An empirical investigation of the Italian digital publishing market

By Stefano Tombolini

The present work is a statistical and economic study of original catalog and sales data for the Italian digital publishing market during the period 2010-2013.

Essential historical, technical, and economic information about the digital publishing industry, and the Italian context in particular, are provided in chapter II.

The review of the literature in chapter III is quite extensive, and not only for completeness sake: a thorough review of the literature has been instrumental to the definition of the economic and statistical framework.

Chapter IV presents the results of the analysis, through OLS and quantile linear regression, on multiple price points, of catalog data for e-books by major Italian publishers.

Thanks to the detailed information available in the cross-sectional catalog dataset, it was possible to contribute a joint analysis of e-book and print book prices to the reference literature.

An interpretation in terms of pricing behavior and market assumptions by incumbent print publishing houses is attempted.

Chapter V presents the results of the analysis of sales data for a panel of titles distributed by a “long-tail-oriented” Italian e-book distributor.

Concentration measures and panel linear regression models are used to investigate the distribution and the price sensitivity of sales on a title basis.

We find little support in the data for the hypothesis of shifts in consumer tastes towards “niche” products.

On the one hand, the finding is consistent with inherent characteristics of the book market, on the other, it might be ascribed also to a publishing offer based on analogy with the print market, as suggested by the analysis of catalog data.

Finally, in chapter VI, the methodological limitations of the research, both in technical and interpretative terms, are discussed.

In addition to possible adjustments to the original models, alternative paradigms, more in line with the economics of digital markets for information goods, are outlined.

Innovative tying and bundling strategies by e-book distributors could reshape the digital publishing industry and represent a serious competitive threat for incumbent players in the print publishing industry.

• Language: English
• Publisher: Stefano Tombolini
• Release date: Oct 24, 2013
• ISBN: 9788868559717

Book preview

Bibliography

I.

Introduction

The present work is a statistical and economic study of original catalog and sales data for the Italian digital publishing market during the period 2010-2013.

Essential historical, technical, and economic information about the digital publishing industry, and the Italian context in particular, are provided in chapter II.

The review of the literature in chapter III is quite extensive, and not only for completeness sake: a thorough review of the literature has been instrumental to the definition of the economic and statistical framework.

Chapter IV presents the results of the analysis, through OLS and quantile linear regression, on multiple price points, of catalog data for e-books by major Italian publishers.

Thanks to the detailed information available in the cross-sectional catalog dataset, it was possible to contribute a joint analysis of e-book and print book prices to the reference literature.

An interpretation in terms of pricing behavior and market assumptions by incumbent print publishing houses is attempted.

Chapter V presents the results of the analysis of sales data for a panel of titles distributed by a long-tail-oriented Italian e-book distributor.

Concentration measures and panel linear regression models are used to investigate the distribution and the price sensitivity of sales on a title basis.

We find little support in the data for the hypothesis of shifts in consumer tastes towards niche products.

On the one hand, the finding is consistent with inherent characteristics of the book market, on the other, it might be ascribed also to a publishing offer based on analogy with the print market, as suggested by the analysis of catalog data.

Finally, in chapter VI, the methodological limitations of the research, both in technical and interpretative terms, are discussed.

In addition to possible adjustments to the original models, alternative paradigms, more in line with the economics of digital markets for information goods, are outlined.

Innovative tying and bundling strategies by e-book distributors could reshape the digital publishing industry and represent a serious competitive threat for incumbent players in the print publishing industry.

II.

The digital publishing industry

A basic understanding of the digital publishing industry supply chain requires some knowledge of the historical and technical aspects of e-book production and distribution.

Sections II.1 and II.2 are preparatory to the comprehension of the variables in the datasets and to the interpretation of the results of the analyses.

Readers unfamiliar with the digital publishing landscape might benefit from a quick survey of the short glossary and chronology in the Appendix.

II.1. History and technicalities

The digital storage of books probably dates as far back as the 1960s, in parallel to the development of the ASCII (American Standard Code for Information Interchange) character-encoding scheme.¹

Over the years, the introduction of new encodings has allowed text files to represent many alphabets other than the English one.

