December 7, 2021 • 20 mins
We launch Season 2 with a panel discussion of the US Department of Justice bid to block the proposed merger of Penguin Random House and Simon & Schuster. Elaine Dewar (author of The Handover: How Bigwigs and Bureaucrats Transferred Canada’s Best Publisher and the Best Part of Our Literary Heritage to a Foreign Multinational), and Jonathan Tepper (author of The Myth of Capitalism: Monopolies and the Death of Competition, with Denise Hearn), discussing the DOJ's bid to stop a merger that would change the landscape of publishing.
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Speaker 1 (00:05):
If this thing goes through random purchasing Simon
and Schuster, 70%, one companythat's madness.
Speaker 2 (00:13):
Um, and here it's the same thing where the profits
going to accrue to the verylimited number of publishers and
then the suppliers eventuallywe'll get paid.
Speaker 1 (00:21):
I mean, there's, there's no future for writers in
this circumstance.
Speaker 3 (00:41):
Welcome to season two of Asian provoca tour to kick it
off.
We have a special episode.
Usually we like to have two orthree pieces, but today we've
decided to devote the entireshow to a single issue, which is
the American department ofjustice is trying to block the
merger of penguin, random houseand Simon and Schuster
Speaker 4 (01:13):
[inaudible].
Speaker 5 (01:14):
So today I have Jonathan Tepper, who's the
author of the myth of capitalismand a Elaine Dewar, who is the
author of the handover.
It seems to me that thedepartment of justice is siding
with authors and otherpublishers, including Harper
Collins, which is the reportedunderbidder for Simon and
Schuster.
What are the odds they willsucceed when they failed with a
(01:36):
T and T and time Warner?
Not that long ago.
It's interesting to me that PRHhired the same attorneys that
fought the last one, because Iguess obviously they think they
can, they can beat this the waythat at and teach it.
What do you guys think aboutthat?
Uh, Jonathan, I'll start withyou.
Speaker 2 (01:53):
Sure.
Sam you're my agent.
And, uh, I wrote the book mythof capitalism, uh, which came
out about two years ago.
And, uh, it was basically aboutindustry concentration and how
industries go from many playersdown to very few.
And during the writing process,you and I were joking around
that.
We were going to see the bigfive become the big four and
eventually the big four probablybecome the big three.
(02:14):
And so sure enough, we didn'thave to wait long for that to
happen.
Um, the historically the, thedepartment of justice and the
FTC would rarely block mergersand generally only if it was
down to four players, um, andthere's quite a lot of research,
uh, by John Coca, which showsthat when you get below six
(02:35):
players in an industry, that'swhen prices start going up and
you end up with all sorts ofother harms.
Um, in this case, this is a,what's called a horizontal
merger, which means that directcompetitors are merging with
each other.
Um, the time Warner deal wasslightly different, which was a
vertical merger where you hadessentially content and
distribution.
It wasn't just a distributionmerging with distribution or
(02:59):
merging with content.
Um, so that one I think was, isslightly different than the
economic arguments for andagainst are different.
But one of the things that'sinteresting about this one,
well, it clearly isanti-competitive the main
grounds, uh, reading the, the,uh, the case are that it's going
to, uh, reduce payments toauthors.
(03:19):
Um, and that is certainly novel,um, in the sense that the
governments rarely blockedmergers because of harms to, to
workers and is cause obviouslythe authors of the workers.
Um, it generally, they, theyblocked him due to the fear of,
of higher prices for books.
And if you read through thecomplaint, that's not really
what the government's focusingon.
So I think that's, that's quitenovel in this case and fits a
(03:42):
lot of the evidence that, youknow, uh, large dominant firms
when they merge tend to suppresswages.
Speaker 1 (03:48):
So it's not just wages, uh, because most of the
people who will be affected bythis are not people who work
directly for these corporations,but for people who are offering
a supply of something to thesecorporations, which brings me to
the magic word, Sam monopsony.
So this is an argument, notabout a restraint of trade in
(04:10):
the normal sense in which, uh,the worry is that prices will
increase to consumers.
This is an argument that saysbecause there will be market
dominance, unbelievable marketdominance.
I mean, the numbers are justbloody horrible.
Those who supply to the newmerged entity will find their
(04:31):
prices forced down in the mostegregious way.
And that of course is exactlywhat's happened to writers as a
succession of these mergers havetaken place, looked up some
numbers last night from 2018 inCanada.
The, uh, average income forauthors went down to 9,000 bucks
(04:55):
a year, uh, which was a 78% dropfrom 1998, uh, same situation in
the UK, uh, and almost as bad inthe United States.
