We launch Season 2 with a panel discussion of the US Department of Justice bid to block the proposed merger of Penguin Random House and Simon & Schuster. Elaine Dewar (author of The Handover: How Bigwigs and Bureaucrats Transferred Canada’s Best Publisher and the Best Part of Our Literary Heritage to a Foreign Multinational), and Jonathan Tepper (author of The Myth of Capitalism: Monopolies and the Death of Competition, with Denise Hearn), discussing the DOJ's bid to stop a merger that would change the landscape of publishing.
We launch Season 2 with a panel discussion of the US Department of Justice bid to block the proposed merger of Penguin Random House and Simon & Schuster. Elaine Dewar (author of The Handover: How Bigwigs and Bureaucrats Transferred Canada’s Best Publisher and the Best Part of Our Literary Heritage to a Foreign Multinational), and Jonathan Tepper (author of The Myth of Capitalism: Monopolies and the Death of Competition, with Denise Hearn), discussing the DOJ's bid to stop a merger that would change the landscape of publishing.
If this thing goes through random purchasing Simon and Schuster, 70%, one company that's madness.
Speaker 2:Um, and here it's the same thing where the profits going to accrue to the very limited number of publishers and then the suppliers eventually we'll get paid.
Speaker 1:I mean, there's, there's no future for writers in this circumstance.
Speaker 3:Welcome to season two of Asian provoca tour to kick it off. We have a special episode. Usually we like to have two or three pieces, but today we've decided to devote the entire show to a single issue, which is the American department of justice is trying to block the merger of penguin, random house and Simon and Schuster
Speaker 4:[inaudible].
Speaker 5:So today I have Jonathan Tepper, who's the author of the myth of capitalism and a Elaine Dewar, who is the author of the handover. It seems to me that the department of justice is siding with authors and other publishers, including Harper Collins, which is the reported underbidder for Simon and Schuster. What are the odds they will succeed when they failed with a T and T and time Warner? Not that long ago. It's interesting to me that PRH hired the same attorneys that fought the last one, because I guess obviously they think they can, they can beat this the way that at and teach it. What do you guys think about that? Uh, Jonathan, I'll start with you.
Speaker 2:Sure. Sam you're my agent. And, uh, I wrote the book myth of capitalism, uh, which came out about two years ago. And, uh, it was basically about industry concentration and how industries go from many players down to very few. And during the writing process, you and I were joking around that. We were going to see the big five become the big four and eventually the big four probably become the big three. And so sure enough, we didn't have to wait long for that to happen. Um, the historically the, the department of justice and the FTC would rarely block mergers and generally only if it was down to four players, um, and there's quite a lot of research, uh, by John Coca, which shows that when you get below six players in an industry, that's when prices start going up and you end up with all sorts of other harms. Um, in this case, this is a, what's called a horizontal merger, which means that direct competitors are merging with each other. Um, the time Warner deal was slightly different, which was a vertical merger where you had essentially content and distribution. It wasn't just a distribution merging with distribution or merging with content. Um, so that one I think was, is slightly different than the economic arguments for and against are different. But one of the things that's interesting about this one, well, it clearly is anti-competitive the main grounds, uh, reading the, the, uh, the case are that it's going to, uh, reduce payments to authors. Um, and that is certainly novel, um, in the sense that the governments rarely blocked mergers because of harms to, to workers and is cause obviously the authors of the workers. Um, it generally, they, they blocked him due to the fear of, of higher prices for books. And if you read through the complaint, that's not really what the government's focusing on. So I think that's, that's quite novel in this case and fits a lot of the evidence that, you know, uh, large dominant firms when they merge tend to suppress wages.
