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    III. Digital Publishing Economics III. Digital Publishing Economics > 10. Electronic Publishing Models and The Pricing Challenge

    10. Electronic Publishing Models and The Pricing Challenge[†]

    How will the Internet change scholarly publishing, and how should it? Will print publishing become obsolete, or only be supplemented by online, searchable articles? Will the Internet somehow lead to a whole new system where raw `self-published' material is commented on widely by an expert community, supplanting the traditional notion of peer review by only a few, often anonymous, experts?

    Amid these long-term, philosophical questions about the very nature and purpose of publishing, there is more immediate interest in understanding the economics of online publishing. Publishers are under great pressure to supply new capabilities available through online publishing, and to develop business models to ensure the future viability of scientific publishing in the new medium. Those who fall behind, or so it is feared, may ultimately fail as publishers, or face a kind of publishing oblivion as more and more readers rely on the Internet for locating information resources.

    At the same time, librarians—-facing the ongoing explosion of new information sources, and consequent rising costs—-hope that Internet publishing will somehow lead to radical declines in publication prices. Lower prices are sought partly as a response to institutional budget pressures, and partly out of frustration with the perceived unreasonable pricing practices of some publishers. But a longer term and more important pressure exists as well: amidst the explosion of new information products, librarians are properly searching for a means to ensure that libraries continue to fulfill their traditional role providing broad access to comprehensive collections of information.

    In this chapter, I will describe the current state of the transition underway in scholarly publishing from the publisher's point of view. I will also review a number of the electronic publishing models currently in use, focusing on Science and contrasting it with the typical scholarly publication. Finally, I will discuss the challenges faced by publishers in setting online prices, noting the critical importance of sales volume as a driver of online prices.

    10.1 Scholarly Publishing in Transition

    Scholarly publishing used to be a quiet, respectable backwater of the much larger, and more volatile, publishing industry. Where many consumer publications rise each year and fail quickly, scientific journals seem to prosper over time, once they overcome the considerable entry barriers. Cross-platform searchability and other features of the Internet are ideal tools for improving the utility of scholarly journals. This characteristic has cast scholarly publishers on the leading edge of the publishing industry, and has forced them to explore both the technical and business aspects of online publishing. Many scholarly publications are managed by non-profit associations, or by relatively conservative commercial publishers, who have little experience in managing such a complex transition.

    Besides the reader benefits, publishers are attracted to Internet publishing for a number of reasons. One key attraction is the promise of wider readership and recognition for the publication. Publishers see an opportunity for brand preservation and extension in this new medium which has rapidly become widely available. These opportunities for expanded readership and branding, of course, spell a possible business opportunity in selling subscriptions and advertising online. Some see new revenue possibilities that never existed in print, such as the chance for widespread pay-per-article, an extended economic life for older content, and e-commerce in conjunction with advertisers or other new partners. Finally, many publishers also view their online presence in a defensive mode: bringing the traditional printed work online may be necessary in order to maintain the interest of current readers and protect the revenue base that already exists in print.

    The Internet is regarded as a 'disruptive' technology, one that changes the service norms and economics of publishing (and other industries) in unpredictable ways. Therefore, online publishing is seen as a threat. To understand the current milieu of scholarly publishing, it may be useful to consider how online publishing has changed four of the forces that act on publishers: competitors, suppliers, buyers, and the market environment.

    The Internet reduces fundamentally the cost of publication distribution. Thus, it lowers barriers to entry, inviting many new players into the field, along with the traditional, known competitors. Start-ups that seek to exploit a new technology are generally more nimble than traditional players, partly because they have less existing revenue at risk, and tend to eschew ingrained ideas about the new business.

    Furthermore, a new technology with uncertain parameters leaves incumbent competitors unsure of how to manage the new situation. As leading companies attempt different models for creating a viable business, they send confusing or unreadable signals into the market. Competitors do not know how to assess these moves, or how to respond to them.

    Suppliers to the scholarly publishing industry are also undergoing realignment as the Internet comes into wide use. Key suppliers for scientific publishers are the researchers themselves, who submit papers describing their latest findings for review and publication. As authors find they have more outlets for their work and discover new ways to communicate findings to their colleagues, they are empowered in their dealings with publishers. Though they still seek the imprimatur of independent refereed journals, they have more leverage to demand services and concessions. Technology workers have become similarly empowered as publishers (and most other industries as well) increasingly depend on their capabilities. These influences will tend to increase costs as publishers must compete for the raw materials and resources of their business.

