Revolutions in Book Publishing

The Effects of Digital Innovation on the Industry

Lall Ramrattan, Michael Szenberg

• Éditeur: Palgrave Macmillan
• Année: 2015
• ISBN:
  9781137576217
• Sujet: Computer Science
• Sous-sujet: Computer Science General

Revolutions in Book Publishing uses dynamic methods to examine the evolution of the industry's transition from physical place to cyber space, analyzing the latest effects of technological innovations on the industry as well as their influence on distribution channels, market structure, and conduct of the industry.

1

General Introduction

Abstract: The book industry has been marked by four distinct phases of technological advances: the Civil War period, World War I, World War II, and the modern period of high-tech development. Today, bookstores are dwindling and the Internet is the preferred marketplace for both buyers and sellers. Consumers are increasingly reading books in digitized form on electronic devices. Feedbacks in the old Structure, Conduct, and Performance paradigm have made predictions difficult in the industry. We apply methods of analysis that view industry players’ rivalry behavior in a gaming setting, taking a new perspective on price and nonprice competition that also encompasses bidding, advertising and R&D expenditures that have become important dimensions of the market order of the industry.

Ramrattan, Lall, and Michael Szenberg. Revolutions in Book Publishing: The Effects of Digital Innovation on the Industry. New York: Palgrave Macmillan, 2016. DOI: 10.1057/9781137576217.0006.

Not since Gutenberg printed his first Bible has the book industry undergone such rapid and widespread change. Digital technology has revolutionized the industry and expanded the very definition of what makes a book. Paper books, e-books, self-publishing, books promoted by social media and uploaded straight to our Kindles: all are viable options in publishing’s brave new world.

Why is there a need for a study of the book industry? First, in the industrial organization literature, the study of the book industry is conspicuously absent. Walter Adams and James Brock’s The Structure of American Industry, now in its 12th edition, has never covered the book industry. There are other publications that have studied aspects of the industry, including Greco’s 2005 book and Canoy’s 2005 entry in the Handbook of the Economics of Art and Culture, but they are generally light on analysis and research. Specialized institutions and industry groups such as Bowker and the Book Industry Study Group (BISG) continuously publish opinion pieces on the industry outlook in blog posts and press releases, but these are not comprehensive.

Second, it is important to keep track of the technological shocks to the industry, which have already had both drastic and incremental effects (Helpman, 1998, p. 2). The most radical changes to the industry have been in the areas of digital media and communication, while more incremental changes are continuously appearing as firms create, adopt, and apply new technologies. The data that drive the book industry are often sparse. We have worked to fill a gap in the existing literature by collecting and analyzing the available data with statistical techniques, reconciling them in a way that brings coherence to the data and provides insight through the lenses of traditional economic models.

While the new, digitalized market paradigm does not quite usurp the traditional brick-and-mortar approach to bookselling, traditional bookstores are in a survival-of-the-fittest mode of competition within the Internet domain. The market for e-books is not in a win-win relation with the market for print books; if anything, they are in a zero-sum game relation where the increased share of e-books is gained at the expense of print books’ market share.

We see the book industry as competing in two layers: bookstores and the Internet. The traditional weapons of competition, such as pricing, advertising, and number of stores, are still significant strategies—but nonprice competition has been particularly elevated. Digital technology has revolutionized the ways of the industry with regard to both supply and demand.

Only time will tell whether the book industry will continue to march on in a recognizable form, with brick-and-mortar bookstores selling books you can hold in your hands. Through empirical analysis, this book will document the changes that have wrought such intense transformation on the industry and brought it to its current, critical point.

Outline of chapters

Introduction: Transformation of the industry

The book industry has been marked by four distinct phases of technological advances: the Civil War period, World War I, World War II, and the modern period of high-tech development. Today, bookstores are dwindling and the Internet is the preferred marketplace for both buyers and sellers. Consumers are increasingly reading books in digitized form on electronic devices. Feedbacks in the old Structure, Conduct, and Performance paradigm have made predictions difficult in the industry. We apply methods of analysis that view industry players’ rivalry behavior in a gaming setting, taking a new perspective on price and nonprice competition that also encompasses bidding, advertising, and R&D expenditures that have become important dimensions of the market order of the industry.

Chapter 2: The blades of supply and demand and technology

When supply is drastically modified by new technology, it takes on a dimension of shock, resulting in models that contain incomplete information content and more challenging exogenous and endogenous phenomena. We identify new demand parameters for the industry. Consumers can now comparison-shop for bargains and choose between different ways to read books and allocate their time. These options determine their consumption and human capital formation. While technological advances in this industry are now at the General Purpose level, their role still seems unsettled. Advancement in the book industry is of the modern endogenous growth type associated with increasing returns as capital accumulates. The resulting competitive behavior between firms adheres to discriminating pricing in an imperfect market structure within the new global technological environment.

