Justice Takes Aim at CBS

When CBS began flirting with the idea of acquiring Fawcett Publications Inc. two years ago, the network's lawyers checked with the Justice Department and came away with the impression that there were no objections. Believing that the way was clear, CBS went ahead and paid $50 million for Fawcett (1976 sales: $135 million) and merged its magazines (Woman's Day and Mechanix Illustrated) and paperback-book operation into CBS's publishing division.

Either the CBS lawyers heard wrong or the trustbusters changed their minds. Last week the network found itself the target of a Justice Department complaint aimed at forcing CBS to divest itself of Fawcett's large paperback business and to refrain in the future from acquiring any paperback publisher.

The complaint, which was filed in Federal Court in Manhattan, focuses on the combination of CBS's Popular Library Books, which in 1976 controlled 2.6% of the nation's $740 million paperback business, and Fawcett, which had a 9.4% share. In its brief, the Justice Department charges that the takeover violates the Clayton Antitrust Act because it tends "to create a monopoly." According to antitrust doctrine, any arrangement that lessens competition can be interpreted as creating a monopoly, even though the resulting company happens to control only a fraction of the market. Said the complaint: "The mass-market paperback-publishing business is concentrated and is experiencing a trend toward further concentration."

CBS denied that its acquisition of Fawcett gave it a dominant role in the highly competitive paperback business and vowed that it would "defend itself vigorously" against the charges. "You never can tell what Justice will do," said one CBS executive. Referring to CBS's belief that it had the trustbusters' approval in 1976, he added: "Anyway, that was the Ford Justice Department, and this is the Carter Justice Department."

At first glance, the Justice Department's case seemed weak. Even with the acquisition, CBS has gained only a 12% share of the paperback market, and the network's purchase of Fawcett did not drive any major competitors from business. But as the complaint notes, several smaller firms have left the market during the past decade. And entry into the field is very difficult, if not impossible, for newcomers. In the past three years, Doubleday took over Dell, a paperback publisher; Britain's Penguin acquired Viking and its softback operation; Gulf & Western bought Pocket Books; and West Germany's Bertelsmann Publishing Group gained control of Bantam.

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