Reading the Signs: What is Really Happening withDigital Publishing in China?

Xuemei Tian · Bill Martin

© Springer Science+Business Media New York 2013

Abstract Based upon a recent review of the relevant literature in both English and

Chinese, this paper assess the current state of and future prospects for digital

publishing in China. It addresses developments both in the context of ongoing

technological and organizational change and with regard to the wider social and

cultural dimensions. Embodying a simulated SWOT exercise it considers the current

and likely future state of digital publishing in China through the eyes of western

publishers seeking to do business in that country. Digital publishing in China is still

in its infancy, while perhaps remaining more opaque to western observers than was

expected. Issues around ownership, industry structure, operating platforms, stake-

holders, piracy and intellectual property remain critical. Perhaps more than

anything, and certainly much more than in the West, the issue of culture, not only in

terms of national values and perspectives but also in terms of how things are done,

remains a potent influence on business relationships with foreigners. In the West this

continues to feed perceptions of legal and commercial uncertainties, risks to

intellectual capital and obstacles to the production and distribution of knowledge

and ideas. Whatever the perceived downside to such phenomena however, China is

still regarded as a major growth market for western publishers. It concludes that

whereas there are many opportunities for both parties, and that both can learn from

each other, the learning curve is likely to be much steeper on the western side,

owing to the significance of the social and cultural dimension.

Keywords Business model · China · Digital publishing ·

China digital publishing base · China telecom mobile · GAPP

X. Tian (&) · B. Martin

Faculty of Information, Communication and Technology, Swinburne University of

Technology, John Street, Hawthorn, VIC 3122, Australia

e-mail: stian@swin.edu.au

B. Martin

e-mail: wjmartin@swin.edu.au

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DOI 10.1007/s12109-013-9324-5

Introduction

As the publishing industry grapples with ongoing issues of technological and

organizational change, growing and increasingly diversified competition and ever-

complex legal and regulatory infrastructures, China like other countries is grasping

the nettle of digitization. This is apparent from reviewing the available literature

over the past decade, including both material published in English and in Chinese

language sources. Digital publishing is the path modernization, to growth and

industry expansion, while albeit posing difficult regulatory and organizational

problems. This said, there is much about publishing in China that is unclear to

western eyes, with ambiguity surrounding even what would appear to be factual and

concrete developments in the market. These developments themselves are

unquestionable. They are apparent with regard to the importance attached to

publishing as a ‘cultural industry’ contributing to national and regional economic

growth. They are also apparent in the emergence of digital publishing, increasingly

involving companies listed on the stock market and of a growing private sector. It is

estimated that the total output of the publishing industry will reach RMB

2,940 billion (USD 478.5 billion) by the end of 2015 [1]. By 2015, the government

expects that publishing will be dominated by 20 publishing houses each producing

revenues of USD 148 million a year, and the 10 new industrial bases each

generating USD 1.48 billion. A quarter of these revenues is expected to come from

digital content [2]. For all that is positive and encouraging about such developments,

however, there remain doubts as to the openness and efficiency of markets and the

ability of the western book trade to compete effectively in Chinese markets [3].

The many similarities with book publishing in the West include the growing

numbers of mergers and acquisitions and the rise of conglomerates such as the three

major national publishing and media groups: China Publishing Group (中国出版集

团), China Education Publishing & Media Group (中国教育出版传媒集团), and

China Science and Technology Publishing & Media Group (中国科技出版传媒集

团). Nevertheless, the market system is still somewhat alien, not least to traditional

publishers, and lags well behind that of the West. There is a difference here between

state and provincial-owned traditional publishing houses which are often inefficient,

and the privately-owned ‘culture houses’ which can be innovative and professional.

Moreover, the proliferation of these businesses (whose actual number is unclear)

and the many weaknesses of the contract and copyright systems within which they

operate militate strongly against development of a coherent private sector [2].

This is also the home of one country, two systems and not everything is as it

might seem at first glance to outsiders. Alongside the market’s ‘invisible hand’ sits

the 12th Five-Year Plan (2011–2015) with clear implications for publishing, and the

activities of the General Administration of Press and Publication (GAPP, 中华人民

共和国新闻出版总署) whose responsibilities ranges widely over all issues from

planning the structure of the industry to licensing the various industry players [4].

There are also concerns that the dominant players, the state-owned publishers are

still very much feeling their way in all this, and are locked into a mindset that

belongs in the past [2]. The point here is not to criticize what is a vibrant and

dynamic publishing industry, and one which may indeed later develop in a form that

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is less-dependent upon government guidance. Rather it is to remind readers that

there is more than one way to operate a book publishing industry and that what are

apparently familiar and well-understood concepts can embody significant variations

in practice in China and the West.

Current Structure of the Publishing Industry in China

Broadly speaking the publishing industry in China comprises three different levels:

1. National publishing companies and provincial publishing groups, four or five in

each case accounting for 70 % of the publishing market.

