Discover more from BIG by Matt Stoller
Free Speech on Trial
Speech is about the right to say what you want. But being heard is all about market power. That's why two antitrust cases, one in publishing and one in online video, matter.
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Today’s issue is about how a subtle form of speech control works in 21st century America, as seen through two ongoing antitrust cases. The first is a merger trial where the government is trying to block the combination of publishing giants Penguin/Random House and Simon & Schuster, and the second is a lawsuit where conservative video service Rumble is suing Google for monopolization.
In both, dominant firms are trying to gain or protect market power, and in doing so, end up with too much power over the public square. It’s not intentional, but monopoly power fosters centralized control of what we can discuss.
Speech and Concentration Creep
In the 1998 romantic comedy You’ve Got Mail, Meg Ryan and Tom Hanks star as two business rivals who hate each other in ‘real life’ but connect and fall in love anonymously over the internet. Hanks plays Joe Fox, a tycoon who owns a Barnes and Nobles-style corporate book chain, trying to crush the small store owned by Kathleen Kelly, played by Meg Ryan. After a noisy but adorably silly protest, the movie ends with Kelly losing her store, but getting Tom Hanks as a soulmate. It’s a delightful film, a Nora Ephron-written classic.
What’s interesting about this movie from an anti-monopolist standpoint, however, is not the romance, but the politics. The movie is almost aggressively apathetic about concentrations of power. We tend to look at corporate concentration as a relatively recent phenomenon. Big tech emerged in force in the 2000s, that’s when offshoring to China happened in force, and the key major ruling ending monopolization cases didn’t occur until 2004. But here’s a movie showing that almost 25 years ago, before all that, consolidation was so well-known as to be a relatively unremarked central plot element of a popular film.
You’ve Got Mail is also a movie about a specific industry, publishing. Indeed, in many ways, the book industry has been a canary in the coal mine for concentration in the American economy. Books were the very first industry dominated by Amazon, but it isn’t just the retail giant. Every part of the book business, from retail stores to distribution to printing to retail to audio and ebooks to publishing houses, has been consolidating for decades. In the movie Tom Hanks is kind and charming; in real life, Barnes and Nobles used its power over shelf space to act as the industry bully, until Jeff Bezos came along and turned market power into performance art. Then, ten years ago, Penguin and Random House merged, allowed by the Obama administration’s antitrust enforcers. The book business is an increasingly cruel and lawless world, not a romantic one.
And yet, publishing attracts romantics, people who believe in books, in free expression, in storytelling. And there is still some diversity in the industry, with many independent bookstores hanging on, as well as some smaller independent publishers eking out profits with a bit of luck and passion. But the days of fair distribution and printing are gone. Indeed, industry proponents look back nostalgically to the days when Barnes and Nobles was dominant; Amazon controls the vast majority of book sales. Even physical printing is difficult. And the “Big Five” - Penguin/Random House, Hachette, Harper Collins, Simon and Schuster, and Macmillan - have rolled up a good amount of the publishing market. Consolidation continues apace. Two years ago, Penguin/Random House, which is by far the biggest of the Big Five, announced it would try to buy Simon & Schuster, in an attempt to turn the Big Five into the Big Four.
What’s exciting, though, is that we’ve finally hit a breaking point. This merger, unlike most of the others, is finally being challenged by the government. Indeed, if the Department of Justice Antitrust Division has its way, this consolidation trend in publishing is at an end. For the last year and a half, lawyers have been poring over documents and doing interviews with industry participants. It has all culminated into a trial happening over the past two weeks in a court house in D.C., during which government lawyers have been arguing that Penguin shouldn’t be allowed to buy its rival. And this trial, for a lot of reasons, could be a turning point for the industry, and for antitrust law in general.
The Antitrust Trial
On first blush, challenging a merger in publishing doesn’t seem like it makes that much sense, at least not from a consumer standpoint. There are still small and medium size publishers, as well as self-publishing. It’s not like consumers lack the ability to get information, there are a seemingly endless number of books, movies, websites, and content creators. And yet, there’s something of an illusion of choice here, with the number of options expanded, but all of those options coming from a smaller and smaller number of corporations. Moreover, seen from an author’s perspective, big publishers do have immense power over the public square, because publishing is now highly centralized.
Large publishers firms regularly buy up independent imprints, and have been doing so for decades. Penguin Random House, for instance, has over 90 different imprints, many of which it bought over time, like Crown, Ballantine, Bantam, Del Rey, Delacorte Press, Clarkson Potter, and Viking. Simon & Schuster has its own roll-up of imprints - Atria, Scribner, and Gallery. Even beyond the Big Five, the market for original nonfiction or fiction trade books is quite concentrated.
