness through antitrust enforcement,” Garland said.

Daniel Petrocelli, a top industry litigator for O’Melveny & Myers, is representing Penguin Random House and blasted the Justice Department’s legal rationale for the case.

“DOJ’s lawsuit is wrong on the facts, the law, and public policy,” Petrocelli said. “Importantly, DOJ has not found, nor does it allege, that the combination will reduce competition in the sale of books. The publishing industry is strong and vibrant and has seen strong growth at all levels. We are confident that the robust and competitive landscape that exists will ensure a decision that the acquisition will promote, not harm, competition.”

ViacomCBS began the process of selling Simon & Schuster in early 2020 on the heels of the Viacom and CBS Corp. merger. The companies, both controlled by Shari Redstone’s National Amusements, were reunited in December 2019 and as part of the merger committed to divesting assets that are outside of the core focus of TV, film and digital content. Viacom originally acquired the publisher in 1994 through its acquisition of Paramount Communications.

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