2. Small professional publishing groups, accounting for 10 % of the market.

3. The remainder comprised of miscellaneous organizations, including privately

owned publishing companies [1].

The industry can also be categorized into six groups: books, journals and

magazines, newspapers, audio products, video products and electronic publications

[5]. Compared with publishing in the West, Chinese companies have tended to be

smaller and decentralized, with few large conglomerates such as Pearson, Thomson

and Macmillan Publishers [6]. However, this is changing as government actions to

create both giant publishing conglomerates and digital publishing bases approach

fruition.

The Growth of Digital Publishing in China

The term ‘digital publishing’ was officially recognized in China in 2005–2006 [4,

7]. It is important to identify the nature and scale of the digital publishing market.

Official figures such as an anticipated 25 % share of press and publishing output by

2015 [5] can be misleading in that they tend to represent a vast and homogenous

market, which on further analysis turns out to be a combination of eBooks,

eJournals, digital newspapers, online comics, online music, blogs, games, animation

and internet novels [8]. Furthermore, although digital publishing is growing rapidly,

in terms of revenue growth it still has much ground to make up on the traditional

book, newspaper and magazine sectors [9].

Since 2005, net sales of digital publications increased dramatically from about

$3.34 billion USD (20.5 billion Chinese Yuan) to $17.1 billion USD (105.1 billion

Chinese Yuan) in 2010 [7]. Digital publishing had by then become the third biggest

revenue earner in the publishing industry [4]. Cheng [4] further explains this

increase by (1) publishing houses increasingly transferring from traditional to digital

publishing; (2) an increase in leading IT businesses entering digital publishing; (3) a

move within publishing away from a reliance on partnerships with IT companies

towards a broader mode of collaboration involving multiple partners; (4) a greater

diversity in the range of digital products; (5) emergence of alternative distribution

channels; (6) and the creation of more transparent revenue/sales models leading to

greater acceptance by readers. However, not everyone sees such developments as

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necessarily working out in the short term, with one source describing digital

publishing in China as being in a state of chaos owing to the application of

experimental formats by both established enterprises and entrepreneurs in a context

of untested business models and partnerships and an unstable regulatory environ-

ment [2, 10].

Although the relatively high costs of eBooks and eReaders in China remains a

factor in slowing down market growth, this may in the medium-term prove less

significant than the impact of mobile telecommunications. Among GAPP’s efforts

to stimulate the growth of digital publishing are contracts with leading mobile

providers China Mobile (中国移动) and China Telecom Mobile (中国电信移动通

信) to provide the required technology and digital services to Chinese publishing

companies. In 2010, the total revenue generated from digital publishing reached

17.22 billion USD (105.79 billion RMB) of which 5.69 billion USD (34.98 billion

RMB) was accounted for by mobile publishing, and only 0.4 billion USD

(2.48 billion RMB) came from eBook sales [11]. According to combined statistics

from the three major telecom companies, 30 % of cell phone users are reading

eBooks on their phones. China Mobile (中国移动) was the first telecom company to

launch its digital book platform in October 2009. In that year, China Mobile began

working with three major technology companies: Hanvon (汉王), Datang (大唐),

and Huawei (华为), to produce e-ink readers that support 3G. Since 2009, new

entrants to mobile publishing, include Apabi (方正阿帕比) and Shengzen

Palmmedia [9]. The wider implications for digital publishing consequent upon the

expansion of telecoms companies activities into content production remains moot,

but is not something about which book publishers would be unduly sanguine.

Whatever the case, it is impossible to ignore the scale of the market in which there

were 330 million smartphone users in 2012 [12] and where monthly revenue from

mobile phone reading of just one company, China Mobile, was 100 million RMB

(16.3 million USD) in 2010 [13].

Structure of the Digital Publishing Industry in China

Identifying let alone understanding the structure of digital publishing in China is

much more difficult than might at first be thought. Notwithstanding the emergence

of a thriving private sector, including within the publishing industry, the influence of

government (Central and Provincial) is pervasive. The GAPP through, for example,

China’s Publishing Management Regulations, Digital Publication Management

Regulations, and Temporary Online Publishing Management Regulations, is

responsible for reviewing and overseeing all enterprises involved in services

related to eBooks [14]. Everyone is obliged to follow the regulations, be they a

Chinese or international player. Amazon, found this out the hard way in that having

teamed up with a Beijing digital book publisher (ChineseAll.com) in order to use

the latter’s operating licence to operate a Kindle Store, was found to have abused the

regulations and was required to cease trading [14]. However, it later acquired the

proper documentation and resumed trading.

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Other examples of the continuing influence of central and state governments

include online and offline bookstores in China, both being required to purchase

imported books from one of 37 government-approved agencies such as CIPG (中国

外文出版发行事业局), China Educational Publications Import & Export Corp. (中

国教育图书进出口公司), and Shanghai Book Traders (上海外文图书公司) [12].

