Power Shifts:
The Digital Era and Publishing
Power Shifts:
The Digital Era and Publishing
| University of South Carolina
| University of South Carolina

2014
2014

Introduction
The digital era has led to a slew of technological changes that are drastically changing the norms of the publishing industry which in turn impacts our literary culture. While attempting to avoid a techno-determinist argument this paper attempts to examine the manner in emerging technologies have shaped the publishing industry. The initial focus on the areas of the publishing industry that are most affected by the changes in technology and then examining how these changes ripple through the industry and eventually to methods used by publishers to adapt to the change. The initial focus is one consumer behavior and how it is affected by new technologies then there is a shift to how this shift effects the supply chain that was previously in use and the ways in which the publishing model has been changed. Traditional publisher are then examined to understand how the industry as whole can effectively manage the changes. Finally trends that are currently being implemented as well as the changing demographics and their demands are discussed in order to bring the conversation full circle.
Consumers
When looking at consumer behavior and how it has been shaped by the innovations of the last 20 years a psychology based perspective is important. Technology has not drastically changed consumer attitudes rather existing consumer behavioral patterns impact the manner in which new technology impacts our lives. In order to understand these patterns a few different terms will be used, with the following three being the most important.
Consumers are normally price conscious when purchasing. When buying necessities consumers tend to be less sensitive and therefore more willing to pay more for the same service. When purchasing goods that don’t fall into this category consumers are sensitive to fluctuations in price, meaning that when price increases fewer consumers will buy a product. This concept impacts consumers and their willingness to purchase the product when a cheaper alternative or an alternative with more value is available.
Anchoring is a cognitive bias that occurs in customers and the resulting behavior can be described as, when given information regarding the value of something, the customer gives this initial value that is given heavier weight than information gained later. Future purchasing decisions and value judgments are based of this initial appraisal. Price sensitivity is heavily impacted by anchoring, if item A is valued at $50 and gives x amount of utility and item B is valued at $30 and gives the same amount of utility the consumer is more likely to buy item B if they are first introduced to item A. In this manner a consumer’s price sensitivity can be manipulated by alternative offers.
The representativeness heuristic is that when presented with something new, customers will instinctively compare it with familiar items. This comparison when paired with anchoring leads to the situation where a consumer will assess the value of a new item based on the utility it provides in comparison to the item they are familiar.
In order to understand how publishers are effected by consumer habits, first these habits themselves must be understood in relation to previous tendencies and future trends. When doing so two interconnected areas of focus are apparent, format and price. Impacting both of these areas is a third force, the mechanism of purchase. While not apparent at first, the purchase mechanism impacts both these aspects in terms of availability of content and in establishing the parameters of choice.

Medium
These terms begin to come into play when comparing the format of eBooks and physical books. Traditional books are more tactile and allow consumers to access content through a broader set of navigation methods. Ebooks tend to have a limited system of navigation in comparison. Further more traditional print books have been shown to be significantly better for knowledge retention than eBooks. (SOURCE edudemic.com) Ebooks however manage to be significantly more mobile, allowing readers to access content in a variety of locations and increasing the amount of content consumers have access to at any given time.
Studies have shown that consumers care more about content than the medium it is delivered on. A study by research company Chadwick Martin Bailey found that in regards to media consumers are twice as interested on the availability of the content over the medium the content is available in. (SOURCE quirks) This information is significant because it shows that even though many customers are habituated with traditional bound book, the reduced importance of medium makes them more likely to purchase media in different forms. Furthermore since content is given equal weight regardless of the medium, when content is the same customers will determine the value of the medium of itself in order to differentiate between books and eBooks. These different aspects of format lead to the consumer deciding on the value of the product, and therefore the price they are willing to pay.
The consumer behavior concepts discussed earlier have bearing most apparently when discussing price. For most consumers the book is the medium that value is anchored to as books have been the predominant form of accessing information for some time now. As such when evaluating the price they are willing to pay for an eBook consumers compare them to more traditional printed books in terms of value as they feel that due to the representativeness heuristic the two mediums are sufficiently similar and. As explained earlier, since content is the same, the main determiners of the price are the benefits of the two. While the benefits of an eBook seem to outweigh those of the regular book in many ways, the intangible nature of an eBook severely devalues it in the eyes of the customer. Customers feel as if they are getting ‘less’ from an eBook than a print book because of this intangibility.
