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The lawsuit launched by the Department of Justice on Nov. 2 to block Penguin Random House from acquiring Simon & Schuster is undoubtedly bold. As the first government case to explicitly challenge the creation of a “monopsony” — where a single buyer controls the market — this antitrust case is destined for business books and law review articles regardless of the judge’s determination. But those attempting to decipher what the lawsuit means for Warner Bros. Discovery and other proposed mergers may be thinking too narrowly.
For decades, influenced by legal scholars led by Robert Bork, antitrust cops were mainly focused on one thing — consumer welfare, and in particular, the cost of products and services. There was an emphasis on preventing monopolies — where the market is controlled by a single seller — and stopping naked price fixing. Through that time, many left-leaning scholars and top union officials believed that regulators could do much more to ensure greater job opportunities and higher wages by concerning themselves with how corporate consolidation impacted the labor market.
With the Biden administration’s recent action, that’s exactly what’s happened. The DOJ’s complaint discusses how Penguin and Simon & Schuster “compete vigorously to acquire publishing rights from authors” and how such competition results in “higher advances, better services and more favorable contract terms for authors” and that “if consummated, this merger would likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers.”
The government’s new view of consumer welfare through the lens of a market’s workers is, unsurprisingly, earning rapturous reviews among some in Hollywood’s talent community, such as its guild of screenwriters who can easily imagine themselves as a future beneficiary of this approach.
“We are highly encouraged by DOJ’s action against the Penguin Random House-Simon & Schuster merger,” says Laura Blum-Smith, director of research and public policy for Writers Guild of America, West. “The government’s complaint echoes concerns WGAW has raised for decades in the entertainment industry, showing how the loss of a key content buyer would make it harder for authors to earn a living and result in both fewer books and decreased variety. This is precisely the reality in our industry, where unchecked consolidation has given the major media companies oligopoly power over creative labor, pushing down compensation and exerting almost complete control over whose stories are told. We hope that DOJ’s action here portends a new future.”
But before anyone goes looking up the Warner Bros. Discovery break-up fee (it’s $1.77 billion if AT&T backs out and $720 million if Discovery pulls the plug), know that every case is different, and legal ambiguity could favor the merging companies. The DOJ says the combination of Penguin and Simon & Schuster would control “more than two-thirds” of the market for “publishing rights to anticipated top-selling books.” (The companies dispute that figure.) The marriage between Warner Media and Discovery would result in a buyer of film and TV rights with a much smaller share of the buying market — and given the paucity of antitrust cases focused on buy-side labor markets, regulators might wish to avoid setting precedent on an iffy case. As the legal maxim goes, hard cases make bad law. Even the Simon & Schuster suit is no slam dunk as Daniel Petrocelli, the O’Melveny partner and Hollywood law veteran tapped to fight the government, points to traditional competition analysis focused on output: “Importantly, DOJ has not found, nor does it allege, that the combination will reduce competition in the sale of books.”
Those seeking to anticipate the DOJ Antitrust Division’s next huge move might think beyond mergers altogether and consider other ways this group could look to tip the economy in favor of its workers. A public workshop being held jointly by the DOJ and Federal Trade Commission on Dec. 6-7 strongly hints at what’s to come. On the agenda is labor monopsony; the increased use of restrictive contractual clauses in labor agreements, including noncompetes and nondisclosure agreements, information sharing and benchmarking activity among competing employers; and the relationship between antitrust law and collective bargaining efforts in the “gig economy.”
As for who will now being leading the DOJ Antitrust Division, President Biden has tapped Jonathan Kanter, who has spent much of his career in private practice. In the past, he’s spoken in favor of bringing aggressive court cases to establish “rules of the road” for industry, and at his confirmation hearing, he said, “Antitrust enforcement is essential to promoting a healthy, competitive economy, which can lead to a wide range of benefits, including better wages, benefits and other terms of employment for workers.”
This story first appeared in the Nov. 10 issue of The Hollywood Reporter magazine. Click here to subscribe.
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