    On the flip side, suppliers on the distribution side of publishing have lost ground. Postal services and other distribution outlets (such as international carriers) face significant threats if many publications ultimately choose to publish online only. But this phenomenon doesn't benefit publishers by bringing them cost savings unless they can entirely abandon the distribution chain. In the short run costs will, perversely, tend to rise. Since distribution costs are to some extent volume based, publishers may face rising delivery costs per unit as their volumes drop. The same problem applies to the printers of scholarly publications. Savings are only available to the publisher by abandoning the medium altogether. Reductions in print volume will only tend to increase costs per unit.

    Demand is another force operating on publishers. Publishers are affected by both buyers and readers, who for scholarly journals are often not the same persons. They include individual subscribers and the libraries that support many scholarly publications. Consumers of information gain from the Internet by obtaining much better access to alternative information sources. As competition increases among information sources trying to bring value online, consumers' expectations will tend to increase for quality benefits and features from the publishers they support. Meanwhile, the sharing and copying of digitized information is far easier and less expensive for users than any previous copying method or device. This will tend to lower demand for subscriptions, licensing or pay-per-view services through which publishers may have expected to generate revenue. In addition, the interactivity enabled by chat groups and listservs gives consumers access to more accurate pricing and term information, which in turn makes them better negotiators for the services of publishers. Publishers will find that, with the easy access provided through convenient and inexpensive e-mail, their customer service costs will rise.

    The general market environment for publishers is also undergoing transitions with unforeseeable consequences. Electronic distribution of information and the ability of users to duplicate and redistribute materials at very low cost hold unclear legal implications for copyright enforceability. In any case, assuming a constant level of enforcement, we should expect that lower copying costs will result in more copying, even if it is illegal. This would tend to suggest that publisher revenues are more vulnerable. Meanwhile, increased consumer awareness of privacy issues places pressures and restrictions on publishers' use of the data they gather about their readers, and has a dampening effect on marketing activities.

    At the same time, some aspects of the market environment may be changing in favor of publishers. Some book publishers, for example the National Academy Press, are said to have seen an increase in sales as a result of making their content available for free on the Internet. This seemingly paradoxical result may be due to the general preference for reading things in print, combined with the wider resource location possibilities presented by the Internet. The availability of the products online for free may have served as an effective marketing tool. Where traditional marketing may have been too expensive or inaccessible to the small non-profit publisher, online the credibility of the publisher and the ability of the reader to `sample' the product by reading a chapter or two may have stimulated sales.

    Might similar effects apply to scholarly periodicals? The remarkable usage figures of JSTOR articles reported by Guthrie (this volume) suggest that articles may enjoy a longer shelf-life by being digitized and made easily searchable online as part of a collection of refereed works. Nevertheless, it is not clear how or even whether increased usage of archived articles might lead to enhanced sales for the periodicals themselves.

    Amidst downward pricing pressures from their buyers, publishers face increasing demands for sophisticated online services, which adds to cost. At the same time, it appears that a `centralization' of buyers is occurring. Even though a publisher may locate more readers online, it is less clear that these readers will become paying subscribers. Library services have, in effect, broken out of the library, as site-wide subscriptions bring the information to users' desktops. This is, of course, a good thing for the availability of information, but it does not necessarily lead to lower prices, since it may discourage personal subscriptions.

    One reaction of publishers to all these influences and conflicting goals has been to develop a proliferation of access and pricing models in search of viable solutions to the business challenges they face. Next, I will examine some of the main access systems and pricing models in place among scholarly publishers, with an emphasis on the models in use by Science Online.

    10.2 Access and Pricing Models

    A variety of revenue strategies exist in periodical publishing. Controlled-circulation magazines rely almost exclusively on advertisers to pay the cost of producing a journal for a targeted market. The key to success in this type of publishing is to achieve very high coverage of a targeted market that also is a focal point for advertisers. This is an uncommon strategy for peer-reviewed journals however. The scholarly publishing industry primarily relies either on library sales or on personal subscriptions or memberships in a non-profit society for the ongoing revenue to produce the journal. Some rely on a mixture of these circulation revenue streams, along with advertising sales.