So before this merger took placebecause of the subsequent merger
or the earlier mergers, um,
Speaker 5 (05:15):
With penguin and before
Speaker 1 (05:16):
That and Doubleday and blah-blah-blah, I mean, th
the whole accumulation ofmergers since the 1990s, which
has placed Bertelsmann, uh, asthe utterly dominant figure, um,
writers have sufferedtremendously.
And, and it doesn't look to meas if it's ever going to get any
(05:37):
better.
So, you know, a 78% drop inincome.
I mean, there's, there's nofuture for writers in this
circumstance.
So this is
Speaker 5 (05:48):
In fact, a cultural argument, as much as a anti
compassion
Speaker 1 (05:51):
Kind of argument.
No, it's still an anticompetitive argument.
Monopsony is a competitive idea.
It says that suppliers in achain are suddenly disadvantaged
because there's only one buyeror only two buyers in the
marketplace.
So it's still an economicargument, not a cultural.
And
Speaker 2 (06:09):
Yeah, I do agree that it's economic.
I think it's novel in the sensethat generally, uh, there's
there was a revolution,essentially it was started, um,
after our Robert Bork, uh, wrote, uh, quite a few articles and a
book and, you know, put forwardthe idea of the consumer welfare
standard, which is that the onlything that mattered was not, um,
(06:29):
the concentration of economicpower or in any of these other
adverse effects that happenthey're anti-competitive with
mergers.
The only thing that mattered wasprice, and as long as prices
stayed low, then you can mergeas much as you wanted.
And that was really the argumentthat worked before.
And so that ended up becoming awidely accepted, uh, by the
judiciary over time.
And, uh, by the, the, um, theDOJ with the merger guidelines
(06:53):
that were changed in 1982.
And so for a long time, as longas you could claim, uh,
plausibly, or even implausibly,that prices are going to stay
low, it didn't really matterwhat other harms were occurring.
There've been quite a lot ofresearch in the last couple of
years that, uh, a monopsony isessentially is, uh, it creates
all sorts of harms that are notnecessarily in price.
So you could, uh, you know, keepthe price of a book low, and
(07:16):
then you basically just don'tpay the author and you don't pay
the printers.
And, you know, so you gain morepower effectively, but keeping
prices low, this is one way thatAmazon's gotten an enormous
amount of power, um, isbasically if you, as long as you
promise to keep prices lowdoesn't matter, what market
share is.
And so there's there there'sthat.
And the fact that this has beenchallenging or being challenged
essentially on the sort ofmonopsony crowns, um, is
(07:38):
interesting.
That's not really something thatthat's been happening in the
courts.
Um, and I think that it's, uh, apositive step, uh, because
generally what happens is, um,in the meat industry, for
example, uh, but it happens inmany industries is, you know,
the, the independent farmersbasically don't get paid the
right amount for their beef andfor their chicken.
And so the margin that accruesto the, the oligopoly of meat
(08:01):
companies, um, and here it's thesame thing where the profits are
going to accrue to the verylimited number of publishers.
And then the supplierseffectively won't get paid.
There are two books, um, that Ithink are very interesting.
Um, one was very influentialcornered, uh, but very Lynn, um,
and that is, you know, he, hehas had quite a lot of impact in
DC, but there's another onethat's gotten very little
(08:23):
attention.
Um, and, you know, I thinkprophetic, it was called market
domination by Steven Hannafordand, uh, Hannaford basically
points out that what you end upwith is in the same way you have
monopolies, you have, um,monopsonies right, where you end
up with very limited number ofplayers.
And generally you don't have onecompany that controls it.
So if you call talk about anoligopoly that he was saying
(08:43):
that you can also talk aboutoligopoly minis, you know, which
essentially is where there'sthis tacit coordination of the
oligopoly not to bid on, on beefor not to bid on authors.
And I think that it's, that it'sa clunky term, but the oligopoly
money really is I think what'shappening industry after
industry and what wouldcertainly be bigger in the
publishing.
Speaker 1 (09:03):
And we know in fact that in the Canadian experience,
the whole purpose of, uh, themergers was to acquire the right
to beat down the price ofacquisitions.
So there were agreements withinthe, um, McClelland and Stewart,
uh, takeover, for example, bywhat is now penguin random
(09:24):
house, that there would be no,uh, competing bids among the,
um, imprints that werecontrolled by penguin random
house previously, uh, within aintegrated system, the different
imprints were allowed to counterbid, uh, against each other to
(09:46):
get a project that theyparticularly wanted.
That thing died in about 2012.
And the result is a collapse inadvances, uh, and probably in
royalties as well.
