WASHINGTON — Madeline McIntosh, the chief executive of Penguin Random House US, took a stand Monday to defend its bid to buy rival publishing house Simon & Schuster.
The Justice Department has filed suit to stop the $2.18 billion acquisition on antitrust grounds, and during a speech in the U.S. District Court for the District of Columbia on Monday, Ms. McIntosh disagreed with the claim government that the combined publisher would become too dominant in a certain part of the market.
The portion of the market that the government has targeted is books earning advances of $250,000 or more, which it called “expected best-selling books.” It says the country’s top five publishers — including Penguin Random House, the largest; and Simon & Schuster, the fourth largest — mainly compete with each other to buy those titles, and if the number of publishers dwindled, so would the competition.
Penguin Random House argued that the industry is vast and varied, extending well beyond the biggest players, and that the government has focused on a small slice of deals, with Penguin Random House and Simon & Schuster being the latest bidders for these expensive books. . The company also said the “expected best-selling books” category targeted by the government does not exist as a separate segment of the market.
Ms. McIntosh said the editor’s intuition drives book purchases and how much authors earn upfront.
“These are not widgets that we make,” said Ms. McIntosh. “The evaluation is a very subjective process.”
Jonathan Karp, the chief executive of Simon & Schuster, testified this month that while the big five tend to compete most in the “upper” segment, their marketing and publicity power gives them an advantage when it comes to attracting authors, Simon & Schuster is losing books to smaller companies like WW Norton.
Markus Dohle, the general manager of Penguin Random House worldwide, testified this month that the books targeted by the government’s argument do not fall into a special category: there are no special editorial, sales or marketing groups that handle projects with a advance of more than $250,000, he said. In fact, the sales staff aren’t even told what advance an author gets.
Mr. Dohle also testified that since the company’s most recent major merger, which brought together Penguin and Random House in 2013, the publisher has lost market share.
The testimony of Mr. Dohle also revealed details about the inner workings of Penguin Random House. Ms. McIntosh’s approval is required for any advance over $1 million, and Mr. Dohle’s for any advance over $2 million. He said he never turned down such a request.
Penguin Random House has permission from its parent company, Bertelsmann, to spend as much as it wants on book purchases each year, Mr. Dohle said: “We have unlimited access to cash,” he said.
He does, however, need Bertelsmann’s approval at a certain advance level: $75 million. But Mr Dohle said he never had to ask Bertelsmann for this approval. Even Barack and Michelle Obama’s joint deal for their memoir, for a record $65 million, fell below the threshold.