There are, at this moment, still five US commercial book publishers of mega-size. Penguin Random House is the biggest; HarperCollins is 2nd; and Hachette, Macmillan, and Simon & Schuster round out the Big Five. PRH is, approximately, as big as the other four combined (about $4 billion in sales) and HarperCollins is, approximately, as big as the three behind them combined (about $2 billion in sales). By acquiring Simon & Schuster, which PRH is attempting to do, they would widen their lead over Harper as the biggest player in the market.

The US Department of Justice has chosen to oppose the merger that would give PRH an even more commanding share of the US commercial book market. As a piece in The New York Times called “Monopoly’s Bad Cousin” by Binyamin Appelbaum spells out, this signifies an important shift in US policy about policing monopolies. For the past several decades, anti-trust law restraining monopolies intended primarily to keep the monopoly from raising prices to consumers. That was the adverse consequence most feared and protected against.

This time, the anti-trust action is meant to protect “producers”; the authors who have had five potential bidders for their biggest projects and would now only have four. This is, within the world of books, a tiny percentage of the “producers”. The only authors affected would be those who might get offers from all five, and they would have reliable track records of delivering books that sold extremely well, and, in addition,  an even smaller handful of new authors who are personally so famous or have stories so compelling that strong sales are virtually guaranteed despite no prior track record.

Appelbaum’s piece in the Times focused on the history of anti-trust enforcement and the sea-change this constitutes, going from protecting consumers from high prices to protecting “producers” from low-ball bidding for the rights to publish their work. But the piece ignores how the realities of the book business have changed and, particularly, how the environment in which these companies came to be and came to become dominant has been transformed. That history is as important as the history of anti-trust to guide formulation of a reasonable position on the book business’s continuing, and inevitable, consolidation.

The story of the book business in the 20th century was the story of growth on the back of ever-increasing retail shelf space for books. Department stores provided a lot of the growth for the first half of the century. Chain stores dedicated to books began to grow in the 1960s and 1970s. Computerized inventory tracking and a robust wholesaling network, led by Ingram, led to an explosion of independent stores in the 1970s and finally, to the creation of Superstores — bookstores that carried more than 100,000 titles — in the 1980s.

Successful commercial trade publishing was built on taking efficient advantage of the extensive retail network. That meant having the clout to manage the big accounts like the mall and then superstore chains and having the organizational capability to cover literally thousands of owner-managed bookstores of all sizes.

The publishers who maximized the opportunities presented by the increased shelf space grew right along with it. By the early 1990s, all the biggest publishers could place a few thousand copies of each new book they published in front of the public on retail shelves. Enough of those sold through so that the one publisher who measured for it — St. Martin’s Press under CEO Tom McCormack — found that well over 80 percent of the new titles they issued generated positive margin for the company. That is, they generated more cash revenue than they cost.

But most publishers didn’t see it that way. They “knew” that every book had to carry its share of overheads to pay for the office, the editors, the sales force, the warehouse. Their solution was to allocate a percentage charge against the margin each title produced. That tended to range from 35 to 50 percent of sales. So books that generated positive margin but not as much as the standard overhead charge were thought to have “lost money”. That was most of the titles. And by misunderstanding their own financial construct, publishers were restrained from being too expansionist about growing their lists.

Except for St. Martin’s, that is. Over the nearly three decades McCormack ran the company, they kept increasing title output. They knew that publishing new titles was actually adding to their bottom line most of the time. As it was for most publishers, even if they didn’t see it that way.

The world started to change in 1995 with the creation of Amazon.com. Slowly at first, but then with accelerating speed, books began to sell regardless of inventory placement. Then at the turn of the century, Ingram’s “print-on-demand” capability added to the disruption. Now the book not only didn’t need to be on a retail shelf, it didn’t even need to be printed for a sale to occur online today that could be fulfilled with a book dispatched tomorrow.

So now the principal skill sets that delivered competitive advantage to big publishers — controlling distribution to the shelf space that had been pretty much the sole source of book sales and being able to manage inventory from manufacture to warehousing to delivery — were largely mooted. A guy in his living room with a book on his computer could compete for online sales with the big boys.

Of course, there were still advantages to a massive backlist. The new online book marketing environment could rediscover and reinvigorate old books just as well as new obscure ones. Established publishers were finding that old books suddenly “popped” and could get a sales surge through online channels even when there was no time to put them in bookstores.