Well, that's something
Speaker 5 (10:00):
The department of justice said specifically that
while penguin random house hassaid that after acquiring Simon
and Schuster, it would keep thebidding kind of, it would keep a
, um, a level playing field foragents and authors, but, um,
yeah, then they said, butthere's no guaranteed how long
this is going to last, or, youknow, uh, what this really means
(10:23):
people,
Speaker 1 (10:24):
It won't last because you know, these, these imprints
within the Canadian system havealready said, we're not going to
do that anymore.
And they have maintained thatposition since at least what
2012.
Um, I don't, I can't imaginewhat, what there would be as an
enforcement mechanism to makesure competitive bidding takes
place within an organization.
Speaker 2 (10:46):
Uh, there's quite a lot of evidence from the United
States, Canada, Europe that, uh,cartels, uh, can and do
coordinate to restrict prices.
I mean, I just start to raiseprices and often not to poach
each other's workers and to, todo all sorts of things.
And, uh, when the, uh, theauthorities find these out, they
tend to prosecute.
The problem is that theestimates are that only like one
(11:07):
in five of these agreements areactually caught.
And so there's clearly anenormous amount of collusion
within cartels and oligopoliesthat's not caught.
And then the other issue is thatyou don't really need to have
any explicit form oforganization, you know, for
these effects to happen.
And so, um, you find, you know,in some industries where the
competitors will all follow theprice leader, so the dominant
(11:29):
company will then raise pricesonce a year, and then all the
smaller players raise it withinthe next week or two.
And so you don't even need to,you know, pick up the phone and
call, um, but, and likewise with, uh, suppression of wages or
not competing on, uh, you know,uh, for, for bids, you know,
we've seen this in, in theUnited States, for example, when
it comes to forestry and lumber,right?
(11:50):
Like some of the very big papercompanies just don't want to
compete on, on bits.
And so you can end up with avery similar sort of Cassatt, uh
, collusion that doesn't evenhave to be explicit.
And I think that's sort of whatends up happening when you end
up with very few players, isthat you can have essentially
sort of what they call consciousparallelism, where people would
just follow each other conductwithout even having to pick up
(12:10):
the phone and call yourcompetitor.
Speaker 1 (12:12):
If this thing goes through random purchasing Simon
and Schuster, uh, they, the newentity will be publishing 30% of
all titles published in theUnited States and 70% of general
and literary fiction, 70%, onecompany.
That's madness.
(12:32):
Just think about it, Sam, ifyou're trying to pitch and you
fail in your pitch, uh, to thatentity, where do you go, well,
this is your alternatives are,you know, down to zip.
Speaker 5 (12:43):
It seems like a lot of this is about having the
efficiencies of a largercompany, which means like laying
off staff and reducing your costso that you have this illusion
of profitability, right?
When you merge companies.
But the problem is when we loseeditors, there's every time we
lose an editor, that's somebodythat I might have who might've
had a taste, a certain kind ofaesthetic taste for a book, like
(13:05):
a novel, uh, that I could havesaid, I have this novel.
That's a little strange.
And they'd say, no, it soundsquirky and perfect for me.
I mean, and now the, the, the,the more and more consolidated
this decision-making gets, Ithink the harder it's going to
be for agents and for authors tobring in those, those books.
And to be honest, those areoften the books that are
(13:27):
important to culture likeliterature often comes in from
the margins
Speaker 1 (13:30):
Often, always.
Speaker 2 (13:33):
Well, it's interesting that if you look at,
uh, Hollywood, for example,which is a similar industry in
the sense that, you know, it's,you're, you're producing our
artistic content, uh, for themasses, um, it's, you know,
slightly different, obviously inthe sense that you have a studio
system also all go oligopolystick, um, you know, and also
it's like books it's tends to bea hit driven business with long
(13:55):
tails, but, you know, Disney'snow gotten to 50% of the us, uh,
box office.
Speaker 1 (14:00):
There was a period in the United States when
distributors who are quiteseparate from those who are
making movies, uh, that nolonger is the case.
So you now have a V a verticalintegration that has never been
seen before.
And on top of that, a collapseof the number of competitors.
So, I mean, it, it, the UnitedStates has turned its back on
(14:24):
its own ideas of economicefficiency, uh, which, you know,
date back to the turn of thelast century when the trusts
were first busted in the UnitedStates for exactly these
reasons.
Speaker 2 (14:36):
There's a fantastic book by Tim Wu called the master
switch.
And it looks at, uh, varioustechnologies, whether it's, uh,
radio, Telegraph, uh, TV, uh,movies, uh, and the internet and
the move is almost always goesfrom basically, these are things
that hobbyists use, you know,and it's like, you're doing
short films, you know, ThomasEdison and the Lumiere brothers.
