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The publishing industry is an industry which is segmented into the book, newspaper and magazine industry. The publishing market is not simply a business. The products made in the publishing industry have a huge impact on the socio-political and cultural environment, for instance in education systems. Additionally, due to the increased popularity of online resources and e-books the publishing market is facing higher levels of competition. Competition in the publishing industry is affected by consumer spending which is strongly related to economic growth and employment levels (Datamonitor, 2010).
Because of the higher levels of rivalry caused by the introduction of new technologies, such as printing on demand, e-books and online newspapers, society often claims that the publishing industry is dying. While it is true that the publishing industry is undergoing a digital revolution, this revolution should be seen as a new opportunity, not as the end of the publishing industry. The purpose of this paper is to discuss the effects of technology on the publishing industry.
First, the technological changes in the publishing industry will be examined. In this paper we focus on e-books and online newspapers. This will be followed by the consequences of new technologies on supply and demand. Finally, the answer to the question whether the new technologies are substitution or complementary goods will be discussed.
Ronte (2000) stated that technology has had and still has a dramatic effect on the publishing industry. Technologies currently shaping the publishing industry include: online newspapers, printing on demand and e-books. Digital technology is important for several reasons. First of all, digital technology has no boundaries in geography and time. Books, magazines and newspapers can be published, marketed, bought and read anytime and anywhere. Second, the power that came from physical distribution has disappeared. Retailers or salespeople cannot influence buying and selling behavior as they did before because traditional printing is no longer the only way to have content published. Third, distribution of electronic copies of books is free and therefore marginal costs of producing an additional book or journal are zero. The fixed costs, however, will increase because making digital publishing possible high investments in the installation of a network should be made. Furthermore, unique content acquires more importance. Aspects such as the speed of digital distribution and exclusive access are more valuable to customers. Finally, the next generation, who are educated on computer, will use the new technologies more often (Ronte, 2000).
Electronic books are defined as:
“A digital object with textual and/or other content, which arises as a result of integrating the familiar concept of a book with features that can be provided in an electronic environment. E-books typically have in-use features such search and cross reference function, hypertext links, bookmarks, annotations, highlights, multimedia objects and interactive tools.” (Carreiro, 2010, p.221)
The invention of e-books is an opportunity for the publishing industry to revitalize. The e-book market is still in its growth state and thus can revive the publishing market. The fact that a publisher can never be out-of-print and the publishing industry’s traditional supply chain will be faster and shorter are other advantages of e-books (Carreiro, 2010). This results in lower costs, which in turn results in higher profits for publishers and authors, which can lead to lower prices for readers. On the contrary, digitalization goes together with piracy. As in the music and film industry, publishers of e-books risk that their books are copied and illegally spread on the Internet. E-books can be protected from piracy by both encryption and compression. For instance by a digital object identifier (DOI): “an initiative of the publishing community for protecting its assets in the digital environment” (Carreiro, 2010, p. 225).
2.2 Online newspapers
The introduction of online newspapers is another change in the publishing industry. Most of the newspapers, local and national, offer nowadays both a traditional printed and an online newspaper. Despite of the question whether online newspapers are substitutes of print papers or not, which will be addressed in the next section, an on-going discussion is online pricing: should newspaper publishers set a price for online newspapers? Online newspapers have often extensive content-sharing characteristics. The print edition is often the primary source for the online edition. “The fact that similar or identical information is published in two formats fostered the industry’s concern about the negative impact of offering free content online on the print edition’s subscription base” (Chyi & Lasorsa, 2002, p. 94). This effect is called the cannibalization effect. Publishers are afraid that offering free content online may cause a decrease the demand of the print edition because of the subscription base. Therefore, many online news sites initially charged a subscription fee for online news access but most failed. The advertising model followed, but only with limited success (Chyi & Lasorsa, 2002). Gentzkow (2007) also found that introducing online pricing causes a decrease in demand of online newspapers. People seem to prefer reading a printed newspaper over an online newspaper if an online price is charged. Gentzkow (2007) suggests not setting an online price when the advertising market is favorable. The welfare benefits of the online newspaper outweigh the costs.