Speaker 1:So it's not just wages, uh, because most of the people who will be affected by this are not people who work directly for these corporations, but for people who are offering a supply of something to these corporations, which brings me to the magic word, Sam monopsony. So this is an argument, not about a restraint of trade in the normal sense in which, uh, the worry is that prices will increase to consumers. This is an argument that says because there will be market dominance, unbelievable market dominance. I mean, the numbers are just bloody horrible. Those who supply to the new merged entity will find their prices forced down in the most egregious way. And that of course is exactly what's happened to writers as a succession of these mergers have taken place, looked up some numbers last night from 2018 in Canada. The, uh, average income for authors went down to 9,000 bucks a year, uh, which was a 78% drop from 1998, uh, same situation in the UK, uh, and almost as bad in the United States. So before this merger took place because of the subsequent merger or the earlier mergers, um,
Speaker 5:With penguin and before
Speaker 1:That and Doubleday and blah-blah-blah, I mean, th the whole accumulation of mergers since the 1990s, which has placed Bertelsmann, uh, as the utterly dominant figure, um, writers have suffered tremendously. And, and it doesn't look to me as if it's ever going to get any better. So, you know, a 78% drop in income. I mean, there's, there's no future for writers in this circumstance. So this is
Speaker 5:In fact, a cultural argument, as much as a anti compassion
Speaker 1:Kind of argument. No, it's still an anti competitive argument. Monopsony is a competitive idea. It says that suppliers in a chain are suddenly disadvantaged because there's only one buyer or only two buyers in the marketplace. So it's still an economic argument, not a cultural. And
Speaker 2:Yeah, I do agree that it's economic. I think it's novel in the sense that generally, uh, there's there was a revolution, essentially it was started, um, after our Robert Bork, uh, wrote, uh, quite a few articles and a book and, you know, put forward the idea of the consumer welfare standard, which is that the only thing that mattered was not, um, the concentration of economic power or in any of these other adverse effects that happen they're anti-competitive with mergers. The only thing that mattered was price, and as long as prices stayed low, then you can merge as much as you wanted. And that was really the argument that worked before. And so that ended up becoming a widely accepted, uh, by the judiciary over time. And, uh, by the, the, um, the DOJ with the merger guidelines that were changed in 1982. And so for a long time, as long as you could claim, uh, plausibly, or even implausibly, that prices are going to stay low, it didn't really matter what other harms were occurring. There've been quite a lot of research in the last couple of years that, uh, a monopsony is essentially is, uh, it creates all sorts of harms that are not necessarily in price. So you could, uh, you know, keep the price of a book low, and then you basically just don't pay the author and you don't pay the printers. And, you know, so you gain more power effectively, but keeping prices low, this is one way that Amazon's gotten an enormous amount of power, um, is basically if you, as long as you promise to keep prices low doesn't matter, what market share is. And so there's there there's that. And the fact that this has been challenging or being challenged essentially on the sort of monopsony crowns, um, is interesting. That's not really something that that's been happening in the courts. Um, and I think that it's, uh, a positive step, uh, because generally what happens is, um, in the meat industry, for example, uh, but it happens in many industries is, you know, the, the independent farmers basically don't get paid the right amount for their beef and for their chicken. And so the margin that accrues to the, the oligopoly of meat companies, um, and here it's the same thing where the profits are going to accrue to the very limited number of publishers. And then the suppliers effectively won't get paid. There are two books, um, that I think are very interesting. Um, one was very influential cornered, uh, but very Lynn, um, and that is, you know, he, he has had quite a lot of impact in DC, but there's another one that's gotten very little attention. Um, and, you know, I think prophetic, it was called market domination by Steven Hannaford and, uh, Hannaford basically points out that what you end up with is in the same way you have monopolies, you have, um, monopsonies right, where you end up with very limited number of players. And generally you don't have one company that controls it. So if you call talk about an oligopoly that he was saying that you can also talk about oligopoly minis, you know, which essentially is where there's this tacit coordination of the oligopoly not to bid on, on beef or not to bid on authors. And I think that it's, that it's a clunky term, but the oligopoly money really is I think what's happening industry after industry and what would certainly be bigger in the publishing.
