When a financial analyst uses the term “catastrophic” in regard to the impact of open access on publishing giant Reed Elsevier, it is bound to attract some attention.  In a September 10, 2012 report from the firm Sanford Bernstein, senior analyst Claudio Aspesi did just that, and the reaction has been predictable.  “Catastrophe” has been in every headline (including mine!), from those that seem a little gleeful at the idea of bad things happening to the publishing company so many academics love to hate, to those that wish to defend the conglomerate.

Thanks to the kind permission of Mr. Aspesi, the complete report can be accessed here.

It is worth noting how the word is actually used in Aspesi’s report.  In assessing the overall prospects for Reed Elsevier, Aspesi notes that they are very dependent on the high profit margins at Elsevier, the academic publishing arm, so that a reduction in those profits might be “catastrophic” for the parent company.  He then goes on to explain why open access, specifically gold open access with the anticipated shift from subscription-based revenues to article processing fees (APCs), seems to threaten that high profit margin.  In the past, Aspesi has recommended that Reed Elsevier should spin off other parts of its company to reduce its exposure; a call that the company has rejected.

The bottom line for investors in the Berstein report is that the company rates Reed Elsevier to “underperform,” and pegs the target stock price at $6.45.  As this comparison report shows, other analysts put the target stock price somewhat higher.

To me the most interesting part of the report is its discussion of where article processing fees for gold open access journals are likely to go.

The fundamental conclusion in Aspesi’s report is that for Elsevier to maintain its current revenue through a complete transition from subscriptions to APCs — for that transition to be “revenue neutral” for Elsevier — the APCs charged to each author for publishing in an Elsevier journal would have to increase about 70%,  from current levels (for open access) at about $3000 per article to about $5,145 per article.  Aspesi does not think the market would bear this increase, and in that I think he is surely correct.

This discussion of APCs is fascinating, and there are several nuances we can add to it.  First, Aspesi notes that an option for Elsevier to maintain revenue in the OA transition without raising APCs this high would be to publish more articles.  The move to online certainly makes this possible, but the option has significant drawbacks, especially for a firm that depend heavily on its “brand” (as do university tenure and promotion committees).  Another possibility would be to recognize that not all journals are equal and charge differential APCs, based on the desirability of publishing in that particular title.  This raises the possibility that scholars would begin to shop around for journals with lower APCs for those articles that are not accepted into the top-tier journals.  We have not had much competition in the area of scholarly publishing in the past, but as different publishers charge different APCs, and those fees might even, perhaps, vary within one publisher’s titles, this possibility of competition, where cost and reputation are balanced together in the decision about where to publish, could grow.

In explanation of his conclusion that even with higher APCs it would be difficult for Elsevier to maintain its high revenues, Aspesi cites a simple fact — in the OA world, journal bundling would no longer be possible.  At present, Elsevier and others are able to sell lower-readership journals as part of “big deals” and at no additional cost to the company.  The OA world, however, imagines that each journal would have to stand on its own bottom, with revenue dependent on how desirable publication in that particular title is.  Aspesi’s discussion of what OA “big deals” might look like — various models for offering universities better pricing or “all you can eat” agreements for open access publishing — is fascinating but concludes that it would be very difficult to reach such deals and that they would not solve the problem of needing to increase APCs to cover costs.

One additional problem with increasing APCs for Elsevier journals, which returns to the issue of competition among journals, is the likelihood of downward pressure on APCs just as the transition would seem to force established traditional publishers to raise them.  The growth of OA megajournals like PLoS One, which already charges a much lower APC for articles it publishes than Elsevier does for its “sponsored articles,” may create such downward pressure.  So might some of the new models for open access, like eLife, which is supported by research funders and will not charge APCs, or PeerJ, which is building a membership model for OA.

The key to this analysis, and the problems it poses for Elsevier — whether catastrophic or not — is the cost per article.  Aspesi bases all of his projections on the assumption that it costs about $3,200 for Elsevier to publish each article, or, more significantly, $1200 per article submitted (850,000 submitted articles versus 316,000 published).  Many fully OA journals do not have such high costs, which is the reason they can charge lower APCs.  Aspesi acknowledges that Elsevier may be an expensive organization to run (not run on a “shoestring,” he says), but does not explore how or if those costs per article could be reduced.  Yet it seems to me that that is the key for survival for traditional publishers if they are to weather the transition to open access.

We can experiment with as many different pricing and funding models as we like, and I hope there are a lot, but we fundamentally need to have a conversation about how much it costs to publish a single scholarly article.  Those costs have been hidden in the byzantine structure of subscription prices and bundling, especially from the larger publishers.  That model has allow great opacity about actual costs, and for years universities have accepted that situation, which has now become clearly unsustainable.  But as we make the transition to open access, and gold OA plays a large part in the new paradigm, it will be harder and harder to avoid being open and honest about how much scholarly publishing really costs, and how some groups seem to be able to do it for so much less.