3. Supply and demand
The law of supply and demand rules books as tangible product. Changes in demand or supply will lead to an increase or decrease in the market equilibrium price and quantity. Factors that cause a shift in demand are: a change in price of complements or substitutes, a change in income or a change in preference. The supply curve shifts as a consequence of changes in costs of input, new technology or an increase/decrease in the number of suppliers (McDowell, et al., 2009). To be more specific, factors that influence the e-books demand are technology, cost, user friendliness, and privacy (Carreiro, 2010). The better developed these factors are, the higher the demand and, if supply remains the same, the higher the market equilibrium price. However, the demand of traditional printed books and newspapers decreased due to new technologies such as e-books and online newspapers. Thus, for the publishing printing industry the market equilibrium price lowered. The decrease in the demand of traditional printing can be explained by the substitution effect which is discussed in section 4.
4. Substitution and complementary effects
To answer the question, e-books are no clear substitutes for the traditional printed books. The substitution effect can be explained as “the change in the quantity demanded that results because buyers switch to substitutes when the price of the good changes” (McDowell, Thom, Frank & Bernanke, 2009, p.67). In other words, when goods are substitutes, in this case printed books and e-books, when the price of e-books increases, the demand of printed new books increases, and vice versa. This is partly the case in the publishing industry. “The publishing industry treats the e-book just as another format, releasing the same titles in hardcover, book-on-tape, and e-book at the same time” (Gall, 2005, p.27). It is important to decide whether it is useful to publish a book in e-book format. “Children’s books, for example, will always remain paper-based, as young children are unlikely to handle computers” (Ronte, 2000, p.19). On the other hand, academic articles, other reference works and course catalogues are very suitable to be published as an e-book. In this case, e-books are substitutes for printed books. In the article ‘Dispelling Five Myths about E-books’, Gall (2005, p.27) notes that “the e-book will be an electronic savior of text, replacing the printed word in the same way as the printed word replaced oral traditions”. This is true and agrees on the fact that pleasure readers will prefer a printed book. Thus, paper based books will not become extinct because e-books nowadays only substitute scientific books and sources.
4.2 Online newspapers
Disagreement exists whether online and print newspapers are substitute goods. Chyi and Lasorsa (2002) found that about one half of the online users also read the print edition (55% for the Wall Street Journal Interactive, 42% for USA Today and 41% for the New York Times on the Web). The simultaneous use of print and online newspapers suggests that to some extent print and online products complemented each other. “Two goods are complements in consumption if an increase in price of one causes a leftward shift in the demand curve for the other” (McDowell, et al., 2009, p.79). In other words, online and printed newspapers gain from each other. Thus, if the demand for online newspapers increases, the demand of printed newspapers increases too. Furthermore, Chyi and Lasorsa (2002) found that almost 80% prefer the print format, whereas only 20% would prefer the online edition. The online edition is more likely to be read by younger people. Gentzkow (2007) also researched on the complementarity of online newspapers. Gentzkow used the Washington Post and post.com for his research. In contrast to Chyi and Lasorsa, Gentzkow (2007) found that print and online newspapers are significant substitutes. Theoretically, “the degree of product substitutability is defined by cross-price elasticity of demand, the percentage change in demand for one good divided by the percentage changes of a related good, other things being equal” (Chyi & Lasorsa, 2002, p.95). A $0.10 (33 per cent) increase in the price of the Post would lead to an increase in post.com readership of 8,358 (2 per cent) (Gentzkow, 2007). This indicates that post.com and the Post substitute each other.
In conclusion, technologies that have an effect on the publishing industry are e-books, online newspapers and print on demand. In this paper only e-books and online newspapers are discussed. One of the effects of these new technologies is that the boundaries in geography and time have disappeared. Furthermore, the marginal cost of producing an additional unit is zero and the uniqueness of books, magazines of newspapers has a greater importance than before. Supply and demand in the publishing industry has changed because of the introduction of new technologies. The demand of traditional prints decreased, which results in a lower market equilibrium price. This can be explained by the substitution effect. However, there is a lot of disagreement whether e-books as well as online newspapers are substitutes for the traditional printed books and newspapers. E-books are substitutes concerning research information, such as academic articles. On the contrary, people who like to read books in their leisure time will not replace the traditional book for an electronic version. For online newspapers researchers hold the same disagreement. Gentzkow describes online and printed newspapers as perfect substitutes, whereas Chyi and Lasorsa found that electronic and traditional newspapers are complements. Because of the fact there is no clear evidence that new technologies substitute the traditional versions, it can be concluded that the print book or newspaper will always exist and that the publishing industry, fortunately, is not dying.
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