(14:58):
And it ends up consolidatingdown into a few players and, uh,
you know, ultimately thegovernment, uh, often steps in
to stop for their consolidationand then often ends up being
captured by the companies thatthey're regulating to prevent
for the competition.
And, you know, the, the, theHollywood studio system, they
used to control all thedistribution and they could
basically, you know, have onegreat hit and, you know, five
(15:20):
other awful movies and theywould, they could force those
down the throats of the,
Speaker 1 (15:24):
Yeah, I have to, by the other side of midnight.
Speaker 2 (15:28):
Yeah.
And, and so, uh, w they, theythen abandoned that in the
1950s.
And that was one of the thingsthat, uh, ended up creating
essentially a much freer systemwhere you ended up with a lot of
independent films in the latesixties and seventies.
And, and unfortunately the us is, uh, getting rid of, um, the,
it got rid of the consentdecrees and, you know, moving
(15:49):
essentially back towards thestudio system, you know, with a
vertical control.
And, and so I think that you'llend up with a similar, uh,
system where the studios dictatewhat w what their learning is.
You end up with less diversity,uh, and in terms of the, the
output, you know, it's all SQLsof comic books, uh, and, you
know, and then bad movies beingshoved down the throats of
(16:11):
consumers.
Speaker 5 (16:12):
Okay.
Um, so one last question, uh,most of the media has covered
the U S impact of, at this dealwill affect publishing
throughout the entire Englishspeaking world, including Canada
in the UK.
I know Elaine you've written thebook about Canada.
Um, I haven't done the work on,
Speaker 1 (16:29):
We launched an investigation of this merger in
March.
They have the same problem, andthey're not happy either,
Speaker 5 (16:38):
But they're not suing anybody.
Speaker 1 (16:39):
No, no they're investigating.
And I think that investigationwill lead to an order.
I may be wrong, but, uh, there'snothing in it for the UK to
allow this to go through.
Speaker 5 (16:53):
Okay.
So, um, any, any final thoughts?
I mean, I,
Speaker 1 (16:58):
Yes, Sam, where's the government of Canada and all of
this, whereas our currentminister of Canadian heritage,
uh, arguing about whether thisis, or is not a good deal for
this country.
I mean, have you heard a singleword, have you seen a single
word in print as to whether ornot the government of Canada
might want to step in here,which it has the legal right to
(17:19):
do?
Speaker 5 (17:20):
I think the association of Canadian
publishers is against it andthey've issued something, but I
don't know that it's gonefurther than that.
Right.
Speaker 1 (17:28):
And I, and certainly our competition bureau has not
set out to examine the question,even if they had, we wouldn't
know, because the way they dotheir business is in secret.
Speaker 5 (17:42):
Well, yeah.
And also, I mean, Canada allowedthe, um, the Harlequin sale and
as you know, the McClellanStewart sales.
So, uh, they've seen all of theabove.
Yeah.
There seems to be a kind of passit, compliance with whatever the
Americans allow
Speaker 1 (17:59):
And the same argument that price matters and monopsony
is not an issue.
So, you know, the only way thecompetition bureau is going to
step forward here is if it movesitself off from that very simple
argument that only price mattersand looks at how a market can be
controlled when the suppliersonly have one buyer.
(18:20):
And, and, and obviously if theAmericans take that route, there
might be some pressure withinthe government of Canada to
actually consider that as aproblem.
And that would be nice.
Speaker 5 (18:30):
Jonathan, any, any final thoughts from you?
Speaker 2 (18:33):
Well, I, I think that these, uh, historical waves take
a very long time and it's like apendulum and the, you know, they
swing too far one way.
And then it's sometimes betweentoo far back another, um, in the
seventies, almost new mergerswere going through in the us.
Um, and, and that was reallywhat led to the
counter-revolution, but we'renow at the complete opposite end
, we're almost no mergers riverblocked.
(18:53):
And I think that what we'restarting to see is the pendulum
swing back.
Um, and you're seeing that withthe appointment of Lina Khan and
Tim Wu.
And these are people who I thinkare very thoughtful, um, but
completely disagree with thestatus quo.
And that's why they're so hatedby the, um, uh, economists and
lawyers who push these mergers.
Um, and, uh, I think it's awonderful thing, uh, to see some
(19:14):
changes.
Speaker 5 (19:15):
Great.
Well, um, who knows where thisis going to go, but it doesn't
sound very optimistic.
Speaker 1 (19:23):
I'm optimistic that they're actually taking it up.
I think that's, that's
Speaker 5 (19:27):
Huge.
So that, that is the cause forcelebration.
Speaker 2 (19:30):
Absolutely.
Speaker 5 (19:31):
It's very good.
Good.
Well, thank you guys for yourtime today and, um, take care.