Perhaps the most notable example of the influence of government (via GAPP)

upon digital publishing in China is the establishment since 2011 of ten national level

digital publishing bases, supported both by local and national government but

adhering to national government policies. These bases are located at Tianjin

Binghai, Shanghai Zhangjiang, Hubei Huazhong, Zhejiang, Guangdong, Chongqing

Beibu Xinqu, Shanxi Xian, Hunan, Jiangsu [7] and Anhui [15]. The structures of

these bases are similar, with that for the Shanghai Zhangjiang digital base which

described below based on information from Baidu Database [16]. The main

components are:

1. Industrial environment (includes two parts: the public technology platform and

the public service platform);

a. The technology platform provides infrastructure incudes hardware and

operating platforms.

b. The public service platform (relevant business networks, e.g., media,

digital content, digital technology and marketing companies; copyrights

service center, copyright trading center, copyright registration center,

integrated information service, investment and financing services).

2. Personnel training system which includes institutions such as universities;

3. Policy support system (policies that support development of the base e.g., tax

and rental advantages for companies operating within the base);

4. A self-contained base infrastructure, e.g., living apartments, transport, hotels,

restaurants, entertainment, and shopping centres.

One major outcome of this central government initiative has been a steady

transformation of the digital publishing business from an independent and

standalone to a collaborative format, within which publishers, authors, high

technology companies, media/internet companies, distribution companies and

government organisations work together [7].

Alongside this raft of central and local government activities has been the growth

of publicly listed companies, frequently involving strategic combinations of

expertise as for example the emergence of Tianwen Digital Media (天闻数媒科

技有限公司) from an alliance between China South Publishing & Media Group (中

国南方的出版传媒集团) and Huawei Technologies Co. (华为技术有限公司) [1].

It is important when reporting such developments to have some idea of the balance

as between state-owned or aligned companies and private ones.

The Public–Private Phenomenon

In seeking to understand the complex relationships within the publishing industry in

China, it is important to acknowledge that the public sector accounts for 70 % of the

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market, and is likely to do so for the foreseeable future [1]. Likewise the most

obvious indicators of change within publishing are its substantial level of

involvement in the Stock Market and the accompanying growth of public–private

mergers and collaborations [1].

Such collaboration is embodied in GAPP strategy to open up the market to

competition within a national regulatory framework. It not only offers private

publishers legitimacy and access to resources but also to economies of scale

within an industry well on the way to conglomeration. An example of public–

private collaboration is the strategic cooperation between state-owned China South

Publishing & Media Group (中南出版传媒集团股份有限公司) and Boji Tianjuan

(博集天卷) a private publishing distribution firm [5]. Earlier ones included the

emergence of Beijing Educational Holdings (from collaboration between Beijing

Jiuzhou Yingcai Books Planning Co., Ltd. and Beijing Publishing Group Co.,

Ltd.) and of China South Booky Publishing Inc. from the coming together of

China South Publishing & Media Group Co., Ltd. and Beijing Booky Publishing

Inc. [1].

Care is still needed when it comes to distinguishing public from private

publishing enterprises. Although it might at first appear to be private, and works

with overseas publishers such as HarperCollins and McGraw Hill, Readgo the

online bookstore is owned by the state-controlled China International Publishing

Group (CIPG). This is also true of 9Yue, an e-book retailer established by the

official Xinhua bookstore chain, the largest brick-and-mortar bookstore chain in

China. It is run largely by a Xinhua Wenxuan (新华文轩), one of the earliest

entrants into the online bookstore market, selling paper books online starting in

2007, and launching its e-book platform in July 2010 [17]. However, notable

examples of private enterprise include 360Buy founded in 1998 Liu Qiangdong, and

now China’s largest online retailer, with a 50.1 % share in China’s self-run B2C

market and a 22.7 % share in China’s B2C market as a whole in the first quarter of

2012 [18].

Despite difficulties in identification and enumeration, privately-owned com-

panies are emerging in both the distribution and publishing fields. This is a

feature of the digital bases with for example, 32 publishers, 6 of them digital

located in the Beijing Publishing Innovation Park by 2010, all benefitting from

favourable rent and taxation policies. These industrial parks are almost all

financed by private enterprises with support from the local government. Similar

developments are reported from Nanjing, Guandong and Siping [1]. Outside

these public–private collaborative bases, the emergence of private publishing

enterprises can be tracked on the basis of location and provenance with

participants including publishers, technology companies, eCommerce firms and

social networks.

Digital Publishing and Support Services

Early entrants to the eBook market included Founder Apaby (方正阿帕比), Sursen

(书生) and the Shanda Literature Group (盛大文学) (the English name of Shanda

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Literature has been changed to Cloudary Corporation). Shanda is China’s largest

eBook publisher with over 6 million titles available by the end of 2012, accessible

from its own dedicated eReader Bambook [19]. In addition to its eBook store

Founder Apaby [20] provides digital publishing support services to publishing

houses, newspapers, universities and libraries and along with the Zhongsou search

portal (中搜搜索引擎) [21], operates the eBook platform Fanshu.com (番薯网).

