Hult International Business School

Book Publishing in
2010
Global Strategy

Antnio Chagas
24/02/2013

TABLE OF CONTENT
1. SUMMARY ................................................................................................................. 3
2. INTRODUCTION ........................................................................................................ 3
3. THE BOOK PUBLISHING INDUSTRY PRIOR THE E-BOOK REVOLUTION .... 3
3.1 Threat of New Entrants (Medium).......................................................................... 4
3.2 Threat of Substitute Products (High) ...................................................................... 4
3.3 Determinates of Supplier Power (Medium Low).................................................... 4
3.4 Determinates of Buyer Power (Medium Low) ....................................................... 5
3.5 Rivalry Among Existing Firms (Medium).............................................................. 5
4. THE BOOK PUBLISHING INDUSTRY AFTER THE E-BOOK REVOLUTION ... 5
4.1 Threat of New Entrants (High) ............................................................................... 6
4.2 Threat of Substitute Products (High) ...................................................................... 6
4.3 Determinates of Supplier Power (Low) .................................................................. 6
4.4 Determinates of Buyer Power (High) ..................................................................... 6
4.5 Rivalry Among Existing Firms (High) ................................................................... 6
5. THREATS AND OPPORTUNITIES ........................................................................... 7
6. CONCLUSION ............................................................................................................ 7
7. REFERENCES ............................................................................................................. 9
8. APPENDICES ............................................................................................................ 10

1. SUMMARY
The present assignment intends to use Porters five forces in order to analyse the
Publishing industry. (See Appendix 1).
It will be subdivided into prior and after the eBook revolution in order to assess the
structural changes in the industry.
After the analysis, there will be presented an external perspective (opportunities and
threats) faced by the industry and which will decisively shape the profile of the
surviving companies.

2. INTRODUCTION
As a new technology that emerged in the 2000s, the digital publishing revolutionised
the book industry. The book industry has been a very mature industry, consistently
growing since the 1960s and their business model has been quite stable during this
period. In the recent years, the internet, along with some initiatives like the Gutenberg
Project (a volunteer effort to digitalize all the books in a free format), the Google project
(to scan every book in the world) and more recently the eBooks have threatened this
traditional industry (The Gale Group, Inc., 2013).
Meanwhile, the printing industry itself was evolving. New technologies such as printon-demand were allowing small and micro-niche publishers to sustain its activity (The
Gale Group, Inc., 2013).
These changes create a sense of uncertainty throughout the industry. The next years will
be crucial to understand how the Publishers will handle this disruptive change.

3. THE BOOK PUBLISHING INDUSTRY PRIOR THE EBOOK REVOLUTION

The traditional publishing is highly fragmented, with over 87,000 publishers just in the
US. The market is divided into different segments, namely: (1) Trade books, (2) Mass
market paperback, (3) Educational, (4) Professional, (5) Reference, (6) Religious, (7)
Audio Books, and (8) EBooks (Bradley, 2012).
The trade books are the most published, accounting with 33% of the industrys net
sales, and the top six publishers held a total 60% of that share. (Bradley, 2012)
Another particularity of the printing industry is that the publisher takes all the risks and
deals with uncertainties of the revenues.

3.1 Threat of New Entrants (Medium)

The number of publishers expresses the consideration that there are not many barriers to
new entrants. Because it is a capital intensive activity, most of the difficulties are related
with economies of scale, learning experience, strong reputation and track record of
successful titles (Bradley, 2012).
The constraints related with the activity include: Costs of recruiting authors, Printing,
Purchasing paper, Marketing and Developing Distribution Channels.
The major players usually outsource printing and distribution, remaining in control of
marketing and sales force functions (Bradley, 2012).

