Open for business? What publishers tell their shareholders about open access - Part 1

The National Science Foundation has issued its long-awaited plans for expanded public access to publications and data emerging from its funded research.  This represents another advance towards implementing the OSTP's open access memorandum of February 2013, and will be the subject of a more detailed review in a future post.  Meanwhile, on the other side of the Atlantic, the RCUK recently announced its open access funding for 2015/16 - £22.6 million ($33.8 million).  These examples show the progress being made by some of the world's premier research agencies towards open access to the products of global research.  I have always argued that open access is, at its heart, about ensuring the widest possible audience for research, much of which has been publicly funded, and for showcasing scholarship at the levels of the individual, the research team, the institution, and the nation.  I've never been wholly persuaded that open access is (at least in the short-medium term) going to damage publishers' revenues, or likely to reduce the financial burden on university libraries.  These may happen in the long-run, and, as a library leader, I'd welcome some freeing up of financial pressures, but I view open access as a process of providing access to content rather than disrupting business models.

In a Q&A session following my recent presentation to the NFAIS conference, I was asked for my thoughts on market conditions for commercial publishers.  I suggested that in the short term at least, things were looking good for companies like Elsevier and Wiley.  What drove my views?  The flow of open access fees (APCs), especially from authors in the UK, is driving a decent amount of incremental revenue towards publishers.  This holds true, even after implementation of double-dipping policies which try to demonstrate that libraries do not pay subscription fees for material made open access through payment of APCs (see, for example, Wiley's statement).   At present, British authors are being funded through a number of mechanisms to enable their work to be published in gold open access journals, including the RCUK APC funds mentioned earlier.  However, British publications account for only around 7% of the world’s research outputs.   To ensure that their researchers are able to access the remainder of the world’s scholarship, British universities and research organizations must maintain subscriptions both to 'big deal' bundles and individual journal titles.  This trend seems a little disappointing given the ambition set out in the Finch report on open access: "it is critically important that universities should be given sufficient scope to establish their own policies and funding arrangements, which will provide incentives for them to shift funds from library budgets to the payment of APCs, and to bear down on the cost of those payments." (section 7.27)  There have been examples of publishers offering special arrangements, such as that brokered by JISC between Wiley and UK universities, but I have not seen activity happening at scale just yet, and certainly little evidence here in the US.

A recent article in the Wall Street Journal reminded me of the risk assessment and market conditions statements that are required to be included in SEC filings.  I hadn’t looked at publishers’ Form 10-K (domestic) or 20-F (foreign) returns for some time, and thought that it might be interesting to see whether my bullishness about the publishing sector was supported by formal company reports.

We know that publishing is a global business, and major publishers file in a number of different jurisdictions, with different disclosure requirements.  Elsevier (as an international company trading on the US Stock Exchange) and Wiley (as a US based company) file documents with the SEC in the United States.  Some other major publishers report to European exchanges (such as Informa in the UK and Wolters Kluwer in the Netherlands) whilst others do not file stock exchange returns due to their ownership arrangements.  For example, Nature is a wholly owned subsidiary of Macmillan Publishers Limited, itself a division of the family-owned Holtzbrinck Publishing Group.  Springer is currently held by funds advised by private equity firm BC Partners, and Oxford University Press is a department of the University of Oxford.

Elsevier recently reported its results for the financial year ended 31 December 2014, and filed Form 20-F with the United States Securities and Exchanges Commission.  I’ve extracted some of they most interesting comments from this document.  These came primarily from sections on risk factors, an overview of the business, and detailed comments on market opportunities, strategic priorities, and the company’s business models.

Firstly, some headline comments on the overall results for the last year.  I’ve focussed specifically on the scientific, technical and medical business, as this is most directly relevant to readers of this blog; full results can be found in the complete 20-F return.

Key business trends were positive for the year with underlying revenue growth in research subscriptions. Electronic revenues, which now account for 74% of the total, continued to grow across all segments.

