Luca Betti

BUS 475

The News Group

External Profile and Sourcing Strategy case
Book Publishing Industry

BUS 475 Purchasing and Supply Management

Luca Betti - 200078433
09/17/2015

Luca Betti

BUS 475

Table of contents
Executive Summary..................................................................................................................................... p. 3
Porters Five Forces .................................................................................................................................... p. 4
A) Substitutes ............................................................................................................................................ p. 4
B) Power of Suppliers ............................................................................................................................... p. 4
C) Power of Buyers ................................................................................................................................... p. 4
D) Barriers to New Entrants ...................................................................................................................... p. 5
E) Industry Rivalry .................................................................................................................................... p. 5
Industry Analysis ......................................................................................................................................... p. 6
A) Introduction to the Book Publishing Industry ...................................................................................... p. 6
B) Trends in the marketplace .................................................................................................................... p. 7
C) Drivers .................................................................................................................................................. p. 8
D) Industry cost structure ....................................................................................................................... p. 10
E) Pricing structure & Trends ................................................................................................................. p. 12
F) Industry structure & actors.................................................................................................................. p. 14
Supplier Profile .......................................................................................................................................... p. 16
Bibliography............................................................................................................................................... p. 17

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BUS 475

Executive Summary
The Book Publishing Industry is currently a mature industry which is in slow decline. After five years of
negative annual growth (-1.6%), it is expected a slow annual growth of 0.8% in the years to 2020. The new
trend in technology (e-books and online contents) forced suppliers to take steps to integrate it in their
processes; this was done in response to declines in demand and as result of increase in price of paper. The
industry slow decline and the threat represented by new technologies led to a high level of competition based
on prices. There are three major actors in this market, that operates nationwide (Bertelsmann SE & Co.
KGaA; Pearson PLC; Apollo Group Inc.) accounting in total for almost 33% of the market share; they are
trying to stabilize their position in order to keep themselves profitable. Despite this fact, the variety of valid
substitutes available on the market, the price based competition and the dominant position that The News
Group occupies in its industry confer to the company a fair level of bargaining power. Prices are expected to
slowly decrease in the next five years, due to the high competition and to pressures coming from the legal
environment. Price constitutes the major mean to compete, and a powerful leverage for The News Group.
In such a context where buyers are in a dominant position, the relationship to establish with suppliers is
leverage. Although the industry shows some characteristics of the critical category (big spend), the increased
competition coupled with decreasing prices and the leading position of The News Group in its industry
indicate leverage as the relationship to build with its Book Publisher suppliers.
Therefore, the strategy to adopt is active sourcing. The News group should first establish standardized
expectations and objectives, so that potential suppliers understand their needs. Then, The News Group
should maintain and promote competition between the suppliers, through a call for bids, in order to best
benefit from the leverage situation on a highly competitive market. The providers will be inclined to meet
most of the companys expectations in order to get a contract with the most important client in the market
and The News Group will obtain the service desired at the cheapest possible price.
I believe the contract length should be 1 year, so that in case of price increase by the supplier, The News
Group can decrease them through quick negotiations, or exploit its bargaining power to switch to a cheaper
supplier. I recommend to contract with one or two (maximum) large supplier companies offering the best
service they can at the lowest possible price; this is the best solution because it allows The News Group to
reliably and quantitatively benefit from the best service at the lowest prices via large economies of scale
(which is fundamental for our company due to the high volume of purchases). As a company we want to be
able to receive the best service at the lowest possible price; 1-year contracts give us the possibility to
negotiate with our supplier(s) at the end of the contract, if we were satisfied with the service, knowing that
having price as a leverage and the high competition in the market give us margins to obtain even better
conditions. The News Group must be conscious that it is an important client for any supplier in this mature
and slow declining market and this give our company the power to negotiate good contract conditions with
the major vendors.
The priority towards savings should concern the substitution of printed books with e-books and online
content. The price of paper is going up, printing is becoming more and more expensive, and new
technologies are influencing the life of the consumers. As book wholesaler the company must address and
exploit the new trends in demand. E-books and online content, such as self-published material, function as
perfect substitutes for printed books, they are cheaper and they provide The News Group with more buying
power (challenging the suppliers in the market). For this reasons they help the company not only reducing
operating costs, but also addressing the requests of the customers (which are all price-driven while the
younger generations are more hi-tech oriented). Moreover, the increasing projected use of e-books in the
near future will reduce the expensive annual inventory holding cost usually paid for printed books and
improve the celerity of transactions shortening lead time and increasing the service level, providing
customers with a cheaper and better service and at the same time profitable for The News Group.
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Porters Five Forces Analysis

