Electronic Publishing:
How does the Internet affect Publishing
strategies?
- Exploratory Study -
Introduction
Many
observations suggest that the use of Internet technology is starting
to change firm and industry structure (i.e., European Commission 1998).
Brynjolfsson
et al. (1994) show that the use of information technology (IT) reduces
firm size, because it reduces external coordination costs more
than internal costs. Dewan et al. (1998) and Hitt (1999) reveal that
increased IT use is negatively associated with vertical integration
and weak-positively related with diversification, because of
reduced internal and external coordination costs. Together, these results
of empirical studies suggest that the use of information systems tends
to reduce the degree of industry-level integration, creating more “open”
industries.
However,
recent mergers and acquisitions in the media and entertainment industry
appear to contradict the findings of information systems researchers.
The largest companies are becoming bigger and more vertically integrated.
Examples include AOL-Time Warner, the world’s largest online service
and entertainment firm, and the merger between Vivendi's European pay-TV
affiliate, Canal Plus, and Canada's Seagram, the owner of Universal's
film studio and Universal Music, the world's biggest record company
(i.e., The Economist 2000).
One
explanation could be that Internet technology attributes differ from
conventional information systems characteristics and effects. All of
the aforementioned studies do not capture the impact of Internet technology
as they are based on data from before 1994, a time when the number of
Internet hosts was far less than 1% of January 2001 levels of nearly
110 million hosts (Internet Software Consortium 2001).
In
the light of these contrasting views, our research aims to explore how
Internet technology affects firm structure or choice of business strategies
in a selected segment of the economy, the news publishing industry.
Rationale
for Studying the Publishing Industry
We
focus on the news publishing industry for two reasons.
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First,
it is one of the first industries to adopt Internet technology.
Some large publishers, such as The New York Times and the
Tribune Company, started to explore digital, interactive technology
as content providers to the early consumer online services, such
as America Online, before the launch of the first commercial Web
browser in December 1994 (Netscape 1994). The Dow Jones &
Company, another example of a large publisher, experimented
with electronic publishing services in video dial tone and interactive
television trials in joint ventures with the former regional Bell
operating companies and software firms in the early 1990s. Because
of the early adoption of interactive and Internet technology in
news publishing, we would expect certain trends of Internet use
to be more pronounced and robust than in other industries.
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Second,
publishers produce digital goods. While physical goods can be advertised
and sold online, digital goods can also be delivered using Internet
technology. This suggests that change could be more significant
in this industry (i.e., European Commission and Andersen Consulting
1996).
Research
Questions and Relevant Literature
We
attempt to answer the following research questions:
-
What
is the role of Internet technology on the strategies of (1) vertical
integration, (2) diversification, and (3) regional expansion for
news publishers?
Several underlying theories can be employed to explain changes in
firm structure resulting from investments in information technology.
Many papers in the information systems literature have used the
transaction cost analysis (Williamson 1975, 1985, Perry 1989, Malone
et al. 1987) to account for the impact of IT on structure (Brynjolfsson
1994, Brynjolfsson et al. 1994, Hitt 1999, Hitt and Brynjolfsson
1996). In addition, some inferences for agency cost have been applied
(Gurbaxani and Whang 1991). Therefore, given that the transaction
cost framework has been used as the dominant underlying paradigm,
most of this research has been limited to the cost changes of IT
investments.
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Where
does the Internet have the greatest impact? On internal and external
coordination costs, production and distribution costs, or changes
in revenues?
Chandler’s strategy-structure argument provides a framework
that could complement cost-based analysis (Chandler 1962). It suggests
that firm structure is related to the strategy decided by a firm
primarily to increase revenues (as opposed to reducing costs that
transaction cost theory maintains). Consequently, this research
employs the two dominant paradigms in explaining the impact of Internet
technologies in firm structure.
-
Drawing
from the contingency-fit theory, we argue for a contingent perspective,
wherein different forms of structure (e.g., very small or very large)
receive different incentives from Internet technologies in terms
of achieving superior firm performance. Therefore, we ask:
Does Internet technology provide different incentives for different
firm sizes? Do smaller firms specialize and shrink while large firms
increase their degree of vertical integration (in order to increase
their firm performance)?
Furthermore, does Internet technology provide different incentives
in different countries? Are U.S.-based firms more likely than others
to use Internet technology to (1) integrate vertically, (2) diversify
and (3) expand regionally?
Industry
Participation
We
are seeking industry participation in:
All
data will be treated confidentially. Case studies can be anonymous or
identified. If the case company is to be identified, we will not publish
any company-specific findings without prior, formal approval by that
company.
Benefits
of Participation
As
we would like to publish our findings in an academic journal and not
a publication aimed at practitioners, we would expect some material
of strategic relevance to be available exclusively for the participants.
References
Brynjolfsson,
E., T. W. Malone, V. Gurbaxani, and A. Kambil. 1994.
Does Information Technology Lead to Smaller Firms. Management
Science 40(12): 1628-1644.
Dewan,
S., S. C. Michael, and C. Min.
