In theory any firm should be able to enter and exit the market. In reality, however, industries possess characteristics that protect high profit level of firms in the market by inhibiting additional rivals from entering the market – these are barriers to entry.

In the first of this five part series, we will examine one of Michael Porter’s Five Forces – Barriers To Entry. Michael Porter provided a framework that models an industry as being influenced by five forces. As well as Barriers To Entry, these include: Degree of Rivalry; Threat of Substitutes; Buyer Power. When setting up your own business, more than likely, you will seek to develop an edge over rival firms which is where this business model comes into play, as it was designed to help you better understand the industry context in which your firm operates. We take a look at the publishing industry to demonstrate the barriers you may face as a small business and speak to Nigel Newton, Founder of Bloomsbury publishing, about his experiences as a publisher. We gain an insight into the competitive nature of publishing, the possible barriers to entry and how to overcome them and grow from a small business to an expanding one.  

The UK has the second largest publishing industry in Europe and is also one of the most competitive. Bloomsbury Publishing is one of Europe’s leading independent publishing houses and is renowned for discovering some of Britain’s most prolific authors and publishing award-winning novels that have even made it onto the big screen, such as Michael Ondaatje’s English Patient and J.K. Rowling’s Harry Potter sequel. Nigel Newton founded Bloomsbury in 1986. He grew up in San Francisco and came to England when he was 18 years old to attend Cambridge University where he read English Literature. He then joined MacMillan Publishers in London as a graduate trainee where he spent two years before moving onto a publishers called Sidrick and Jackson where he worked for nine years. Nigel named his publishing house after London’s Bloomsbury neighbourhood, which is renowned for its rich British culture and where traditional publishing had always traditionally flourished.

“The focus was to publish books of excellence and originality and in particular that would be able to attract authors that wanted to be with an independent house rather than a big foreign owned conglomerate and attract staff who would be more at home in this kind of environment. We have four houses in Soho Square with all their human dimension rather than being in a big glass and concrete office block on the outskirts of London. We have a brilliant team of people here. Publishing is a people business in terms of staff and authors and so you have to be attractive to good people and to give them what they’re looking for – so people are the most important thing. And in the case of a publisher the authors in particular are the most important thing. Our logo is Diana the Roman Goddess of hunting, she’s on the spine of every book with her bow and arrow and she symbolises our search for the greatest new talent of the future,” says Nigel. “When I first set up Bloomsbury, the vision was to be organic and to do whatever seemed most natural next. I had a very clear vision for the first five years and after that I planned to wait and see what would happen.”

Firms may be reluctant to enter markets that are extremely uncertain, especially if entering involves expensive start-up costs. I ask Nigel about the costs involved in starting up a publishing firm and what his experiences were in raising funding to grow his small publishing house into a more established one.  

“You don’t need to start a publishing company with a great deal of money, but the eighties was the era of venture capital so our strategy was to raise £2m or rather £1.75m and we raised that with four venture capital houses – our idea was that we would hit the ground running and so we needed money to fund salaries and fund author advances.

“Publishing has a very expensive form of cash flow in which you pay money to authors in segments as an advance against royalty with the first one being the first minute you sign the contract, the second one generally being when the finished book is delivered to the publisher, which might be a year or two later. The third one is when the hard cover edition is published, which might be a year after delivery and then sometimes there is a fourth payment based on the paper back a year after that. So you have a lot of money tied up before you have income which doesn’t start to flow until 60 to 90 days after the publication of the book itself,” says Nigel.  

“Costs certainly have come down as printers have become more efficient – new technology has revolutionised printing. So I would say the unit cost of books have come down. On the other hand the price of paper is arguably going up. We are all buying greener paper, quite rightly, and Bloomsbury showed the way by printing Harry Potter and the Deathly Hallows on part recycled paper. It costs more to be green, it doesn’t cost less. But there isn’t enough of it available at the moment.”

In the eighties the publishing industry went through a period of great change with many medium sized publishers being bought up by larger ones forming the conglomerates that we have today. I am eager to find out how the market conditions have evolved.

 “I think it was easier to raise start-up venture capital for any small business in the mid eighties than it is now as they seem more interested in mezzanine financing than they did then. It was in that environment that I created a new company, that was medium sized rather than large; that was independent, rather than conglomerate owned. But I have absolutely no doubt that if one is willing to do it then one would find a way just as easily or with just as much difficulty now as then.”

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