This is similar in nature to Amazon and in addition to being one of China’s largest

collections of eBooks provides access to Fanshu.com’s e-reading software and

Yambook e-reader [22].

Notable examples of private publishing enterprises include Hunan Tangel

Publishing (湖南天舟科教文化股份有限公司), the Shandong Century Jinbang

Book Co., Ltd (山东世纪金榜书业有限公司) and Xiron Culture (北京xiron图书有

限公司), the Jiangsu Keyi Group Co., Ltd. (江苏可一出版物发行集团), Jiangsu

Sanyuan Education Co., Ltd. (江苏教育出版社), the Shandong Spark International

Media Group (山东星火国际传媒集团) and the Wan Rong Book Development

Co., Ltd. (万卷出版公司). Some of these were launched via the stock market and

others through the aid of venture capital [1].

There are also some small boutique private publishing ventures such as Tangcha

(唐茶), which produces creative, well-crafted digital publications for the Apple

platform (http://www.tangcha.tc/). Another example is Beijing Xiron, which

established its ‘Xiron Chinese Web’ in 2010, but did not go into operation the

end of 2011. The site is purely an ‘original content platform’, using payments,

prizes and Xiron’s advantages in traditional publishing to encourage users to post

relevant material (http://www.app111.com/developerlist?k=480362678&t=iphone

&p=1).

eCommerce Operations

A significant avenue of development has been collaboration between online retailers

and publishing houses. Dangdang (当当), the first and largest online eBook retailer

which was launched in December in 2011, offers approximately 50,000 books from

some 200 publishers. Dangdang has also introduced its own e-ink reader, with

prices ranging from 299 Yuan (USD 48.60), 699 Yuan (USD 113.70) for a 3G-

capable, touch-screen reader [23]. Dandang also reflects a trend within eCommerce

generally involving a shift away from vertical eCommerce to become an online

department store selling general merchandise as well as books [13].

Further, signs of a private dimension have emerged with the involvement of the

country’s largest e-commerce company, Jingdong Mall (京东商城), in 360buy, as a

retailer of both print and digital books. It is China’s second-biggest online retailer,

with around 20 % of all online sales [12]. The advent of 360buy has been welcomed

as challenging the existing duopoly in eBook sales and distribution enjoyed by

Dangdang and Amazon.cn [13]. Dangdang an established book and electronics

retailer founded in 2000 by two entrepreneurs launched an own-brand eReader in

2011. In 2011 it accounted for around 1.5 % of Chinese online sales [12]. Amazon.

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cn like Dangdang operates in both the eBook and eReader markets, and likewise

engages in collaboration with existing book publishers [12].

A major example of links between eCommerce and digital publishing is the 40 %

stake held by Baidu in Founder Technology, which also makes Baidua part-owner

of Fanshu.com (方正科技). Baidu, Inc. (Baidu) is an Internet search provider, often

described as the’ Chinese Google, which also operates and sells products and

services to other countries through for example an English language website and

Japanese search services [24].

Social Networking Activities

As in the West there is considerable interaction between writers, readers and

publishers on social networking sites. This includes Douban (豆瓣), China’s largest

social networking site which is centered on entertainment-industry products: books,

film, and music and whose eBook store went online in November 2011. Douban

[25] works directly with authors or other copyright holders, and provides layout and

formatting services, as well as direct payment of royalties. At present, however,

only free content is available on their store, as they have yet to put the payment

system into operation. Douban’s content works with its own ‘web’ eReader and

Apple products, and they are currently working to provide support for Amazon’s

Kindle and mobile phones.

Duokan (多看) [26] is a social media site that began in 2009, providing users

with Chinese-language e-reader applications compatible with Kindle, Android, iOS

and AppleTV. At the end of 2011, Duokan began producing their own digital

publications in the form of apps. Like Tangcha, Duokan places emphasis on the

reader experience, creating carefully designed and laid-out digital products. Another

important site is Tangcha Byte Press (唐茶 • 字节社). This is a platform that brings

publishers, authors and readers together. It allows all activities from publishing to

editing to reading and purchasing books, and also enables participants to share their

experiences and ideas at any time during the reading stage. It is still under

development but people are beginning to realise its potential [27].

Prospects for the Western Book Trade in China

At the time of Beijing’s International Book Fair 2011, an increased number of

western publishers and associated organizations showed interest in establishing

partner relationship with Chinese publishers. This included Italian entertainment

publisher Atlantyca Italian which established an office in China 2010 with the

prospect of promoting their own books in China and translating Chinese books for

western consumption, allied to future opportunities for East–West collaboration in

digital publishing. This included a deal with Chinese publisher, 21st Century

Publishing House, to publish 1 million of the Geronimo Stilton books for children at

prices to attract Chinese children to the joys of reading [28].

