Affected market: Publication of books
The OFT’s decision on reference under section 33(1) given on 19 April
2006. Full text of decision published 21 April 2006.
Please note that square brackets indicate figures or text which have
been deleted or replaced with a range at the request of the parties for
reasons of commercial confidentiality.
Hachette Livre SA (Hachette) is a wholly owned subsidiary of
Lagardere SCA, France, which operates in the UK through Hachette Livre
UK Limited. Its key publishing businesses in the UK include, Hodder
Headline Limited; Orion Publishing Group; Octopus Publishing; and Watts
Publishing Group. It distributes its own and third parties' books
in-house through Littlehampton Book Services and Bookpoint Distribution
Time Warner Book Group Inc and Time-Life Entertainment Group Ltd
(referred to collectively as TWBG) are wholly owned subsidiaries of Time
Warner Inc. TWBG publishes under imprints including, Abacus; Atom;
Little Brown; Orbit and Virago. TWBG does not distribute its own or
third parties' titles. TWBG's UK turnover in 2005 was £[ ] million.
On 6 February 2006 Hachette agreed to acquire the entire issued share
capital of TWBG. The acquisition was notified to the OFT on 23 February
2006. The statutory deadline is 5 June 2006.
As a result of this transaction Hachette and TWBG ceased to be distinct.
The UK turnover of TWBG is less than £70 million therefore the turnover
test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is not
However, the parties overlap in the publication of books and for the
purposes of the share of supply test, they submitted that combined, they
will account for [20 to 30] per cent of hardback fiction book sales
and [25 to 35] per cent of paperback fiction book sales in the UK in
2005. Accordingly, the share of supply test in section 23(2) of the Act
is met. The OFT therefore believes that it is, or may be the case that a
relevant merger situation has been created.
FRAME OF REFERENCE
For most readers the most important factor in choosing a book is the
author or title. Therefore, on the narrowest possible basis, each
individual title might be viewed as a separate market. However, with
regard to general literature works, most publishers are active across
the range of categories and customers purchase books from across a wide
variety of genres. General literature works are therefore considered
The European Commission has drawn a distinction between hardback and
paperback general literature (see [Note 1]) but third parties
have previously told the OFT (see [Note 2]) that there is
competition between the different formats and many publishers have
similar shares of supply in each of the two segments. Share data from
the parties suggests this is still the case.
The OFT has previously (see [Note 3]) segmented publishing into
nine categories of books (see [Note 4]). The parties and the
majority of third parties agreed with that segmentation in this case
also. Two third parties submitted that the total supply of books
comprises a single market. However, there is no need to reach a firm
conclusion on product scope, as the merger does not raise concerns in
Publishing houses active in the UK make most of their sales in the UK
and books are written in the English language. Therefore, the relevant
geographic frame of reference for this assessment is the UK.
The parties overlap in the publication of all books; general literature
in hardback; general literature in paperback; and children's books;
academic and professional; and science, technical and medical books. The
merged entity's shares are estimated at less than 20 per cent (with
increments of less than 5 per cent) in each of these segments. Although
the merged entity will be the largest player in a number of segments,
the second and third largest players are generally of a similar size and
the market is relatively fragmented with over 2000 publishers in total.
Some third parties submitted that the merged publisher will have a
monopoly over those titles it supplies which are ‘must haves’ but this
would not appear to change as a result of the merger. Information on the
parties’ shares of supply of bestsellers (see [Note 5]) shows
that post merger, Hachette will continue to be the second largest
publisher of the 100 bestsellers in 2005, with Random House, continuing
to be the largest. HarperCollins and Pearson will continue to be
significant players also. In addition, there is evidence that smaller
publishers will continue to exert a constraint on the merged entity (see
The potential theory of harm in this case is that increased market power
would allow the merged entity to raise prices to booksellers by offering
less favourable terms of trade, such as lower discounts off the
recommended retail price. This could then be passed on to consumers in
the form of lower discounts. However, in view of the small increments in
the merged party's shares in each of the overlapping segments and given
the presence of other similar sized competitors, the OFT is satisfied
that no concerns arise as a result of the merger.
In light of these factors, the OFT does not consider this transaction
could lead to a substantial lessening of competition in book publishing
in the UK.
The parties’ share of supply for the provision of distribution services
to third parties is below 15 per cent therefore this is not expected to
raise any vertical competition concerns (see [Note 7]).
THIRD PARTY VIEWS
Third party competitors were unconcerned.
Customers were concerned to differing degrees about the parties’
potential increased market power post merger, which would allow them to
harmonise or reduce the terms offered to customers. These concerns have
been addressed above.
The parties will be the largest UK publisher of all books; general
literature (hardback and paperback); children’s books; academic and
professional; and science, technical and medical books. However, their
combined shares of supply will not exceed 20 per cent in any of the
overlapping segments and the increments are small (at less than 5 per
cent). All product segments are fragmented with competitors who are not
significantly dissimilar in size to the combined entity.
Based on the moderate shares of supply and small increments in each
case, it is unlikely that the merged entity would acquire market power
as a result of this acquisition. Other publishers such as Random House,
Pearson and Harper Collins (see [Note 8]), which are a similar
size to the parties in all of the segments considered, are expected to
continue to constrain the parties’ behaviour post merger.
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- Lagardere/ Natexis/ VUP Case No. Comp/M.2978, 7 January 2004.
- Hachette Livre SA/ Hodder Headline Limited OFT Decision of 15
- Hachette Livre SA/ Hodder Headline Limited OFT Decision of 15
- General literature in hardback; general literature in paperback;
children's books; school text books; academic and professional;
scientific, technical and medical; dictionaries; encyclopaedias; and
- Based on the Guardian's top 100 bestseller (2005) list.
- Recent examples of smaller publishers with disproportionate market
power include, Bloomsbury when it first published 'Harry Potter' and
Profile Books with 'Eats, Shoots and Leaves'.
- In Lagardere (see note 1) the European Commission identified a
separate market for distribution of books by third parties (excluding
in-house distribution). Although a certain degree of substitution
between in-house and external distribution services is possible, the EC
found that in-house production was essentially intended for producers'
own use; and there was no direct competition between in-house production
and production offered to outsiders because of the substantial
investment on in-house capacity and the need to obtain a return on it.
Therefore, only the services provided to outsiders constitute a market
on which supply is matched to demand.
- The OFT has no evidence to suggest that TWBG competes more closely
with Hachette compared to these three (larger) publishers.