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| Who Moved Textbook Publishers' Cheese in China? |
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The tender program for publishing and distributing textbooks for primary and secondary schools in China, led by National Development and Reform Commission, was planned to be implemented on a full scale in 2008. This tender program, which has been on a trail basis for 4 years, is receiving escalating objections from publishers nationwide. Publishers are now submitting petitions to government officials to protest against a full scale textbook tender program. These publishers have collectively invested billions of yuan in publishing textbooks, but now they are facing the prospect of a total loss.
Breaking the monopoly
As the only textbook publisher, People's Education Press (PEP), a central government-owned company, had been monopolising China's school textbook publishing market for more than 30 years. But in June 2001, Ministry of Education announced the removal of monopoly and allowed all publishing houses, individuals and organisations to participate in producing textbooks. Once contents are approved by the Examining Committee of Ministry of Education, the textbooks can be readily published and distributed. And in 2004, a publishing tender program between publishers was introduced in some pilot provinces.
The textbook and associated materials publishing market in China is estimated to be 30 billion yuan (US$4 billion), so many publishing houses are eyeing this 200 million-user market. Currently, there are about 82 publishing companies participating in producing textbooks, and there are 3,600 textbook titles included into "Textbook Catalogue" of China's Nine-Year Compulsory Education Program.
Money sinking venture
Textbook publishing is a money sinking business for publishers in China. "For example, the Chinese subject alone, which consists of 12 editions (semesters) for primary schools, cost us 4.2 million yuan to plan and write. Adding to royalty payments to authors and training fees, it amounted to more than 10 million yuan investment," said Ms Ye Zi, Deputy Editor of Beijing Normal University Press (BNUP), a leading education publishing house in China. And due to the product's special nature, the government also imposed a pricing limit on textbooks.
A reform targeting Xinhua Bookstores
Also in June 2001, four State Council offices, now all part of the National Development and Reform Commission, announced the removal of textbook distribution monopoly from Xinhua Bookstores, China's largest state-owned book retailer. This decision, coupled with the removal of publishing monopoly from PEP, had significantly shaken the publishing industry of China. As the regulated monopoly of publishing by PEP and distribution by Xinhua Bookstores had led to expensive textbook prices for parents, it is necessary to break the long time monopolies. |
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On the other hand, the government also intended to conduct reforms on Xinhua Bookstores, which has been relying on profits from selling textbooks. It is reported that 70% of profits of provincial-level Xinhua Bookstores are from textbooks, and the proportion even increases to 90% for county-level Xinhua Bookstores.
A bent tender process
"But this tender reform has complicated the whole textbook publishing process," said Mr Ma Chaoyang, a distribution manager of BNUP. For those provinces that are not on the tender trial, original publishers simply need to produce and publish the textbooks, which would be selected by provincial educational departments. Once chosen, textbooks would be distributed by corresponding provincial Xinhua Bookstores and used by schools.
The reformed tender program, which would be conducted by individual provinces, mandates that those unsuccessful publishers in the tender process must hand in their textbook printing films to those tender winners in the same province. These winning publishers will be responsible for printing and production, and then sell the books to schools via a local distributor which has won the distribution tender. In return, the local publisher will pay sub-licensing fee to the original publisher, and in BNUP's case, 3% of textbook retail prices.
The so-called sub-licensing fee has a long history in China well before 2001, when PEP was still the sole authorised publisher of textbooks. Due to China's large territory, the Beijing-based PEP couldn't meet the demand of school opening times in all provinces. So it had to sent printing films to provincial press bureaus, which in turn authorised local publishing houses to publish and print the textbooks and local Xinhua Bookstores monopoly to distribute. Thus PEP could receive 3-4% sub-licensing fees out of the retail prices for giving the printing films to provincial publishers.
For PEP, the sub-licensing fee is next to a free-ride. As a central government-owned enterprise, PEP receives funding from the central government, so all it has to do is the actual writing work. And provincial publishing companies, most of which are provincial government-owned, also like this sub-licensing model, as it is an important revenue source for them. Therefore, due to vested local interests, provincial bureaus and publishing companies always want to keep this sub-licensing model of the planned economy era.
So a strange phenomenon, which Ma Chaoyang didn't understand initially, appeared. Contrary to the untouchable Textbook Catalogue mandated by the Ministry of Education, many provincial educational departments had started to remove items from the Textbook Catalogue in the actual tender process, in order to ensure local publishers' interests. Some provinces even disallowed textbooks that were not published by local publishers into the Textbook Catalogue. This had in effect denied access to local markets by those original publishers which didn't use a sublicensing fee model.
For those original publishers, if they follow the sub-licensing model between PEP and provincial publishers, they will end up with huge losses. Unlike PEP, other publishers have to put up millions of yuan from their own pockets to produce the contents, even though some of them are also state-owned companies such as BNUP. In the textbook tender in Sichuan Province last year, in order to protect their legitimate copyrights, most original publishers, including BNUP, refused to provide printing films to the local publishing company which won the bid but had no authorised textbook contents. The standoff was finally solved by a negotiation between all parties, allowing BNUP to use a local printing plant to publish the textbooks.
Do I own my works?
"That tender has violated BNUP's copyright. We invested in and wrote the textbooks, so we legally own the copyright. Why do we have to accept a compulsory sub-licensing fee? The Ministry of Education has already removed the PEP's monopoly by conducting textbook content tenders. If the National Development and Reform Commission wants to remove the distribution monopoly nationawide, it can simply conduct tenders for distribution rights in all provinces. Why we publishers, which already passed the content tenders, have to participate in a publishing right tender again?" said Ma Chaoyang.
After 8 years' effort, BNUP textbooks now have a market share of 25% in China, only second to PEP. But the most furious part is that the sub-licensing model, implicitly implemented by provincial departments, only gives them 3% of the retail price. Out of this 3%, 2% has to go to authors as royalties, and the remaining 1% is far from enough to pay for any ongoing review, maintenance and training fees in the user provinces, let alone recouping the original investments.
As the regulator for publishing and distributing books in China, the General Administration of Press and Publication is in a dilemma. If the textbook publishing and distribution monopoly is lifted, fiscal income from the whole state-owned publishing sector and Xinhua Bookstores will slump immediately. Therefore, it has to temporarily accept the reality of provincial governments using all the means to protect their vested interests.
Therefore, many people say that the government's tender program has a good intention to break regulatory monopolies and reduce textbook prices, but results from pilot implementation have failed to live up to expectation.
It is understood that due to the fierce protest and petition from textbook publishers, the authority has delayed the full scale tender of primary and secondary school textbooks nationally. But the sub-licensing model and distribution monopoly issues are still present, and we will keep a close eye on its latest development.
Produced by China Business Intelligence, Source: Nanfang Daily
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