Part of this consolidation trend was driven by the need for these firms to bulk up to negotiate with chain book stores, and then eventually Amazon. Concentration creep, where consolidation in one part of the industry fosters consolidation elsewhere, is a real phenomenon. Amazon had a specific strategy, nicknamed ‘Project Gazelle,’ of seeking out weaker publishers and bludgeoning them for better pricing. The government hasn’t helped matters. When publishers complained about Amazon’s strategy in ebooks and tried to work with Apple to set up a rival to the Kindle, the Obama Antitrust Division turned around and sued publishers and Apple for price-fixing. In such a situation, one could see that consolidating to protect yourself from Amazon only made sense.
Still, in 2020, when Penguin Random House announced it would try to acquire Simon & Schuster, it was clear the goal was more than defensive. Over the past two weeks, as the trial started, government enforcers have shown, and a host of witnesses have testified, that what happens after a large publishing merger is the money paid to authors goes down, and the diversity of published books drops.
As the founder of the well-respected publisher Melville House, Dennis Johnson, put it, the downsides of this merger are significant in terms of free expression.
The bigger the big publishers get, the more risk-averse they become. The less willing they are to lose money. Audiences need to be expanded, not necessarily diversified. And then the safer, less boat-rocking, bigger-demographic-satisfying stuff they publish becomes what the marketplace they dominate adapts itself to sell. The risk aversion becomes systemic.
The Antitrust Division made two essential claims in its lawsuit against Penguin Random House. First, Penguin Random House, which is already the largest book publisher in the world, would, if it is able to buy Simon & Schuster, be able to choose which books are published in the U.S. In addition, the firm could determine how much writers get paid for their work.
To understand these claims, it’s necessary to do a brief tour of the industry. The way publishers get trade books to publish is through an auction process. A book agent, representing an author, will take a proposal and send it to multiple publishers, who can bid in an auction for the right to publish the final book. The amounts offered vary widely, based on the quality of the proposal, the fame of the author, and gut feel from the editors at the publishing house. After the auction, the author then writes the book, using the advance as his or her salary during the several years it usually takes to do so. The publisher will edit, print, distribute, and market the book. The author is entitled to earn royalties from each copy of the book sold, but first the publisher has to earn back the advance before royalties start going to the author.
An advance, in other words, is a bet from the publisher on an author and a project. The government argues there is a specific market for books that require high advances, above $250,000, and their economic modeling shows that removing one bidder from the Big Five will end up lowering the advances paid to authors.
Penguin Random House naturally disagrees on every major point. There are other ways to publish books, such as self-publishing through Amazon, which enables national distribution fairly easily. Not every book gets a large advance, many people write books out of passion or because their jobs allow it, and there’s no way to know which books will succeed. Barriers to entry in the industry, they argue, are relatively low, because a publishing house is really just an editor and a publicist. There are also corporate imprints like Disney and Amazon, and the internet opens the ability of TikTok stars to publish without needing to go through the Big Five. Penguin’s economic models also contradict the government’s; having fewer big publishers will result in more intense auctions and higher advances.
This case is important for antitrust law itself; there’s never been a merger challenged on the grounds that it reduces wages or compensation to labor, so this is a first on that score.
The labor monopoly claims are also quite logical, though naturally they are a point of contestation among the parties. Having four major buyers, instead of five, would seem to lower the amounts that a buyer must pay to win in an auction. The consolidation of publishers has already hit writers in their pocketbooks. The Author’s Guild, for instance, has found that the average author is now struggling and makes $20,000 a year, which is lower than poverty wages.
It’s always impossible to know the outcome of a trial, but so far I think the government has put up a stronger case. Take market definition, which is always a big deal in merger cases. While there are publishers outside the Big Five, as various agents and publishing CEOs have testified, smaller firms don’t really compete in auctions for books that have sizable advances. For instance, one internal slide presented to the board of Penguin’s parent company said the industry’s structure was that of an “Oligopoly,” and dismissed competition from all but the other four big publishers; the CEO even told the board that Amazon’s self-publishing business was not a threat. Indeed, in internal discussions, publishing executives seem to talk about the industry the way the government is presenting it.
Most witnesses - both executives and agents - testified they see self-published books as operating in a different market. And while there are some TikTok stars who have done exceptionally well, it’s unusual for a writer to also be good at marketing, printing, distribution, and logistics. By most accounts the judge, Florence Pan, is sharp, and is asking key questions about how auctions work, economic modeling, and market definition.
