EXTRA The verdict in Justice Departments lawsuit to block Big Five publishing house Penguin Random House from acquiring rival Simon & Schuster was as notable as it was unusual. It was unusual in that the case brought by DOJ against the merger cut very much against the grain of the last 30 years of antitrust jurisprudence in the U.S.
For much of the 20th Century, DOJ regularly wielded the Clayton and Sherman Acts, the two main pillars of federal antitrust laws, to go after companies it felt had simply gotten too big or amassed too much power to be left unchecked. Beginning in the 1980s, however, a sea change swept over academic views on antitrust and seeped into judicial and regulatory thinking about it. Enforcement of the laws began to focus almost exclusively on the question of consumer harm, particularly in respect to prices, a theory first articulated in the influential 1978 book, The Antitrust Paradox, by future failed Supreme Court nominee Robert Bork.
The case brought by DOJ against the PRH-S&S merger, however, focused on the merger’s potential harm to labor, in this case authors, particularly bestselling authors, whose advances could be impacted by the elimination of a major buyer of manuscripts in an already highly concentrated publishing industry.
The case was also notable in that it was focused on the buy side of a market — the acquisition of authors’ publishing rights — rather than the sell side — the sale of books. According to DOJ, the combined PRH/S&S, representing nearly 50% of the trade (i.e. general interest) publishing market, would have sufficient power to drive down the size of the advances it pays to authors to acquire their manuscripts. In antitrust law it’s known as monopsony — a condition in which a dominant buyer is able to fix the price it pays for goods, at the expense of sellers.
Though very rarely invoked in antitrust enforcement actions, Federal District Judge Florence Pan was clear in her sweeping 80-page opinion siding with DOJ that all of the factors typically considered in cases of alleged monopoly — the existence of a discreet cognizable market, a party with market power, the potential harm to competition in the relevant market — can apply equally under the statutes to conditions of monopsony and therefore be barred.
Equally notable, the market in question was a market for rights, in which an author assigns her copyright exclusively to a single publisher for distribution of her work to the public. If that sounds familiar it’s because it’s how many other copyright businesses operate, particularly the music business, where an artist typically must sign over the master recording rights to a record label to gain optimal access to the public.
In her ruling, Judge Pan emphasized the highly concentrated structure of the publishing business, particularly at the top end of the market, noting that 91% of all anticipated bestselling manuscripts are acquired by one of the Big Five houses.
Similar conditions also apply in the music business, where the Big Three labels account for 80% of the records sold each year, and count the vast majority of bestselling acts on their rosters of signed artists.
Pan also avers to the Big Five’s history of coordinated or parallel action, if not outright collusion, something not unknown in the music industry.
While Judge Pan’s opinion has no direct bearing on the music business, it could be read as part of an emerging, broader antitrust analysis of the copyright industries, particularly the often lopsided balance of power between creative workers and the companies that distribute their work. Last year, the Digital, Culture, Media and Sports Committee of the U.K. Parliament called for a “complete reset” of the music streaming market after a months-long inquiry into the economics of the business, and called on the government’s competition authority to investigate the market power of the major labels with respect to artists.
In the U.S., the major labels’ ownership of the largest music publishing firms, and its potentially distorting effect on songwriters’ streaming royalties, became a major focus of the Copyright Royalty Boards recent rate-setting proceeding for music streaming royalties.
Whether the new antitrust analysis ultimately goes farther than the Penguin Random House-Simon & Schuster case is not clear at this point. But given the high level of concentration within some corners of the copyright industries, and regulators’ growing focus on market consolidation’s effect on workers as well as consumers, record labels, publishers, movie and TV studios and other gatekeepers could start to see business as usual come in for more scrutiny.