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Such optimistic reports notwithstanding, there would still appear to be

contradictions between what is possible when it comes to the publication and

distribution of books by western companies. Hence, whereas a number of

multinational publishers including Pearson, Penguin, Cambridge University Press,

Bertelsmann, Springer, Elsevier and HarperCollins were early beneficiaries of

business licences from the Industry and Commerce Administrative Department,

subject to approval by GAPP, involving such activities as copyright trading and co-

publishing with Chinese partners, it is also suggested that these licences were

granted to facilitate communication and information exchange rather than book

sales [12]. This latter comment has to be taken seriously in that despite China’s

admission to the WTO, governments both central and provincial play strong

regulatory roles in publishing, one result being that western publishers operating in

China must have a Chinese partner [29, 30].

Nevertheless there are many positive developments, with for example, Amazon

overcoming earlier setbacks to purchase the Chinese online retailer joyo.com in

2004, renaming it Amazon.cn in 2007. It accounted for 2.3 % of China’s online

sales in 2011 with predictions that this could reach 10 % by 2015 [12]. These

estimates are based on an established customer base of over 5 million and the astute

location of distribution centres close to major metropolitan areas [31]. The

expansion of market share is predicated on increased sales of books and electronics,

along with new lines of merchandise such as health and beauty products. This is in

an eCommerce market estimated to approach 300 million USD in value by 2015,

and where Amazon is a relatively minor player when compared with TaoBao.com

(淘宝), the Chinese equivalent of eBay which with annual sales of around 60 billion

USD accounts for 75 % of all online retail sales in China [31].

For western publishers seeking to prosper in this vast and expanding

market already approaching 200 million pounds sterling (311 million USD) in

value, success is unlikely to come easily. In their favour are factors such as

experience and the quality of their products and services. More challenging will be

their ability to establish meaningful contacts and build effective relationships with

Chinese partners, all of which will demand a more patient and longer term

perspective than that normally associated with dynamic western markets [32].

Instead, it can take many years of hard work to obtain recognition in the multiplicity

of local audiences that together make up the publishing market in China [33],

audiences which will expect both patience and respect for the Chinese government

and culture from their western counterparts [34].

Supply Chains and Business Models

The supply chain of digital publishing comprises 3 parts [35]:

● Upstream which includes authors and publishing houses (e.g., book, journal,

and newspaper publishers);

● Midstream which includes digital publishing software provides (e.g., Peking

University Founder Group Corp.); Network technical providers (e.g., Internet

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and 3G); Reading devices technical providers (e.g., computers, mobiles and

readers);

● Downstream which includes websites (e.g., The Internet and wireless websites).

Business Models

Once potential value drivers have been identified and linked to potential commercial

activities, these activities, along with required resources and relationships can be

captured in business models. As defined by Osterwalder and Pigneur [36] business

models describe the rationale of how an organization creates, delivers and captures

value. Today business models take a variety of forms including ‘bricks and mortar’

(physical), ‘clicks and mortar’ (digital) and hybrid versions. These reflect the

increasingly complex relationships between people, products and services, existing

market conditions and value (both tangible and intangible). By way of illustration,

Fig. 1 depicts a general business model developed by Martin and Tian [37].

Whatever their provenance or focus, most business models contain a set of

common elements including, for example, Osterwalder and Pigneur’s [36] nine

elements: Value Proposition, Customer Segments, Distribution Channels, Customer

Relationship, Value Configurations, Core Capabilities, Partner Network, Cost

Structure and Revenue Model.

Digital Publishing Models in China

Feng [35] points out that while digital publishing in China has grown dramatically

in recent years, it is still in its early stages and is not stable. From among the diverse

range of digital publishing businesses, Feng [35] identifies 5 categories of business

models:

● Traditional publishing model This applies both to book publishers, such as the

Commercial Press (publishing primary and high school textbooks and reference

books both online and offline, and focusing on digitization of their own

Fig. 1 A general business model

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publications) and the People’s Daily (available in both print and digital format,

the latter through online subscription since 2010).

This model benefits from the ownership of proprietary content and ongoing

government licensing. However, the latter could be a mixed blessing in digital

markets where there may be less call for socially based publishing, with its

attendant limitations on profit, with just 1 % of their material in digital format

[11] and on innovation, with the main business being digitization of existing

content [35, 38].

● Technology-enabled model Whereby technology firms can leverage their

advanced technology into collaboration with content providers. Although this

would at first appear to be a ‘win-win’ arrangement, in practice, there have been

issues of trust, with content providers often reluctant to provide high value

material such as best-selling books. The search for a mutually satisfactory

version of this model remains ongoing [35, 38].

