Profitability analysis of the publishing industry in Norway : a study of the sources of profitability variations between Norwegian publishers

Abstract

In Norway, sales of physical books are declining, while sales of books in digital formats, although increasing, account for only a marginal share of the total market (Norwegian Publishers Association, 2019; Ibenholt, 2017). With declining revenues, the Norwegian publishing companies are facing a situation where competition intensifies and operating profitably becomes increasingly tougher. This thesis aims at developing an understanding of the profitability of the Norwegian publishing industry. We examine the competitive environment and the profitability of the industry as a whole. Moreover, we analyze potential sources of profitability variations between players and explore which business models can be profitable in the future, considering the impact of digitalization. The thesis uses both qualitative and quantitative data sources. The profitability of the industry is studied based on financial statements from a sample of 76 Norwegian publishing companies. Moreover, factors behind profitability variations are explored using insights from in-depth interviews which were conducted for the purpose of this thesis. Thus, the thesis has both a descriptive and an explorative purpose. The analysis shows that the industry is characterized by a high level of competition and strong profitability variations between players. Moreover, we find that specialized publishers (especially academic publishers) are significantly more profitable than publishers with wide selections of genres. Moreover, the interviews indicate that capacity utilization, exploitation of linkages, complexity of book projects and governmental procurement schemes are among important cost drivers. Furthermore, we argue that publishers who focus on direct sales, as well as merged and specialized publishers have potential to be profitable in the future. However, we highlight the risk of overlooking the impact of digitalization and focusing on “business as usual” while disruptive changes can be around the corner.