'We believe the publisher adds relatively little value to the publishing process.'

Electronic Journal of Academic and Special Librarianship: The Business of Academic Publishing: A Strategic Analysis of the Academic Journal Publishing Industry and its Impact on the Future of Scholarly Publishing:

Abstract: "Academic libraries cannot pay the regularly escalating subscription prices for scholarly journals. These libraries face a crisis that has continued for many years revealing a commercial system that supports a business model that has become unsustainable. This paper examines the "serials crisis," as it has come to be known, and the economics of the academic journal publishing industry. By identifying trends within the industry, an analysis of the industry is undertaken using elements of the five forces framework developed by Michael Porter. Prescriptions are offered concerning what can be done and what should be done to address this problem."

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As can be noted from the table, the operating profit margins for Elsevier in the Science and Medical segment are extraordinarily high. For example, in the year 2000, the operating profit margin for the Science and Medical segment was more than 8 times that of the margin for the larger industry. These high margins exist even as critics question the value provided by the journal publishers. In an investment analysis report of Reed Elsevier (referred to by its ticker symbol REL), a Deutsche Bank analyst argues that the value added to the publication process by the academic publishers is not high enough to explain the margins that are earned:

In justifying the margins earned, the publishers, REL included, point to the highly skilled nature of the staff they employ (to pre-vet submitted papers prior to the peer review process), the support they provide to the peer review panels, including modest stipends, the complex typesetting, printing and distribution activities, including Web publishing and hosting. REL employs around 7,000 people in its Science business as a whole. REL also argues that the high margins reflect economies of scale and the very high levels of efficiency with which they operate.

We believe the publisher adds relatively little value to the publishing process. We are not attempting to dismiss what 7,000 people at REL do for a living. We are simply observing that if the process really were as complex, costly and value-added as the publishers protest that it is, 40% margins wouldn't be available. [19]

This statement by Deutsche Bank is an astonishing comment on the profitability of the industry. The notion that Elsevier, and therefore the other commercial publishers, add "little value to the publishing process" and cannot justify the high profit margins is significant. This statement by Deutsche Bank, while aimed towards investors, reveals the skepticism of investment analysts regarding the value that Elsevier, and therefore other firms with similar business models, claim to add to the publishing process.

If the large publishers provide little value-added, what explains their apparently high profit margins and ability to consistently raise prices?

Discuss.

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I think Bill's blog post deserves revisiting. I think Deutsche Bank overstated the position, but one does wonder if Elsevier really adds that much extra value compared to, say Wiley, or NPG. Or indeed PLoS.

Thanks for this, Bora. I think the one thing that is overlooked in some cases is that the profit margin of the journal also goes to support the scientific society. Thus, while they are profit for the journal they also serve a greater purpose.

Correct. But one wonders how much of Elsevier profits goes towards that noble function. I bet very little.

I think REL is probably quite happy they are getting away with high profit margins. Isn't that what for-profit companies are supposed to do?

I think part of it is obviously Elsevier's good marketing techniques. But also you have to consider that someone less experienced or not as well positioned in the industry would not be able to provide the same (albeit allegedly limited) value for the same reduced costs.

If they really aren't offering value-for-money, eventually people will desert them, and they will lose out.

And they will lose eventually. But some of them are not losing out with dignity, nor trying to change their business model (some are). Instead, they are fighting dirty to keep the system they are using as a hen with golden eggs forever. That kind of dirty strategy requires a pushback.

But one wonders how much of Elsevier profits goes towards that noble function.

I think you'll find that the amount is very well hidden.

Electronics standards bodies used to subcontract the publication of their standards. It let them just collect checks rather than manage publication -- what appeared to be a Good Thing. Trouble was, even thirty years ago you'd end up paying upwards of $50 for a short document -- even worse than reprint costs now.

At least one standards body that I know of woke up during the 90s and discovered that they were spending more on maintaining the subcontract relationship than the sub was paying them -- it was actually a net loss. The contract was not renewed, and today they publish their work for free on the Web. They're maintained entirely by member fees, which are (in my observation) remarkably low for a corporate-member body.

By D. C. Sessions (not verified) on 16 Mar 2009 #permalink

Monopolies can command high prices by virtue of their monopoly power and extract a larger fraction of the value-added chain than they would receive if there were competition.

It is my perception that Elsevier is trying to do exactly that. A practice I find particularly annoying is that they often (usually) don't have links to other journals, even ones that are open access. They link to a copy of an abstract that is in one of their closed data bases. To access the actual journal article one has to go to another source, such as PubMed.

I think that is what all of the for profit journals are attempting to do (which is what they have to do as for profit entities). I think that is why they hype-up the impact factor so much. How many people even look at the impact factor of the journal before they look at a paper from it? I certainly don't.

In many ways it is like the private health insurance companies in the US. Most of their effort is spent in weeding out high cost clients, not in delivering good care. Most of the effort in for profit journals is in weeding out lower citation number papers, not adding value to those papers it publishes.

But don't expect REL to change. They won't. They will hold their section of the scientific literature hostage for as long as the copyright laws allow them to. It is extremely frustrating to me that the tail end of the scientific enterprise, the publishing of the results can disproportionately profit with negligible investment compared to what went into doing the research and writing it up.

Bora you said it elsewhere but I agree with your comments that the scientific society is moving from high impact journals (Glamormagz) to 'high impact' papers (lots of citations) to 'high impact' people (like f1000). Publishers will become more and more desperate to keep journal sales up, as we are seeing with clusterfucks like "Darwin was wrong". The internet provides immediate "free" pushback to their hypedup junk.