ABDVol.30 No.1
The Publishing Industry and Digitalization in Japan

Wataru Hoshino and Susumu Kawakami


Background

The Japanese publishing industry differs in several ways from that in other countries. One of its unusual features is the resale price maintenance system known in Japan as "saihansei" in which books are sold by consignment at a fixed price and unsold stock can be freely returned. Another is the distribution of books via the magazine distribution route. It is also characterized by a very high number of new book and magazine titles, (over 63,023 in total for 1998) and bookstores (22,321 nationwide according to the survey company Al Media). These factors have contributed to the development and, for good or bad, the stabilization of the Japanese publishing industry.
 In the 1990s, however, the industry was confronted with several dramatic changes including the advent of digitalization and the Internet, computerization of bookstore data, a decline in consumerism, and questioning of the resale-consignment method. The post-war publishing system which emerged during Japan's economic reconstruction after her defeat in the Second World War must now respond to these new challenges. In 1997 total sales for books and magazines combined registered negative growth for the first time in the past fifty years. Moreover, the rate of book returns to distributors exceeded 50% at one point in August 1997 while the return rate for magazines in May and June of this year is considered to have been the highest ever.
 Up until now, the distribution system in Japan was controlled by distributors. These companies decided how many copies of each book to distribute to which bookstores. This method was extremely efficient for distributing low-priced books with high entertainment value, namely those geared to a mass readership, in a continually expanding market. It also gave rise to Japan's unique system of using magazine distribution channels for books.
With the economic downturn, however, Japanese consumers began to curb unnecessary expenditures, and the demand for popular books with general mass appeal dropped drastically. The Japanese publishing industry is currently suffering from its failure to develop a solid distribution route to fill the demand for longer books with more substantial content. Here I will clarify the issues presently confronting the Japanese publishing industry primarily from the perspective of distribution.

Reassessment of the Fixed Price Sales System

The change that had the greatest impact on the Japanese publishing industry in the 1990s was reassessment of the resale system. A report published by an advisory committee of Japan's Fair Trade Commission severely rebuked the industry, declaring that there is no basis for maintaining this system for literature. It pointed out that bookstores failed to make sufficient efforts to deliver goods quickly or to offer unique services because they felt secure in the resale system, and that compared to similar systems in other countries, the Japanese system was too rigid. The publishing industry defended the resale system, claiming that its abolishment would raise book prices and create obstacles to publishing. These arguments were the same as those put forth by England, but the Japanese system differed in that under the consignment agreement bookstores could return almost any book they handled.
 The fact that the sales price was fixed by the publishers made it possible to return unsold stock freely. This meant that even small bookstores could stock many titles at very little risk. The drawback, however, was that this resulted in a substantial number of returns when a bookstore's profits were only 20% of the fixed price or when market demand dropped. The economic recession made the disadvantages of the consignment system apparent, necessitating a reevaluation of existing business practices and distribution methods.
 As the economic environment worsened, traditional bookstores were faced with unprecedented competition due to, among other things, an increasing number of mammoth bookstores. Regular bookstores in urban areas are now being forced to distinguish themselves from other stores and strengthen services offered to readers in outlying areas in order to survive. As of last year, there have been movements towards relaxing the system by such means as selling non-returnable books. Large bookstores were quick to set up bargain sale corners while some of the small and medium bookstores began selling books which are not subjected to fixed prices. These represent attempts at independent stocking, something bookstores were unable to practice under the consignment system.
 Publishing companies are similarly confronted with the problem of a drastic increase in returns. Shogakukan Inc., a major publisher, has begun implementing a new sales system on an experimental basis in which bookstores will be penalized for returns. Although revision of the resale system has been postponed for another two years, such movements within the publishing industry confirm that in future not every book will be sold at a fixed price.

