“Everything is random in publishing. Success is random. Best sellers are random. So that is why we are the Random House!” Such were the reported words of Penguin Random House chief executive officer Markus Dohle during his August 4 testimony in an antitrust trial that could determine the fate of the U.S. publishing industry. The trial kicked off August 1 in federal court in Washington D.C. The Justice Department is fighting to keep the publishing giants Simon & Schuster and Penguin Random House from completing their planned merger in a $2 billion deal. But if quotes like the ones captured by journalist John Maher are any indication, one of the most serious matters publishing has faced of late is being litigated with off-the-cuff remarks that clash with its watershed implications. The stage was set for this legal drama on November 25, 2020, when ViacomCBS (now Paramount Global) announced it was selling Simon & Schuster to Penguin Random House. If all went according to plan, the multibillion-dollar merger would have major implications for publishing because it would cull the industry’s big-five publishing houses — Penguin Random House, Hachette, HarperCollins, Simon & Schuster, and Macmillan — to the big four. The future of this deal came into question November 2, however, when President Biden’s Justice Department sued to block the merger, claiming it would harm authors by leaving them with little leverage.
The courtroom battle not only has sweeping implications for book publishing’s business operations but it has also lifted the veil off an industry that operates with little transparency. Witnesses, including best-selling author Stephen King, and publishing execs, such as Penguin Random House chief executive officer Markus Dohle, have provided testimony that sheds light on the seemingly unregulated industry, from author compensation to competition for best sellers and the internal machinations that affect them. The surprisingly entertaining trial is expected to last two to three weeks. Judge Florence Y. Pan, who is presiding over the trial, is expected to issue a decision in November, according to reports. Here are some highlights from the trial that could throw a major plot twist into the publishing world.
Stephen King is the government’s star witness
King, who has been vocal about his opposition to the merger despite Simon & Schuster being his publisher, testified on Tuesday, August 2, as a witness for the Department of Justice. “I came because I think consolidation is bad for competition,” King reportedly said. “That’s my understanding of the book business, and I’ve been around it for 50 years.” King explained how a publishing industry controlled by the big five undermined the competition he saw early in his career. (Worth pointing out: Penguin Random House resulted from the 2013 merger of Penguin and Random House, which is why there’s only a big five now, rather than a big six.) King said that publishers’ purchase of books was less competitive than before, and described acquisitions as an “‘After you.’ ‘No, after you’” scenario. “You might as well say you are going to have a husband and wife bidding against each other for a house,” King said on the stand. “It’s a little bit ridiculous.” King, according to the Los Angeles Times, testified that independent publishers faced financial pressures from sprawling conglomerates. “The reason they’re being squeezed is because they don’t get the shelf space that they used to because the majors take a lot of that shelf space.”
King also described the impact on authors who don’t rely on their celebrity literary status. “There were literally hundreds of imprints and some of them were run by people who had extremely idiosyncratic tastes,” the Times quoted him as saying. “Those businesses, one by one, were either subsumed by other publishers or they went out of business.” Even when writers can get deals, the atmosphere lends itself to minuscule advances, he said. King alluded to a 2018 Authors Guild survey stating that the median income of full-time authors totaled a mere $20,300. In contrast, when King started out with indie publishers decades ago, he recalled his literary agent navigating offers from smaller companies. King said he wound up moving to major publishing houses because they had more money and muscle when it came to distribution.
Simon & Schuster’s chief executive talked about financials — and euphemisms
Jonathan Karp, Simon & Schuster’s chief executive, also testified on Tuesday, August 2. He maintained that Justice Department lawyers were too focused on acquisition auctions between his company and Penguin Random House that had raised advances for best-selling authors. Karp said that Simon & Schuster lost in many bidding wars with other publishers. Karp also addressed the big five’s advantage in marketing over other publishers. “I think that that is a prevailing piece of conventional wisdom and I’m not going to disagree,” the Times quoted Karp as saying. The cryptic response was followed by, “I do think that a lot of us believe that a good editor, a good publicist, and a sales rep is enough.”
The chief executive’s time on the stand also shed more light on how publishers view and categorize authors in a sort of class system. Karp reportedly said that the common publishing term “mid-list writer” — which, according to the Associated Press, refers to “a broad and intrepid corps of noncommercial authors, a kind of publishing middle class” — is used by publishers to avoid calling them “low-list” authors. Karp maintained that publishers value every book they purchase, but admitted that works acquired with mega advances get additional care. “If you really love the book, you have to jump through hoops,” Karp reportedly testified.