Speaker 1:And we know in fact that in the Canadian experience, the whole purpose of, uh, the mergers was to acquire the right to beat down the price of acquisitions. So there were agreements within the, um, McClelland and Stewart, uh, takeover, for example, by what is now penguin random house, that there would be no, uh, competing bids among the, um, imprints that were controlled by penguin random house previously, uh, within a integrated system, the different imprints were allowed to counter bid, uh, against each other to get a project that they particularly wanted. That thing died in about 2012. And the result is a collapse in advances, uh, and probably in royalties as well. Well, that's something
Speaker 5:The department of justice said specifically that while penguin random house has said that after acquiring Simon and Schuster, it would keep the bidding kind of, it would keep a, um, a level playing field for agents and authors, but, um, yeah, then they said, but there's no guaranteed how long this is going to last, or, you know, uh, what this really means people,
Speaker 1:It won't last because you know, these, these imprints within the Canadian system have already said, we're not going to do that anymore. And they have maintained that position since at least what 2012. Um, I don't, I can't imagine what, what there would be as an enforcement mechanism to make sure competitive bidding takes place within an organization.
Speaker 2:Uh, there's quite a lot of evidence from the United States, Canada, Europe that, uh, cartels, uh, can and do coordinate to restrict prices. I mean, I just start to raise prices and often not to poach each other's workers and to, to do all sorts of things. And, uh, when the, uh, the authorities find these out, they tend to prosecute. The problem is that the estimates are that only like one in five of these agreements are actually caught. And so there's clearly an enormous amount of collusion within cartels and oligopolies that's not caught. And then the other issue is that you don't really need to have any explicit form of organization, you know, for these effects to happen. And so, um, you find, you know, in some industries where the competitors will all follow the price leader, so the dominant company will then raise prices once a year, and then all the smaller players raise it within the next week or two. And so you don't even need to, you know, pick up the phone and call, um, but, and likewise with, uh, suppression of wages or not competing on, uh, you know, uh, for, for bids, you know, we've seen this in, in the United States, for example, when it comes to forestry and lumber, right? Like some of the very big paper companies just don't want to compete on, on bits. And so you can end up with a very similar sort of Cassatt, uh, collusion that doesn't even have to be explicit. And I think that's sort of what ends up happening when you end up with very few players, is that you can have essentially sort of what they call conscious parallelism, where people would just follow each other conduct without even having to pick up the phone and call your competitor.
Speaker 1:If this thing goes through random purchasing Simon and Schuster, uh, they, the new entity will be publishing 30% of all titles published in the United States and 70% of general and literary fiction, 70%, one company. That's madness. Just think about it, Sam, if you're trying to pitch and you fail in your pitch, uh, to that entity, where do you go, well, this is your alternatives are, you know, down to zip.
Speaker 5:It seems like a lot of this is about having the efficiencies of a larger company, which means like laying off staff and reducing your cost so that you have this illusion of profitability, right? When you merge companies. But the problem is when we lose editors, there's every time we lose an editor, that's somebody that I might have who might've had a taste, a certain kind of aesthetic taste for a book, like a novel, uh, that I could have said, I have this novel. That's a little strange. And they'd say, no, it sounds quirky and perfect for me. I mean, and now the, the, the, the more and more consolidated this decision-making gets, I think the harder it's going to be for agents and for authors to bring in those, those books. And to be honest, those are often the books that are important to culture like literature often comes in from the margins
Speaker 1:Often, always.
Speaker 2:Well, it's interesting that if you look at, uh, Hollywood, for example, which is a similar industry in the sense that, you know, it's, you're, you're producing our artistic content, uh, for the masses, um, it's, you know, slightly different, obviously in the sense that you have a studio system also all go oligopoly stick, um, you know, and also it's like books it's tends to be a hit driven business with long tails, but, you know, Disney's now gotten to 50% of the us, uh, box office.
Speaker 1:There was a period in the United States when distributors who are quite separate from those who are making movies, uh, that no longer is the case. So you now have a V a vertical integration that has never been seen before. And on top of that, a collapse of the number of competitors. So, I mean, it, it, the United States has turned its back on its own ideas of economic efficiency, uh, which, you know, date back to the turn of the last century when the trusts were first busted in the United States for exactly these reasons.
Speaker 2:There's a fantastic book by Tim Wu called the master switch. And it looks at, uh, various technologies, whether it's, uh, radio, Telegraph, uh, TV, uh, movies, uh, and the internet and the move is almost always goes from basically, these are things that hobbyists use, you know, and it's like, you're doing short films, you know, Thomas Edison and the Lumiere brothers. And it ends up consolidating down into a few players and, uh, you know, ultimately the government, uh, often steps in to stop for their consolidation and then often ends up being captured by the companies that they're regulating to prevent for the competition. And, you know, the, the, the Hollywood studio system, they used to control all the distribution and they could basically, you know, have one great hit and, you know, five other awful movies and they would, they could force those down the throats of the,
Speaker 1:Yeah, I have to, by the other side of midnight.