Chapter 3: Consumption drives the industry

Consumption is a driver of the book industry, and therefore impacts profits as the state of the economy changes. The overall state is that production rates are almost twice as large as consumption rates—but prices remain high, partly because they are traditionally cost-push in nature. The highest-cost aspects of the industry have traditionally been paper, platemaking, printing, binding, and book returns. Information technology is changing those costs as book production moves online or overseas. As a result, the industry has experienced some severe short-term business cycles that have been devastating to firms like Borders Books, which exited the industry in 2011. Our empirical study shows that price is elastic for all major book categories, indicating that price competition is still alive, though the industry also practices nonprice competition.

Chapter 4: Production is in a transitional mode

Production aspects of the book industry are in a state of perpetual mobility, with printed books facing strong competition from virtual space, Print on Demand (PoD), and e-books technologies. Our empirical analysis attempts to reconcile contrary views about increasing and constant returns to scale, using generally available data and standard econometric techniques. We embrace both the simple Cobb-Douglas and CES models of production. The Cobb-Douglas model indicates constant returns with weak statistical results, while the CES model indicates increasing returns. The overall results are subject to wide interpretation, underscoring a monopolistic structure, or a bilateral monopolistic model. The results also have an impact on the modern discussion of increasing returns, which is normally sourced to the socialization of modern technological advances.

Chapter 5: Distribution

Distribution channels for books have evolved from small bookstores, to larger superstores, to the more impersonal Internet. Larger bookstores seem to have a dominant position in these activities through mergers and cooperations, yet this does not show up as high concentration for the industry. On the average, the concentration seems to be held in check from cooperation with smaller independent firms for the purpose of reaching customers in the suburbs or as independent suppliers on the Internet. Nevertheless, sales remain responsive to concentration, which in turn is responsive to mergers and an index of market power. Some modern distribution problems are also related to inventory management.

Chapter 6: Printing and publishing in international competition

International competition requires the estimates of consumer, producer, and welfare optimum in a general equilibrium framework to account for how agents make substitution within countries. The world flow of GDP and FDI concentrates among the three regions of North America, Europe, and Asia. Our analysis proceeds with an eye for free trade according to the classical hypothesis, and a preference for domestic adjustment according to the Keynesian hypothesis for these regions. North America and Europe did much better under the classical than under the Keynesian hypothesis. Some countries, such as China and India in Asia, the United Kingdom, France, and Germany in Europe; and the United States in North America are spotlighted for more extended analysis.

Chapter 7: Internet technology and the book

Books possess inherent characteristics that make them a natural product to buy and sell online. They are easy to ship, inexpensive to warehouse and inventory, easy to review and rate, can be test read, and can easily be searched. The Internet provides a widened audience with low-cost, 24-hour access to a diverse world of selections. The Internet is the battlefield at the conjunction of production, consumption, and distribution, and has become more and more competitive for book publishers. The Internet has made value chains more efficient, particularly in the area of digitized books, where digital information is available to intermediaries who produce books from the digital copies. Accounting records are kept of various sales transactions by region, creating a source of information economies.

History and definition of the book industry

Historically speaking, the book publishing industry has undergone four landmark waves, the results of new and evolving technologies. The Civil War period saw the first major boost to book publishing, as industrial activities began to dominate agriculture, giving rise to informational books that explained various industries. World War I spurred the invention of radio communication, aviation, and photography, creating another wave of publications for interested readers. World War II witnessed a proliferation of how-to books, addressing the needs of a large population of unskilled laborers who were called to task. The modern wave gets its boost from the advent and constant evolution of the Information Technology field.

During the 1960s, publishing houses in the United States began to merge to a concentration level. In the 1970s, 15 companies dominated the industry, and by the 1990s, only 7 remained, mainly through conglomerate mergers that spread over media and motion pictures. The dominant book companies included the Borders Group, Barnes & Noble, Books-a-Million, and Amazon.com.

The book industry faces an array of problems encountered by modern industries that stem from the tide of technology and globalization. Old problems such as mergers and pricing, along with new problems such as copyright piracy and outsourcing, top the agenda. Technology has produced gadgets and games that compete for readers’ time. Foreign publishing outfits can now produce books just as well as US publishers. Yet the book industry is still growing, albeit at a modest pace.

The book industry is very diverse. On the publication side, in 2002 the North American Industry Classification System (NAICS) classified Book Publishers under the code NAICS 511130. Industry...