So those are the broad strokes of the case. If you want to know more, John Mayer of Publisher’s Weekly has been live-tweeting it, and done an exceptional job. So for the gory details, you can follow his thread on the trial here. What I’d like to offer is my own personal experience with the industry, because I am a published author.
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In 2017, I sold my book proposal for what eventually became Goliath: The Hundred Year War Between Monopoly Power and Democracy. Writing a book, at least for me, was an intellectually challenging feat. It required long periods of research, the desire to work with ideas, and the discipline to get rid of a lot of bad writing habits. There really is nothing like a book, either reading or writing one, in terms of generating new concepts.
As an author, I was only able to write my book because a publisher was willing to invest in me doing so. It’s hard to describe what publishing a book with a prestigious imprint does, even beyond the money. Every time you are introduced, having that publisher’s name next to your bio conveys a bit of authority. You are more likely to get reviewed, more likely to be invited on TV and radio, your books are going to be put in more bookstores and get better shelf space, and you are just more likely to be taken seriously. Is that fair? Maybe, maybe not. But it’s how the book market works.
At the time I wrote my proposal, antitrust was having a boom moment, and I was fortunate to have a number of bidders. I eventually sold my proposal to Simon & Schuster, and had a wonderful experience with them. That said, several editors that were interested were excluded from the auction because they were part of big conglomerates, and their corporate rules didn’t allow editors from their different divisions to bid against each other.
It’s sort of weird for me to write this piece, because I really like several of the people who are trying to get this merger through. Still, the concentration of publishing takes money from authors, money they need to finance their writing.
Speech and Mergers
Despite my view that the merger should be blocked, I don’t think that the publishers are operating out of greed or malice. In some ways, the trial is an indictment of antitrust enforcers in previous years allowing so much consolidation in the industry in the first place. For instance, the Antitrust Division found an embarrassing email from Simon and Schuster CEO Jonathan Karp. A few years ago, Karp wrote, “I'm pretty sure the Department of Justice wouldn't allow Penguin Random House to buy us, but that's assuming we still have a Department of Justice."
That sounds bad, but Karp is someone who had to bargain with a sadistic Amazon for years without any help from the government. When his firm complained to DOJ Antitrust about bullying behavior, they turned around and sued him and his competitors for operating as a cartel. It’s an embarrassing email, but in my view more for enforcers than Karp. Why should he think this deal would be blocked? Is it fair to let Amazon do whatever it chooses, while constraining much smaller firms like Penguin Random House that must sell to Amazon and compete with it?
Of course, the answer is no. But the problem isn’t that publishers have too little power, but that Amazon has too much. The book market will be more constrained if this merger goes through, just as it is more constrained because Amazon has been allowed to control a large chunk of the market. The best approach would be to block this merger, and then bust up Amazon, thus relieving the pressure that the entire industry feels at the source. The FTC is investigating Amazon, so that’s not impossible, but it’ll take awhile.
There’s something deeper at stake than industry profits or author compensation, illustrated best when the Antitrust Division brought in a star witness, horror writer Stephen King, as a sort of elder statesman for the industry. King testified against the merger, telling the judge that he had seen a host of “idiosyncratic” publishers go out of business, leading to fewer books for niche audiences. Consolidation, he said, was a dominant trend he had seen over decades, and it was bad for books. Indeed, I’d go further. Consolidation is the main way speech control happens in America, not direct proscription of what people can or can’t say, but limits on where they can be heard. Had my book proposal been a little less popular at the moment, or if there were fewer publishers, I may not have been able to get it published, and I may not have written it. I wouldn’t have been censored explicitly, but there are other ways to limit free expression.
Indeed, with consolidation the rule rather than the exception in America, there are more and more of what I’ll call speech bottlenecks, in this case such a bottleneck being a reduction in the ability of authors to make their living researching and writing books and selling them to an eager audience, merely because of upstream market power. Whether Spotify in music and podcasting, Live Nation in concerts, Amazon in audio books, streaming giants in film/TV, tech platforms and the news, the ability to convey information or art is increasingly big and boring, instead of regional, niche, and risky.
Most of the people in publishing, such as King, are left-wing. So it’s easy to see this story as a jeremiad of left-wing nostalgics trying to save an ancient musty profession from an inevitable future of gloss, progress, and web-fueled efficiency. But King was expressing a fundamental truth also held by people on the other side of the aisle, which is that concentrated power is upstream from censorship. And that’s where I’ll head next.