3.2 Threat of Substitute Products (High)

Book is high fragmented by typology and by subject. Generally, the Trade Segment is
more susceptible to substitute than Educational books.
In the trade segment, every sort of entertainment could be considered a substitute:
Movies, Audio book, Internet, Periodicals, Newspapers, Magazines, Video Games,
DVDs and CDs.
Education books are highly specialized and it usually has higher barriers due to
legislation and the need for economies of scale. In this segment the possible substitute
can be found in: Encyclopaedias, used books, black market, CDs, DVDs, Periodicals
and Newspapers.

3.3 Determinates of Supplier Power (Medium Low)

According to the supply chain (see Appendix 2) there are three main suppliers to the
publishing industry: Authors/Agents, Paper and Print.
The power of Authors/Agents is low. The Author needs the Publisher to release their
work. The Publisher takes the risk and all the costs related with promotion, printing
and distributing, and it uses to negotiate the royalties with the Author or its
representative (the Agent).
The power of paper is medium. Paper represents the second highest cost to the Publisher
(After labour). Paper is commodity, and therefore, susceptible to fluctuations, in order
to minimise the variance, the Publisher is inclined to prolong the contracts in a multiyears basis.
The power of the Printers is also medium, although there are not many Printers with
enough scale to be profitable, there are not also many Publishers who can order large
volumes. However, the advent of on-demand printing also lowered the cost by making
small-print runs viable (Bradley, 2012).

3.4 Determinates of Buyer Power (Medium Low)

The buyer power is related with two elements, the Retailers ant the Costumers
because the Publisher can either sell directly to the costumer or deal with a retail
chain.
In the Trade Books segments, the Retailers can pressure the Publisher by using the
return at full reimbursement from the Publisher which also holds the transportation
costs.
However, in the Education segment, the Publishers are highly concentrated and
therefore, they have much more power. (It is a high-demand-Small-Print-Runs segment)
On the Costumer side, the forces are very weak because direct sales volumes are not
so expressive. Costumers pressure in trade book is mostly at the retailer level (i.e. the
costumer can wait until the prices go down). However, in the Educational sector,
costumers have even lower barging power because is the School or Government that
chooses the book.

3.5 Rivalry Among Existing Firms (Medium)

As it was mentioned, there are a total of six major publishing houses, all inserted into a
major group that can raise the required capital to work under large scales. The
publishing industry works in a consolidated market were, large companies used mergers
and acquisitions to minimize the business risk.
Companies also need capital to dilute the risk of publications that experienced low
success.
There is some rivalry, especially in the market segments.

4. THE BOOK PUBLISHING INDUSTRY AFTER THE EBOOK REVOLUTION

The most visible change with eBook revolution was in the Supply Chain (See Appendix
3). The supply chain is shorter, which means publishers are closer to the customers,
increased activities like direct sales, self-publishing and POD (print-on-demand) have
diluted the old traditional functions. Also, the revenue stream has changed. Generally,
the Author/Agents royalties increased (15% to 25%), new pricing modes, as well as the
risk sharing.
The eBook revolution started in 2006 with Sony Reader and the Sony eBook store (See
Appendix 4). Later, Kindle took the lead, due to an aggressive marketing campaign, it
eventually reached 70%/80% of the market. At the present day, we can categorise the
eBook market has having two different competitions: a High-end competition (Kindle
and iPad) and a price competition (all the others) (Bradley, 2012).
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4.1 Threat of New Entrants (High)

As already mentioned, technology have increased the possibility to enter this industry
for the following reasons:
- No need for distribution channels
- No need for shelf-space
- No costs in printing and warehousing
- Smaller upfront investment
- Lower capital investment

4.2 Threat of Substitute Products (High)

The substitutes remain roughly the same. Technological improvements, such as new
devices and new applications, can make the difference by creating more access points to
other alternatives. Another improvement is the standardization of the devices, providing
alternative access within the platform.