Price
Due to this steep devaluation the price point of ebooks is lower than that of traditional books. This has a few implications, first in order for companies to maintain the same profits or grow, they need to sell a higher volume of books at this lower price. Furthermore since customers value content of medium, at this lower price point the ebook is seen as giving more value. In a perfectly competitive market what should occur is that eBooks should rise in cost so that the difference in cost between an eBook and a print book is equal to the value added by the physical medium of the print book, however this, as explained later, is not the case in the present market.
Another hidden factor that has a significant impact on the demand for the two mediums is the availability. While eBooks are not projected to overtake print books in sales until 2017 looking at the sales of the largest bookstore in the world, eBooks are quite dominant. Because Amazon is an online retailer rather than a traditional brick-and-mortar store, a majority of their sales are not physical printed books. In fact among the top 2500 books in Amazon’s catalogue 86% are sold in kindle format, and among the top 100 bestsellers 92% are sold in kindle format. (SOURCE author earnings) A vast majority of printed book sales are from physical stores, but as online shopping continues to rise in popularity and frequency eBook sales will inevitably rise, as people will likely be going to bookstores less frequently. While it is difficult to quantify the scope of the impact of the rise of online sales a logical argument can be made that a rise in online sales serves to grow eBook sales at an accelerated rate compared to a stagnant acquisition system. This changing acquisition system also has a significant impact on the manner in which books are published and distributed by disrupting the supply chain.
Supply Chain
The traditional structure of the publishing industries is a flow model that begins at the author and ends at the consumer. In this system an author submits his manuscript to a publisher who handles the promotion, editing, and the printing of the manuscript. Next a distributor would handle the warehousing and shipping of the finished books. Retailers would then proceed to sell the book to customers at the market price. In the event of book returns retailers would might send the book back to distributors who depending on the type of contract they had with the publishing company would be reimbursed for their cost or simply absorb the cost of the book. Additionally the risk of having unsold books would often be taken by the publisher as many distributors would have contracts where unsold inventory would be taken on by the publisher. (SOURCE CSULB) As time has progressed this system has drastically changed and the modern system has been heavily influenced by emerging technology.
Independent publishing is a method of publishing that has existed for some time. Previously this method involved an author creating content and independently hiring a printer to print the work and then selling or distributing the content themselves. As ecommerce has gained traction self-published authors are managing to make significant salaries and in many cases more than authors who go through the traditional route. Statistics show that self-published authors earn 70% of the revenue from their books unlike authors who take a traditional route and earn roughly 35% of the revenue from a sale. This discrepancy as well as a higher daily revenue for independent publishers makes this route more attractive than a traditional route. (SOURCE Author Earnings) Howey further writes that though independent publishing is only 15% of amazon’s daily sales this category accounts for 35% of all revenue given to authors. This type of publishing is at the opposite extreme of traditional publishing while publishing directly with a distributor such as Amazon or Barnes & Noble is also gaining momentum.
When publishing with a distributor such as Amazon authors receive a larger share than with a traditional publisher, however they make up a smaller portion of the market and as with other forms of publishing, earn less money per unit sold. When looking at the percentage of daily books sold this method makes up a very small segment of the market as it is an emerging method. Given that Amazon owns 66% of the market share for eBooks one can expect this to be a much more attractive means publishing in the future as cutting out traditional publishers increases profits for both Amazon and authors alike. The only issue with this method is that competitors are refusing to sell books published by Amazon, making it difficult for these authors to sell larger amounts of books, especially physical copies. (SOURCE Forbes)
The final type of publishing is when an author publishes directly to the consumer. This may be a print-to-order type of book that is done on the side by an independent publisher or it may be a system in which the author uses the internet to profit from content in a different manner while simultaneously creating this content in a serialized fashion. Examples of direct to consumer publishing include Korean manhua or weekly blogs on specific topics by various speakers. In both f these cases the main method for monetizing the content is using ads of various types on the website to capture visitors’ attention briefly.