● Internet publishing model Based on the activities of Internet publishing

companies, the major advantage of this type of model is that companies create

their own content, games and materials, thus obviating the need for traditional

publishing intermediaries and the risk of conflicts over copyright, while connecting

authors directly to the internet platform [35]. A major example here is that of

Shanda Literature Ltd. China’s largest online literature business, focusing on the

publication of original, reader-generated literary compositions. They have

rebranded their English name from Shanda Literature into Cloudary Corporation

which means Cloud Library using cloud technology (http://tech.hexun.

com/2011-04-19/128857064.html).

● Telecommunications-based model This model is based on 3G/wireless technol-

ogies, enabling content to be ready anywhere and anytime by converting it to

mobile versions and mobile readers. The great advantage for the telecoms

companies is that they can make money from subscriptions and downloads. As

eBooks are largely purchased through mobile phone accounts, the cost is simply

added to the customer bill and importantly, no change in use behaviour is

required. Also the bigger the download the greater the demand for broadband.

Payments generally come in the form of monthly subscriptions, with ‘all-you-

can-read’ packages costing around 5 Yuan (81¢ USD) a month, with some

books excluded [2]. The three major Chinese telecommunications giants have

all launched their own digital reading platforms. Although these companies

work with publishing houses, their major partners are literary websites, which

provide content directly to 3G users. The vast majority of Chinese consumers of

e-books continue to utilise their cell phones as a reading medium. Despite its

obvious advantages, the problem of building a sound revenue collection model

remains a challenge [35, 38].

● Website and Internet search engine-based model An obvious example of the use

of this model would be Baidu, China’s leading search portal. This developed

into a document sharing website in 2009, and linked to Fanshu.com in 2011,

initially as a sales channel, and later that same year as Baidu Reading, an open

platform’ that builds on the content and technology of Baidu Library and

Fanshu.com, and involves cooperation with literary websites and traditional

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publishers to enable copyright holders to upload and sell their material directly.

Baidu’s reading app is among the most widely accepted and utilised software of

its kind. This model has the obvious attractions of Web-enabled interactivity on

major search portals. However, Feng [35] further argues that it is only in this

category that the format and structure are clear, and that other categories still

need further development.

Zhang [9] makes the point that in China the time has come to move from talking

about digital publishing to turning it into a revenue-earning business. However, he

also points to the absence of a mature revenue model in the current developmental

phase of the industry. Change is underway however, with for example, Dandang the

market leader in eReaders, collaborating with Amazon.cn and numerous publishers

to arrive at mutually satisfying pricing and revenue-sharing arrangements for

eBooks [1]. There is also the well-established Qidian (起点) model (part of the

Shanda empire) that allows writers to submit stories that readers can download for

free to the point where if the stories become popular, the authors can charge for their

work. Although readers pay just a few yuan per book, with 70 % going to authors

they can do well out of popular items. The tradeoff (and potential catch for authors)

is that in order to charge for their work, they must surrender full copyright and

ownership to Qidian [39].

Given the size and complexity of the digital market in China and the many

different formats in operation attempts to portray its overall structure are of

necessity a speculative exercise. With this caveat one attempt at describing this

structure is illustrated in Fig. 2 below. As shown in Fig. 2, digital publishing in

general includes several major components, content providers, content distributors,

end user device manufacturers, networks, technology development/operational and

marketing support, and other general support elements such as copyright and

electronic payment [40].

As in the west, it is taking time for a sufficient understanding of the interplay of

Chinese publishing markets (print and digital) to emerge before anything like

effective business models can be developed. One obvious example here might have

been the issues around the original wholesale model versus the revised agency

format, but the recent US Department of Justice ruling against Apple and

collaborating publishers (with perhaps the real target being Amazon) illustrates both

the volatility of business models and the demise of the agency version [41]. In such

circumstances one can do little more than speculate at this stage as to the formats

likely to emerge in Chinese publishing.

However, one obvious trend appears to be towards mobile. The vast majority of

digital content in China is currently accessed via mobile phones and there seems

little reason to doubt that this will remain the case. Therefore mobile models could

well be the way of the future [38]. It is perhaps to be expected that in developing

their various business models, Chinese publishers will draw upon the experience

and indeed, expertise of their western counterparts. However, the scale and extent of

such learning merits reflection in the light of events elsewhere in the developing

world and their interaction with local cultures and values. Hence it is argued that the

hasty adoption of models and infrastructures that have still in some cases to prove

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themselves in the West, poses a serious threat to indigenous digital ecosystems

many of which are emerging through mobile telephony and others, like Shanda in

China which embrace content and carrier [42].

Key Issues for Digital Publishing in China

Wang [12] points out that whereas digital publishing is a major and rapidly

developing industry in China, there are important issues that require attention. One

way of scoping these issues is to take a SWOT-type approach to the literature,

seeking to identify the potential strengths, weaknesses, opportunities and threats

facing western companies engaged in the market for digital publishing in China.

