The Merger That Didn’t Happen

What the failed Penguin Random House–Simon & Schuster deal revealed about the publishing business

In publishing, mergers are usually presented as matters of scale. Two companies become one. Costs supposedly fall. Distribution gets bigger. Technology gets better. The combined company can compete more effectively.

It all sounds rather tidy.

Then came the proposed merger of Penguin Random House and Simon & Schuster.

Announced in 2020, the $2.2 billion deal would have brought two of America’s largest publishers under the same roof. But in 2022, the U.S. Department of Justice sued to stop it. A federal judge sided with the government, finding that the merger would substantially reduce competition for the rights to anticipated bestsellers. Bertelsmann, Penguin Random House’s parent company, ultimately abandoned its appeal.

What made the case fascinating wasn’t simply that the merger failed. It was what the trial revealed about how publishing actually works.

This was not the usual antitrust story. The government wasn’t primarily arguing that consumers would pay more for novels at Barnes & Noble or Amazon. It focused on something readers rarely think about: the price publishers pay authors.

The Justice Department argued that Penguin Random House would control close to half of the market for acquiring U.S. rights to anticipated top-selling books. Fewer serious bidders, the argument went, would mean less competition for authors and potentially lower advances.

That changed the way people thought about publishing competition. Publishers aren’t just competing to sell books. They’re competing to acquire them.

When a publisher thinks a book could become a major bestseller, several publishers may compete for it. They make offers, negotiate, and raise the advance, sometimes to enormous numbers. That competition is good for authors. If five major publishers desperately want your book, you have leverage. If there are only two serious bidders, you have less. And if one company becomes so dominant that it can routinely outbid everyone else, the entire economics of authorship can change.

The merger, in other words, wasn’t simply about combining two companies. It was about potentially changing the balance of power between publishers and authors.

What the trial exposed

The courtroom proceedings also gave the public an unusually candid look inside a business that normally operates behind closed doors. Executives discussed books they had failed to acquire. Internal communications revealed disagreements over strategy. Witnesses acknowledged something publishers don’t usually advertise: most books don’t make money.

That last point matters. Publishing looks like a business selling objects for $20 or $30. In reality, it’s a business constantly making bets. A publisher pays an advance. It pays editors. It designs the book, prints it, markets it, ships it, and distributes it. Then it waits to see whether readers care. A few books become major successes. Many don’t. The profitable ones help support the rest.

The numbers that came out during the trial made the scale of that risk concrete. Testimony from publishing executives, including Penguin Random House’s own CEO, indicated that roughly 90 percent of books sell fewer than 2,000 copies, and about half sell fewer than a dozen. Estimates on advances tell a similar story: publishing analysts commonly put the share of advances that never earn out somewhere between 70 and 85 percent, depending on the size of the advance and who’s counting. Either way, most books never pay back what the publisher spent to acquire them, and a small number of hits are left to cover the difference.

The proposed merger also exposed a contradiction at the heart of modern publishing. Companies want to grow because scale brings real advantages: more distribution power, more marketing resources, more negotiating leverage, more data, a larger backlist. But the larger publishers become, the fewer meaningful competitors remain, and at some point, efficiency starts to look like concentration.

The modern publishing industry is dominated in the United States by five major houses: Penguin Random House, HarperCollins, Hachette Book Group, Simon & Schuster, and Macmillan. Even those names can be misleading, since each contains numerous imprints with their own identities, editors, and publishing programs. Penguin Random House, for example, describes its U.S. operation as a collection of roughly 100 publishing houses operating with considerable autonomy.

To a reader, that can make the industry look more diverse than it actually is. You may see several imprints competing for your attention. Behind them, though, there may be the same corporate owner.

Publishing has been consolidating for decades. Penguin and Random House merged in 2013, creating what was then the world’s largest trade publisher. Bertelsmann subsequently became the sole owner of Penguin Random House, then tried to acquire Simon & Schuster. That deal failed, but the direction of travel was obvious: the industry has spent decades getting bigger. This time, the government essentially said, “Perhaps this is big enough.”

Authors, readers, and the irony at the center

The most important lesson may be that authors aren’t simply suppliers of content. They’re workers in a market, and publishers compete for their labor just as companies in other industries compete for valuable employees. When competition increases, compensation can rise. When it decreases, bargaining power can shift toward the buyer.

That’s why the DOJ’s argument was so significant. It treated authors not merely as creative partners but as participants in an economic market whose bargaining power could be affected by consolidation. That sounds obvious, but it was something of a revelation for an industry accustomed to thinking primarily about readers.

The effect on readers is harder to measure. You aren’t going to walk into a bookstore and notice that a merger didn’t happen; there’s no shelf labeled “Books Saved by Antitrust Law.” The consequences are subtler. Competition can affect which books publishers are willing to acquire, how much they’re willing to invest in them, and how much variety exists within the commercial publishing ecosystem. The government argued that less competition could ultimately reduce the breadth and diversity of published books. Whether every prediction would have come true is impossible to know, since the merger never happened.

There’s an interesting irony here. The publishing industry often complains that it’s difficult to make money, and it is. Publishers face enormous costs and uncertain revenues. They need scale to compete with Amazon and other powerful distributors, and they need successful books to offset failures. So consolidation has a perfectly rational business logic. But the same consolidation can make it harder for new competitors to emerge, and it can reduce the number of genuinely independent bidders for an author’s work. The industry needs scale. It also needs competition. Those two things don’t always coexist comfortably.

Penguin Random House ultimately walked away. Simon & Schuster remained independent for a little while longer before being sold to KKR in 2023. But the failed merger left behind something more valuable than another corporate giant: a rare glimpse into the machinery of modern publishing. We saw that publishers compete fiercely for books, how important advances are, and how difficult it is to make money consistently. And we saw that the real commodity being fought over isn’t the book sitting on the shelf. It’s the right to publish it.

That’s where the money, power, and competition begin. And once you understand that, the publishing industry looks considerably less like a collection of literary houses and considerably more like what it really is: a high-risk business competing for the most unpredictable asset in the world, the attention of readers.