    In these early days, it is not surprising that online strategies tend to reflect the print strategy of the publisher. Table 10.1 provides a summary of the main print business models, and their online corollaries.

    Table 10.1: Scholarly Publishing Business Models and Online Corollaries
    Print Model Revenue Stream Market Features Online Corollary
    Controlled circulation Advertisers or external funds Requires high market coverage; Seldom used for refereed journals Free, ad-supported site; or free with print and registration
    Personal or Member subscriptions Individuals Refereed; tends to large audience; may be more general Free or small fee with print; may allow online only
    Institutional subscriptions Libraries Small, specialist audience; tend to higher prices Site-wide for fee or free with print
    Mix Members and libraries (+ads?) Complex interplay of markets Unsettled, but usually fee + print required

    Controlled magazines will tend to put their contents online for free to users, attempting to attract advertising revenue to the site. Those journals relying on library subscriptions will most likely develop a library site-wide access model, while those relying on personal subscriptions or memberships may treat the online product as an added-value benefit of the print subscription. Mixed revenue models may include a mixture of advertising, individual subscriptions, and library subscription, not to mention licensing and authors fees, to provide revenue. Of course, nearly every magazine may have some mixture of these various types of revenue, but what is important in devising an online strategy is to fully understand which revenue stream or streams are the main drivers of the business.

    Science receives some revenue from every one of the sources named above, and so is a rather complex case. However, there is no question that the economic drivers of the journal are membership dues and advertising. Though subscription sales and membership dues represent less direct revenue than advertising, they may nevertheless be seen as the underlying driver for the publication, since advertising sales are also premised on the journal's relatively large circulation. Library subscription sales represent a significant third revenue stream. Though the smallest revenue stream of the three, they represent a critical part of the mix. If there were no library sales, personal subscription rates would be appreciably higher. The corollary is that if there were no personal subscription sales, library rates would be significantly higher. The other revenue sources named, such as licensing, are modest in comparison. There is little reason to think the journal could be sustained on these revenue sources alone.

    I have jumped directly to the complex case of Science, but it is worth mentioning the other paid subscription models. Essentially, there are two: library driven, and membership or personal-subscription driven. A rule of thumb, for which there may be many exceptions, is that if the circulation of a magazine is under 5,000, its underlying economics are probably library-subscription driven. Many scholarly journals fall into this category, even those published by associations. Of course, the economic underpinnings of a given journal may be as much a reflection of publisher's choices as of market conditions. Some journals may have low circulation because they serve a small, highly specialized audience and are only sustainable through library subscriptions. Others may have restricted their personal subscription support by setting prices at too high a level, or by deliberately choosing to focus on the library market.

    What are the online corollaries to these print subscription models? Many scholarly journals, whether commercial or non-profit, are struggling with this question, and many different experiments with access types are being conducted. Among the most widely in use are

    • free public access after an embargo period,

    • free personal online access with membership or paid print subscription,

    • institutional site-wide access free with print subscription,

    • institutional site-wide subscription,

    • institutional access by subscription and restricted in some way, such as via

      • embargo on when the content becomes available online,

      • incomplete content,

      • limited geographic access, for instance to a library or a portion of campus or a single `site' (which may be a building, a campus, or a city),

      • limited virtual access to certain workstations or a subnet.

    The online strategy a given publisher will pursue is closely related to the publisher's view of the likely interaction between print and online publishing in the short run. Since there are many difficulties and unknowns with the revenue model for online access, publishers will often hedge their bets by pursuing what may be thought of as a forced print model. In these models, online access may or may not be charged, but is conditioned on the retention of a print subscription. In most cases, the online product will be treated as a supplement to the print, and charged (if at all) as an ancillary service. Though this is a conservative approach, the forced print model cannot be written off as merely a reactionary and futile attempt to preserve print. Science has substantial user feedback suggesting print is still highly valued among readers. Online values such as immediacy and searchability are highly desirable as complements to the print, but not as substitutes. Offering the two media together currently seems to be the best way for many journals to provide the best of both worlds and, coincidentally, to protect the principal revenue streams that emanate from the print product.