There was tension at Penguin Random House
When Penguin Random House CEO Dohle testified, his dissatisfaction with the company’s path came to light, as did the potential disconnect between publishing execs and the editors and authors who are responsible for making books happen. Dohle testified about Penguin Random House losing market share. Justice Department lawyer John Read asked him whether there was mismanagement. Dohle was asked about a text message he sent to subordinates where he complained that Penguin Random House had “screwed” up with its products following the merger agreement, Bloomberg reported. The report stated, “Dohle explained that those text messages displayed his frustration about the company’s development and that his advice wasn’t heeded on how to organize the company. He agreed that the business consists of too many layers of management in acquiring books.” Dohle reportedly said, “We haven’t been able to acquire and publish enough of the books that readers want to buy.” Despite voicing this difficulty, Dohle framed the relationship between publishers and authors in a rather glowing way, comparing them to Silicon Valley “angel” investors, according to the Associated Press. “We invest every year in thousands of ideas and dreams, and only a few of them make it to the top,” Dohle reportedly said. “Each book is unique, and there’s a lot of risk.”
Dohle also discussed how Amazon was impacting traditional publishing. He insisted that companies such as e-commerce behemoth Amazon had “leveled the playing field” among publishers of various sizes. (The estimates vary, but according to one New York Times article, Amazon carries up to “two-thirds of the market for new and used books through its own platform and such subsidiaries.”) He claimed that e-commerce platforms did so by using algorithms to determine which titles were “discoverable,” per Bloomberg. Dohle said that Penguin Random House utilizes data scientists — and pays money to Amazon — to improve its products’ placement. When under cross-examination, Dohle claimed that book-subscription models were actually the most severe threat to the publishing industry. If readers got access to all titles as e-books for less than $10 monthly, there would be a “tectonic” result on authors’ pay and revenue for publishers, Bloomberg quoted him as saying. However, the Justice Department did try to undermine claims of the big five being imperiled by e-tailers. During Dohle’s testimony, the Justice Department introduced an “internal company document” prepped for a meeting that described the big five as an “oligopoly” — that is, a situation where a handful of companies control an industry, Bloomberg said. Dohle said he didn’t agree with that descriptor, saying “it was a very short board meeting.”
The acquisition process seems super messy
Trial testimony shed light on the process associated with offering sizable advances — which are necessary to lure blue-chip authors at the top of their class and potential best-selling writers alike. The trial revealed that Simon & Schuster editors are required to provide “justification” assessments to higher-ups to receive the green light for deals that start at $200,000, the Associated Press said. William Morrow Group, a division of HarperCollins, requires such a report for agreements that are $350,000 and up. Dohle said that he has to approve deals that are $2 million or more.
At one point, the judge suggested that projections about profits with potential book deals seemed to be questionable. Brian Tart, publisher and president of Penguin Books, agreed with the judge’s sentiment that they were “really fake” and didn’t represent the real costs. Tart also described several missteps. He said no to bidding on Marie Kondo’s The Life-Changing Magic of Tidying Up, explaining that he “didn’t know what to make of it,” per USA Today. He also passed on Delia Owens’s best seller Where the Crawdads Sing, now a Reese Witherspoon–produced film tinged with controversy. Proceedings also revealed that Hachette maintained a list of “the ones that got away.” These were books for which Hachette offered $500,000 or more, but failed to land the deal with anyway.
HarperCollins CEO Brian Murray discusses logistics
Murray took the witness stand on Tuesday, August 9. According to journalist John Maher, Murray gave details into how books see the light of day. “It takes about 2,000 hours for every book,” Murray reportedly said, describing “time and overhead of our own employees, how much time they spend taking a book to market.” Murray also discussed how a publisher’s “backlist” — described by the Associated Press as “older books, an invaluable resource for publishers, who rely on them as steady sources of revenue” — allows companies to take chances on untested writers. “The size of a publisher’s backlist is critical to a publisher’s stability, and your ability to take these big risks with new authors. It’s almost like an annuity,” he reportedly said.
