The Economics of Academic Publishing

Christopher Gasson is a publishing analyst. He was formerly the financial editor of The Bookseller, and a publishing company broker with Bertoli Mitchell.1

Academic publishing has always been a bit of a confidence trick on the scholarly community. Researchers write books to get ahead in their careers, and academic publishers recycle this ambition as a way of buying content very cheaply and selling it very expensively. Typically authors get a miserable royalty of 5 percent of net receipts if they are lucky. Most get nothing, and some actually have to pay for the privilege of being published. The academic boards who review submissions similarly work for love rather than money. But it can be immensely profitable for publishers. Particularly on the journal publishing side where margins are the highest in the publishing industry. For example Reed Elsevier, the leading scientific journal publisher in the world, made a 34 per cent operating margin in the first half of 2003. This compares to the 21 per cent profit margin it made on its legal publishing, and the 17 per cent it made from its business segment, and 7 per cent from its newly acquired educational interests. Monograph publishing is less profitable, but some commercial publishers are still able to turn the pressure to get published into an unlimited source of low-cost material to sell at very high prices.

The situation is so irrational that people have been predicting the end ofacademic publishing as we know it for nearly two decades. The predictions have been made with ever greater certainty since the arrival of the internet, but the publishers remain optimistic, and right now the big publishers are buying smaller ones as fast as they can to take advantage of the opportunities they see.

The economics of academic journals publishing
To understand what is happening in the sector it is first necessary to understand how the business works. On the journal publishing side the economics are as follows: the typical publisher-owned academic journal (as opposed to journals which are owned by learned societies) has around 200 subscribers paying around £600 per year for six issues. This brings in around £120,000, of which direct costs such as printing, typesetting, marking up in HTML, distribution, copy editing, marketing and the editor's expenses and honorarium add up to around £40,000 per year. The rest goes towards the publisher's overheads. Each year 3 per cent of the subscribing libraries decide to cancel their subscriptions, either because they can't afford it any more or because their faculty is no longer interested in the relevant field. It is almost impossible to sell new subscriptions to replace these lost sales because libraries struggle enough to maintain their existing subscriptions and are generally very reluctant to take on new ones unless they are really forced. Unless the publisher puts up the price to compensate for the six subscribers who have cancelled, the total revenue for the journal would fall by £3,600. But the publishers’ shareholders don’t like to see sales falling: it makes them feel that academic publishing is in trouble. So the publisher puts up prices by 10 per cent to £660 per year. At this higher price, another six subscribers find they cannot afford the journal and don’t renew. But the publisher doesn't mind because with 188 subscribers paying £660 per year, it still makes more money than with 200 subscribers paying £600 per year. And the profit is better because the costs are still the same.

That is how journal publishing has worked: as long as you can put prices up quicker than libraries can cancel their subscriptions, you can increase your profit margin and your sales every year. That is why Robert Maxwell liked journal publishing so much: his Pergammon Press was the cash machine which enabled him to build his media empire.

The problem for journal publishers was that by the late 1990s more and more publishers were finding that they couldn't raise prices quickly enough to off-set the cancellations. Once the number of subscribers starts to fall below 100, the journal starts to become irrelevant to the academic community. So few people read it that it starts to lose prestige, and fewer good academics want to write for it. With fewer good papers, it becomes even less relevant to the academic community and the cycle continues. Then the journal is in free fall. Soon revenues have fallen below the direct operating costs, and the publisher either has to close the journal and return the library's money or find another title to merge it with.

The technique of raising prices faster than libraries can cancel is known as price gouging: the customer gets no improvement in the product but still has to pay more for it. It has had a knock-on effect on academic book publishing.

The economics of academic book publishing
The economics of academic book publishing are very much less attractive than the economics of academic journal publishing. Typically the average academic monograph sells around 250 copies priced at £80 with an average discount to booksellers of 30 per cent. This brings in a gross £14,000. After paying for the direct costs of printing, paper, marketing, copy editing and typesetting, around £7,000 is left to go towards the editor's salary and other overheads. Like shaving a pig it is a lot of work for a little wool. The only way to
make a lot of money from monographs is to publish a lot of them. If you can get an editor to put 80 or 90 books through the machine each year rather than the 20 to 30 which used to be the average for the industry, you can increase your profit quite dramatically. There are some problems with this. First an editor signing up a couple of books a week is probably not exercising as much quality control as one who signs up a couple of books a month. Second, the market is just not there for a publisher to treble the number of books that it produces. Whereas librarians are reluctant to cancel journals mid-way through a run, they are very happy to save money by buying fewer monographs. Monograph revenues are being diverted to pay for journal price increases.

The vicious cycle that monograph publishers are locked in is as follows: increasing title output leads to fewer unit sales, which leads to less profit per unit, which has to be off-set by increasing the title output. Some publishers, such as Oxford and Cambridge university presses have escaped this inexorable mathematics by relying on their other more commercial publishing activities to support the losses on monograph
publishing — and maintaining a strict limit on the number of titles produced. Others such as Blackwell have simply pulled out of the monograph market and switched their resources to building humanities and social science journals instead. There are still commercial publishers who believe that monograph publishing can still be profitable: Taylor & Francis and Continuum. Their strategy has been to acquire other monograph publishing lists and roll these lists into their existing publishing operations without increasing the headcount proportionately. Continuum has bought T&T Clark, Athlone Press, Sheffield Academic Press, and Thoemmes. Taylor & Francis has bought Garland, Routledge, Curzon Press, Fitzroy Dearborn, and Frank Cass. The market is now in a kind of equilibrium where it is just too unattractive to encourage more commercial competition, but just attractive enough for a well organised publisher who is tough on costs to make money. This equilibrium may however be disturbed as the next phase of the journal publishing story plays out.