This would display results along the following lines:

Strengths

In general these include existence of a vast and growing market with potential

expansion in all publishing sectors, from trade to professional to education. In

overall terms, book sales in China in 2009 amounted in value to USD 80 billion,

with sales of that of eBooks reaching 30 million valued at USD 11.8 billion. This

Fig. 2 The general structure of digital publishing in China

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represented a 50 % increase on 2008 figures Additionally, in the third quarter of

2009 alone, Chinese customers purchased 249,500 eReaders, which was almost as

many as the total for 2009 [2].

There is virtually unlimited scope for partnerships with Chinese players across

the spectrum from public to private from publishing and distribution publishers to

marketing and technology firms. One major example is the partnership established

in 2009 between Apabi China’s foremost provider of digital publishing technology

and Penguin resulting in making Penguin’s English-language eBooks available to

Chinese readers [35]. The strength of the market is also reinforced by the need for

the development of human capital amid the convergence of technology and

publishing, local enterprise and global expansion. It is also a market where finance

is much less an issue so far as potential Chinese partners are concerned and where

publishing is recognized and supported by government as a culture industry that has

an important role in promoting economic development and growth.

Weaknesses

There are different regulatory and legal frameworks with particular problems in

regard to the protection of intellectual property and the risk of piracy. Copyright

laws are very loosely defined and it is hard to enforce intellectual property rights,

with frequently a situation arising where numerous publishers are publishing the

same work [2]. This is disappointing given that an Outline National Intellectual

Property Strategy was presented by the States Council in 2008 whose provisions

included improving the copyright system, eliminating piracy and addressing these

issues in the context of digital publishing [43]. However, evidence collected just a

year later indicated that copyright management practices were still at a transitional

stage in China. This followed a survey of 24 publishing groups and their combined

total of 163 imprints, which disclosed that \17 % of publishing groups and 2 % of

presses had specialist copyright management sections and that where these existed

there was little attempt to identify the person relevant for enquiries over copyright

abuse [43]. Five years later, concerns over such abuses continue with the arrest of

one of the founders of Qidian, China’s largest online literature site now owned by

Cloudary Corporation on charges of accepting bribes totaling RMB 200,000

(32,554.7 USD) in a copyright negotiation. Further arrests are possible in what is

suspected of being an organized affair [39]. It is also disappointing in that China

does have a copyright law revised in 2002, that embodies both the European

emphasis on ‘moral rights’ and the US one on ‘economic rights’, while containing

the distinctively Chinese dimension of requiring copyright infringers to apologize to

copyright owners. Furthermore, Article 47 of the copyright law offers protection

against unlawful use of technology to abuse electronic rights [44].

Piracy cannot be ignored in a country where, anecdotally, vast amounts of music

and printed material are not only available for nothing, but where the expectation

seems to be that this should remain the case, with despite government efforts to

combat the practice some 40 % of purchased publications being pirated in 2008

[43]. Hence, digital piracy remains a major concern for bookstores given the

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difficulties in enforcing copyright laws protecting digital content. These fears are

reinforced by reports of the numerous English study forums offering eBooks for

free, with resources provided and shared by members. This includes bbs.kekenet.

com, a Shanghai-based English study website, where members can download

eBooks provided by other members, including Twilight, Gossip Girl and The

Vampire Diaries [12].

Some observers regard piracy as inevitable and almost impossible to defend

against, while seeking nonetheless to change habits both by moral persuasion and

recourse to existing legal redress [2]. There are signs of improvement, and it is

claimed that the benefits to China of joining the University Copyright Convention

and the Berne Convention for the Protection of Literary and Artistic Works [1] will

work to change attitudes and practices, at least in official circles. Indeed, noting the

challenges provided to copyright protection by the advent of digital technologies

[45] claims that not only has IP reform in China kept pace with its WTO

commitments, but also that there has been an acceleration in the reform process.

Nevertheless although special Internet regulations came into force in July 2006, and

China acceded to the WIPO Internet treaties on 9 June 2007, the enforcement of

copyright laws remains problematic owing to the cumbersome nature of the legal

system, the relatively minor monetary penalties imposed and not least cultural

attitudes and practices [44].

Specific examples of progress in copyright protection can be provided however.

To prevent digital content being pirated, 360Buy, the Beijing-based online retailer,

requires consumers who want to buy eBooks from the site to download LeBook, its

own reading software for computers, iOS and Android devices. The same tactic is

also employed by Readgo, which partnered with Adobe to develop exclusive

software for computers and Android-based devices, to ensure content is DRM-

protected. More pragmatically it has been remarked that engagement with local

partners, especially those with government connections, is the best way for western

publishers to avoid the depredations of back-street publishers and printers and

refraining from involvement in alien legal systems [33].

Another major source of weakness in Chinese publishing markets is a general

lack of standardisation, with numerous proprietary standards a feature of everything

from the market for eReaders to formatting for eBooks. One area where a lack of

standards causes particular problems is that of online payments. Curiously in a

country where online commerce is widespread, there continues to be a format war

between the transaction service monopoly UnionPay, the telecoms provider China

Mobile and foreign credit and debit card transactions services [2]. These are all

areas where government, working with the industry, really could make a useful

contribution.

