Penguin CEO Defends Schuster Deal In Market Formed By Amazon

(Bloomberg) — Marcus Dohley, CEO of largest publisher, Penguin Random House, bemoaned his company’s declining market share in book sales as he saw support for a $2.18 billion merger with Simon & Schuster.

Dohl told a judge in an antitrust trial in a federal court in Washington that about half of the books sold in the United States last year came from publishers outside the top five companies. Thursday testified that the shift to e-commerce platforms such as Amazon had “leveled the playing field” between players big and small.

His comments came after he faced cross-examination from John Reed, a Justice Department attorney, who showed an internal company document describing the five largest publishers as an “oligopoly” structure.

The document was prepared for the board meeting attended by Dohle at which the potential purchase of Simon & Schuster was discussed. Dohl testified that he disagreed with the characterization of oligopoly and did not remember whether it was even discussed. “It was a very short board meeting,” he said.

The trial, which is expected to last three weeks, comes as the Biden administration tries to crack down on consolidation across industries. The US claims that Penguin’s purchase of Simon & Schuster, the country’s fourth-largest publisher, will compress secured payments to authors, known as advances, resulting in fewer choices for consumers.

The Department of Justice claimed that the group would concentrate force among four publishing houses instead of five. The publishers argued that the merger would, instead, increase competition and pay for authors.

The government focused its case on how the largest publishers cornered the market in buying books from authors and argued that the merger would give the combined company nearly half of the market to buy expected bestsellers. The defense shifted focus Thursday to the smaller Penguin segment of the bookstore.

Daniel Petrushelli, an attorney for Penguin and her mother, referred to a presentation from December 2019 that showed Penguin’s share of retail book sales had fallen from 25% to 21% since the 2013 merger of Penguin and Random House.

In his testimony, Dohle expressed frustration with Penguin’s failure to keep pace with the industry’s growth, and said the merger would help the company regain its stake. He testified that e-commerce platforms reward opportunities because they rely on algorithms that identify “discoverable” books.

Read more: Penguin competitor backs US in antitrust lawsuit to block Schuster purchase

While questioned by Read, Dohle testified that his company uses data scientists and pays Amazon for better placement.

Also read asking about the types of books that are included in Penguin’s market share calculation. Data included Bibles, magic trick books, coloring books, calendars, diaries, dictionaries, encyclopedias, puzzles, sudokus, journals, and study aids. Dohley said Penguin publishes books in some of these categories.

Read the question if Penguin ever considered cutting retail prices to stop its share decline. Dohley replied that he didn’t think this would ever solve the problem.

The government attorney also asked if Dohley believed that Penguin did not grow because the book business was poorly managed. He pulled text messages from Dohle to subordinates where he said the company had “failed” on the product side after the merger between Penguin and Random House.

Dohl explained that those text messages showed his frustration about the company’s development and that his advice had gone unheeded about how to organize the company. He agreed that work consisted of many layers of management in acquiring books.

“We haven’t been able to get and publish enough books that readers are willing to buy,” Dohley said. He said he thinks the company can get more aggressive and smart on the content side.

During his questioning, Duhl described book subscription models as the biggest threat to the publishing world. He said that if consumers could access all books in digital format by paying $9.99 a month, it would have a “tectonic” impact on industry revenue as well as the author’s pay.

At one point, Dohle was questioned about his commitment to getting Penguin and Simon & Schuster to continue competing after the merger even when they were the last bidders. The CEO testified that he made this pledge in response to the dealer community’s concern about the deal.

Petrucelli asked what would happen if Dohley reneged.

“I think it will hurt our business,” he said. “Agents and authors will not appreciate it and will feel betrayed.”

U.S. District Judge Florence Ban said she did not believe customers would stop working with Penguin if it retracted because it is bidding too high.

The trial, which began on Monday, has already received testimony from best-selling horror author Stephen King and Simon & Schuster CEO Jonathan Karp.

King, known for many bestsellers such as “IT” and “Carrie,” spoke out against consolidation and warned of the impact it could have on the authors’ livelihood. Karp has argued that Penguin and Simon & Schuster rarely meet face to face – in response to a government attorney’s reference to examples of the two companies vying against each other to win books.

Ban, who was nominated by President Joe Biden this year to the Washington Court of Appeals, is hearing the case without a jury.

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