THE BOOK PUBLISHING INDUSTRY IN THE UNITED STATES MARKET STRUCTURE

Number of Firms

There is intense competition in the U.S. book industry. In 1997 the U.S. De- partment of Commerce tracked more than 2,684 establishments employing 89,898 individuals with an annual payroll in excess of $3.6 billion (U.S. De- partment of Commerce, 1997; Commerce will not release another Census until 2004). By 2002, the R. R. Bowker Company monitored more than 53,000 book companies (Bogart, 2002). The disparity in these tallies is due to Commerce’s definition of a book publisher: it must have one paid employee; pay federal taxes; and its primary business must be book publishing. Bowker relies on the total number of publisher ISBN numbers. ISBN is a unique bar code assigned to a specific book publisher; Bowker is the sole provider of all ISBN codes in the United States. Bowker also reported that U.S. publishers released approximately 120,000 new titles in 1999 and again in 2000. By 2001, the total exceeded 135,000. These tallies for 1999 through 2001 exclude books imported into the U.S. In addition, Bowker revealed that there were approximately 3.5 million titles in print in 2002.

Barriers to entry into book publishing are rather minimal. Almost all edi- torial and production operations can be subcontracted out (to minimize overhead expenditures). The First Amendment provides ample protection for this industry, and foreign individuals can purchase and operate book houses. The real entry barrier problem centers on the distribution function, and convincing buyers at the largest book chains or other retail establish- ment to carry a title is a formidable task. However, anyone with enough capital can launch a book company with a great deal of ease.

Clearly, competition in the U.S. marketplace for authors, books, and sales is intense, especially in light of the number of publishers, books, book- Clearly, competition in the U.S. marketplace for authors, books, and sales is intense, especially in light of the number of publishers, books, book-

Book Categories and Net Publishers’ Revenues

The book industry is divided into distinct categories (Greco, 1997a, 1997b). In 2001, total net publishers’ revenues (i.e., gross sales minus re- turns) hovered near the $23.7 billion mark on sales of 2.4 billion cloth and paperback units (Book Industry Study Group, 2002). The trade category (i.e., adult and juvenile books) accounted for $6.4 billion (a 26.8% share of the entire market) with almost 846 million units sold. Professional books (i.e., nontextbooks books written for professionals, including attorneys, bankers, etc.) were second with $4.7 billion (20% share; 168 million units). Elhi (i.e., elementary and high school textbooks) placed third with $4.2 billion (a 17.6% share; 349 million units). University press tallies hovered near the $443 million mark, down from previous years (Greco, 2001a, 2001b). The Book Industry Study Group, Inc. (BISG) expects net publishers’ revenues to top $28 billion by 2006 on sales of 2.5 billion units. Table

6.1 outlines these trends.

Consolidation

Since the 1960s, there have been a number of mergers and acquisitions (Greco, 1989, 1996). In the 1980s Bertelsmann (a German media company) purchased Bantam Books, and a few years later it acquired Doubleday. In 1998, it added Random House (changing the name of the newly consoli- dated company to Random House). By 2002, Random House was the largest trade book publisher in the U.S. Subtext (a major book industry research company) estimated Random House had total U.S. trade revenues of $1.7 billion in 2000 (Oda & Sansilo, 2002b). Penguin Putnam (owned by the United Kingdom’s Pearson PLC) resulted from a series of mergers involving, G.P. Putnam, Viking Press, and the famed Penguin house, and Subtext indicated Penguin Putnam was the second largest publisher in the United States with $820 million in revenues. HarperCollins, owned by the Austra- lian based News Corp., was created with the merger of Harper & Row and the United Kingdom’s Collins; it is the third largest book publisher in this nation with about $800 million in revenues (Oda & Sansilo, 2002b).

Some individuals, in a series of impassioned books and essays, raised concerns about an alleged “media monopoly” in the book industry, espe-

6. THE ECONOMICS OF BOOKS AND MAGAZINES

129

Publishers Net Dollar Revenues ($ Million; All Numbers Rounded Off)

Category 2001

2004 2005 2006 Trade (Total)

6693.3 6889.9 7059.2 Adult Trade

4,871.9 5,022.0 5,145.6 Juvenile Trade

1,821.4 1,866.9 1,913.6 Mass Market

Book Clubs 1,334.5

1,406.5 1,427.5 1,449.0 Mail Order

Elhi Textbooks 4,183.6

28,018.7 Note. From Book Industry Trends (2002).

cially because so many of the top firms are owned by large, global media corporations (Bagdikian, 2000; Greco, 2000). Although the First Amend- ment protects freedom of the press, a series of major federal laws (e.g., the Sherman Act of 1890, the Clayton Act of 1914, etc.), stipulated any merger or acquisition involving parties with revenues beyond a certain minimum dollar threshold must submit documents to the Department of Justice (DOJ) for review by DOJ or the Federal Trade Commission (FTC) prior to the formal merger. DOJ and the FTC rely on a series of standard mathe- matical formulas, including the Herfindahl-Hirschman Index (HHI) along with other appropriate review mechanisms, to ascertain if there is a violation of the antitrust laws (Greco, 1999). All of the mergers listed here, involving U.S. and foreign firms, passed federal scrutiny because no sub- stantive empirical evidence was presented to DOJ or the FTC in the last 40 years that a “media monopoly” exists in the U.S. book industry; and DOJ and FTC have not opposed any mergers or acquisition in the book publishing industry during those years. Table 6.2 lists the ten largest trade publishers as of 2002.

6. THE ECONOMICS OF BOOKS AND MAGAZINES

TABLE 6.2

The 10 Largest Trade Book Publishers: 2000 ($ Million)

Percentage Share Rank

Trade

Publishers

of U.S. Trade Market 1 Random House

Revenues

25.8% 2 Penguin Putnam

12.1% 4 Simon & Schuster

5.0% 6 Warner/Little Brown

4.2% 7 St. Martin’s/Holt/Fararr

8 Hungry Minds

3.1% 9 Thomas Nelson

3.1% 10 Houghton Mifflin

1.5% Note. From Subtext Perspective on Publishing 2001–2002: Numbers, Issues & Trends.

THE BOOK PUBLISHING INDUSTRY IN THE UNITED STATES MARKET STRUCTURE