Amazon and Monopolistic Impacts
Although Amazon originally started in the role of a retailer, it has grown to include all levels of the process from author to customer. Amazon’s growth has caused it to become dominant in growing eBook market, and this dominance makes it so that when negotiating with publishers and authors or setting customer expectations Amazon has significant influence. Amazon’s market share and influence on the eBook market make into a monopolistic entity. Amazon uses its power to force companies to renegotiate to its terms. In one example Amazon removed 5,000 titles of the distributor Independent Publishers Group from Amazon.com. These changes came when Amazon tried to renegotiate its terms with the group and was not acquiesced (SOURCE Chicago Tribune). These type of business practices are the hallmarks of a market that has monopolistic competition. The leading consensus among economists is that such a market is inefficient and harmful to innovation and growth.
Amazon also plays a large role in determining consumer behavior as it is the foremost store for the purchase of eBooks. The behavioral concepts mentioned earlier once again become applicable when Amazon’s impact on the eBook market is being examined. By being the first well known place to purchase eBooks Amazon works to anchor the price of eBooks. When looking for an eBook, the ‘standard’ price of 9.99 is sought after as this is a price believed to be ‘proper’ in the eyes of the customer. Other eBooks are believed to fall into the same schema as those from Amazon hence the price point of the entire industry is driven lower by Amazon’s offerings and rather than competitive equilibrium that is reached in a free market, Amazon’s prices reposition the supply and demand of eBooks.
This artificial equilibrium also manages to make it difficult for new competitors to arise, as in order to secure contracts with publishers and authors at competitive rates these companies would need the type of negotiating leverage that Amazon has. Thus Amazon’s market share advantage leads to a solidifying of its position as the premiere destination to purchase eBooks and as an industry bellwether for pricing and consumer expectations. Finally these factors have also allowed Amazon to shift the traditional power balance between publisher and distributor significantly and in some cases to throw these established models aside. By effectively having the entire Supply Chain under 1 house Amazon manages to further increase margins and cut costs, creating a much more efficient system than the previous models at the expense of publishers and established retailers.
Impact on Publishers
The various subjects mentioned earlier, from consumer behavior to publishing styles and the power distribution of the supply chain have wide reaching impacts on the behavior and goals of publishers. One of the initial take away from the previous paragraphs is that publishers are having their revenue squeezed from both upstream and downstream. On one end authors demand more as the rapidly growing market of eBooks requires the attentions of publishers less and less in comparison to the significantly more challenging market of print books (SOURCE Forner Books). Distributors, namely Amazon, are pushing for even steeper discounts and lower total price for eBooks as well as a larger percentage of the proceeds from the sale of eBooks. By squeezing the publishers the market is forcing this relatively stagnant industry to innovate and evolve in order to stay viable.
The break down in the supply chain brings up another contentious issue, how can publishers retain and attract author? Financially speaking independent publishing and other alternatives seem much more lucrative than traditional publishing avenues. While established publishers can offer expertise and experience to authors, many have and will continue to opt for a different approach unless the can be dissuaded by a promising alternative with traditional publishers. Currently the only manner in which traditional publishers are maintaining their market advantage is their ability to create and fund large marketing campaigns as well as efficiently publish physical copies. As time progresses and viable alternatives become more common publishers will be hard pressed to maintain these advantages. Unfortunately solutions for this issue have not been proven viable at this point and given the shifts taking place these advantages do not look to be significant for much longer.
Publishers are being forced to handle a decline in traditional book sales in comparison to the growing popularity of eBooks. Since per unit revenue is significantly lower due to the artificial equilibrium point, publishing companies need to find ways to sell large quantities of books efficiently and inexpensively. In order to do this the industry requires innovative uses of technology as well as a change in mindset from traditional means to a flexible modern approach.
