Monopsony and the Publishing Industry

In a break from my usual focus on contracts and intellectual property law, I’ve decided to delve into a little antitrust law for this month’s column. Many authors have been watching with interest the Department of Justice’s (DOJ) attempt to prevent Penguin Random House (PRH) from acquiring Simon & Schuster (S&S) on antitrust grounds. Some helpful background to the case can be found here and here as reported in Publishers Weekly.

For those who don’t know, and in extremely over-simplified terms, antitrust law is largely aimed at preventing a corporate entity or group of entities from exerting too much control in a market in a way that may create economic harm. The focus of the harm is usually on consumers—in terms of the aggregation of control of an industry leading to artificially increased prices because of lack of competition in the market.

Claims of monopoly in the publishing industry are not new, and have intensified both as a result of the entry of large digital players (like Amazon and Apple) on the sales and distribution side of publishing around 2010 and as a result of increasing consolidation of the major publishers. If the acquisition goes through, the “Big 5” publishers will become the “Big 4” and it’s not all that long ago that we were talking about a “Big 6” (i.e. before Penguin merged with Random House). Recently HarperCollins also acquired Houghton Mifflin Harcourt which, while not one of the largest houses, certainly boasted significant lists of its own. The HMH logo and corporate identity have been fully retired since the merger.

Obviously monopolies in publishing have the potential to harm the market for books and associated products and services. However, as a bit of a law geek, what is interesting to me (and to many watching the current litigation) is that the case between the DOJ and PRH/S&S is not predominantly framed in monopoly terms, emphasizing costs to the ultimate consumers of books.

Instead, the more significant legal claim seems to be a monopsony argument. Unlike a monopoly, a monopsony refers to a situation where there is only one or a limited number of buyers in a market, as opposed to sellers. Publishers both buy literary works from authors and sell them to consumers and this case seems to focus on the former part of the equation in large measure. The DOJ is arguing that with increasing consolidation of publishers as buyers, less competitive deals will be made to authors who will have less choice in terms of bargains for the sale/licensing of their work. It’s an interesting twist on the usual legal narrative about aggregation of power in publishing. Of course there are also concerns about the consolidation of selling power of what would be the ”Big 4” post-merger, but it is interesting to watch the situation of authors being brought to the fore in this case.

The links to PW coverage (above) go into more detail about the nature of the arguments and how a monopsony differs from a monopoly in terms of market concerns so I won’t go into more detail here, particularly as I’m not an antitrust expert. But it is interesting to see the DOJ put its emphasis on the position of authors at a time when there are increasing concerns about whose voices are represented in the publishing industry, the ability of mid-list creatives to make a living from their work and the cost structures within publishing houses themselves.

When economies of scale are created through acquisitions and mergers, it has been far from clear that those benefits are passed on to the authors who create the works that fuel the business. It’s also not clear the benefits are passed on to workers at the organizations in question. A significant number of editors and other staff members have been leaving the larger publishers due to concerns over unsustainable conditions in terms of salaries, workloads and living expenses (particularly for those expected to work in expensive locations like NYC). In fact, the unionized HarperCollins staff organized a strike on July 20 to protest their working conditions.

The case is set to be argued in August and the results will be fascinating to follow.