Staff writer

The Internet unit of Fuji Xerox Co. plans to launch the nation’s first full-fledged on-demand publishing service as early as this month — a venture that has the potential to eventually change the face of the printing industry, the firm claims.

Meanwhile, Dai Nippon Printing Co., the nation’s No. 1 printing firm, is also preparing to launch a similar service between November and May.

Most publishers still remain cautious or skeptical about the potential of the new publishing area, because the printing cost of on-demand publishing is relatively high for a large number of copies.

Nevertheless, they are closely watching the course of these ventures, because the entire publishing industry is now suffering from dwindling book sales and an increasing level of inventory returns from retailers.

“In five years, I think (on-demand publishing) will be a core part of the publishing industry,” claimed Tadashi Inomata, head of Dai Nippon Printing’s cross-media business planning section.

The on-demand system, according to Fuji Xerox and Dai Nippon Printing officials, will eliminate inventories, bypass all intermediate publication distributors, and enable consumers to freely customize and purchase books online.

Fuji Xerox will let users freely browse through publications on Web sites, then “customize” them by compiling data from certain pages, chapters or even entire books, said Yoshitaka Kenno, manager at Fuji Xerox’s Internet business section.

The company will print and bind the selected data as a customized book, delivering it to the reader by regular mail.

If the customer needs the book quickly, the electronic data can be sent directly via fax or the Internet to a home printer.

Fuji Xerox is now in the process of completing contracts with about 10 companies to provide text for books to be sold from its Web sites and is currently in negotiations with another 20 firms, according to Kenno, who said he believes a great portion of publishing will eventually be done this way — once existing regulations are abolished.

“The Internet directly connects the manufacturer (of a product) with the final consumer. I think intermediate distributors that cannot generate added value will eventually go out of business in many industries,” he said.

The nation’s publishing industry and its system of distribution have long been protected by regulations that allow the publisher to set resale prices for retailers, making the discounted sale of new books extremely rare in this country.

The Fair Trade Commission has said it will review this resale system by the end of 2000, at at time when the central government is moving toward further deregulations in various industries.

Many publishers and distributors argue that the current price-fixing system is necessary to fund culturally important or technical books that are published in small numbers and have limited readership.

But on-demand publishing would make any publication profitable no matter how small the demand, Kenno maintained.

Given the relatively high printing costs, the new service is expected to begin only as a niche business in the huge publishing industry.

On-demand publishing uses printers instead of traditional off-set printing presses. The digital system will have a cost advantage only if a small number of copies are issued, according to industry sources.

Kenno estimated that 1,500 copies will constitute the turning point at which customized publishing will have a cost advantage over traditional printing.

But Junichi Yoshii, deputy head of the multimedia business section of the major publishing firm Kodansha Ltd., said he believes the turning point would be much lower, somewhere between 400 and 500 copies.

“I think that if only several hundred copies are printed, (this system) will be different from (what we know as) publishing,” he said. This volume would be too small for publishers like Kodansha to launch as an on-demand service now, he added.

For the time being, the new business may carve a niche in very limited areas, such as those for internal corporate documents and government papers, Yoshii said.

Indeed, both Fuji Xerox and Dai Nippon Publishing will start their online publishing systems in the field of technical publications, which require frequent updating and customization, according to company officials.

Fuji Xerox’s Kenno thinks publications such as thick catalogs for electronics devices, medicines, financial reports and other data are particularly suitable for on-demand publishing.

His firm is already operating a Web site that sells about 1,000 theses online, including a Japanese version of the Harvard Business Review, but at present users cannot browse through them or excerpt portions to create their own compilation.

Dai Nippon Printing’s Inomata also sees the cost turning point at around 500 copies now, reflecting the level predicted by Yoshii at Kodansha.

Nevertheless, Inomata still thinks the on-demand business will show tremendous growth in the future, saying printing companies are now facing increasing needs to print more books in smaller copies.

The publishing industry is currently based on a mass-publishing system, which prints a large number of copies of a book, assuming a certain amount of inventory returns, Inomata said.

But the mass-production system is nearing its limits, with the whole book industry shrinking and the inventory return ratio from retailers increasing, he noted.

According to the Research Institute for Publications — a private research firm of the publishing industry — up to 41 percent of retailers’ inventories were returned to wholesalers in 1998.

Sales of books and magazines in 1998 were 2.54 trillion yen, down 3.6 percent from the previous year, marking the second consecutive year of decline.

“I don’t think the publishing industry is likely to grow very much in the future. The mass-production system will probably become unable to respond to consumer needs,” Inomata said, predicting that the need for on-demand publishing will greatly increase in the long run.

He also pointed out that many major book distributors are now switching to digital network systems to flexibly control the flow of publications and reduce inventories, something he said will further push printing companies to print more kinds of books in smaller volumes.

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