    At the other extreme, some publishers will seek to capture the cost-saving potential of online publishing and, perhaps, to steal a march on competitors in the transition to electronic-only publishing. This approach will be particularly appealing to start-ups, although it is certainly not unheard of among traditional publishers. The strategy is reflected in business models that encourage the buyer to purchase online access only, and provide pricing incentives for doing so. In the case of many start-ups, the strategy could be called a forced online strategy, i.e., there is no print product at all. Other publishers will continue to provide print in response to reader demand, while setting discounted prices for online only, usually at 80% to 90% of the print price, to give buyers incentives to make the switch. Forced online strategies are relatively risky because of the many unknowns about user acceptance, ability to generate revenue from subscriptions or advertising, and sustainability of the system at reasonable costs. But they do make sense for smaller circulation publishers, especially of high frequency or high page-count journals, where substantial savings can be gained by pushing toward online delivery.

    Forced print models attempt to preserve a journal's established revenue base of print subscriptions by offering online access as a free or low-priced added-value service. Generally, this will be a less risky approach than a forced online model. However, forced print models carry their own set of risks, and can be difficult to administer if the publication relies on both personal and institutional subscriptions. This is because institutional site-wide online subscriptions impinge on the personal subscription market, both online and in print, far more severely than institutional print subscriptions do. In print, accessibility to library copies is limited (one-at-a-time usage) and inconvenient (the reader must go to the library), so most frequent readers and many occasional readers will be strongly motivated to acquire personal subscriptions to the journals they find most important or useful. With the advent of site-wide access, however, the contents of journals are far more readily available to all users, thus presenting a temptation, especially among the marginal readers, to forego personal subscriptions. With site-wide subscriptions, there is no ability to reserve online access exclusively for paying individual subscribers. Further complications arise if an advertising revenue stream in print needs to be either preserved or migrated to online. Responses to this situation are the most complex and wide-ranging, in part because no one knows which will be most effective. Thus, many publishers are pursuing a variety of access models simultaneously. Table 10.2 shows the main access models currently in use by Science Online. Note that some of the access models provide only partial content in order to approach certain market segments, or achieve different business goals.

    Table 10.2: Science Online Access Models
    Access Model Target Audience Business Goal
    Personal access
    Free Samples/Searching All potential users Attract prospects
    Abstracts with registration Moderate user Readership for advertising; attract prospects subscription
    Pay-per-View Infrequent user Attract prospects subscription
    Full text access with fee Members only Subscription revenue; readership for advertising
    Institutional access
    Workstation access Libraries, mainly public or high school, or colleges with minimal science focus Economy access for broad range of primary ed. institutions
    Site-wide full text access Universities/Research Institutes/Corporations Subscription revenue; readership for advertising
    Consortial access Universities, 2-year, and HE institutions Expand site-wide subscription market; readership for adverstising
    Licensed content with embargoes or usage limits Library segments with specialized needs Ancillary revenue

    If the proliferation of access models appears confusing, the price structures in use for these many different models are all the more so. Some principles from print subscription pricing do seem to carry over into the online world so far, although not always with the same results.

    There are several regularities in traditional scholarly journal pricing. In general, institutional subscription prices are well above the price for personal subscriptions. Higher circulation journals tend to have relatively lower prices than small circulation specialty journals. And lastly, the narrower titles serving very small populations tend to rely on library sales much more heavily than personal subscription sales. All these rough principles seem to hold true, at least so far, in online pricing. However, as we shall see, publishers face a series of perplexing problems and risks in setting online subscription prices. These issues are far from settled at this time.

    10.3 Pricing Challenges

    It is widely understood that the Internet presents an opportunity for substantial decreases in the costs of scholarly publishing. Because paper, printing and postage—the principle variable manufacturing costs of publishing—are quite substantial for nearly all publications, there is an opportunity for both publishers and buyers to capture some cost savings through online delivery. But there is also a good deal of misunderstanding about the economics underlying print publication costs and pricing.