What’s interesting to note there is that electronic revenues now account for almost three-quarters of sales, and this share continues to grow: I’ve often wondered when we might see the financial benefits of a digitally-driven world.  Many library subscription rates are firmly tied to the print era, and publishers argue that they need to maintain print-based publishing, and its associated costs, for some customers.  But as the share of digital output continues to rise, surely it is time to review approaches?

In primary research, article submissions to subscription journals and usage continued to grow in double digits, and journal quality, as measured by relative impact factor, was maintained. Subscription revenue growth was driven by increased volume and new sales. 

The journals publishing business is, as we all know, a massive enterprise.  The report outlines the sheer scale of activity:

In the primary research market during 2014, over 1.1 million research papers were submitted to Elsevier. Over 16,000  editors managed the peer review and selection of these papers, resulting in the publication of more than 360,000 articles in  over 2,000 journals, many of which are the foremost publications in their field and a primary point of reference for new  research. This content was accessed by around 12 million people, with more than 750 million full text article downloads last  year. Content is provided free or at very low cost in most of the world’s poorest countries. Elsevier’s journals are primarily  published and delivered through the ScienceDirect platform, the world’s largest database of scientific and medical research,  hosting over 12 million pieces of content, and 30,000 full-text e-books. 

Let’s now consider open access, as that was the initial stimulus for this note, and see what Elsevier reports:

The volume of “author-pays” or “author’s-funder-pays” articles continued to grow from a small base. We continued to launch new journals, and now operate over 100 stand-alone author pays open access journals alongside our sponsored article option in over 1,600 subscription journals.

It’s also striking to note the growing business from open access submissions, and the growth of both open access journals and related OA options.  This is affirmed by a point in the strategic priorities section:

In the primary research market, Elsevier aims to grow volume through new journal launches, expansion of author-pays journals and growth from emerging markets; to enhance quality by building on our premium brands; and to add value to core platforms by implementing new capabilities such as advanced recommendations on ScienceDirect and social collaboration through Mendeley.

These point to growing business opportunities, but I wonder if these are viewed more as a short-term trend?  The risk factors disclosed by Elsevier include:

Our STM primary publications, like those of most of our competitors, are published on a paid subscription basis. There is continued debate in government, academic and library communities, which are the principal customers for our STM publications, regarding, to what extent such publications should be funded instead through fees charged to authors or authors’ funders and/or made freely available in some form after a period following publication. If these methods of STM publishing are widely adopted or mandated, it could adversely affect our revenue from our paid subscription publications.

Elsevier recognizes that open access is not the sole concern in its market:

Changes in levels of government funding of, or spending by, academic institutions may adversely affect demand for the products and services of our scientific, technical and medical (“STM”) businesses. and The principal customers for the information products and services offered by our STM publishing businesses are academic institutions, which fund purchases of these products and services from limited budgets that may be sensitive to changes in private and governmental sources of funding. Accordingly, any decreases in budgets of academic institutions or changes in the spending patterns of academic institutions could negatively impact our business and revenues.

But there is some upside against this stark assessment:

Scientific, technical & medical information markets have good long-term growth characteristics. The importance of research and development to economic performance and competitive positioning is well understood by governments, academic institutions and corporations. This is reflected in the long-term growth in research and development spend and in the number of researchers worldwide.

Open access is seen as a good opportunity:

Over the past 15 years alternative payment models for the dissemination of research such as “author-pays” or “author’s-funder-pays” have emerged. While it is expected that paid subscription will remain the primary distribution model, Elsevier has long invested in alternate business models to address the needs of customers and researchers. Over 1,600 of Elsevier’s journals now offer the option of funding research publishing and distribution via a sponsored article fee. In addition, Elsevier now publishes more than 100 open access journals.

This is the first of three posts on this theme of open access and publishers' corporate statements (as opposed to editorial or marketing announcements); the second post will bring material from other publishers, where available.  The third will offer some commentary on the relationships between research funder mandates, university policies and researcher behaviors, and the implications for commercial publishing.