We will proceed now to analyze the industry through Porters Five Forces to understand the supply market
dynamics and the drivers of competitive behavior in the industry. The various dynamics and trends in the
market will make us understand whether a buyer (The News Group in this case) has a dominant position or
the supplier base has more power, and will help us to conduct a sourcing portfolio analysis. Note: (+) is
positive for The News Group; (-) is negative for The News Group.
A) Substitutes

Overall, there is a good level of substitutes available in the market. The major players in this industry
offer generally the same products, especially if we consider the textbook segment (that occupies the
greatest share of the revenues for this industry) we notice how there are different substitutes available
for students. New technologies such as e-books and online services have increased the number of
substitutes available in the industry. (+)
The competition in the market (which is in slow decline) is high, and it is based on price and brand
awareness; moreover, as a result of the Apple lawsuit that contributed to boost controls over the book
publishing industry, prices are expected to decrease in the years to 2020. (+)
The costs to switch from a supplier to another are medium/low, it depends on the type of contract and
obligations that the buyer has with a supplier; we should consider possible penalties if not respecting
contracts. Apart from these considerations we should not have big costs for switching supplier. (+)
Buyer propensity to switch largely depends on prices provided by suppliers and also from the degree
of service, as previously said, there is a good level of substitutes available and in this way the buyer is
price driven. (+)
In this section the situation for buyers is overall good, there is an acceptable number of substitutes and the
market is in decline, pushing the suppliers to battle on prices and this gives to the buyers a leverage to
negotiate.
B) Power of Suppliers

There are three major players in this industry, and the overall level of products offered is the same, the
differentiation is not high. They are trying to consolidate their positions in the market completing joint
ventures between them or their subsidiaries, this testifies how the competition is high and how much
they are trying to maintain their market share. (+)
The costs for switching suppliers are medium/low. As I reported in the previous section they depend
on the type of contract subscribed and whether the buyer respects the clauses and doesnt switch
supplier while a contract it is still valid. (+)
The threat of forward integration does not represent a hazard currently; companies in this industry
have the right structure to support the expenses needed for the market, and although the threats coming
from the online competition could represent a problem, the major problem could only come from big
companies with a structure ready to support the high costs of an interactive software. (-)
There are various substitutes available to printed books (e-books and online contents), for this reason
the competition is high and it is mainly centered on price. (+)
The purchase volume is high, there are no small individual transactions. (+)
There is not a big number of major players in this industry, three players count for almost 33% of the market
share, but there are substitutes available and this goes in favor of the buyers. The decline in the market and
the low level of differentiation is a positive factor for the buyers; considering all the variables in this section,
the buyers are slightly advantaged.
C) Power of Buyers

The substitutes available in the market are various and not too difficult to purchase. (+)
There many and accessible information available for this market. Industry reports and public studies
are valuable sources. It is a mature industry, many studies have been conducted on it. (+)
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There is a low number of buyers (TNG has the biggest share with 12.8%, the rest is shared between
many others smaller companies) compared to the number of suppliers in this industry. (+)
The competition in this industry is price based, this gives the opportunity to the buyers to use
bargaining levers. (+)
The purchase volume is high; there usually are not small individual transactions. (+)
The costs to switch supplier are medium/low. It all depends on the contracts subscribed by the buyers
and whether or not they are respecting them. (+)
Positively correlated to the growth of the price-based competition over the market, The News Group acquires
an increasing power to have leverage with prices. The higher number of suppliers and the decline of the
market promote a dominant position for the buyer.
D) Barriers to New Entrants