    There is more to publishing than covering these variable manufacturing costs. In accounting terms, any price must cover variable costs, fixed costs and margin. When a journal has other sources of revenue than subscription sales, of course, the costs may be spread out over different sources; thus, the subscription price will reflect a contribution to the total fixed and variable costs, but not necessarily full coverage. Even so, many scholarly journals are largely dependent on a single revenue stream for their existence, and more often than not, that single revenue source is library subscriptions.

    Not all journals experience the same level of variable costs. The cost of serving each new subscriber can vary greatly, depending on factors such as the frequency of publication, whether the journal is distributed globally, the size of the circulation, and the number of pages per issue. In general, we can expect online distribution to significantly improve these costs, thus, in theory, making it possible for low circulation journals to publish many pages, circulate them worldwide, and publish as frequently as needed. But, of course, these savings will only be realized if and when publishers can abandon print publication altogether.

    Another misunderstanding that may need clarification is the idea that manufacturing costs are the only variable costs a journal faces. They are not. For instance, the cost of maintaining subscriber records, sending renewal notices and bills, and providing customer service are all variable costs that rise as circulation of the journal increases. Some of these items may also be improved, but not eliminated, by use of the Internet. Science, for example, has begun to accept orders and renewals online, and this source of orders has increased rapidly, relative to more traditional sources such as direct mail.

    The fixed costs of publishing cover things like overhead and the cost of all the staff (not just editors) needed to run a professionally produced journal. Fixed costs are not uniform across all types of print journals. They may vary based on the depth of peer review undertaken, the breadth of disciplines and issues covered, and the extent of the marketing and other support efforts needed to produce the journal. Staffing costs are not likely to be reduced by online delivery, and in fact may increase substantially. Increased reader expectations can drive demand for more editors, more technical staff, and more sophisticated customer services.

    Besides staff costs, fixed costs include major technical systems required to maintain the publication. One reason for the pricing disarray that exists in scholarly publishing right now is the uncertainty about what the steady-state cost structure of online publishing will be. Everyone, by now, has come to realize that merely throwing a few files onto a server will not constitute a viable publishing operation. Publishers are expected to provide value-added services that exploit the special features of the Internet to improve searchability, linking to outside resources, and other aspects of the readers' experience; to maintain a number of back issues indefinitely; and to provide for a more permanent archive. Quality control is also a much larger problem online than in print. With the expectation of retaining back issues online indefinitely and integrating them with new material for searchability, quality control is a job that is, in a very real sense, never completed. All these activities represent new costs associated only with online publishing, and until a more settled view of expectations is reached, it will be difficult for publishers to assess accurately what their fixed costs will be.

    Further complicating the situation is the centralization of buyers. As mentioned earlier, there is some reason to think that, even though the Internet may bring more readers than ever to a journal, there will be fewer paying subscribers. Libraries used to maintain multiple subscriptions to the most popular journals, but will purchase only one site license to online publications, no matter how popular they become.

    More important—if the publisher relies on individual subscriptions—is the problem of library subscriptions cannibalizing the publication's personal subscription base. In print, this phenomenon is a minor factor, because many people will still decide to purchase their own copies for convenience and portability. Some individuals also like to retain their own personal collection of key journals. All this is swept away by institutional site licenses to journals. Many of the compelling benefits of personal print subscriptions are lost if the very same product is available online at one's desktop through the university. Though most readers still report a preference for the look and feel of print, and for its portability, these benefits are strained against the economic incentive to drop print and save the subscription cost.

    If buying centralization continues to grow, it means that the fixed publication costs will be spread over a smaller number of payers, and thus will rise as a portion of total price. Depending on how much the size of the buying market declines, the effects on price can be surprisingly steep.

    Margin, the third component of pricing, is usually expressed as a percentage of the gross cost of production. There may be endless arguments about how much margin (profit) is appropriate for a scholarly journal, or even whether any margin should be charged by non-profit entities. The fact of the matter is that nearly every important and vibrant publication will charge some sort of margin. A publisher cannot produce cash for improvements, fund startup projects (whether charitable or commercial), or even merely ensure that the journal has enough financial flexibility to weather an unforeseen crisis or to pursue an unexpected opportunity without generating some revenue in excess of the precise costs of producing the journal.

