A Changing of Hands: Big 5 Publisher Simon & Schuster for Sale… Again

Simon & Schuster and Sherman. In succession, these three names sound like the start of a bad joke. Might they walk into a bar? More likely: a courthouse. Over the past year and a half, the American publishing powerhouse Simon & Schuster has twice been put up for sale by its parent company, the media conglomerate Paramount. The first sale, to the rival publisher Penguin Random House, was blocked in a civil antitrust lawsuit by the U.S. District Court last August. The Court’s decision cited the Sherman Antitrust Act of 1890, which prohibits economic activities that restrict interstate commerce and competition, like a merger between two of the largest publishing companies in the United States. News of a second sale came this past February. Potential buyers include Hatchet Book Group and Harper Collins, two of the U.S. publishing industry’s “Big Five.” But it is likely that this time around, Paramount, in an effort to skirt the antitrust obstacles it faced during the first proposed sale, will sell to a private equity firm over another publishing company. A common conception of private equity firms is that they preserve the kind of capitalist competition protected by the Sherman Antitrust Act. Private equity, however, comes with plenty of caveats, not all of which are so easily redeemed by the promise of contributing to industry competition. What’s more, as even the most cursory glance at the current state of U.S. publishing shows, there isn’t much competition to protect.

The Big Five Bidding Wars

At its 17th-century outset, the U.S. publishing industry was centered in Cambridge, Massachusetts. The Cambridge consolidation only broke when one press moved to nearby Boston, and it wasn’t until 19th-century industrialization, which increased print output and lowered print costs, that the industry could support robust competition. By 1875, a proliferation of private publishing companies had given rise to the first literary agents. Fifteen years later, the Supreme Court passed sweeping protections for private companies under the Sherman Antitrust Act. Since 2001 alone, the number of privately owned U.S. publishers has more than doubled. Of course, not all of these companies enjoy long term economic viability. Even fewer see the continuous quarterly growth of the Big Five. They are Penguin Random House, Simon & Schuster, Harper Collins, Hachette Book Group, and Macmillan Publishing Group.

Penguin Random House publishes 2,000 new trade books in the U.S. every year and reported $2.4 billion in revenue in 2019. Simon & Schuster publishes 1,000 new trade books every year, and $814 million in revenue in 2019. Penguin Random House, Simon & Schuster, and the other members of the Big Five are in explicit, exclusive competition. The former CEO of Simon & Schuster has referred to non-Big Five publishers as “farm teams for authors.” The Big Five cherry pick talented authors and anticipated bestsellers from smaller publishers. They then compete with one another for the publishing rights to these authors and bestsellers.

Within this competition are three key characters, each of whom stands to profit. The author writes a proposal or manuscript and is paid in advances, or signing bonuses, and royalties, or percentages of the final book sales. The literary agent submits an author’s book proposal and sets up a competitive bidding process for the rights to the book, and works on commission. The publisher provides editorial, design, marketing, printing, and distribution services, and is compensated when a title “earns out” or exceeds the amount of the advance. Most authors do not earn out their advance. In other words, the sum of their advance is their entire earnings from their book. This means that a key financial determinant for authors and agents in negotiations with publishers is the advance size and payout structure. Most literary agents, then, submit to the Big Five, whose financial resources allow them to offer large advances. It is no industry secret that large advances often become even larger as a result of a bidding war.

In many bidding wars, Penguin Random House and Simon & Schuster go head-to-head. Take, for instance, a book on the Mueller investigation where Simon & Schuster and Penguin Random house were the only two publishers, Big Five or other, to submit offers. The first bid was $625,000 by Penguin Random House, which was then upped by Simon & Schuster to $1.5 million, and finally topped by Penguin Random House with an additional $500,000 in sales bonuses. If Simon & Schuster had merged with Penguin Random House, opportunities for advance-upping bidding wars would be far and few between. Literary agents would have fewer high advance-paying publishers to whom they could bring new manuscripts.

Fighting Monopolies with Monopolies

The proposed sale of Simon & Schuster to Penguin Random House was among the more recent in a long but recent history of consolidation in the publishing industry. Penguin Random House itself is the product of a 2013 merger between Penguin, which was founded in 1935, and Random House, which was founded in 1927. Even more recently did Hachette Book Group acquire Workman Publishing, one of the largest, independently owned publishers in the U.S., for $240 million in 2021. U.S. publishing, already monopolized, is trending even further back towards its consolidated origins.