In this industry the economies of scale are high, the market has reached its maturity; there are
difficulties creating profit margins. Small companies could unlikely compete with big actors. (-)
The brand is not too important in this kind of industry, companies compete on the price, and try to rise
brand awareness, but the range of products offered is very similar. (+)
There is a medium/low cost for switching suppliers, depending on the contract situation. (+)
To compete in this industry with the big players and create profits the capital requirements are high. (-)
There are no noticeable differences between products in this market, and valid substitutes are
available. (+)
Distribution channels are difficult to create and maintain for low profile companies (-)
The competition is high and the market is in decline; we expect retaliation towards new entrants. (+)
From this perspective, the situation for the buyers is not too good. The barriers to new entrants are set on a
medium level due to the fact that it is somehow difficult to compete with the big actors in the market.
However, substitutes availability and a price-based competition give buyers a slightly advantage.
E) Industry Rivalry

We have under capacity in this industry. (+)

The big competitors offer a similar range of products. They are trying to stabilizing their position in
the market integrating new technologies in their processes. (+)
The industry is mature and the market is in slow decline; the competition is price-based. (+)
In the last five years the industry had a negative growth (-1.6%) and it is projected to grow by 0.8% in
the years to 2020. (+)
There are low strategic stakes and low potential to gain market share (without big expenses or
important acquisitions). (-)
There are medium/low costs to switch suppliers depending on the contracts subscribed. (+)
The book publishing companies are pressed by the high competition and the slow decline of the market,
which gives more bargaining power to the buyers. New technologies give a wider range of substitutes
available for consumers making the competition price-based. The News Group can take advantage from this
overall positive situation.
From the Porters Five Forces analysis we can notice how the buyers have more power that the suppliers, and
how they are in a good position to conduct negotiations. The buyers have leverage to put pressure on
suppliers. In a market in slow decline, with threats represented by new technologies, the companies are
fighting against each other to maintain or improve their situation, leading a price war in order to attire
clients. This trend creates strong rivalries but the threat of the online contents and e-books make some big
players collaborate to retaliate against eventual new entrants and this can cause problems from the buyers
point of view. Overall, the dynamics and the trends in the market promote a favorable position for the buyer.
Therefore, to The News Group, Book Publishing Industry corresponds to a leverage sourcing category
although the sources of supply are not too numerous. There are different and valuable substitute products
available in the industry, there are high expenditures and the market in slow decline is price sensitive; the
competition is high and price-based giving the buyers room to use bargaining levers.
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Industry Analysis
A) Introduction to the Book Publishing Industry
The Book Publishing industry, representing the Book Publishing companies in the US, is classified as code
51113 by the North American Industry Classification System, or NAICS. This industry edits and designs
books. Book publishers also engage in marketing activities and make distribution agreements with operators
in the Book, Magazine and Newspaper Wholesaling industry. The authors are not part of this industry, they
are included in the Performers and Creative Artists industry (IBISWorld report 2015)
In 2015, this industry presents 28.8 billion dollars of revenue, for a profit reaching 2.2 billion dollars. This
sector had an annual growth of -1.6% between 2010 and 2015, during this period this industry has undergone
some restructuring to adapt to evolving consumer preferences. The expected annual growth for the next five
years is 0.8%; this industry has reached its maturity stage although the increased focus on e-books will soften
industrys long-term decline.
This industry offers five different services, with two services representing almost the 60% of the activity
(Textbooks at 31.6% and Professional, Technical and scholarly books at 27.5%). [See IBISWorld chart
below Products and services segmentation (2015)].

Products and services segmentation (2015) - IBISWorld

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B) Trends in the marketplace