I'll see you guys soon.
Speaker 3 (19:44):
That's a wrap folks.
Thanks so much for joining usfor season two, thanks to our
guests.
And of course, to Andrew Kaufman, our producer, if you like our
podcast, please like us andreview us wherever you listen.
And also look for us on substack.
We'll be back next week.
If this thing goes through random purchasing Simon
and Schuster, 70%, one companythat's madness.
Speaker 2 (00:13):
Um, and here it's the same thing where the profits
going to accrue to the verylimited number of publishers and
then the suppliers eventuallywe'll get paid.
Speaker 1 (00:21):
I mean, there's, there's no future for writers in
this circumstance.
Speaker 3 (00:41):
Welcome to season two of Asian provoca tour to kick it
off.
We have a special episode.
Usually we like to have two orthree pieces, but today we've
decided to devote the entireshow to a single issue, which is
the American department ofjustice is trying to block the
merger of penguin, random houseand Simon and Schuster
Speaker 4 (01:13):
[inaudible].
Speaker 5 (01:14):
So today I have Jonathan Tepper, who's the
author of the myth of capitalismand a Elaine Dewar, who is the
author of the handover.
It seems to me that thedepartment of justice is siding
with authors and otherpublishers, including Harper
Collins, which is the reportedunderbidder for Simon and
Schuster.
What are the odds they willsucceed when they failed with a
(01:36):
T and T and time Warner?
Not that long ago.
It's interesting to me that PRHhired the same attorneys that
fought the last one, because Iguess obviously they think they
can, they can beat this the waythat at and teach it.
What do you guys think aboutthat?
Uh, Jonathan, I'll start withyou.
Speaker 2 (01:53):
Sure.
Sam you're my agent.
And, uh, I wrote the book mythof capitalism, uh, which came
out about two years ago.
And, uh, it was basically aboutindustry concentration and how
industries go from many playersdown to very few.
And during the writing process,you and I were joking around
that.
We were going to see the bigfive become the big four and
eventually the big four probablybecome the big three.
(02:14):
And so sure enough, we didn'thave to wait long for that to
happen.
Um, the historically the, thedepartment of justice and the
FTC would rarely block mergersand generally only if it was
down to four players, um, andthere's quite a lot of research,
uh, by John Coca, which showsthat when you get below six
(02:35):
players in an industry, that'swhen prices start going up and
you end up with all sorts ofother harms.
Um, in this case, this is a,what's called a horizontal
merger, which means that directcompetitors are merging with
each other.
Um, the time Warner deal wasslightly different, which was a
vertical merger where you hadessentially content and
distribution.
It wasn't just a distributionmerging with distribution or
(02:59):
merging with content.
Um, so that one I think was, isslightly different than the
economic arguments for andagainst are different.
But one of the things that'sinteresting about this one,
well, it clearly isanti-competitive the main
grounds, uh, reading the, the,uh, the case are that it's going
to, uh, reduce payments toauthors.
(03:19):
Um, and that is certainly novel,um, in the sense that the
governments rarely blockedmergers because of harms to, to
workers and is cause obviouslythe authors of the workers.
Um, it generally, they, theyblocked him due to the fear of,
of higher prices for books.
And if you read through thecomplaint, that's not really
what the government's focusingon.
So I think that's, that's quitenovel in this case and fits a
(03:42):
lot of the evidence that, youknow, uh, large dominant firms
when they merge tend to suppresswages.
Speaker 1 (03:48):
So it's not just wages, uh, because most of the
people who will be affected bythis are not people who work
directly for these corporations,but for people who are offering
a supply of something to thesecorporations, which brings me to
the magic word, Sam monopsony.
So this is an argument, notabout a restraint of trade in
(04:10):
the normal sense in which, uh,the worry is that prices will
increase to consumers.
This is an argument that saysbecause there will be market
dominance, unbelievable marketdominance.
I mean, the numbers are justbloody horrible.
Those who supply to the newmerged entity will find their
(04:31):
prices forced down in the mostegregious way.
And that of course is exactlywhat's happened to writers as a
succession of these mergers havetaken place, looked up some
numbers last night from 2018 inCanada.
The, uh, average income forauthors went down to 9,000 bucks
(04:55):
a year, uh, which was a 78% dropfrom 1998, uh, same situation in
the UK, uh, and almost as bad inthe United States.
So before this merger took placebecause of the subsequent merger
or the earlier mergers, um,
Speaker 5 (05:15):
With penguin and before
Speaker 1 (05:16):
That and Doubleday and blah-blah-blah, I mean, th
the whole accumulation ofmergers since the 1990s, which
has placed Bertelsmann, uh, asthe utterly dominant figure, um,
writers have sufferedtremendously.
