Analysis of the Book Publishing Industry and E - Book Revolution

Analysis of the book publishing industry prior to the e-book revolution with the Porter's five-force model

The Porter's five-forces model evaluates the industry in terms of level of rivalry, threat of substitutes, buyer power, supplier power, and barriers and threat of entry. (M. Porter, 2008)

1. There was an intense rivalry in book publishing industry. While a sizable number of smaller publishing houses were competing in niche books markets, 6 major publishers shared the trade book publishing industry - leading segment, which accounted about 33% of the net sales. Trade, or consumer, book segment had the most intense rivalry. Book publishers competed with each other based on price, title, and service.

Consequently, all U.S. publishers followed product differentiation competitive strategy. Each one tried to focus on a few genres (e.g., Harlequin Enterprises was a global leader of romance novels) or published for the niche market such as children.

The educational sector was also highly concentrated, dominated by five major publishers. It required significant capital demands, so smaller players were unable to compete in this market sector.

2. The great range of media and entertainment formats, when combined with the continuously increasing availability of used and rented books strengthened the threat of substitutes for the publishing book industry.

During the last decade consumer-book publishing degreased because of significant influence of media, ranging from TV, computers and the Internet. The total number of hours every person spent reading books has been declining steadily. Shifting from published books toward the electronic delivery of entertainment content caused a tremendous cut of print market industry, which was considered to be quite stable.

Moreover, a major change occurred in the education books segment because of the used-book and rental book market. Used books became also widely available in the adult consumer book market as well as in the religious book category. Growing number of online sites offering used textbooks with large discounts posed an extra challenge to traditional textbook chains. In addition, a widespread availability of high-quality copies allowed students to copy course readings and chapters instead of buying the whole textbook (Greco A, 2007).

Beside that, installation of various electronic systems in college and university libraries allowed students to download textbooks' chapters, articles, and other material avoiding ordering original editions.

3. The three major bookstores - Barnes & Noble, Books-A-Million, and Borders dominated in the book market with 40% of the total share, representing a strong buyer power. The remaining portion was occupied by large retail stores like Wal-Mart and Target, online sources, and libraries. As written in the case, retailers set prices on books autonomously, while online stores and large retail chains often sold books with significant discounts putting downward pressure on pricing and making some smaller retail unable to compete and close their business. Amazon was the dominant one offering wide range of books from the third parties online with much lower prices.

In educational book sector publishers had to compete intense, as large institutions and school committees negotiated buying process of textbooks and had a power to bargain. El-Hi sector was highly profitable to the publishers, even though it required significant upfront costs, as we see in the case.

End consumers represented another side of the buyers power. They didn't want to buy full priced hardcover edition and waited for the lower priced books to appear, especially with the growing range of online sources.

4. Traditional (manufacturing) supplier power was minimal, as almost all amount of book printing was produced offshore. However, he supplier power of agents in the consumer, or trade market did existed. Agents controlled the supply of authors, especially talented ones. So if a trade book editor wanted to negotiate a contract with the author in order to be able to publish his books exclusively, the editor had to deal with the agent first. As a result, the end price for the book was steep, caused by the long chain (author-agent-publisher-retailer-customer).

Suppliers also suffered from the lack of market knowledge, as they were not able to predict whether a book would be sold or not.

5. Threat of entry into book publishing industry remained a real one to the existing companies, because of market overload with the numerous small companies. However, they didn't pose a big threat to the established large publishers, which were owned by a larger media entity.

Barriers to enter the book publishing business were rather minimal, as no licenses or legal obstacles existed. The exception was educational publishing, which was a risky arena with a challenging barrier to entry. According to the case, this sector was very concentrated, required a significant capital investment, so the company was able to achieve the required economies of scale.

Analysis of the industry structure and competitive