The Book Publishing Industrys revenue should remain steady over the next five years to 2020 with a
minimal growth of the 0.8%, according to IBISWorld. This industry is now living a transition moment led by
technological changes that have facilitated the proliferation of digital book development and pushed
costumers to substitute printed books with e-books or online contents. This new trend in the industry forced
the publishers to take steps to utilize new technologies in response to declines in demand. With the prices of
paper going up and the difficulties to pass on to customers these increases in cost, the e-books, as a substitute
for printed books, have the possibility to decrease operating costs and create a profit cushion. This industry
has reached the maturity stage, it is fully understood by its customers and is completely market accepted. As
reported previously, this market should not witness a growth during the upcoming years, which is a typical
characteristic of a mature industry. This maturity creates an environment characterized by a high
competition. This fact, together with the industrys slow decline led to a price-based competition. Book
Publishing companies also had to reevaluate their activities, in order to protect against the slow decline in the
market, publishers are beginning to rely more on textbook sales, increased e-book sales and new best
sellers.
This industry, as expected by IBISWorld, will continue to consolidate. There has been a period of important
Joint ventures and mergers. Pearson PLC completed a Joint venture with Bertelsmann SE & Co. KGaA,
these are the two major players in this industry, with a market share respectively of 12.0% and 14.0%; they
combined two of their subsidiaries, Penguin and Random House. As we can notice, the major suppliers in
this market are trying to reinforce their position and we can expect a high level of retaliation with difficulties
for new entrants to compete with the big companies. Increasing input costs have offset savings from
restructuring. The number of companies is anticipated to decrease at a rate of 2.8% in the five years to 2015.
In response to the trend of the market and the customers muted preferences, in the five years to 2020
publishers are expected to increase investment in the internet and other media outlets to directly interact with
customers and exploit the e-book popularity and boost its sales. E-book are projected to surpass consumers
print book sales by 2017. According to IBISWorld, the rise in digital publishing is projected to increase the
number of companies in the industry upward. In this industry there is an increasing trend of major players
and large operators joining operations to form powerhouses, as demonstrated by the example of the merger
of the subsidiaries Penguin with Random House. This fact jointly with the slow decline of this industry is
contributing to a decrease in employment rates (-1.5% projected employment rate compared to the 2015
rate). [See IBISWorld chart below Industry data]. The slow decline of the industry has aided the decline in
the number of companies, as these downsize their operations to remain profitable (as we can deduct from the
decreasing in the number of employees).

Industry data - IBISWorld

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BUS 475

I believe it is important to mention the changes that technologies, such as digital printers and e-books, have
created in this sector during the last 5 years. E-books especially, have provided costumers with a valid and
most of the times cheaper option to the printed books. This represents a threat for the companies of this
industry, and that is why, to slow the decline, companies have invested in restructuring operations to take
advantage of these new technologies. Technological development have, at the same time, aided and hurt
industry operator. With slow projected revenue growth, the operators are cutting costs publishing online,
using recycled materials and relying on digital printing; as I stated previously the increase in paper cost
cannot be passed on to customers, and this new technologies give the possibility to create a profit. With
textbooks being the product segment with the biggest share in the market, trends between students and in the
education system influence the Book Publishing industry. Students now use computer (or tablets) for
homework, assignments and e-books. For this reason, bookstores are trying to keep up with this new
technologies offering e-books on their websites. During the last five years Amazon introduced Kindle, that is
a special device developed exclusively to read e-books; this could help the publishing companies since it
boosted e-book sales and payment to publishers. When I report that a boost in e-book sales could help the
companies in the Book Publishing industry I mean that the companies that can beneficiate from this are the
ones capable to adapt to the new technologies and changing their business practices. These new technologies
are the future for this industry, although they lower the initial costs the book publishers incur allowing new
entrants to replace companies that have adopted the new technologies too late (IBISWorld report 2015).
Another possible threat that these new technologies bring with them is the fact that it is easier for authors to
self-publish in digital format and self-promote their works, taking business away from book publishing
companies. Companies can oppose this self-publishing threats increasing e-book services following the
increased demand for interactive services; the self-publishers will be unable to sustain on their own the costs
of an interactive software. Literature is now increasingly available through online channels and this
contributed to increase the competition in this industry.
The level of globalization in this industry has remained at a medium level over the last five years, as
IBISWorld reports. There aree some major companies such as Pearson PLC, Random House and Hachette
Livre that operate on a few continents being able to share the successful contents across their subsidiaries
and opening up foreign markets to best sellers. IBISWorld does not expect changes in the level of foreign
ownership in this market.
Concerning the regulations and laws in the Book Publishing Industry, we must say that the regulation in this
industry is light and there are no industry-specific regulations or policies although in this industry the
companies are subjected to copyright and anti-trust regulations. The Copyright Act of 1976 limits the
reproduction of copyrighted work at the discretion of the owner. A recent lawsuit might, and will, influence
the market and its regulations. In June 2015 the US court of appeals for the second circuit upheld a 2013
decision that found Apple guilty of conspiring with major book publishers and a major e-book distributor to
raise the prices of e-books (reports The Wall Street Journal). The government had argued that Apple served
as a "ringmaster" in conspiring with publishers to raise prices of e-books as part of an effort to change the
business model of the industry and weaken Amazon's dominant position in the market. All of the publishers
ultimately settled the case, but Apple fought to the end, insisting that it could not admit to doing something it
did not do (MacRumors.com). Apple will now have to pay 450 million dollars, amount that has to be paid
to consumers affected by this pricing scandal. This price fixing lawsuit threatens the growth of this industry;
the prices will have to maintain a steady course, with possible reduction of the prices as a consequence of the
lawsuit. In a mature market where the competition is largely based on price and where companies rely on ebooks to improve their profits this constitute a serious issue and will very likely cause losses for this
industry. The decision ruled by the court of appeal sets now a precedent, and we can expect tighter anti-trust
laws and stricter supervision for the next future in addition to a more cautious pricing policy from the
companies.

