The Threat of Online Publications to the Traditional Publishing Industry

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The aggregate demand of published material, both online and offline, is a fixed number. Publishers in today's mass media market face fierce competition; each customer that an online publisher wins comes at the expense of its offline counterpart. To illustrate, imagine the unequal slicing of a pumpkin pie representing market shares that vary in size. The sum of all shares, or 'slices,' adds up to the total client base. Although each publisher already owns a portion of the pie, it still covets those who have a bigger slice. In this zero-sum game, with each new slice that a publisher gains, its pie becomes incrementally larger, while the competition's becomes incrementally smaller. Statistics have shown an upward trend in e-journal subscriptions in recent years, mainly because online periodicals are more frequently updated, cheaper to produce, and accessible everywhere (Greco 2). To that end, the internet has helped many web-based media business increase their market share while simultaneously decrementing those owned by their offline competition. Given their inferiority in cost, channeling, and time-to-market, how do traditional publishers stay in business? In the same way opposing forces in nature result in a state of equilibrium, there is a single overarching mechanism in the publishing industry that is designed to buffer short-term market gains and resist long-term change.

This built-in mechanism in the media business consists of a multitude of socioeconomic factors. We will first explore the economics behind the publishing industry, which includes the horizontal integration of ownership and realizing specific market segmentation, such as textbooks. Then, we will scrutinize the social implications such as conventions, content censorship, and government regulation, and finally, delve in on a specific case of value-added books.

In assessing the economics of the media business, it is helpful to first examine the ways in which publishing companies are owned and financed. Broadly speaking, media systems can be owned by the state, by private corporations, or by a mixture of both, all of which are financed through advertising (McCullagh 75). As with any other business, the publishing industry is profit-oriented, and the premise for all strategies deployed and actions taken is ultimately a means to achieve financial rewards.

Many major national periodicals and magazines have developed web versions in the past two to three years, a move that helps strengthen media ownership (van dur Wurff 217).

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Large media companies buy into or merge with other media companies that serve the same market, a process known as horizontal integration (McCullagh 75). For example: the merger of America Online and Time Warner in 2000 brought together CNN, Netscape, Warner Brothers, and Time Magazine.

It is very common to find well-known magazines such as TIME, Fortune, or Newsweek that offer full access to the same published content online. This requires some initial cash outlay to setup the proper web-hosting infrastructure, but once the host servers are in place, no additional capital is required to run the internet operation. Web versioning transfers ready-to-go material onto the World Wide Web, which compared to the original paper content, is simply an alternative mode of display. For example: TIME magazine invests some initial capital to create www.time.com. Once the website is operational, it then attracts new readership and advertisers and generates more revenue.

From a project valuation stand point, the online content has already been paid for; therefore web operations can earn additional profit while incurring negligible added cost. Companies integrate horizontal markets1 not only to achieve operational efficiency, but also to attract advertisers and readers with different demographic profiles. In that sense, the online-offline combination seems to achieve synergy and reinforce the traditional publisher's position in the market.

Market segmentation is another economic reason that traditional publishers stay afloat. Rather than becoming a powerhouse in the open market, such as consumer products conglomerate Proctor & Gamble, smaller companies tend to specialize in selected products and enjoy a large market share in a small market segment. For example, companies that specialize in manufacturing artificial hearts face mild competition because very few competitors exist; therefore product demand is predictable and recurrent. In general, smaller companies that specialize in one or two products can stay profitable just by satisfying a particular market niche.

Similarly, the K-12 textbook market has its own niche that is free of online competition. Beyond K-12, most universities rely on printed textbooks as the major venue for learning, too. (Blog-based classes such as STS125 are the minority) Publishers are always looking for ways to revise textbook contents as frequently as possible. They are able to create 'new' demand for textbooks every year by correcting typos, updating diagrams, or switching the problem sets in order to roll out new editions. This unique demand for printed material in the educational system gives rise to market segmentation and ensures steady cash flow and profitability for traditional publishers. Hence, as long as history is being documented and new scientific discoveries are being made, textbooks will continue to evolve and improve, and traditional publishers such as McGraw Hill will remain in business.

This change-resisting mechanism in the publishing industry is not only rooted in economic factors, but social ones as well. Conventions, content censorship, and government regulation are social reasons that traditional publishers still flourish. In our society, most readers follow certain reading habits, or conventions, that correspond to human nature. For avid readers, reading books and magazines are far more convenient than browsing through PDF files on a computer. The former can take place under a tree or inside a busy bus terminal and would only require a single piece of printed literature; whereas the latter would require a computing environment with power outlets, internet connection, and other peripherals. For fiction lovers, pocket-sized novels offer a personalized reading experience and can foster close relationships between the book and the reader. In that sense, readers prefer printed material because they are tangible, substantive, and most importantly, possess character. The rugged paper texture and the moldy scent of the book (yes, old pulp does smell) instill sentimental value and add to the joy of reading. These preferential human conventions promote book sales and help traditional publishers stay in business.

Printed books also offer higher content censorship: a counteracting social mechanism that slows the proliferation of online material. In an age of dazzling breakthroughs in mass media and communication, some revert to published books because there is an agreed notion that most printed content have gone through tighter scrutiny and validation, and are more reliable than arbitrary websites. "The media, particularly television and internet, have a double relation to democracy [...] television and other media tend to destroy the very public space of dialogue they open up, through a relentless trivializing, and personalizing, of political issues." (van der Wurff 38) Echoing Van der Wuff's findings, real-time technology to report world news online, such as the events of 9/11 and the war on terrorism, has not necessarily been matched by a qualitative improvement in journalism. By the same token, libraries still exist because students and scholars, at least partially, rely on books for serious research and reading. Published books and journals warrant content that are more reliable than random websites that lack credentials. Quality assurance, in turn, translates steady readership into a continuous demand for printed books, and therefore keeping traditional publishers afloat.