1998. Firm Characteristics
and Investments in Information Technology: Scale and Scope Effects.
Information Systems Research
9(3) (September): 219-232.
European
Commission. 1998.
Green Paper on the Convergence of the Telecommunications, Media
and Information Technology Sectors, and the Implications for Regulation—Towards
an Information Society Approach [electronic document] (accessed 04/18/99);
available from http://www.ispo.cec.be/convergencegp/97623.html; Internet.
European
Commission DG XIII/E, and Andersen Consulting.
1996. Strategic
Developments for the European Publishing Industry towards the Year 2000:
Europe’s Multimedia Challenge.
Brussels–Luxembourg.
The
Great Convergence Gamble. 2000. The Economist
(Dec. 9, 2000): 67.
Gurbaxani,
V., and S. Whang. 1991. The Impact
of Information Systems on Organizations and Markets. Communications of the ACM 43(1) (January): 59-73.
Hitt,
L. M. 1999.
Information technology and firm boundaries: Evidence from panel
data. Information Systems Research 10(2): 134-149.
Internet
Software Consortium. 2001. Internet
Domain Survey, January 2001: Survey Host Count [electronic document]
(accessed 03/16/01); available from http://www.isc.org/ds/WWW-200101/index.html;
Internet.
Malone,
T. W., J. Yates, and R. I. Benjamin.
1987. Electronic
Markets and Electronic Hierarchies. Communications of the ACM
30(6) (June): 484–497.
Netscape
Communications Corporation. 1994.
Netscape Communications Ships Release 1.0 of Netscape Navigator
and Netsite Servers. News Release (Dec. 15) [electronic document] (accessed
03/16/01); available from http://home.netscape.com/company/press/pr/1994.html;
Internet.
Perry,
M. K. 1989.
Vertical integration: Determinants and effects.
In: R. Schmalensee, and R. D. Willig (eds.).
Handbook of Industrial Organization, Vol. I.
North-Holland: Amsterdam, Netherlands, 183-258.
Williamson,
O. E. 1975.
Markets and Hierarchies: Analysis and Antitrust Implications.
The Free Press: New York, NY.
Williamson,
O. E. 1985.
The Economic Institutions of Capitalism.
The Free Press: New York, NY.
Investigators
Professor Christoph Schlueter Langdon, christoph.langdon@marshall.usc.edu,
310.594.8466 office
Paul Pavlou, Ph.D. student & Research Assistant, paul.pavlou@marshall.usc.edu
Marshall School of Business, University of Southern California, Los Angeles
Founded in 1920, the Marshall School of
Business, with its several major research centers and Leventhal School
of Accounting, offers world-class teaching and expertise. U.S. News
& World Report ranks the Marshall School in the Top 25 for full-time
MBA programs and 13th among the best undergraduate programs in the country.
Faculty members placed 12th in the nation as the most productive in
published research by the Academy of Management Journal. The
oldest accredited business school in Southern California, Marshall is
committed to the advancement of business practices and preparing graduates
for the challenges of a global marketplace.
Credentials
The principal investigator, Professor Schlueter
Langdon, has contributed to the previous study in the area of Electronic
Publishing:
 |
Strategic Developments for the European Publishing Industry
towards the Year 2000: Europe's Multimedia Challenge. 1996.
Brussels–Luxembourg. |
Prepared by:
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European
Commission
DG XIII, Directorate E
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Institute
for Information Economy and New Media
Techno-Z FH-Salzburg
Prof. Dr. P. A. Bruck |
"The arrival of the Information Society
will make information, knowledge, entertainment and culture ubiquitous
and instantaneously available. The financing of infrastructure required
for this ubiquity can only be bore with the help of commercial applications,
such as electronic shopping and advertising. However, if a knowledge-based
society is to come into being , the information highways will need to
carry not only commercials, but also high quality information. The publishing
industry is therefore challenged to transfer its traditional role, that
of being a high quality information provider in print, into the electronic
publishing market."
Dr. Martin Bangemann, Former Member
of the European Commission
Video
Interviews available on CD-ROM
with:
Mr.
Herve Digne, Managing Director, Hachette Filipacchi Grolier, Paris,
France
Dr.
Florian Langenscheidt, Publisher, Langenscheidt, Munich, Germany
(Chairman of Task Force EP, German Publisher Association)
Mr.
Peter Job, CEO, Reuters Holding, London, UK
Press
Electronic Publishing in Europe.
1996. Financieel Economische Tijd (November 2) [Belgium]
Publishers Can Be Successful on the Net.
1996. De Standaard (November 20 [Belgium]
Where is Electronic Publishing Going?
1996. Datanews (November 22) [Netherlands]
Publishers: How to Win Back Market Shares.
1996. Frankfurter Allgemeine Zeitung (November 4)
[Germany]
Publishers Change to 'Community Organizers'.
1996. Horizont (November 29) [Germany]
No Future Without Electronic Publishing.
1996. Neue Züricher Zeitung (November 22) [Switzerland]
Baubin Report: Winning the Electronic Publishing
Transformation Game. 1996. Le Monde (November
8) [France]
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Executive Summary |
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