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C) Drivers
The Book Publishing Industry has various drivers, the most import two until 5 to 10 years ago were price of
paper and number of college students.
With the recent technological developments, an important driver has become also E-commerce sales. We can
notice, with the help of the charts below [industry revenue; Number of college students; per capita
disposable income from IBISWorld (at page 5) and US e-book sales from Statista.com], that the revenue
of the industry has a certain relation with the number of college students. That is because of the largest share
of revenues that textbooks occupies in this industry. After a drastic reduction in the number of college
students between 2008 and 2012, the trend now is positive and the number is expected to grow in the next
five years (according to IBISWorld). According to the US Census Bureau, college graduates read on average
more books, so a higher number in college students results in a bigger industry revenue now and in the
future.
Price of paper has always been a fundamental driver for this industry. The price of paper is now increasing
and the price of producing a book follows this trend. Companies that are not able to adapt to the advent of
the e-books will rapidly lose market share and exit the scene, this new technology constitutes a substitute for
printed book (especially for college students) and increases in costs cannot be passed on to customers,
especially after the Apple Inc. lawsuit that posed at the center of the action price issues and the need for
tighter anti-trust regulations.
In regard to E-commerce sales, as already said, e-books are acquiring more importance and they are
becoming a major product for the Book Publishing Industry. The importance of this service is underlined by
the fact that an increase in e-commerce sales would mean an increase of the industrys profitable e-book
segment, remembering that this is the segment where companies have the possibility to decrease operating
cost and create a profit margin.
With the changing in the technologies exploited by this industry, we should obtain valuable information from
the percentage of the services conducted online. This indicator represents the use of internet for services that
were originally conducted with the help of a physical mean. Services online are becoming more accessible
and it is likely that authors will opt for self-publishing rather than utilizing industry services; that could hurt
industry revenue also if it is rather difficult to provide online interactive services to customers without being
able to sustain the costs of an interactive software.
The last major component that influences the Book Publishing Industry is the per capita disposable income.
Books are a household expenditure, for this reason, a change in household expenditures can influence
spending on books. Individuals tend to buy more books when per capita disposable income increases,
because they will read those books during their free time or use them as an informational resource. This
correlation between those two variables is very important since it gives us the possibility to understand
possible highs and lows in demand. IBISWorld expects the per capita disposable income to increase in 2015,
giving to the industry a concrete opportunity to exploit.

US e-book sales - Statista.com

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Industry revenue; Number of college students; per capita disposable income - IBISWorld