4.3 Determinates of Supplier Power (Low)

The suppliers have a low bargain power. However, is still higher than traditional
printing. Publishers have been successful defining new pricing models and royalties.
Besides the eBook format, Self-publishing and direct sales through online platforms
have contributed to the contraction of the sales

4.4 Determinates of Buyer Power (High)

The bargain power within the retailer side is high. Amazons strategy let them achieve a
huge share of the market. Sales have increased 3,000% between 2004 and 2009 (still
4% of total revenue but expected to reach 40% in 2015). Micro-niche publications
(On-demand) would have a small opposition to this trend (Bradley, 2012).
The customers buyer power is high. There are concerns about the Amazons $9.99
unique price strategy might distort the customers price perception. Customers can also
pressure on the earlier release of the digital versions.

4.5 Rivalry Among Existing Firms (High)

The supply chain has shortened and scale is less important to stay in the market. Selfpublishing and direct sales activities are means that virtually everyone now can be a
publisher. In these periods of turbulence, traditional players must choose their ground.
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Some will adapt, other will look into a niche, and most likely, some companies will
disappear.

5. THREATS AND OPPORTUNITIES

In terms of opportunities for the industry, in the next years we will assist to the
consolidation of the eBook format. The market still has opportunity to grow, especially
in the emerging markets.
Self-publishing will continue to increase be it would not replace the publishers.
In fact, some sources point out that it is an opportunity for the publishers to
emerge has experts in information, by their ability to select and synthesise
knowledge.
In the Educational segment, legislation will eventually force publisher to use
digital support.
The print book market will still witness the rationalization of its supply chain.
Like in all the changes, the financial constraint and economical background will
force more M&A and bankruptcy in the industry.
New business models will emerge with new sources of revenue.
In terms of threats to the industry, in the next years we will assist more power to the
costumer side.
Also, the bargaining power of authors will increase gradually along with
increases in royalties.
Electronic distribution, internet competition and piracy will decrease the
revenues.
Copyright and IP protection will be under threat.
Changes in business models will eventually have implications on staff and
redundant equipment.
At the educational level, we will continue to assist the students to use of search
engines and free online information has a substitute to formal textbooks.

6. CONCLUSION
The traditional printed book will most likely continue, but so it is the technology that
revolutionized nearly every aspect of this industry. I believe that there is still room for
publishers in the market. Collecting, synthesising and editing information will still
going to need entities to manage it.
As the use of paper becomes rapidly becomes obsolete, specialized Printing and
distribution companies are those that are most under pressure.

At the exception of the Suppliers barging power, all the other forces are high, which
reflect the turmoil that the industry is experiencing. This means that there is much
uncertainty and new development will emerge in this exciting new market.

7. REFERENCES
Bradley, S. B. N., 2012. Book Publishing in 2010. Boston, MA: Harvard Business
School Publishing.
Porter, M., 2008. The Five Competitive Forces That Shape Strategy. Boston: HBR.
The Gale Group, Inc., 2013. Books: Publishing, or Publishing and Printing. [Online]
Available at: http://business.highbeam.com/industry-reports/wood/books-publishingpublishing-printing
[Accessed 23 Feb 2013].

8. APPENDICES
Appendix 1 - Porters Five Forces (Model of Competition)

Threat of New
Entrants

Rivalry
Among
Existing
Firms

Determinates
of Supplier
Power

Determinates
of Buyer
Power

Threat of
Substitute
Products

Source: (Porter, 2008)

Appendix 2 Supply Chain Before eBook revolution

Author

Agent

Publisher

Printer

Wholesaler

Retailer

Costumer

Source: (Bradley, 2012)

Appendix 3 Supply Chain After eBook revolution

Author

Agent

Publisher

Retailer

Costumer

Source: (Bradley, 2012)

Appendix 4 eBook revolution Timeline

2006
Sony Reader
($359)

Nov/2007
Amazon's
Kindle ($359)

Feb/2009
Kindle2
($359)

Aug/2009
Sony Reader
Pocket ($199)

Oct/2009
B&N's Nook
($259)

Apr/2010
Apple's iPAD

Jun/2010 Kobo

Source: (Bradley, 2012)

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