Distribution Transformed by the Exchange of Electronic Data

Under the present system books continue to flood the market making it difficult for publishing companies to distribute their books appropriately or for bookstores to display the ones they want to sell. As a result, the reader will face chronic handicaps in obtaining the books he or she wants. The publishing industry is striving to remedy this situation by digitalization of sales and order data and the use of networks to exchange information.
 Until recently, those responsible for sales at a publishing company would determine the timing and amount of additional editions on the basis of orders received from bookstores. From the 1980s, however, a new method was adopted by Kodansha Ltd. and subsequently by other publishers whereby sales data obtained directly from the bookstores is analyzed to predict future sales. Business which had once been dependent solely on the experience and intuition of the person in charge of sales now relied on science as well.
 At the same time, the introduction of point of sales (POS) cash registers spread, reducing labor costs and facilitating appropriate supply on the basis of sales data, under the existing system, publishers or distributors send new titles to selected stores only. As a result, other bookstores find it difficult to obtain bestsellers or other titles even if they order them. To circumvent such shortages, they often order more than they really need. Publishers fearing returned stock are wary of such exaggerated figures, however, and instead send even fewer, further aggravating the situation. By presenting their sales data, bookstores are attempting to break out of this vicious cycle.
 Another change resulting from this is that publishers are gathering electronic point of sales data directly from the bookstores. Previously, distributors had acted as intermediaries between publishers and bookstores for almost every transaction, including ordering, distribution, business dealings, and settlement of accounts, but this relationship quickly disintegrated with advancements in computer technology.
 More than a few publishers have achieved definite results by analyzing sales data. Soshi-sha which has recently published a series of best sellers makes its plans for reprints and advertising campaigns on the basis of sales data, and Kodansha decided to print a second edition of 500,000 copies of its bestseller, Gotai fumanzoku (Totally Disabled), the largest reprint in the history of the industry, on the basis of data analysis.
 Electronic data exchange entered a new phase this year. Bunkyodo Shoten, the largest direct sales chain in Japan, agreed from this May to directly provide Kadokawa Shoten not only with sales data but with order data as well in an attempt to eliminate lost sales opportunities and unnecessary returns by creating a coherent flow from data exchange through to distribution. This trend is expected to spread among other companies and electronic data interchange promises to transform the existing structure of the publishing industry which has frequently been compared to a river with publications flowing from the publishing companies upstream, through the distributors in mid-stream to the bookstores downstream.

The Emergence of Online Bookstores

One other development which is having a significant impact on distribution is the emergence of online bookstores selling publications over the Internet. The first of Japan's major bookstores to establish itself online was Maruzen Co., Ltd. It began this service in 1995 creating a database of 1.1 million foreign titles and 400,000 Japanese titles and delivery is by courier service. Maruzen(1)
was followed by other national bookstore chains including Kinokuniya(2), Yaesu Book Center, Asahiya Shoten and Sanseido Shoten. Moreover, recently an increasing number of companies from other sectors have created online bookstores.
 As we have seen, it is not possible to discount book prices under Japan's resale system. Moreover, even from a global perspective Japan has a high proportion of bookstores and the distributors, which are essentially enormous delivery companies, have developed a distribution system that covers the entire country. These two factors distinguish Japan's online bookstores from those in the United States where prices of bestsellers and other books can be freely discounted. For the present, the profits made by Japanese online bookstores are not that high when compared to traditional bookstores, but they are steadily increasing. In order for these enterprises to expand, they will need to have an inventory database and a new distribution system.
 Already steps are being taken to fulfill these two criteria. One of these is "Books"(3), a database created by the Japan Book Publishers Association which is comprised of about 500 companies involved in book publishing. The database became accessible on the Internet in 1997 and from this summer data on new publications and out-of-print titles are regularly updated.
 Another development was the establishment of e-Shopping Books (eS-Books)(4) in July. This service, which will commence in the fall, allows the reader to order online and pick up their book at the nearest Seven-Eleven outlet, of which there are almost 8000 in Japan.
 The spread of such online services will set in place the information infrastructure necessary for changing the existing distribution system. There is some criticism, however, that this trend will usurp the profits of regular bookstores in the cities.

The Path to Retaining Reader Services

Digitalization of the book distribution system will significantly change the publishing industry which until now has focussed on mass production and mass distribution. It will also create new channels for distribution in addition to the existing publisher, distributor, bookstore route, causing a major upheaval in a conservative industry.
 Bookstores, no longer be able to survive simply by displaying the books distributed to them, will be forced to develop their own individuality. In order for the Japanese publishing industry to ride out the long recession, publishers will be required to research the needs of readers, their customers, and strive to actively respond. This should result in the emergence of various services finely tailored to meet the reader's individual needs.

Notes:
1. Maruzen, http://www.maruzen.co.jp/ (in Japanese)
2. Kinokuniya, http://bookweb.kinokuniya.co.jp/ (in Japanese)
3. "Books", http://www.books.or.jp/ (in Japanese)
4. Refer to news from Japan in Asian/Pacific Publishing Scenes (p.13)

Wataru Hoshino
Born in 1964. After majoring in Japanese literature, he has worked for ten years as a writer for The Bunka Tushin, which is an information magazine about journalism. The Bunka Tushin, http://www.bookmall.co.jp/bunka/index.html

Susumu Kawakami
Born in 1967. Majored in Japanese history, he has worked as editor in some magazines. He is interested in and studies culture and history of books as well as book distribution. The Book and The Computer (Quarterly), http://www.honco.net/