One way in which the revenue squeeze is causing publishers to attempt to run more efficiently is by forcing them to find new ways to target potential customers. Using sophisticated marketing techniques is key for companies in the 21st century and publishing companies are no exceptions. Due to the vast amount of content available to customers and the power that distributors have over what customers see, publishing companies need to target the right customers for their books in order to effectively sell them. By utilizing emerging technologies such as predictive algorithms and sophisticated forecasting models as well as data analysis and mining tools publishers can have their marketing partners find the right consumer. Industry publications indicate that a push for better search optimization and metadata are in the pipeline from major publishers which will help attract readers. (SOURCE SPRINGER)
Another innovation that will help modernize publishers and make them more competitive is cloud technology. Cloud technology is allowing publishing companies to quickly collaborate on projects in house as well as complete projects significantly faster than before. This capability while seemingly trivial at first allows for publishers to work much more efficiently and reduces costs per project while simultaneously increasing the number of books a publisher can devote their resources to.. (SOURCE Springer Shift) With major book releases being resource heavy for publishers, embracing this new technology and the innovations that arrive with it is key for publishers to maintain an edge in the modern world. As technologies disrupt the market companies will be able to effectively adapt through adopting technologies. Going forward certain trends that are already prevalent in other industries will also begin to appear in the publishing as technology permeates the industry.
Trends
The fastest growing demographic of customer across industries is the millennial generation which is gaining buying power. Publishing is impacted by this because millennials have been shown to be more engaged with their content and have different desires from previous generations when it comes to products, using technology to meet these demands will be a major challenge for publishers. Interestingly enough, traditional publishers are better poised than the other forms of publishing to meet these needs as they have the resources and personnel on hand to do so.
One way in which the industry is trying to meet millennial desires is through a social reading platform. This would allow readers to interact and be enriched by content as they read. Furthermore using technology publishers can have their works open to virtual annotations that can be easily collaborated on. This allows for each reading experience to be unique and tailored while simultaneously forging a community over each book as people read and discuss together.
Another major change is that millennials have been shown to be more interested in having access to content such as a TV Show, book, or movie than owning it. This means that this generation is more interested in temporarily renting books through a subscription service or something similar. The popularity of Kindle Unlimited, Scribd, and Oyster serve to highlight this trend. This shift is possibly the most significant for the publishing industry, as this is an industry whose model is based ownership transactions. Adapting to this change will be vital for all publishers going forward, and agreements should be put in place, similar to those Netflix with their content providers, in order to effectively capitalize on this phenomenon.
A serious issue in the minds of many is censorship either purposeful or inadvertently through discrepancies in funding. An example of this would be the availability of books to purchase on a given website. Previously one could go to a book store or a library to browse from a limited but diverse selection of books at a leisurely pace, however going forward books and their availability will be more and more limited upon the agreements in place between content providers and content creators. Even though self-publishing is easier than ever, as more and more content is created it is more and more difficult to discover content as there is so much clutter. Going forward books that do not seem instantly attractive may not be made available for purchase as in today’s digital world content is quickly viewed rather than slowly perused meaning unless something is instantly attractive to a customer it may be difficult to convince them to purchase it. As publishers begin to foray into the eBook market on their own without using established distributors like Amazon this problem may be limited as the power and reach of one or a few companies over community’s access to content will be more limited.
Conclusion
New technologies have changed consumers’ demands from traditional media to new and emerging media forms while requiring the same content. As publishers deal with these issues they have to contend with a variety of factors. Consumers’ cognitive bias cause profit margins to shrink while simultaneously leading to a corruption of traditional channels of distribution. The medium itself has changed drastically, while allowing supply chains to morph into patterns that would once be considered ill-conceived but are now even more productive. These changes also lead to another issue for traditional publishers, as distributors and retailers who control the key avenues to customers are not as heavily reliant on publishers for content and thus are given more leverage and the ability to create near monopolies. Publishers are being forced to innovate and discover creative solutions in order to avoid being left behind as demographic shifts also take place due to the afore mentioned technological changes. Looking forward at trends and industry practices it seems that new technologies will be adopted by publishers in order to stay ahead of consumer demands and combat the drastic changes taking place within the publishing process. In addition the changes that have occurred have led to changes in our literary culture in terms of potential risks as well as availability.

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