D) Industry cost structure

As in any industry, running an activity in the Book Publishing Industry has some costs. There are some
important costs that are implied in this activity, that concerns production of goods (printing books) and the
providing of interacting services, which came with the advent of the latest technologies and the changes in
the customers preferences.
Profits in this industry (earnings before the subtraction of interests and taxes) tend to be very low (only 7.6%
of the revenue against 16.6% in average for all the other industries). This fact implies that the industry is
extremely vulnerable and may suffer a lot during economic unstable periods. During the last five years the
major players in this industry tried to adopt the new technologies streamlining the production. IBISWorld
expects the average profit to increase in the next five years due to the revenue of the higher-margins e-books
that will represent a larger share of the industry sales.
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As in any industry, wages is the part where a consistent part of the revenue goes. In this industry wages
occupies the second place as the largest percentage of the revenue. Wages consume 16.3% of the revenue,
against 21.5% in the industry in general, where it is more noticeable how much wages cost in terms of
revenue. We must report that the general trend in the industry is to downsize the operations to remain
profitable and this jointly with the slow decline of the industry have aided the decline in employees number
as we can see in the column employment of the chart Industry data at page 2. In the last five years
companies have cut labor cost to incentivize profits; a cut in labor cost and a decrease in employment
number will drive the wages, as a share of the revenue, down in the next five years. In fact with an increase
in e-book sales, a relevant part of the labor force is no more needed.
Purchases in this industry represents the largest share of thee revenue. Purchases here refers to content,
paper, ink, printing equipment (recently digital printers have become more and more important requiring an
adequate level of investment on those), packaging material. We can notice from the chart below [Sector vs.
Industry costs IBISWorld] that purchases consume 62.2% of the revenue compared to the 24.3% of the
industry in general. Although in both of the analyzed samples purchases represents the largest share of the
revenue, we also certainly notice how much the industry spend on this cost category. One of the major
purchases is paper, that it is often a fixed cost, accounting for the 20% of revenue due to long-term contracts
with suppliers (IBISWorld report 2015). In order to keep costs steady, companies manage high and low
quality paper, and depending on the paper prices (which have increased at an estimated average annual rate
of 1.6% during the last five years IBISWorld) they use one or another quality. A way to reduce purchase
costs is to recycle paper, not only is part of a green way of conducting business but also permits companies
to reduce costs saving money. Due to the increased popularity of the e-books and their projected increase in
sales, purchases are expected to decrease during the five years to 2020 (according to IBISWorld) as a direct
correlation of a reduction in the paper utilization.
In an industry where competition is based on price and brand recognition, but also where not much
advertising is needed for textbooks, marketing costs have a slightly share of the revenue. Companies are
estimated to spend 3.2% on marketing against the 4.9% in average for all the other industries. Publishers
mainly provide displays and posters to the retail outlets and also online, billboard and TV advertisements.
For this reasons marketing costs are a constant share of the industry revenue.

Sector vs. Industry Costs - IBISWorld

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E) Pricing Structure & Trends

As I stated before in the Trends in the marketplace section, the recent Apple lawsuit generated an increase
in the level of attention to the prices in this industry, not only in the customers but also in governmental
agencies. IBISWorld expects the prices to slightly decrease and maintain a steady course during the years to
2020. For this reasons, considering the actual industry scenario, it is important to take into consideration
pricing trends, which can give us a general perspective of what is the current situation for consumers and
producers over a certain period of time considering a representative sample of goods and services. We will
now analyze the Producer Price Index and the Consumer Price Index to have a view of the general trend for
companies and consumers; both of the indexes are published by the Bureau of Labor Statistics.
The Producer Price Index (PPI) measures the changes in prices received by the original producers at the
wholesale level (Bankrate.com). This index gives us the possibility to control the inflation at the wholesale
level, it is an indicator of the price pressure held by the companies and also the pressure that consumers will
soon likely face. As we can see in the Producer price index Bankrate.com chart below, the PPI has
decreased by 2.82% from last year, sign that the inflation pressure on the companies, in general, has
reducted.
The Consumer Price Index (CPI) measures the changes in the prices paid by urban consumers for a
representative basket of goods and services (Bureau of Labor Statistic.gov). We can use this index to
measure the inflation at the consumer level. As we can see in the Consumer price index Bankrate.com
chart below, the CPI increased by 0.8% in one year, this little increase did not change the inflation pressure
on the consumers and as we can notice in the CPI 12-month changes, 2005 to present Bureau of Labor
Statistic.com chart at page 8, during last year, this index remained on average on the same level, testifying a
steady inflation pressure lower than in the last five years.

Producer price index Bankrate.com

Consumer price index Bankrate.com

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CPI 12-Month changes, 2005 to present Bureau of Labor Statistics.com

Having analyzed the general trends in the economy for consumers, we will now proceed to a description of
the market segmentation, to understand the composition of the clients of this market. In this industry, the
most lucrative segment of clients is represented by consumers aged 45 and older (divided in two categories
as we can see in the chart Major market segmentation (2015) below) that account for a total of 46.9% and
by government organizations (accounting for 17.4%).
The sector Consumer aged 65 and older has increased due to a demographical fact during the last five years:
the baby-boomers generation approached this age range and according to IBISWorld, this is why this section
has increased while all the others experienced a decrease. Older people, especially the ones with more than
65 years, spend, on average, more time every day reading books (they also have more leisure time).
Consumers aged 30 to 44 (11.7%) and aged 45 to 64 (24.1%) spend less than 20 minutes per day reading
(IBISWorld), but, we have to considerate that these statistics could not reflect real facts considering that
many adults purchase books for their children. The market segment of consumers aged 20 to 29 is only 6.9%,
with the technologic revolution of the e-books and the crescent demand for these items, companies have to
work for achieve a better result and a bigger percentage for this particular segment.