For reasons that are less obvious, traditional publishers survive because the government wants them to. Government intervention is necessary in mass media because unlike other businesses, the media industry has a specific responsibility in preserving the integrity of social cultures and political atmosphere (van der Wurff 119). One way to achieve such vision is to upkeep media diversity. For example, no single online news agency with a large readership base, or a group of offline publishers, should be able influence public opinion greatly without encountering an opposing point of view. To that end, competition is presented as the best way to protect public interest in mass media, especially the news sector (van der Wurff 121). It is difficult for the media industry to self-regulate because each company, either offline or online, constantly seeks to gain a larger slice of the market; therefore, the government must institutionalize public policy to keep online and offline competition alive.

Ideally, diversity of media content supply should respond to the demand of consumers (van der Wurff 119). However, in many cases, profit-oriented strategies of media companies prevent media from perfect satisfaction of consumer demand. For example, an online news agency receives large advertising volume from the Republican Party and the tobacco industry, and therefore reports new stories in a less-than-impartial manner, offering favoring views towards its advertising clients. The economics of the news media business dictates biased reporting and special interests, so the government must ensure media diversity by subsidizing smaller offline publishers and implementing regulations. Two mechanism the government uses to increase media diversity: 1) Pass laws to regulate and break up large online media ownership, such as conglomerate Time-Warner. 2) Provide smaller offline publishers tax-saving incentives to stay in business, which results in an increased number of competitive traditional publishing companies on the market. Government regulation ensures the ability for media to serve the functions ascribed to them in a democratic society, thereby forcing the coexistence of online and offline publishers.

Last, we will delve into a specific case of value-added books. Traditional publishers stay in business because some books are extremely profitable. Let us first examine a phenomenon in the record recording industry: one out of a hundred artists receive endorsement from a record label, of which less than one percent are able to produce albums, and even fewer to reach superstardom (Shapiro 165). Tupac Shakur emerged from a crowd of many hopeful young artists. His first smash album, "All Eyez On Me," returned high profits even after recuperating expenses for other money-losing artists.

The same theory applies to book-selling. The financial rewards in publishing a bestseller are so great that most book publishers are willing to incur some losses in hopes of coming up with an occasional bestseller. For example, J. K. Rowling's Harry Potter commands a huge readership of all ages globally. In America, there are 80 million books in print, and each of its five titles has been on the bestseller lists of The New York Times, USA Today, and Wall Street Journal (scholastic.com). One can conjecture that before Harry Potter garnered widespread readership, Scholastic Inc., its publishing company, must have taken significant risks in financing and printing this one-thousand-page book. Once a book reaches bestseller stature, however, the publishers 'add value' to it by selling its production rights to major studios. The movie producers, in turn, script and translate the book into a Hollywood blockbuster, and during post production, sell additional rights to merchants to make souvenirs. In essence, bestsellers serve as a vertical value chain that distribute profits from the traditional book publisher to the movie producer and finally, to the souvenir vendor. The 'added-value' in these printed material are unmatched by their online counterparts, largely because serious authors choose to print and sell hard copies rather than to publish their stories in electronic text online.

Unlike the volatile stock market, the publishing industry is less prone to new external shock. The emergence of online publications may pose an imminent threat to traditional publishers at first glance, but after a closer look, we find that they, too, have limitations. Traditional publishers will not simply go out of business because people are reading daily news online. We have proved through examples that specific market segments, such as textbooks, are off limits for online vendors. We have shown that conventions in reading habits, higher content censorship in published books, and government regulations aimed to achieve media diversity, provide traditional publishers the advantage to stay in business. These evidences suggest the existence of a single overarching mechanism in the publishing industry that is designed to buffer short-term market gains and resist long-term change. This buffer, however, has a threshold. Given the statistics, we project that online publishing, news agencies in particular, will reach critical mass in the near future and dominate the news sector. Other areas, such as textbook and novels, will remain in the domain of traditional publishing. We also regard online-offline joint ventures as a viable way to satisfy customer demand by offering them the bests of the two worlds. Therefore, we expect to see more mergers and acquisitions in the media business. It is difficult to measure the exact magnitude of how strongly each socioeconomic factor will shape the future publishing industry, but the truth behind why traditional publishers remain in business is an interesting phenomenon that is now better understood.

Bibliography
Books
Berger, Arthur Asa. Media and Society. Maryland: Rowman & Littlefield Publishers, Inc, 2003.
McCullagh, Ciaran. Media Power. New York: Palgrave, 2002.
Cuilenburg, Jan, and Richard van der Wurff. Media & Open Societies. Amsterdam: Het Spinhuis Publishers, 2000.
Shapiro, Carl and Hal R. Varian. Information Rules. Boston: Harvard Business School Press, 1999.
Websites
Staff writer. "Artists & Entertainers: J. K. Rowling." TIME 100. 12 April 2004. http://www.cnn.com/SPECIALS/2004/time100/
Staff writer. "About the books: meet J. K. Rowling." Harry Potter. 11 April 2004. http://www.scholastic.com/harrypotter/author/
Greco, Albert N. "The book publishing industry." 12 April 2004.
Painton, Priscilla. "Big Books, Big Bucks." TIME Archives. 10 April 2004.
Bills, Larry. "Fact Sheet: Viacom Inc." Hoovers: The Business Information Authority. 10 April 2004. < http://www.hoovers.com/viacom-inc./--ID__12435--/free-co-factsheet.xhtml>
1 A horizontal market refers to businesses that produce the similar products, and therefore share the same market demand.


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