Yahoo Finance Vass Bednar: Why is Canada ignoring the latest publishing mega-merger?
The Financial Post recently covered the evolution of Indigo Books & Music Inc. from a bookstore to a brick-and-mortar “everything” store. The cheeky headline promised that Indigo, “ain’t ya mama’s bookstore anymore.” Well, that’s because your mom can’t compete with Amazon.com Inc.
Neither can book publishers, but that doesn’t mean they won’t try. Bertelsmann SE, the owner of Penguin Random House, is attempting to combat Amazon’s growing market power by consolidating the publishing industry. It is not clear that this frantic fusing of well-known publishing houses will be healthy for competition overall.
Recall that in 2013, when Penguin Group amalgamated with Random House, a combination that Canadian publisher Kenneth Whyte recently called “a big-time bust,” because the revenue that Bertelsmann collects from the bigger company is about the same as combined earnings of the two smaller companies a decade ago.
In the United States, the Department of Justice (DoJ) is suing to block the proposed merger of Penguin Random House and Simon & Schuster, the publishing arm of Paramount Global, alleging the “merger would create a publishing behemoth, harming authors and consumers.”
Canada has been mostly silent on the potential benefits and harms of Bertelsmann’s bid to get even bigger. The merger bid is an important reminder of how Canadian competition law can be overly econometric, as well as how complex it is to define, articulate, and measure the potential implications of the proposed merger for publishers, agents, authors and booksellers.
Here at home, our appreciation of the composition of the book market is partially articulated through the non-profit BookNet. As Whyte has pointed out, there is a data problem at the heart of Canadian publishing, because major outlets such as Amazon, Walmart Inc., Loblaw Companies Ltd.’s Shoppers Drug Mart, and airport bookstores do not contribute to the database.
The DoJ argues that the merger would “cede nearly 50 per cent of the market for anticipated top-selling books to the combined firm, which will harm competition by lowering author advances and diminishing output, creativity and diversity.”
Canada’s Competition Bureau probably isn’t looking at the takeover of Simon & Schuster the same way. As per its merger enforcement guidelines, the bureau usually will not challenge a merger on the basis of the exercise of unilateral market power where the post-merger market share is below 35 per cent.
However, market share and concentration levels are only indicators that suggest the merged parties may be able to exercise market power after a merger. Market power is the ability of a company (unilaterally) or companies (concentrated) to act independently of the normal discipline of the market. So, a key question for regulators is whether this combination of Penguin Random House and Simon & Schuster would translate into the ability of the merged parties to unilaterally exercise market power.
A brief scan of the current book publishing industry suggests there may be pre-existing market power, because there are a few large players and many smaller ones. If a couple of the largest publishers merge, the gap between the merged entities and the bit players would become even more substantial. Bertelsmann’s plans would likely have significant market implications for publishers, authors and workers — alongside cultural risks, as the merger is likely to squeeze out Canadian voices.
Regardless of these risks, the proposed merger between the two book sellers ends up being emblematic of how price effects — the conventional metric used to assess harm under Canadian competition law — may be too narrow to judge the viability and implications of consolidation in publishing.
The case is currently receiving significant media attention in the U.S., but had received very little scrutiny in Canada up until very recently, when The Globe and Mail did a deep dive. In fact, if not for the Substack of Whyte’s nonfiction publisher Sutherland House, the merger would be receiving almost no local attention at all.
While Canadians seem to have a high tolerance for concentration, this may not be an instance where the spillover effects from another regulator taking on the work of scrutinizing a merger benefits us. Despite passionate examination from bloggers, Canada’s competition authority has so far been silent on other cases that have captured attention from peer regulators, such as Dye and Durham Corp., and it has yet to make a statement on Amazon despite years of inquiry.
We know that culture needs competition in order to achieve the policy goal of promoting cultural and creative industries. Author Stephen King testified that “consolidation is bad for competition,” and raised concerns about whether and where emerging writers would be able to get their start in publishing, and whether writers would be able to earn a living through their craft.
While the proposed merger may implicitly be about Amazon, there is also the question of the role of self-publishing in maintaining competition in publishing marketplaces. This is not unlike musicians’ ability to share their music on YouTube, Spotify, or TikTok. Arguably, authors have direct mechanisms to share their writing through Amazon’s Kindle Direct Publishing or Wattpad, the formerly Canadian platform that was purchased by South Korea’s Naver Corp. last year.
What’s the worst thing that could happen if the Penguin Random House takeover of Simon & Shuster proceeds? When you look at the available data, prices tend to go up after mergers, despite what companies claim before the merger occurs. The Washington Centre for Equitable Growth recently put together a searchable database of about 150 economic papers, and a lot of these papers show that the permissive approach of authorities in the U.S. has led to higher prices and less competition. Comparable Canadian research does not exist. It is likely that there will be fewer Canadian authors published, that books will get more expensive (not just due to the rising cost of paper), and that advances for authors will continue to dwindle.
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Canadians have no way of knowing whether preliminary research is being done or has been done on this proposed merger by the Competition Bureau. While this opacity is frustrating and distinct from many other jurisdictions, there are good reasons for it, including maintaining confidence in transactions without affecting stock prices or prospective investments in a company receiving attention. It’s certainly respectful and definitely polite. But when massive mergers with global implications are being discussed and dissected elsewhere, the arguments against more disclosure here at home are weakened. Perhaps we need a way to have conversations about the mergers that we choose not to review in this country, too.
Rogers Communications Inc.’s attempt to buy Shaw Communications Inc. has captured the public’s attention and thrilled competition wonks, yet the implications of the publishing mega-merger haven’t been as reviled, even though the resulting market share would be greater than what Rogers would control.
We shouldn’t leave this merger on the shelf if we want to keep having a range of choices when we return to it — at Indigo, our favourite independent bookseller, or online. We need to find appropriate ways for Canada’s Competition Bureau to be in candid dialogue with Canadians about their current investigations and rationale for not reviewing high-profile mergers in the public interest. We also need to actually proceed with the anticipated review of the Competition Act and make sure it’s an inspiring work of nonfiction. Let’s not turn the page on merger reform.