 

5 Responses to How do you recognize a catastrophe?

  1. Chris Rusbridge says:

    “Those costs have been hidden in the byzantine structure of subscription costs and bundling”… picky perhaps, but the second “costs” should really be “prices”. It makes a difference!

    There have been lots of arguments over the years about what it *really* costs to publish an article, many with Stev@n H@rnad on the low cost side. As an erstwhile chief publisher for a single EJ (IJDC), my feeling is that the cost of journal publishing is hugely dependent on scale.

    At very small scale journal publishing is a very labour-intensive operation and (if properly costed) very expensive. I have some old spreadsheets and other data, and might be able to work out a cost-per-pubished-article for IJDC, but it would be an under-estimate as it would only include clearly visible direct costs, and not invisible contributions like IT support etc.

    We used OJS, but not fully as it would impose extra workflows that were not worth it for a single journal. With more journals you would take advantage of further features, so cost per article would go down, ie there are definite economies of scale.

    On that basis, Elsevier should have the lowest cost per article in the business. However, it seems that at some point diseconomies of scale start to emerge! Perhaps you have to engage in more marketing to your authors? Perhaps you have to wine and dine your editorial boards? Perhaps you have to pay 30% profit margins? Perhaps you have to find doozy bits in copyroght law to sue your customers?

    In fact, to estimate costs at scale, wouldn’t a quick look at PLoS be in order. AFAIK they aren’t making significant losses…

  2. Rebecca says:

    There are two elements of OA publishing that would dramatically lower that APC price point in an all-OA world: no print and elimination of all the infrastructure needed currently to restrict access to content (e.g., subscription management, authentication systems). Cost analyses of APCs rarely account for those two dramatic shifts in the publishing operation that would by themselves greatly reduce the per-article cost.

  3. Robin says:

    Ten years ago the death of the high end scholarly publication was already in view. I was involved with a start-up whose goal was to replace Reed Elsevier and others who had not yet seen the need to have online presences. My partner had previously worked for Mary Ann Liebert and was determined to one-up her in the personal competitive sense.

    My archive at http://www.siliconmirror.com/adtechpub/index.html still has the sales sizzle that was created to obtain funding. Unfortunately the investment community was still shy of anything Internet in the wake of the dot.com bust so we had to shut down.

    There will always be some cost associated with peer reviewed publication – as someone has to actually make editorial decisions, but many in the scholarly community seem to be willing to contribute to subsidized online journals without any expectation of recompense. We had envisioned bulk sales to educational institutions giving any student or faculty member access to the publications – and a process whereby any subscriber could work towards being a peer reviewer. Anyone could submit a paper (which would be “unpublished but available for peer reviewing”) until such time as it had accumulated sufficient points towards publication for an editor to review the paper, reviewer’s commentary, etc. and determine that it could officially be published.

    Our premise was that graduate students often do all the footwork for senior faculty members – so why not give them the opportunity to directly contribute? We hoped for intense debate and a way to bypass the existing gatekeepers so our work would be published far in advance of the printed journals.

  4. Kevin Smith, J.D. says:

    Thanks for the usage correction; I have made the change you suggest, Chris.

  5. Richard Saunders says:

    A reminder of the old saw that “there is no free lunch” when it comes to publishing. APCs will inevitably impose their own and different form of privilege. I think about the small university where I work, where an APC of $3,200 would dramatically limit publication for most of our science faculty, and would virtually eliminate it in the humanities.

    As someone who once worked in academic publishing, I have to observe that part of the way to recoup costs involves shifting the burden for text formatting back on the authors, and in reducing the cost for professional copyediting. Choosing electronic over print does not save much. Manufacturing represents only about 15-25% of journal-issue costs; most of the expense is in editorial and production (typesetting). In this day of pervasive electronic software, publishers could easily create cut-and-paste upload sites which would handle most of the basic page-format elements. Moving to a required format for submissions (and expecting submitters to follow it if they wanted their work reviewed) would help cut costs. The other way to save cost is for journals to get over the stilted jargon that passes for academic erudition (particularly in the social sciences) and simply use straightforward language. That would simplify copyediting and have the added benefit of making article texts far more accessible to students. Hopefully publishers will also settle firmly on PDF/A formats for the sake of platform stability over the long run.

    The fundamental problem is that science has commercialized since 1970 created a market for research publication. The high cost of subscriptions can be written off as business expense and passed along to customers. That was much less of an issue prior to 1970. So another means of reducing costs is for professional associations to go back to publishing and disseminating their own journals. There are enough aggregators now that distribution should be fairly straightforward. There are no simple solutions. Publishing has been an expensive proposition since the 1450s.