Authors Groups Try to Block Quad-LSC Communications Merger Based on Antitrust Concerns

Two prominent authors organizations joined forces Wednesday in asking the U.S. Justice Department “to block the merger between the two sole competitors in the long-run magazine and book printing markets.” The Authors Guild and PEN America signed on to a letter submitted by the Open Markets Institute that seeks to prevent Quad and LSC Communications from merging. It also asks that the two printing companies be required to divest their magazine-distribution operations. The letter, which was submitted to the Justice Department’s antitrust division, cites industry data showing that a combined Quad-LSC would have 15 times the magazine-printing revenue of its nearest competitor in that market and 10 times the book-printing revenue of its nearest competitor in the book market. “Quad’s acquisition of LSC would make it the monopoly provider of printing services in the long-run magazine and book printing businesses, as well as the monopoly provider of magazine distribution,” the letter says. It notes that industry participants variously describe anywhere from 200,000 to 1 million as being the threshold for a print order to be considered “long run.” The three nonprofit organizations rushed in where publishers feared to tread: “No major magazine or book publishers were willing to talk on the record about Quad and LSC for fear of harming ongoing relationships with the only two corporations they can work with,” the letter said. But off the record the big publishers said they fear the monopoly power that Quad (known until recently as Quad/Graphics) would gain from the merger, the letter claims. “According to interviews with publishers, other printers and industry analysts, Quad and LSC are the only printers that can realistically handle printing of long-run magazines, and they are also the main suppliers of printing services to publishers of mass-market books.” Two former employees of the printing giants did go on the record to describe how the merger would hurt publishers. “You go back 10 years, there was probably half a dozen printers out there that could print what we call long run,” said Dan Weber, a former Quad sales executive, according to the letter. The Quad-LSC merger “really consolidates all those handfuls into one.” John Conley of Borderland Advisors, a former Xerox executive who also used to work for LSC’s predecessor, confirmed that publishers have used competition among printers to keep prices down. “Nobody else has the requisite binding equipment” to compete with Quad or LSC, the letter quotes him as saying. “If a printer in this country wants to ship a magazine from its plant to newsstands, it can only choose between two companies: Quad or LSC. This is because both have vertically integrated into print distribution and logistics provision,” the letter claims. “A publisher currently looking to get its magazine into newsstands across the country after a Quad and LSC merger will have to confront two monopolies along their supply chain: Quad-LSC as printer and Quad-LSC as distributor.” “Observers and participants at various levels of the book industry note that Quad and LSC are the only two printers of many different kinds of books in the country, but most notably trade books, which are books published for a general audience, and educational textbooks. One former industry executive said that in the college textbook market, Quad and LSC are the only printers that publishers can turn to.” The Open Markets letter acknowledges Quad’s claim that, without the merger, its nets sales would drop 18% by 2022 while LSC’s would decline 21%. (Quad’s recent move to drop “Graphics” from its name reflects its strategy to diversify more into non-print services. It is also making acquisitions in growth areas for print, such as signage and point-of-purchase displays.) Federal antitrust regulations, however, allow for a “Failing Firm Defense” but not a “Declining Industry” defense to justify a monopolistic merger, the letter adds. “And the merging parties cannot claim the failing firm defense because neither firm is facing insolvency in the near future.” The Open Markets Institute seeks to educate policy makers and the public about “today’s unprecedented levels of corporate concentration and monopoly power.” Claiming to be “the nation’s oldest and largest professional organization for writers,” The Authors Guild advocates for authors on such issues as copyright, fair contracts and free speech. Claiming 7,200 members, PEN America is a branch of an international network that advocates on freedom-of-expression issues.

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Authors Groups Try to Block Quad-LSC Communications Merger Based on Antitrust Concerns

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