At least since the early 1990s, the supply side of the book market engaged in the digitization of the production process; by that time, Adobe Portable Document Format (PDF), which made it possible to create complex text documents with professional grade software², was already available.³

However, it is only at the end of the 2000s, with the advent of specialized hardware devices such as the Amazon Kindle e-reader and the Apple iPad tablet computer, that consumers began to perceive e-books as a viable alternative to traditional printed books.⁴

During 2011, 20% of US Internet users have purchased e-books, with sales reaching 8% and 18% of sales of trade books and of fiction books, respectively;⁵ the share of US book consumers who also buy e-books grew from 13% in 2010 to 17% in 2011.⁶

Amazon, the multinational e-commerce company, is the most successful global market player: during 2011, 70% of US e-book consumers have bought at least one of the 950,000 titles available in digital format on Amazon.com in the same year.⁷

In July 2010, Amazon announced that, for the previous three months, "sales of books for its e-reader, the Kindle, outnumbered sales of hardcover books."⁸

Six months later, Kindle books overtook paperback books to become the most popular format on Amazon.com.⁹

By May 2011, Amazon had been selling "more Kindle books than all print books – hardcover and paperback – combined"¹⁰.

These numbers are remarkable indeed: Amazon has been selling printed books since 1995, whereas Kindle was introduced only in 2007,¹¹ and the Kindle catalog is still a small fraction of the printed one.¹²

The figures do not even include free Kindle books, mostly out-of-copyright pre-1923 titles.¹³,¹⁴

The earning reports of large book publishers for 2011 also suggest that e-books are generally more profitable than print books,¹⁵ despite roughly flat yearly revenues.

In April 2012, the US Department of Justice sued the technology giant Apple and five major international book publishers (Hachette, HarperCollins, Macmillan, Simon and Schuster, and Penguin) for violation of antitrust laws.¹⁶

In December 2011, the European Commission had already opened formal antitrust proceedings against the same firms for anti-competitive practices.¹⁷

According to the accusations, book publishers teamed up with Apple to restrain retail price competition in the e-book market.

Initially, e-books were sold under a wholesale model, where publishers set a price and each retailer decides the cover price that he wants to charge for the title.

Amazon set $9.99 as its own price ceiling for e-books, an aggressive marketing policy to attract customers to the Kindle platform.¹⁸

Publishers reacted by shifting to agency pricing, where they fix the final customer price and pay a commission to the retailer.

When Apple launched the iBooks platform on iPad and iPhone, it accepted and advocated the adoption of such a pricing model for e-books.

Amazon, faced with the prospect of offering a smaller catalog than competitors, had to stop its $9.99 price policy and accept agency terms from publishers.¹⁹,²⁰

At the very beginning of the 2000s, the Adobe PDF file format had already found success among consumers, thanks to the Adobe Acrobat Reader free viewing tool, and was used to pioneer the commercial distribution of e-books in Internet²¹.

The PDF file format is page-oriented and provides very precise layout control; these features are convenient for high quality publications that require very precise element spacing or include many image elements that have to be precisely positioned²², but pose technical problems as far as the needs of the e-book market are concerned.

[…] the downturn of the PDF file format is that is quite difficult to read and use on small to medium size screens, like for example smartphones or very small tablet computers. The reason is that the text elements in PDF files are of a fixed size that is relative to the page size of the document and not to the size of the screen of the reader device. The user barely has the difficult choice between viewing the whole page with very small text characters or viewing only a magnified part of the page that has to be moved around all the time.²³

During the 2000s, attempts by the digital publishing industry to address the file format issue led to the emergence of two different de facto standards.

The Open eBook Forum, an international publishing industry organization created in 2000 and later renamed International Digital Publishing Forum (IDPF), proposed the Open eBook (OeB) format, later replaced by the EPUB format, in an attempt to set a common industry standard²⁴.

Meanwhile, Mobipocket, a company founded in 2000, concurrently