Assignment 1: Will Technology Save the Publishing Industry?

1. Evaluate the impact of the Internet on newspaper and book publishers using the value chain and competitive forces models.

In the past, Internet has had a negative effect on all publishing, including both the newspaper and book industries. Publishing companies have experienced a decline in advertising revenues, circulation, and readership while Internet traffic to online news sites and readership of e-books has grown rapidly (1). Many blame the newspaper and publishing companies themselves, expressing a defect in the companies’ value chain and competitive force models as they relate to the Internet. According to Michael Porter’s value chain model, a company must perform each business activity in the model in the most efficient way possible in order to add value to the company, i.e. maximize shareholder wealth and sustain a competitive advantage (2). Value-adding activities that are vital to the company according to the model are inbound logistics, operations, outbound logistics, marketing and sales, and service. The infrastructure of the company, human resource management, technology development, and procurement are all supporting activities that must be performed efficiently as well (3). In the past, newspaper and book publishing companies have failed at performing these value-adding activities efficiently, leading to minuscule profit margins. Simply put, these companies failed to offer a level of value that exceeded the cost of their activities in the value chain. Because of the Internet, newspapers and books simply had declining value to the public. People were (and still are) no longer willing to pay for newspaper subscriptions and hardcover books when they could get them for free or for a reduced price on the Internet. Fundamentally, publishing companies failed at maintaining a cost advantage and lost their competitive edge. According to Michael Porter’s Five Competitive Forces Model, a company must analyze and contend with five forces in their industry in order to be successful. These forces include the power of suppliers, power of customers, current competition in the industry, entry of new competitors into the industry, and the threat of substitute products (4). If a company under- or over-estimates any one of these competitive forces, they have the likelihood of losing their competitive advantage, leading to a decline in profits and threat of failure. In the past, newspaper and publishing companies have failed to recognize these competitive forces, leading to their struggle for survival over the last decade and a half. The Internet has been the major player here, as these companies under-estimated the Internet as a new competitor in the publishing market. Likewise, the Internet became a substitute for newspapers and books. Online information was more readily available, easy to access, and generally free. All power was inevitably lost to their customers. This unbalance of power led to the decline of revenues for publishing companies, and they had to find (and still are finding) new ways to compete and find a new competitive advantage.

2. How are newspapers and book publishers changing their business models to deal with the Internet and e-book technology?

Newspaper and book publishers are finding new ways to compete in this new digital era. As mobile devices such as smartphones, e-readers, and tablets become popular and e-books, online news, and digital applications become more available, newspaper and book publishers are being forced to adapt. Newspapers are creating online access to their news, making their product available more quickly and efficiently, essentially lowering the costs of their value-adding activities (5). Similarly, book publishers are turning digital, allowing their material to be distributed by technology giants such as Google, Amazon, and Apple. Google Editions, Kindle e-books, and Apple iBooks are the new focus for publishing companies (6). By digitalizing newspapers and books, publishers essentially eliminate any costs of distribution and/or logistics. Marketing for their products becomes the responsibility of the distributor, and major fixed costs such as the cost of printing are virtually eliminated (7). Additionally, publishers are working on raising revenues by adapting their advertising for the Internet and digital media. Online newspapers and e-books give publishing companies the opportunity to market to a specific target audience and modify their advertisements with ease (6). By reducing value chain activity costs and raising advertisement revenues, newspaper and book publishers are readjusting their business models to adapt in a digital era and compete with the Internet.

3. How can newspaper and book publishers take better advantage of the Internet? What will it take for them to benefit from e-books? Explain your answer.

To take better advantage of the Internet, newspaper and book publishers need to view technological advances such as e-books as exciting opportunities, as progression. By digitizing their products, publishers have the ability to create revenues from a whole new market. Also, digital media is fairly inexpensive to distribute to consumers, which will allow publishers to reduce their production and distribution costs, increasing profit margins (8). It will take creativity and innovation on the publisher’s behalf to grow profit margins. By adding pictures, video, and sound to their e-books, publishers can help advance the exciting new era of digital technology (7). By establishing certain pricing strategies and developing partnerships with major players in the e-book market, publishers can take advantage of profits that have the potential to more-than-make-up-for lost profit due to the decline in circulation of newspapers and paper books. If publishers can meet the new demand by making e-books more accessible, faster, and innovative, they can get ahead of the game and create a whole new competitive advantage. In summary, flexibility, innovation, and opportunity recognition will allow newspaper and book publishers to take better advantage of the Internet and allow them to reap rewards in terms of profits (9).

4. Will technology be able to save the newspaper and book publishing industries? Explain your answer. Yes, I think that the newspaper and book publishing industry can be saved. However, the old industry with printing presses, paper, and logistics will no longer exist. In order to save the industry, publishers will need to take advantage of a whole new market, a digital one. By altering their business models and creating new pricing, marketing, and advertising strategies for the era of Internet, the industry will be able to actualize new revenues and eliminate old costs. By becoming and remaining innovative and flexible, newspaper and book publishers can create a new and exciting market designed for the growing and technologically adept generations to come.

Sources:
(1) http://www.oecd.org/sti/ieconomy/oecdexaminesthefutureofnewsandtheinternet.htm
(2) http://www.netmba.com/strategy/value-chain/
(3) http://www.clintburdett.com/process/05_research/research_05_4_valuechain.htm
(4) http://www.valuebasedmanagement.net/methods_porter_five_forces.html
(5) http://smallbusiness.chron.com/internet-affects-newspaper-business-39364.html
(6) Laudon, Kenneth & Jane. Essentials of MIS. Upper Saddle River, NJ: Pearson Education, 2013. Print.
(7) www.bain.com/bainweb/PDFs/.../BB_Publishing_in_the_digital_era.pdf
(8) www.pwc.com/en_GX/gx/...media/.../eBooks-Trends-Developments.pdf
(9) www.robertpicard.net/PDFFiles/IFRAbusinessModels.pdf