Major market segmentation (2015) - IBISWorld

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F) Industry structure & actors

The competition in this industry is based on price and brand recognition. This market is in slow decline and
the concentration is low. There are four major players that count as one third of the market share. For this
reasons the competition is high, and it is very important for companies, to acquire the rights to publish
content of various authors, especially bestselling authors. IBISWorld expects competition to remain high,
benefiting well-established publishers during the five years to 2015. The competitive scenario is now in a
particular phase. Possible threats are represented by internal companies that are able to adapt fast to the new
technologies and by external possible new entrants. In this scenario attract bestselling authors and
maintaining long term relationships with them is crucial for a companys business. The major players in this
industry are investing more and more on their brand and for this reason are investing more in well-known
publishers. Publishers are trying to switch from a business focused on printed paper to a business where ebooks and online services are important for consumers and authors, especially in the textbook segment (the
most profitable one). This investment in digital technologies allows the companies to interact directly with
their markets and their customers. It is important for this industry to follow the new trends in the demand,
knowing the fact that the decline of the market could be slowed down by increased investments on new
technologies and online services.
With new technologies and online services becoming more requested by the consumers, the external
competition has decisively increased. The internet established an extremely large market for the resale of
new and used books (IBISWorld), this means that it is possible to purchase a book online, new or used,
looking through a very big amount of different online site, an buy the cheapest one in a very easy way. As
reported in the previous sections, many authors are opting for self-publishing, which is easy to implement in
the short period but difficult in the long period because of the costs that are need to be sustained to provide
an online service level in accordance with the requests of the customers. Book publishers have always to
compete with other players in the media industry, such as TV entertainment, the web entertainment,
magazines: these are all substitutes for books, the promotion of the brand, books, and authors thourgh
advertising requires attention by the companies in the Book Publishing Industry.
The barriers to entry in this industry are set on a medium level, it is not extremely difficult to publish books,
the difficulty is competing with the major players, acquiring the right for certain authors and sustaining the
costs of an efficient online interactive service (that has a fundamental importance in the present market). The
medium level of the barriers and the life cycle stage in decline create a strong internal competition. The
major costs that work as barriers to entry are: purchasing paper, printing and printers, recruiting authors and
developing distribution channels. Since recruiting and maintaining authors as well as copyrights constitute a
big cost, especially in the education-book publishing segment, where for these reasons barriers are higher.
Concerning the geographic repartition of the establishments of the industry, they largely correlates to the
population repartition in the USA, with a lot of establishment in California, Great Lakes region, Mid-Atlantic
region and Southeast region. West region and Mid-Atlantic region lead with respectively 19.6% and 22.2%
of the total industry establishments [see Distribution of establishments vs. population IBISWorld chart
below]. Here is where the population has more concentration and the industry needs a concrete presence on
the market. With the growth of e-books it is predictable that online services will obtain always more
importance and the number of establishments could be affected.

Distribution of establishments vs. population- IBISWorld

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The three major actors in this industry, considering market share and financial performances are:
Bertelsmann SE & Co. KGaA with 14.0% market share; Pearson PLC with 12.0% market share; Apollo
Group Inc. with 7.3% market share [see Major players (market share) IBISWorld chart below].
Bertelsmann SE & Co. KGaA is based in Germany and it is one of the largest media conglomerate in the
world. The company operates in more than 60 countries and employs over 111,700 workers. Its revenue of
4,020.4 million dollars was 16.6% greater than the revenue of Pearson PLC in the year 2015. IBISWorld
expects Bertelsmann to grow of 8.9% during this year.
Pearson PLC has its main business operations in the United Kingdom and United States. The company
operates in more than 70 countries employing over 40,000 workers. In the year 2015 its revenue was equal to
3,447.6 million dollars, 1.5% more than the 2014 revenue.
Apollo Group Inc. completed an important acquisition of 2.4 billion dollars in 2013; acquiring MC GrawHill Education it became one of the major actors in the industry. Apollo Group operates globally and
employs over 44,000 workers. In the year 2015 the revenue was 2,105.1 million dollars, 4.3% more than the
previous year; this increase was mainly boosted by the acquisition of Mc Graw-Hill Education in 2013 that
permitted to Apollo Group to compete with the other two big players in the industry.