Murray also described the nuts and bolts of routine business techniques in the context of publishing. Publishers need to have a sales force, Maher reported Murray as saying. “You want to be able to penetrate the entire American market … to get your book on best-seller lists …” Publishers had to make connections with book vendors across the country. Without a sales force, “a book becomes one of thousands in the bag.” Murray also said that establishing steady relationships with printers is key to ongoing success. “Being able to respond quickly and replace inventory when there’s tremendous interest in a book is very, very important,” Maher quoted him as saying.
The judge, at least, seemed to care about all authors, not just big names
While the government’s antitrust case has largely involved how a Simon & Schuster–Penguin Random House merger would impact best-selling authors, testimony on Thursday, August 11, indicated that Judge Pan was concerned about writers who don’t achieve that status. Pan’s interest in mid-list writers was revealed at the end of testimony from journalist Charles Duhigg, a former New York Times writer who wrote the best-seller The Power of Habit. Duhigg, who testified for the defense, was initially questioned about the process of selling a nonfiction book, according to journalist Bethanne Patrick. Duhigg said that he’d received a $750,000 advance for that book; the first of his four advance payments was $115,000, “about what I was earning as my salary.” The defense’s questioning appeared intended to chip away at the importance of advances to authors. The antitrust complaint focused on how a lack of competition could harm authors — including their advances. Duhigg reportedly answered “No” when asked if he measured the success of his book by his advance. “The goal of being a writer is to write something beautiful and true that people want to read. If you do that, they will buy it. And you will get the royalties,” Patrick quoted him as saying.
Duhigg claimed that he not only earned out his advance — which means his book made more money than his advance cost — but that he earned $5 million in North American royalties. Duhigg insisted that the size of his advance for his second book, Smarter Better Faster, also $750,000, hadn’t impacted his decision to work with Andy Ward, his editor on The Power of Habit — it was Ward’s skills an an editor that brought him back. “I don’t work for Random House. I work for Andy Ward,” Patrick quoted Duhigg as saying. Duhigg reportedly claimed that he would go with Ward to another publisher “unless he went to some far-right publishers, but Andy wouldn’t do that!”
The government pressed Duhigg on what happens to authors who don’t get this kind of rock-star treatment — editors who meticulously edit work “again and again and again,” access to a PR team, and numerous cover options — including whether authors who failed to earn out their advances received royalties. Duhigg reportedly said he didn’t think they did and did not know how often this happened, according to Patrick. When cross-examination ended, the judge reportedly asked: “What if you’re an author who didn’t earn out your advance but wants to write a second book? Also, 98 percent of books are not top sellers? So I feel like you are maybe not typical?” Duhigg responded that there are not a lot of New York Times journalists who write books that wouldn’t succeed. Pan asked, “If you were an author who wasn’t from the New York Times, didn’t have a sense that people wanted your work, would you want a higher advance?” Duhigg said that “anyone else who wants to write multiple books” wouldn’t want to leave their publisher in a position where it wouldn’t earn back their advance with sales. “There’s no author who wants to get more money than they can possibly earn out,” Duhigg said.
Penguin CEO Madeline McIntosh discussed advances and flops
On August 16, Penguin Random House CEO Madeline McIntosh was reportedly questioned by the defense about “the life span of a book” and was asked to spell out how editors assess potential profit and loss when weighing possible acquisitions. McIntosh was then questioned about how editors come up with potential advance figures based on their profit and loss predictions. She testified that the process is “highly subjective,” meaning that advances can’t necessarily be forecast ahead of time, according to Publishers Weekly. The publishing executive said there are occasionally three different numbers for a single book. In Publishers Weekly journalist Bethanne Patrick’s report, McIntosh said that she would usually approve all three advance figures in these situations, hoping to get her editors excited about the manuscript.
McIntosh reportedly claimed that the size of an advance did not impact marketing plans. “It’s very much an iterative process,” Patrick quoted McIntosh as saying. The executive testified that marketing strategy can change if something happens, such as getting selected for a book club. “We’re adapting in real time.” With celebrity books, McIntosh said, “We’ve made some painfully expensive mistakes,” given that profit and loss predictions are only that — predictions. “If you told me that a book was definitely going to sell 300,000 copies in a year, I would definitely spend millions of dollars to get that book,” McIntosh also reportedly testified.
This is a developing story and will be updated accordingly.