And, and it doesn't look to meas if it's ever going to get any
(05:37):
better.
So, you know, a 78% drop inincome.
I mean, there's, there's nofuture for writers in this
circumstance.
So this is
Speaker 5 (05:48):
In fact, a cultural argument, as much as a anti
compassion
Speaker 1 (05:51):
Kind of argument.
No, it's still an anticompetitive argument.
Monopsony is a competitive idea.
It says that suppliers in achain are suddenly disadvantaged
because there's only one buyeror only two buyers in the
marketplace.
So it's still an economicargument, not a cultural.
And
Speaker 2 (06:09):
Yeah, I do agree that it's economic.
I think it's novel in the sensethat generally, uh, there's
there was a revolution,essentially it was started, um,
after our Robert Bork, uh, wrote, uh, quite a few articles and a
book and, you know, put forwardthe idea of the consumer welfare
standard, which is that the onlything that mattered was not, um,
(06:29):
the concentration of economicpower or in any of these other
adverse effects that happenthey're anti-competitive with
mergers.
The only thing that mattered wasprice, and as long as prices
stayed low, then you can mergeas much as you wanted.
And that was really the argumentthat worked before.
And so that ended up becoming awidely accepted, uh, by the
judiciary over time.
And, uh, by the, the, um, theDOJ with the merger guidelines
(06:53):
that were changed in 1982.
And so for a long time, as longas you could claim, uh,
plausibly, or even implausibly,that prices are going to stay
low, it didn't really matterwhat other harms were occurring.
There've been quite a lot ofresearch in the last couple of
years that, uh, a monopsony isessentially is, uh, it creates
all sorts of harms that are notnecessarily in price.
So you could, uh, you know, keepthe price of a book low, and
(07:16):
then you basically just don'tpay the author and you don't pay
the printers.
And, you know, so you gain morepower effectively, but keeping
prices low, this is one way thatAmazon's gotten an enormous
amount of power, um, isbasically if you, as long as you
promise to keep prices lowdoesn't matter, what market
share is.
And so there's there there'sthat.
And the fact that this has beenchallenging or being challenged
essentially on the sort ofmonopsony crowns, um, is
(07:38):
interesting.
That's not really something thatthat's been happening in the
courts.
Um, and I think that it's, uh, apositive step, uh, because
generally what happens is, um,in the meat industry, for
example, uh, but it happens inmany industries is, you know,
the, the independent farmersbasically don't get paid the
right amount for their beef andfor their chicken.
And so the margin that accruesto the, the oligopoly of meat
(08:01):
companies, um, and here it's thesame thing where the profits are
going to accrue to the verylimited number of publishers.
And then the supplierseffectively won't get paid.
There are two books, um, that Ithink are very interesting.
Um, one was very influentialcornered, uh, but very Lynn, um,
and that is, you know, he, hehas had quite a lot of impact in
DC, but there's another onethat's gotten very little
(08:23):
attention.
Um, and, you know, I thinkprophetic, it was called market
domination by Steven Hannafordand, uh, Hannaford basically
points out that what you end upwith is in the same way you have
monopolies, you have, um,monopsonies right, where you end
up with very limited number ofplayers.
And generally you don't have onecompany that controls it.
So if you call talk about anoligopoly that he was saying
(08:43):
that you can also talk aboutoligopoly minis, you know, which
essentially is where there'sthis tacit coordination of the
oligopoly not to bid on, on beefor not to bid on authors.
And I think that it's, that it'sa clunky term, but the oligopoly
money really is I think what'shappening industry after
industry and what wouldcertainly be bigger in the
publishing.
Speaker 1 (09:03):
And we know in fact that in the Canadian experience,
the whole purpose of, uh, themergers was to acquire the right
to beat down the price ofacquisitions.
So there were agreements withinthe, um, McClelland and Stewart,
uh, takeover, for example, bywhat is now penguin random
(09:24):
house, that there would be no,uh, competing bids among the,
um, imprints that werecontrolled by penguin random
house previously, uh, within aintegrated system, the different
imprints were allowed to counterbid, uh, against each other to
(09:46):
get a project that theyparticularly wanted.
That thing died in about 2012.
And the result is a collapse inadvances, uh, and probably in
royalties as well.
Well, that's something
Speaker 5 (10:00):
The department of justice said specifically that
while penguin random house hassaid that after acquiring Simon
and Schuster, it would keep thebidding kind of, it would keep a
, um, a level playing field foragents and authors, but, um,
yeah, then they said, butthere's no guaranteed how long
this is going to last, or, youknow, uh, what this really means
(10:23):
people,
Speaker 1 (10:24):
It won't last because you know, these, these imprints
within the Canadian system havealready said, we're not going to
do that anymore.
