Don Weisberg, Government’s Economist Raises Concerns over PRH-S&S Merger

“Less competition is going to change the dynamic. Two of the major players becoming one—the prices, the advances, the type of competition at the auctions—I think it’ll have impact across the board,” Macmillan CEO Don Weisberg testified in federal court on August 8. “If I’ m an agent and there’s one player that’s bigger than everyone else, I think that will have an impact. You’ll have to change your behavior to deal with that.”

Weisberg is the second-to-last CEO of the Big Five publishing companies to testify in the proposed merger of Penguin Random House and Simon & Schuster, which the US Department of Justice is trying to block. And like Hachette Book Group CEO Michael Pietsch, who testified on the first day of the trial, he sees the merger as bad for business.

Calling Penguin Random House Macmillan’s top competitor, Weisberg dismissed the defense’s proposed threats of Amazon and self-publishing to the major publishers. He said that Amazon “seemed like they were going to aggressively pursue competition with publishing” for “a moment in time in 2019” but that “they backed off that, or seemingly backed off.” He also argued that major self-publishing successes like the Kickstarter for four novels by Brandon Sanderson—a massive bestselling author already and who still publishes with multiple Big Five houses, including Macmillan—were “rare.”

Some of this testimony conflicted with Weisberg’s deposition, and the defense entered portions of Weisberg’s deposition into evidence at least twice to impeach his testimony. The defense also hammered at Weisberg’s categorization of PRH as dominant, downplaying his concerns by pointing to the strength of his own company, noting the successes of such imprints as Flatiron Books—which perpetually produces bestsellers, and hosts Oprah Winfrey’s imprint—and Farrar, Straus and Giroux. “How many Nobel Prizes have authors from FSG won?” asked ViacomCBS attorney Stephen Fishbein, for the defense. Would it surprise you if I said it was 25?”

Judge Florence Pan, during Weisberg’s testimony, asked him about “the other 98%” of books, and not the “2%” the government is focusing on in this case, with auctions above $250,000. “The difference is primarily at the financial level,” Weisberg replied. Perhaps in an effort to bolster the government’s case that books above this price point constitute a dedicated sub-market, he added that, when acquiring books above that price compared to lower levels, “it’s a different business.” Even at lower levels, Weisberg said, there is competition for titles, noting that all editors are eager to find the next star author.

Pan had earlier in the day asked Viking president and publisher Brian Tart about the differences in acquiring books for big advances compared to buying books at lower levels. “Is it fair to say that there isn’t competition for books like that?” specifically in the five-figures, the judge asked. Tart said there’s some competition when buying books for mid-five figures, but noted that in many cases publishers look to grow their own authors.

Towards the end of his testimony, Weisberg clarified that his conclusion that the merger would have an impact on other publishers came from his “gut” and not from his experience with prior mergers in the book business. Still, his feelings on the merger dovetailed with the conclusions of the DOJ’s expert witness, Nicholas Hill, who also took the witness stand yesterday to run through the data-driven portion of the government’s case, as outlined in its pretrial briefs, with a dogged thoroughness only an expert can muster.

Hill defended the government’s creation of a category composed of anticipated topselling authors who receive an advance of $250,000 or more against PRH’s argument that it is a made-up category that is irrelevant to the industry. Hill pointed to Publishers Marketplace’s deal ranking system, and noted that both PRH and S&S use the $250,000 mark as a cutoff point. Hill then went about explaining how a PRH merger with S&S would give the combined company such a high market share in the topselling author market that, theoretically, it would depress advances paid to those authors.

Hill’s market share analysis for anticipated topsellers found that the combined share of PRH and S&S would be around 49%, with PRH at 37% and S&S’s 12%, and well above Harper’s 22%. (At present, in Hill’s proposed anticipated topseller sub-market, Big Five companies acquire about 90% of the titles, whereas that number drops to 55% for all other books.) He also noted that, despite the defense’s insistence that self-publishing represented a major competitor, the chances of authors leaving a combined PRH-S&S for self-publishing should the merger go through and advances drop are slim.

Justifying his findings, Hill ran through a number of reasons he believed they held water, despite the arguments he expects from the defense’s expert witness, Edward Snyder, who disagrees with Hill’s models and who will testify in the coming days.

Toward the end of Hill’s three-hour testimony, which will continue today, Judge Pan asked whether the dispute between the two economists, and the two parties they represent, “is really more about the inputs [in the models] than about the methodologies.” Hill, noting that there was some dispute about the inputs, responded that, regardless, his assessments are “consistent with the conclusion that the transaction will substantially reduce unilateral competition.”

The DOJ’s time in the driver’s seat at trial is slated to wrap up today, after the conclusion of Hill’s testimony and testimonies by two further witnesses, literary agent Christy Fletcher and HarperCollins CEO Brian Murray.

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