The influence of the internet
Reed Elsevier, the market leader in journal publishing went through a black patch in the late 1990s, when the profitability of the journal publishing division started to fall, and there were fears that the business was doomed by the dot.com boom. The loss of confidence was accompanied by management infighting and the company’s share price fell from around £7 to below £3.50. But as the dot.com boom turned to bust in 2000, the company made a fantastic fight back which saw the share price once more above £6.90. It seemed that, unlike everyone else, Reed Elsevier had discovered an internet strategy which made money.

From 1995 the company had been developing a database to house all its journals called Science Direct. This has fundamentally changed the proposition the publisher can make to its customers. Instead of selling journals individually and having to put up with libraries cancelling some journals to pay for the price increases on others, they can now go to libraries and offer them on-line access to more than 1,500 titles for a small premium over what the library was previously paying for paper copies of the 100 or so that they might have subscribed to. At first libraries loved this proposition. After years of paying more and more and getting nothing better in return, they could see that for the extra money that they paid for Science Direct they got very much more in return. What they did not realise was that with Science Direct it would become very much more difficult to control their budgets. Science Direct is an all or nothing proposition. Either an institution subscribes and gets everything or it cancels and has to go back to individual paper subscriptions (which may add up to more than the cost of Science Direct). Libraries cannot cancel parts of it to pay for the parts they want. Librarians report that a subscription to Science Direct involves a three year contract with a 6 per centper year price increase. Library budgets are generally flat, so the difference has to be paid for by cutting back what libraries buy from other publishers.

This has not gone unnoticed by the other publishers, and they have all adopted different strategies to deal with it. Wolters Kluwer and Bertelsmann have both decided that the market has no long term future and sold their journal publishing interests to the same venture capitalist. This venture capitalist has recruited the man who is credited with setting up Science Direct to run the combined business (now known as Springer). It is believed that Springer will aim to develop a clone of Science Direct shortly. Blackwell makes most of its money from journals published on behalf of learned societies. Its strategy is to focus on building the prestige of individual society journals, and keeping prices down so the learned societies are on its side. Taylor & Francis, as with its book publishing, has been making a lot of acquisitions, and is hoping that with better management, the journals they acquire will become more profitable. Macmillan, which owns the Nature Publishing Group, probably has the most successful publishing strategy right now. It has been launching new journals in more specialist disciplines which automatically attract the best papers because of the Nature name.

The influence of authors
But the most interesting thing is what the academic authors themselves are doing. After years of systematic financial abuse by publishers, they are finally taking action. The main thing that academic authors want out of publishing is to reach an audience. The high prices charged by journal publishers are an obstacle to this. In some disciplines, such as physics, authors have looked to reach a wider audience by sending their articles to open access archives before they are accepted for publication by a traditional journal. Anyone can read any article in the archive, even after it has been published elsewhere in a traditional journal. Publishers have had to live without full copyright. In other areas academic institutions operate blacklists of journal publishers who are considered to charge too much for their journals. In extreme cases where there are no alternative low priced journals, academic groups such as the Scholarly Publishing and Academic Resources Coalition (SPARC) have set up low priced journals to compete directly with the commercial publisher's offering. In most cases the commercial publisher’s journal has been quickly eclipsed by the start up.

The highest profile new development is the Public Library of Science (PLoS). This started off three years ago as an open letter from academic authors pledging not to write for any journal which did not make its archive available freely on the internet six months after publication. This was signed by 30,000 academics from around the world.

Last year the PLoS received a US$9m grant from a charitable foundation, and this year after a high profile prime-time television advertising campaign in the US, it launched its first journal, PLoS Biology, in October 2003. Authors have to pay a contribution to the costs of the journal if their paper is accepted by the editorial board. Although this is a kind of vanity publishing, top academics have been happy to pay the fee, and the first issue attracted some strong papers (although nothing that challenges our understanding of the world dramatically).

Commercial publishers such as the Current Science Group, which operates BioMedCentral, have also developed open access, author pays journal publishing models, which although they lack the prestige of PLoS Biology, are attracting a growing number of papers away from over-priced low circulation titles.

Most academic authors are not entirely happy about paying for publication: it is difficult for editorial boards to be impartial about rejecting substandard papers if the publisher only gets paid if they are accepted.

Although the model is not perfect, and the publishing giants will probably continue to make good profits from the academic market for at least another decade, the good news is that author power is beginning to change things. Pierre Vinken, the former chairman of Reed Elsevier used to explain the essential simplicity of academic publishing as follows: ‘You put up the prices and take in the money’. For the first time publishers are having to think about what their authors think of that strategy.

Note:

1. His publications include: Book Publishing In Britain (2e 1998); Media Equities: Evaluation & Trading (1995); Who Owns Whom In British Publishing (3e 2002). This article first appeared in The Author, Vol. CXIV (4), winter 2003 pp 149-151. We are grateful to Christopher Gasson and to the Society of Authors for permission to reprint it here.


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