And they have maintained thatposition since at least what
2012.
Um, I don't, I can't imaginewhat, what there would be as an
enforcement mechanism to makesure competitive bidding takes
place within an organization.
Speaker 2 (10:46):
Uh, there's quite a lot of evidence from the United
States, Canada, Europe that, uh,cartels, uh, can and do
coordinate to restrict prices.
I mean, I just start to raiseprices and often not to poach
each other's workers and to, todo all sorts of things.
And, uh, when the, uh, theauthorities find these out, they
tend to prosecute.
The problem is that theestimates are that only like one
(11:07):
in five of these agreements areactually caught.
And so there's clearly anenormous amount of collusion
within cartels and oligopoliesthat's not caught.
And then the other issue is thatyou don't really need to have
any explicit form oforganization, you know, for
these effects to happen.
And so, um, you find, you know,in some industries where the
competitors will all follow theprice leader, so the dominant
(11:29):
company will then raise pricesonce a year, and then all the
smaller players raise it withinthe next week or two.
And so you don't even need to,you know, pick up the phone and
call, um, but, and likewise with, uh, suppression of wages or
not competing on, uh, you know,uh, for, for bids, you know,
we've seen this in, in theUnited States, for example, when
it comes to forestry and lumber,right?
(11:50):
Like some of the very big papercompanies just don't want to
compete on, on bits.
And so you can end up with avery similar sort of Cassatt, uh
, collusion that doesn't evenhave to be explicit.
And I think that's sort of whatends up happening when you end
up with very few players, isthat you can have essentially
sort of what they call consciousparallelism, where people would
just follow each other conductwithout even having to pick up
(12:10):
the phone and call yourcompetitor.
Speaker 1 (12:12):
If this thing goes through random purchasing Simon
and Schuster, uh, they, the newentity will be publishing 30% of
all titles published in theUnited States and 70% of general
and literary fiction, 70%, onecompany.
That's madness.
(12:32):
Just think about it, Sam, ifyou're trying to pitch and you
fail in your pitch, uh, to thatentity, where do you go, well,
this is your alternatives are,you know, down to zip.
Speaker 5 (12:43):
It seems like a lot of this is about having the
efficiencies of a largercompany, which means like laying
off staff and reducing your costso that you have this illusion
of profitability, right?
When you merge companies.
But the problem is when we loseeditors, there's every time we
lose an editor, that's somebodythat I might have who might've
had a taste, a certain kind ofaesthetic taste for a book, like
(13:05):
a novel, uh, that I could havesaid, I have this novel.
That's a little strange.
And they'd say, no, it soundsquirky and perfect for me.
I mean, and now the, the, the,the more and more consolidated
this decision-making gets, Ithink the harder it's going to
be for agents and for authors tobring in those, those books.
And to be honest, those areoften the books that are
(13:27):
important to culture likeliterature often comes in from
the margins
Speaker 1 (13:30):
Often, always.
Speaker 2 (13:33):
Well, it's interesting that if you look at,
uh, Hollywood, for example,which is a similar industry in
the sense that, you know, it's,you're, you're producing our
artistic content, uh, for themasses, um, it's, you know,
slightly different, obviously inthe sense that you have a studio
system also all go oligopolystick, um, you know, and also
it's like books it's tends to bea hit driven business with long
(13:55):
tails, but, you know, Disney'snow gotten to 50% of the us, uh,
box office.
Speaker 1 (14:00):
There was a period in the United States when
distributors who are quiteseparate from those who are
making movies, uh, that nolonger is the case.
So you now have a V a verticalintegration that has never been
seen before.
And on top of that, a collapseof the number of competitors.
So, I mean, it, it, the UnitedStates has turned its back on
(14:24):
its own ideas of economicefficiency, uh, which, you know,
date back to the turn of thelast century when the trusts
were first busted in the UnitedStates for exactly these
reasons.
Speaker 2 (14:36):
There's a fantastic book by Tim Wu called the master
switch.
And it looks at, uh, varioustechnologies, whether it's, uh,
radio, Telegraph, uh, TV, uh,movies, uh, and the internet and
the move is almost always goesfrom basically, these are things
that hobbyists use, you know,and it's like, you're doing
short films, you know, ThomasEdison and the Lumiere brothers.
(14:58):
And it ends up consolidatingdown into a few players and, uh,
you know, ultimately thegovernment, uh, often steps in
to stop for their consolidationand then often ends up being
captured by the companies thatthey're regulating to prevent
for the competition.
And, you know, the, the, theHollywood studio system, they
used to control all thedistribution and they could
basically, you know, have onegreat hit and, you know, five
(15:20):
other awful movies and theywould, they could force those
down the throats of the,
Speaker 1 (15:24):
Yeah, I have to, by the other side of midnight.