This trend was the central concern of the U.S. Department of Justice when it filed suit against Penguin Random House in 2021. The Justice Department’s complaint alleged that the acquisition of Simon & Schuster by Penguin Random House would eliminate one of the biggest rivalries in the American publishing industry. The Attorney General also cited a history of collusion in the publishing industry and potential effects on authors, including lower advances, fewer books, and less variety for consumers. A successful merger between the two publishers would mean that Penguin Random House’s next largest competitor would be less than half the size of Penguin Random House, and Penguin Random House would control two thirds of the U.S. market.

Penguin Random House, meanwhile, argued that its acquisition of Simon & Schuster was necessary to counter the market force of Amazon. The publisher wanted to fight monopolization with monopolization. It also argued that success in the publishing industry is less calculated than the Court Painted it to be. “Publishing is random,” testified Mark Dohle, the CEO of Penguin Random House, during the trial on August 4, 2022. Dohle’s testimony seems to ignore the common practice of large publishing companies to put most of their time and resources into advances for authors of anticipated high selling books, like the aforementioned one on the Mueller investigation.

Publishing and Private Equity

This time around, Paramount expects a competitive selling process. As of February 2023, Simon & Schuster reported a 10 percent increase in quarterly revenue. The deadline for second round bids, in mid-July, is around the corner. The top buyout bid for Simon & Schuster, as of June 21, is from Richard Horowitz, who is backed by the Mubadala Investment Company, an Abu Dhabi-based sovereign wealth fund.

Private equity firms buy businesses, which they restructure to prioritize efficiency and revenue growth, then sell for a profit. In the United States, these firms–among them Blackstone, Bain Capital, and Apollo Global Management–control more than $6 trillion dollars in assets. Often, private equity firms are more willing than banks to lend money to struggling businesses or relieve debt. But critics of private equity investment argue that a private equity firm’s focus on short-term revenue jeopardizes a company’s long-term value and hurts its workers. Also problematic are leveraged buyouts. Rather than create wealth, many private equity firms leverage it from sales to other firms, which are not always financially transparent. At their best, private equity firms infuse struggling businesses with cash and add to their value. At their worst, firms profit from tax loopholes regardless of whether their company's profit.

Privatization doesn’t always mean more competition. In the medical field, for instance, the acquisition of hundreds of independent physician practices by private equity firms has led to a health care monopoly. In the publishing industry, private equity has been quietly active since the early aughts. The academic journal Springer is owned by private equity, and Houghton Mifflin sold its college textbook division to Cengage Learning in 2007.

As of now, Horowitz’s exact intentions for Simon & Schuster are unknown. It is worth noting that Hurowitz is a man of demonstrated literary interest. He is the CEO of Octavian and Company, and he publishes The Octavian Report, a magazine of “ideas.” He is also the author of In the Garden of the Righteous: The Heroes Who Risked Their Lives to Save Jews During the Holocaust. That book was published with Harper, an imprint of HarperCollins, in 2023. In the short term, Horowitz might help Simon & Schuster continue its upward trend in revenue growth. In the long term, the publisher might become saddled with debt and, if Hurowitz decides to sell, will be forced to endure the fiscal turmoil that inevitably comes with changes in leadership. For authors, this could mean a short-term boom in advance offerings from Simon & Schuster followed by a steep drop off. For Simon & Schuster, this could mean an even more rigorous pursuit of anticipated bestsellers followed by a focus on lesser known or first-time authors. Finally, if Horowitz follows in the footsteps of other private equity firms and continues to acquire larger and larger slices of his select industry, which in this case is general trade publishing, authors can expect less industry competition overall. Though improbable, it is not entirely inconceivable that Horowitz, whose investment company reportedly managed $276 billion in assets in 2022, might at one point own both Simon & Schuster and Penguin Random House, affecting the merger previously blocked by the Department of Justice.

New Hands, Old Strategy

Bestsellers make or break a publishing house. They always have. It was, after all, a surprise bestselling crossword book that catapulted Simon & Schuster to commercial success when the publisher was founded in 1924. And, as any skeptic of a wider, more diverse literary landscape would say, they always will. While Simon & Schuster will likely come under private equity ownership, it will likely not stop chasing anticipated bestsellers. Whether there are five publishers competing for the rights to these titles or fifty, the allure of the bestseller, which conforms to certain market trends and popular expectations, will endure. The Court’s decision in the Penguin Random House antitrust suit was heralded by many authors, agents, and other individuals in the publishing world as a victory in the battle for literary diversity. But the common practice of private equity firms to acquire similar companies and corner sectors of an industry might well be just as much a threat to diverse books as horizontal mergers are.