A Rumble over Speech Bottlenecks
Last year, video sharing platform Rumble sued Google, alleging a monopolization scheme by the search giant to control online video. Two weeks ago, Rumble won an important procedural dispute, defeating Google’s attempt to have the case dismissed. Getting past a ‘motion to dismiss’ stage means that a judge decided that Rumble’s antitrust claims have merit. The firm will now be able to get internal documents from Google in a process called ‘discovery,’ which will take a few years and potentially lead to embarrassing revelations for the search giant. And then an antitrust trial can begin. It’s a huge win for Rumble, but not the end of the road, by any stretch.
The backstory is slightly different than the publishing case. Rumble is a video sharing platform that is somewhat similar to YouTube. During Covid it became one of the places where people angry over Covid discourse could post and watch videos, free from interference over claims of misinformation. The site attracted an eclectic group of mostly but not entirely right-wing content creators, everyone from politicians Donald Trump, Tulsi Gabbard, and Jim Jordan to comedians Russell Brand and Jimmy Dore, analysts like Glenn Greenwald, as well as outlets such as mainstream news publisher Reuters and the far-right One America News. Rumble has about 150 million visitors a month, and has capitalized on right populist frustration by portraying itself as opposed to ‘cancel culture’ and big tech censorship.
To its critics, Rumble is full of what one might call ‘misinformation.’ So too are video sharing firms like YouTube or platforms like Facebook. But unlike those giants, Rumble is open about accepting forms of speech deemed misinformation, and they would argue their strategy is analogous to any number of left-wing publishing outlets proudly publishing books with risky content.
What’s interesting about the Rumble-Google dispute, however, is that it’s not a case directly about censorship or misinformation, but about the upstream monopolization that fosters speech control. What Rumble claimed is that Google is using its search engine to send users to YouTube instead of Rumble. Additionally, Rumble argues, Google pre-installs its own YouTube app on Android phones, and in some cases prohibits phone manufacturers from pre-installing competitors like Rumble on phones. As a result, Google is able to maintain what Rumble alleges is “73% of global online video activity” through its YouTube subsidiary. Rumble is arguing that Google has prevented it from having more traffic and advertising revenue than it does, and is seeking damages.
The judge, Haywood Gilliam, is an Obama appointee, and he would likely dismiss an antitrust claim based purely on censorship in two minutes. Instead, in a significant loss for Google, he allowed the case to go forward. Winning at this stage is significant in terms of interpreting antitrust law. Gilliam found that if Rumble can prove its case, which is potentially a tall order, then what Google did was illegal. Now, Rumble will get access to Google’s search algorithm, as best it can through the discovery process.
The underlying theory of the Rumble case does not match up with how conservatives tend to think of big tech censorship. Many Republicans believe that progressives are running Google or other big firms, and these executives are making censorship choices about how to elect more Democrats or foist health choices on the public. They do this, so goes the theory, even if it means making less money. While it's certainly the case that plenty of conservatives get knocked off big tech platforms, so do many others with all sorts of viewpoints (like pro-choice advocates marketing abortion pills on Instagram). More importantly, Google executives are heavily motivated by money, and they would vastly prefer not to have to deal with difficult censorship decisions that amount to which politically powerful customers to piss off.
What is really happening is that these firms are trying to monopolize a market, and then exploit their resulting power to generate cash. Only, in speech or cultural markets, fostering a monopoly means not only that you are able to extract profits. It also means, willingly or no, you become a powerful influence over speech. Large publishing houses choose who gets published and who doesn’t, and that confers significant power. The more dominant the publishing house, the more power. Search engines or social networks are vastly more concentrated, but a similar dynamic exists. Once you control society’s single search engine or social network, editorial choices, whichever direction they lead, help determine what is heard in the public square. So what these executives are doing isn’t trying to censor, but trying to ensure that they have market power in targeted advertising, search advertising or book sales. They simply end up as speech police, because that’s what it means when you build a monopoly that can determine who gets to be heard and who doesn’t.
In some countries, like China, there’s direct government censorship, which is far more dangerous than what we face. But consolidation, though more subtle, also limits what kinds of ideas can get into the public square. It narrows and constrains, and ultimately does restrict what we can talk about as a society. It’s been deadening our ability to engage with one another culturally and politically for decades. And frankly, it’s clear that Americans want more speech and different forms of speech. For instance, for the first time in decades, the number of independent book stores is starting to grow, despite all obstacles in their path. As enforcers and plaintiffs start making the case in the judiciary against speech bottlenecks, trends like this will accelerate.
Or to put it another way, while You’ve Got Mail is a great movie, and Tom Hanks and Meg Ryan might be soulmates, it’s time to leave some political lessons in the 1990s.
Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.