Sales migrated. Physical retail got less and less; online sellers got more and more. Ingram enabled robust book offerings by any online retailer so the big retailing brands — especially Costco and Walmart — grew their online book business way beyond what their physical store sales would have suggested was possible.

And now, in the 2020s, we have an entirely different book business than we had in 1990. Physical retail has fallen from just about all the sales to well under half. Since the biggest bestsellers still move big numbers through mass merchants, that means that the lion’s share of titles are selling way below half in stores. The number of stores is down sharply — major retail chains like Borders and Walden have disappeared — and the superstore with a massive number of titles is now about extinct.

So the big publishers can’t put out thousands of copies of everything anymore. In fact, they can’t put out thousands of copies of many things. They compete with the smaller publishers and self-publishers for online attention for most of the sales they can get. That means that it is really true now that most new books they publish don’t achieve the minimum sales level that assured positive margin most of the time three decades ago.

And that is what drives the big publishers’ desire for acquisition. The big backlist is still useful; the more titles you have the more likely it is that tomorrow’s news or cultural event will raise the profile of something in your backlist. With the capability of print-on-demand, it requires almost no cash investment to keep a title alive on your list. But it is hard to publish a brand new title without losing cash. So acquiring extant titles becomes relatively more attractive.

At the same time, the percentage of the total books sold that come from the big publishers is dropping. Hundreds of thousands of titles a year are coming from self-publishers and tiny publishers as the cost of putting a title into the marketplace keeps dropping. (It is the cost of acquiring and editing a book that deters publishers; self-published authors don’t see that cost the same way.) That’s why established publishers continue to consolidate. A lot of the effort and staff of a publisher are about putting new books out. If you’re doing less of that, you need less of a company. But the more you grow your online sales capability, the more you can squeeze sales out of titles that already exist.

And now we come to the relationship between publishers and “producers”, otherwise known as authors. It has been true for many decades that the biggest books require lower per-unit-sold margins to justify the effort to deliver them. And it has been true for many decades that big books are “door openers”; they get customers to listen to your pitch for other books as well.

For a very long time, publishers have had “standard” royalty rates that are in all the book contracts they sign. There are even some publishers with contracts that oblige them to adjust those rates if, in the future, they change them in the author’s favor. That means they never do. So the biggest authors sign on for royalty rates the same as everybody else’s, but they get advances against those royalties that are never expected to “earn out”, effectively meaning that their share of the sales dollar is larger than those royalty rates would deliver.

Today, those very big books have additional value. They are among the few that are assured of retail shelf space. No big publisher wants to walk into Costco or Barnes & Noble without must-have books to present. In today’s world there’s another value to the publisher: these books will be printed in large press runs and utilize the warehousing capabilities of the publisher, all of which must be maintained against a diminishing share of the business the publisher does.

Only the biggest publishers are in the game of paying what are effectively the higher royalty rates for the biggest movers. It is almost certainly true that those big authors will have a harder time getting the big advances with four bidders instead of five.

But will keeping five players in that game change things for anybody below that top tier? Since we’re now in a world where all authors but the biggest find it harder and harder to get a deal at all and more and more of them resort to some self-publishing solution, it would seem, “probably not”. In fact, one sophisticated publishing observer remarked recently that the Big Four or Big Five will probably soon start lowering their standard royalties for everybody else because book contracts are harder and harder to get and the biggest authors have no stake in maintaining the standard royalties that don’t affect their commercial arrangement anyway.

Big trade publishing will continue to consolidate for the most logical of all reasons: the ‘trade” itself is shrinking and the total sales made by those publishers constitute an ever-diminishing share of the total market.

And the opposition from the DoJ to PRH acquiring S&S won’t change that reality, nor will it benefit any authors beyond the top 100 or 200 who could actually make money without a publisher at all, although it would be a bit riskier for them and a bit more work.

If the DoJ is serious about their intention to keep the bidding pool alive for the big authors, then none of the Big Five can merge in any way with any of the others. It isn’t just about giant Random House getting bigger. It is about preserving five behemoths. In a shrinking book business, does it really make sense to try to maintain a Big Five? Has the DoJ thought this through completely? It doesn’t look like they have from here.

It turns out my friend Joe Esposito wrote a bit over a year ago that PRH should want to acquire Simon & Schuster which provoked me to write a post then that I think it is likely nobody at DoJ read before taking this action. And here’s another batch of thoughts around the same subject that I published five years ago.

I continue to write about climate change elsewhere. My latest at ClimateChangeResources.org is an attempt to explode the myth that nuclear power is somehow excessively dangerous. It isn’t.