Major players (market share) IBISWorld

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Supplier Profile
Pearson PLC
Pearson PLC is an international company involved in publishing, education and business information. This
company has its main operations located in the United Kingdom and United States. Its most important
activity is book publishing, having two of its three major divisions involved in this business.
The company operates in three segments: North America, Core and Growth. It has three lines of business:
schools, higher education and professional that cover the products and service segmentation of the industry.
Pearson offers different services and contents, such as test creation, teacher development and school
software, and it delivers them through various channels, including books, newspapers and online services.
Employing more than 40,000 workers in over 70 countries for a revenue of 3,396.6 billion dollars in 2014,
its market share is 12.0% in an industry where Bertelsmann Se & Co. KGaA has the biggest share with
14.0%. Pearson is one of the leaders in the book publishing industry, and in 2015 its revenue from textbook
publishing is expected to increase by 1.5% due to the growth in the North America education segment. The
company has a strong brand identity and wide geographical presence. The main risks for Pearson are
represented by: possible infringements of intellectual property, foreign exchange risks, decrease in
circulation and digitization. However, the positive image of the media industry and the strategic initiatives of
the company will provide ample growth opportunities for Pearson.
Pearson, in 2013, has completed a joint venture between its Penguin publishing subsidiary with Bertelsmann
Random House to form Penguin Random House, owning the 47.0% of the venture. The company succeeded
developing interactive book interfaces and focusing on book art in order to make the books more appealing
to the customers. Recently Pearson tried to diversify and strengthen its position in the market Acquiring
Author Solutions Inc., a provider of self-publishing services.
We can note that Pearson has a noticeable weakness in substantial increase in non-cash components of
current assets. In the financial year 2013 the current assets of the company decreased by 8.4% compared to
the financial year 2012, and there was a considerable increase in its non cash components such as total
inventory and prepaid expenses.
On the other side, its strengths are brand recognition, wide geographical presence and strategic partnership
(as the joint venture with Random house testifies, helping Pearson to maintain its market position). [see
SWOT analysis table below Onesource.com].
In the upcoming years Pearson is going to try advantage from some opportunities the market offers, beside
also stabilizing its position in the industry. Advances in technology change the way in which contents are
delivered and this offers the company the opportunity to increase sales creating higher revenues.
Strengths

Weaknesses

Brand Recognition
Wide Geographical Presence
Strategic Partnerships

Substantial Increase in Non-Cash

Components of Current Assets

Opportunities

Threats

Strategic Initiatives
Trends in Content Delivery
Positive Outlook for the Media Industry
Global Economic Outlook

Foreign Exchange Risks

Decrease in Circulation
Intellectual Property Risks
Digitization

SWOT analysis Onesource.com

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References:
Slivka, Eric. Apple Found Guilty of Conspiring to Fix Prices in E-Book Trial.MacRumors. N.p., 10 July
2013. Web. 9 Sept. 2015.

Richter, Felix. U.S. eBook Sales to Surpass Printed Book Sales in 2017.Statista. N.p., 6 June 2013. Web.
10 Sept. 2015.

Bankrate.com, ed. Producer Price Index. Bankrate. N.p., 9 Sept. 2015. Web. 10 Sept. 2015.

Bankrate.com, ed. Consumer Price Index. Bankrate. N.p., 9 Sept. 2015. Web. 10 Sept. 2015.

Bureau of Labor and Statistics, ed. Consumer Price Index. United states Department of Labor. N.p., 2015.
Web. 11 Sept. 2015.

Crawford, Malik, Jonathan Church, and Bradley Akin, eds. CPI Detailed Report.United states Department
of Labor. N.p., July 2015. Web. 11 Sept. 2015.

Onesource, ed. Pearson PLC. Onesource. N.p., n.d. Web. 15 Sept. 2015.

Rivera, Edward. Book Publishing in the US. IBISWorld. N.p., May 2015. Web. 9 Sept. 2015.

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