Finally there is a weakness in Chinese markets for eBooks in that prices are low

compared with those for hard copy material and the public is seemingly reluctant

not only to pay more but indeed to pay at all for online material. This problem is

compounded in the general absence of the kind of arrangements between publishers

and online distributors common in the West [2].

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Opportunities

Opportunities reside not only in the sheer size of the market for digital content, but

also from the growth of specific demographics such as affluent professionals and

children and young people along with an overlap into English language material.

Some 40 % of customers buying eBooks at Readgo are from the wealthy middle

class, many of whom have been educated or have worked abroad, while the extent

of the children’s market can be grasped by its fourfold growth in sales between 2011

and 2012 [12]. This reflects a broader picture across the ten Association of South

East Asian Nations (ASEAN) where children’s and young adult publishing are the

fastest growing book segments [46]. Many of these books are in English. Moreover,

this is one area where government intervention, has been positive, including in the

case of GAPP-supported digital publishing hubs and provincial government

initiatives in Shanghai and Hunan ranging over e-publishing and eBookstores to

ventures in education, mobile and eCommerce [1]. There are also opportunities for

western book publishers who can derive more competitive pricing models for the

sale of English-language eBooks, which routinely cost much more in China than say

on Amazon in the United Kingdom [12]. Alternatively there are opportunities for

publishers who can add sufficient value to their products and services that will

enable them to increase the very low price of eBooks in China, while addressing the

widespread current expectation that online content should be free [2].

The current requirement for alliances with local players even including those

with government-controlled companies carries considerable potential for consul-

tancy operations by western publishers advising on everything from quality and

design to supply chain management and business models. Furthermore, there can be

advantages to the requirement for foreign publishers to operate in partnership with

Chinese counterparts and agencies, with McGraw-Hill, MacMillan and DC

Thomson already benefitting from sales through approved import channels [12]

and Springer involved with local partners in work on the China National Knowledge

Infrastructure (CNKI) platform [47]. For those seeking to self-publish in China, this

is possible by purchasing an ISBN number from a state publisher. However, it

means that the content has to be assigned to them with subsequent ambiguities over

copyright [34].

Moreover, although working with Chinese partners reduces profit margins for

western publishers, the reality is that they are unlikely to succeed on their own.

Indeed, arguably this can work two ways with neither foreigners nor locals having

the required flexibility to act independent of the other [47]. In more positive vein

there are definite trade-offs in access to local knowledge and influence and the

sharing of operational costs through such relationships [33].

Threats

The major threat, is that of strong and growing competition, and is something which

has long been synonymous with doing business in the West. The biggest unknown

here is the extent to which this will entail competition from state-sponsored

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companies, including national conglomerates. Another potential threat, although in

reality this may turn out to be more of a complication than anything else, may lie in

the area of censorship.

The continued existence of censorship should come as no surprise as at the time

of its admission to the World Trade Organization in 2001, China made it clear that

there was no intention of liberalizing the editorial dimension [48]. As a result there

is unambiguous government control over the publishing and dissemination of

content in China, including western print and digital material, not only in eBook

format but now extending to mobile devices. The central government also controls

access to cnpLINKer, a platform offering search facilities for foreign publications,

in that the public are unable to search for foreign books unless they have undergone

the official censorship process before being published in China [49]. The impact of

such controls has been raised in a wider context of internet commerce and free trade,

with suggestions that attempts to control the internet are restraints upon free trade

and a form of discrimination against foreign companies seeking to do business in

China [3].

Finally concerns over the level of government involvement in publishing have if

anything only increased in view of a reported tightening of government control over

mobile content and digital publishing where the right to manage freely is confined to

state owned entities and does not extend to private firms or foreign investors [49].

Although continued mergers and acquisitions will lead to a strengthening in the

overall position of book publishing, the emergence of vast conglomerates from

stock market listings and mostly with government support, raises the prospect of

oligopolies posing a threat to the emergence of small and niche publishers, as well

as to Western competitors [1].

Conclusion

An analysis of the literature confirms that those western publishers seeking to do

business in China need to be careful to distinguish between form and substance, the

apparent and the real. Although China represents a fast and developing market, it is

a market that differs in key, and not always obvious, respects from those with which

the western book trade is familiar. It is a market replete with possibilities and not

necessarily one in which participants automatically operate at a disadvantage. The

implications of the rough SWOT exercise reported are relevant to local as well as to

outside participants. The mechanisms and models are still evolving, as are public–

private and government–enterprise relationships. This has significant implications

for value chains and business models and for variety both within and across

publishing segments and their delivery and marketing channels. Above all, a major

learning exercise is underway as technologies and operating models are tested,

alliances considered and entered into and market opportunities investigated and

pursued. In light of this review and analysis of emerging trends our research focus

will shift to the details of value chains and business models for digital publishing in

China.

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