Speaker 2:Yeah. And, and so, uh, w they, they then abandoned that in the 1950s. And that was one of the things that, uh, ended up creating essentially a much freer system where you ended up with a lot of independent films in the late sixties and seventies. And, and unfortunately the us is, uh, getting rid of, um, the, it got rid of the consent decrees and, you know, moving essentially back towards the studio system, you know, with a vertical control. And, and so I think that you'll end up with a similar, uh, system where the studios dictate what w what their learning is. You end up with less diversity, uh, and in terms of the, the output, you know, it's all SQLs of comic books, uh, and, you know, and then bad movies being shoved down the throats of consumers.
Speaker 5:Okay. Um, so one last question, uh, most of the media has covered the U S impact of, at this deal will affect publishing throughout the entire English speaking world, including Canada in the UK. I know Elaine you've written the book about Canada. Um, I haven't done the work on,
Speaker 1:We launched an investigation of this merger in March. They have the same problem, and they're not happy either,
Speaker 5:But they're not suing anybody.
Speaker 1:No, no they're investigating. And I think that investigation will lead to an order. I may be wrong, but, uh, there's nothing in it for the UK to allow this to go through.
Speaker 5:Okay. So, um, any, any final thoughts? I mean, I,
Speaker 1:Yes, Sam, where's the government of Canada and all of this, whereas our current minister of Canadian heritage, uh, arguing about whether this is, or is not a good deal for this country. I mean, have you heard a single word, have you seen a single word in print as to whether or not the government of Canada might want to step in here, which it has the legal right to do?
Speaker 5:I think the association of Canadian publishers is against it and they've issued something, but I don't know that it's gone further than that. Right.
Speaker 1:And I, and certainly our competition bureau has not set out to examine the question, even if they had, we wouldn't know, because the way they do their business is in secret.
Speaker 5:Well, yeah. And also, I mean, Canada allowed the, um, the Harlequin sale and as you know, the McClellan Stewart sales. So, uh, they've seen all of the above. Yeah. There seems to be a kind of pass it, compliance with whatever the Americans allow
Speaker 1:And the same argument that price matters and monopsony is not an issue. So, you know, the only way the competition bureau is going to step forward here is if it moves itself off from that very simple argument that only price matters and looks at how a market can be controlled when the suppliers only have one buyer. And, and, and obviously if the Americans take that route, there might be some pressure within the government of Canada to actually consider that as a problem. And that would be nice.
Speaker 5:Jonathan, any, any final thoughts from you?
Speaker 2:Well, I, I think that these, uh, historical waves take a very long time and it's like a pendulum and the, you know, they swing too far one way. And then it's sometimes between too far back another, um, in the seventies, almost new mergers were going through in the us. Um, and, and that was really what led to the counter-revolution, but we're now at the complete opposite end, we're almost no mergers river blocked. And I think that what we're starting to see is the pendulum swing back. Um, and you're seeing that with the appointment of Lina Khan and Tim Wu. And these are people who I think are very thoughtful, um, but completely disagree with the status quo. And that's why they're so hated by the, um, uh, economists and lawyers who push these mergers. Um, and, uh, I think it's a wonderful thing, uh, to see some changes.
Speaker 5:Great. Well, um, who knows where this is going to go, but it doesn't sound very optimistic.
Speaker 1:I'm optimistic that they're actually taking it up. I think that's, that's
Speaker 5:Huge. So that, that is the cause for celebration.
Speaker 2:Absolutely.
Speaker 5:It's very good. Good. Well, thank you guys for your time today and, um, take care. I'll see you guys soon.
Speaker 3:That's a wrap folks. Thanks so much for joining us for season two, thanks to our guests. And of course, to Andrew Kaufman, our producer, if you like our podcast, please like us and review us wherever you listen. And also look for us on sub stack. We'll be back next week.