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Merger plans complicate Justice lawsuit

| Sunday, Nov. 4, 2012, 6:25 p.m.

A joint venture merging two of book publishing's biggest names could not only reshape the industry — it could affect the U.S. Justice Department's lawsuit about alleged fixing of e-book prices.

The deal, announced last Monday and subject to regulatory approvals, would combine Pearson's Penguin and Bertelsmann's Random House. Bertelsmann would own 53 percent of the new Penguin Random House; Pearson, 47 percent.

A joint statement from the parent companies, which expect to close the deal by the second half of 2013, and numerous media reports indicate publishing's digital revolution is a major motivating factor.

Both publishing houses remain profitable. Operating profits last year were $259 million for Random House, $179 million for Penguin, according to CNN Money.

But both obviously feel change is needed to remain profitable and viable. Though the joint statement didn't mention Amazon, the TechCrunch website calls the e-commerce giant “the elephant in the room” with Random House and Penguin because of how its online sales of print books, e-books and e-reading Kindle devices, along with its own publishing ventures, have disrupted the books business.

In response to Amazon grabbing market share by deeply discounting retail e-book prices, Apple championed the “agency model,” under which publishers set retail prices and vendors such as Apple take a percentage.

Justice, contending the agency model constitutes e-book price-fixing, sued Apple and five publishers that adopted it.

Hachette Book Group, Simon & Schuster and HarperCollins deny wrongdoing but chose to settle and have agreed to create a $69 million fund to provide credits to affected book buyers. Apple and Amazon have notified customers of that plan, though the settlement and the fund still need final court approval, and Apple is likely to appeal.

But Apple remains on track to fight Justice in court next year — and Penguin, along with Macmillan, also chose to go to trial. But now, Penguin might not follow through.

Publishers Weekly reported it had been told by Penguin Group's chairman that preparations for trial next June continue, but Penguin's discussions of the merger with Justice, plus further discussions with Random House, could lead it to change its approach to the litigation.

That wouldn't change whatever merit Apple's case has. But by thinning the ranks of those still opposing Justice, it would give the impression that Apple faces more of an uphill battle — and that the price-fixing litigation and its planned merger with Random House are strongly linked in Penguin's thinking.

The merger complicates Penguin's role in the Justice lawsuit. The lawsuit also makes those merger plans, and Apple's defense of its agency model, more complicated than they'd otherwise be. And it'll be months, perhaps years, before this all shakes out for e-book readers who just want a competitive market offering the best possible selection and prices.

Two titles of interest available Nov. 13:

“The Outpost: An Untold Story of American Valor” by Jake Tapper (Little, Brown and Co.) — ABC News' senior White House correspondent recounts the vicious 6 a.m. attack that nearly 400 Taliban fighters launched on Oct. 3, 2009, against the 53 U.S. troops at Combat Outpost Keating. The Americans won, but the battle ranks as one of the deadliest for U.S. forces in Afghanistan. The U.S. then abandoned and bombed the outpost — and a Pentagon probe would later find “there was no reason for Outpost Keating to have been there in the first place,” according to the publisher.

“The Joy of Hate: How to Triumph over Whiners in the Age of Phony Outrage” by Greg Gutfeld (Crown Forum) — The author, known for hosting “Red Eye” and co-hosting “The Five” on Fox News Channel, provides edgy comedic takes on what the publisher calls “the annoying coddling Americans must endure of ... harebrained liberal hypocrisies.” He advocates “smart intolerance, or ... what we used to call common sense” regarding politically correct double standards, the tea party, the Occupy movement, mainstream media and less political annoyances, such as “pretentious music criticism” and “snotty restaurant hostesses.”

Alan Wallace is a Trib Total Media editorial page writer (412-320-7983 or awallace@tribweb.com).

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