Speaker 2 (15:28):
Yeah.
And, and so, uh, w they, theythen abandoned that in the
1950s.
And that was one of the thingsthat, uh, ended up creating
essentially a much freer systemwhere you ended up with a lot of
independent films in the latesixties and seventies.
And, and unfortunately the us is, uh, getting rid of, um, the,
it got rid of the consentdecrees and, you know, moving
(15:49):
essentially back towards thestudio system, you know, with a
vertical control.
And, and so I think that you'llend up with a similar, uh,
system where the studios dictatewhat w what their learning is.
You end up with less diversity,uh, and in terms of the, the
output, you know, it's all SQLsof comic books, uh, and, you
know, and then bad movies beingshoved down the throats of
(16:11):
consumers.
Speaker 5 (16:12):
Okay.
Um, so one last question, uh,most of the media has covered
the U S impact of, at this dealwill affect publishing
throughout the entire Englishspeaking world, including Canada
in the UK.
I know Elaine you've written thebook about Canada.
Um, I haven't done the work on,
Speaker 1 (16:29):
We launched an investigation of this merger in
March.
They have the same problem, andthey're not happy either,
Speaker 5 (16:38):
But they're not suing anybody.
Speaker 1 (16:39):
No, no they're investigating.
And I think that investigationwill lead to an order.
I may be wrong, but, uh, there'snothing in it for the UK to
allow this to go through.
Speaker 5 (16:53):
Okay.
So, um, any, any final thoughts?
I mean, I,
Speaker 1 (16:58):
Yes, Sam, where's the government of Canada and all of
this, whereas our currentminister of Canadian heritage,
uh, arguing about whether thisis, or is not a good deal for
this country.
I mean, have you heard a singleword, have you seen a single
word in print as to whether ornot the government of Canada
might want to step in here,which it has the legal right to
(17:19):
do?
Speaker 5 (17:20):
I think the association of Canadian
publishers is against it andthey've issued something, but I
don't know that it's gonefurther than that.
Right.
Speaker 1 (17:28):
And I, and certainly our competition bureau has not
set out to examine the question,even if they had, we wouldn't
know, because the way they dotheir business is in secret.
Speaker 5 (17:42):
Well, yeah.
And also, I mean, Canada allowedthe, um, the Harlequin sale and
as you know, the McClellanStewart sales.
So, uh, they've seen all of theabove.
Yeah.
There seems to be a kind of passit, compliance with whatever the
Americans allow
Speaker 1 (17:59):
And the same argument that price matters and monopsony
is not an issue.
So, you know, the only way thecompetition bureau is going to
step forward here is if it movesitself off from that very simple
argument that only price mattersand looks at how a market can be
controlled when the suppliersonly have one buyer.
(18:20):
And, and, and obviously if theAmericans take that route, there
might be some pressure withinthe government of Canada to
actually consider that as aproblem.
And that would be nice.
Speaker 5 (18:30):
Jonathan, any, any final thoughts from you?
Speaker 2 (18:33):
Well, I, I think that these, uh, historical waves take
a very long time and it's like apendulum and the, you know, they
swing too far one way.
And then it's sometimes betweentoo far back another, um, in the
seventies, almost new mergerswere going through in the us.
Um, and, and that was reallywhat led to the
counter-revolution, but we'renow at the complete opposite end
, we're almost no mergers riverblocked.
(18:53):
And I think that what we'restarting to see is the pendulum
swing back.
Um, and you're seeing that withthe appointment of Lina Khan and
Tim Wu.
And these are people who I thinkare very thoughtful, um, but
completely disagree with thestatus quo.
And that's why they're so hatedby the, um, uh, economists and
lawyers who push these mergers.
Um, and, uh, I think it's awonderful thing, uh, to see some
(19:14):
changes.
Speaker 5 (19:15):
Great.
Well, um, who knows where thisis going to go, but it doesn't
sound very optimistic.
Speaker 1 (19:23):
I'm optimistic that they're actually taking it up.
I think that's, that's
Speaker 5 (19:27):
Huge.
So that, that is the cause forcelebration.
Speaker 2 (19:30):
Absolutely.
Speaker 5 (19:31):
It's very good.
Good.
Well, thank you guys for yourtime today and, um, take care.
I'll see you guys soon.
Speaker 3 (19:44):
That's a wrap folks.
Thanks so much for joining usfor season two, thanks to our
guests.
And of course, to Andrew Kaufman, our producer, if you like our
podcast, please like us andreview us wherever you listen.
And also look for us on substack.
We'll be back next week.
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