    In a durable business, margin is expected to increase with risk. Among the risks faced by publishers navigating the transition from print to online publishing are

    • new competitive challenges,

    • increased demand for technically sophisticated information products,

    • potentially diminished print revenue base,

    • unclear cost basis,

    • centralization of buyers.

    All these risk factors have been mentioned in other contexts in this paper. Given the number of unknowns and their financial implications, it may be predicted that publishers will price their new online products to compensate for substantial risk.

    This review of publishing costs should provide a more nuanced understanding of the complexity of moving from print to online publication of scholarly journals. Although some publication costs will decrease in the transition to online, others will increase. Further, the total cost may be borne by a smaller number of paying subscribers. The net effect on subscription pricing is uncertain.

    A simple example, summarized in Table 10.3, will illustrate the point. See the King and Tenopir (this volume) chapter for a substantive discussion of these effects, using actual industry cost and price averages. For this example, assume no other major revenue stream that will share costs or be affected by a transition to online, and no price differentiation among target market segments. The purpose is only to illustrate the effects of changes to the paying base on the pricing for a journal. Imagine a print periodical with 10,000 subscribers and a frequency of 12 issues per year. Suppose the fixed costs for producing the journal are $1 million, the manufacturing and distribution costs are $2 per issue, other variable costs are $.50 per issue per subscriber. Then the cost base per subscriber, exclusive of margin, would be $130: $24 in manufacturing costs, $6 in other variable costs, and $100 for fixed cost contribution. The publisher would likely add between $13 and $26 dollars of margin to produce a price per subscriber of, say, $149.

    Table 10.3: Illustration of the impact of buyer centralization on online pricing
    Print Scenario Online, no centralization Online, w/ centralization
    Circulation $10,000 $10,000 $7,000
    Total Fixed Cost ($) $1,000,000 $1,000,000 $1,000,000
    Fixed contribution/subscriber/year $100 $100 $143
    Variable cost/subscriber/year $30 $11 $11
    Straight margin $19 $19 $19
    Percent margin 15% 17% 12%
    Total subscription price $149 $130 $173

    Now suppose this journal switches to online publication, entirely abandoning print as a medium. Again, this scenario is simplistic in order to underscore what the economics of a fully online journal might look like after a transition is completed. I am ignoring, for now, the effects on pricing from producing the journal in two media simultaneously, although this is the reality facing many scholarly publishers today.

    The middle scenario in Table 10.3 demonstrates the ideal circumstances for a journal moving online. Assuming that fixed costs remain the same, variable costs decline, and circulation sales hold steady when the journal moves online, there is reason to expect that both buyers and the publisher will gain by making the transition. With online production, the variable costs will decrease quite significantly. Suppose the manufacturing decreases by 75% to only $.50 per issue ($6 per year), while the other variable costs reduce to $5 per year. Costs that had represented $30 of the print price now represent only $11. Of course, if all other factors remained equal, this should be a boon to all parties. The publisher could lower the price and still maintain the same gross profit as before.

    But all other factors do not remain the same. In all likelihood the fixed costs will be higher, as reader expectations increase. Even if the fixed costs do remain the same, if there is a decrease in the number of buyers, the fixed costs will have to be spread across a smaller group. The percentage increase in the fixed-cost portion of the price can be greater than the percentage decrease in subscriptions. If, for example, the number of buyers falls by 30%, dropping from 10,000 to 7,000, the fixed cost portion of the price will rise by nearly 43%, from $100 to $142.85. And overall, this would result in a higher base cost of $142 + $11 = $153. Even if the publisher accepts the same gross margin (which would be a thinner percentage), the final price would rise to $172, a 15% price increase to subscribers, despite the substantial decrease in variable costs.

    The last scenario in Table 10.3 summarizes the pricing effects of a 30% decline in circulation sales due to cannibalization from moving the contents of the journal online. Among the distortions caused by this scenario are that the price for buyers increases 15% over the print price, and the publisher receives a lower marginal percentage for a more risky model, which defies normal business practice. If the publisher decided to maintain the same margin as print, the end price would rise even further, to $177, nearly a 19% increase for subscribers. The greater the pricing impact, the more probable that the circulation figures would decline. If they decline even more sharply than the projected figures, it could set off a "death spiral" reaction in the journal, also described in the King and Tenopir (this volume) chapter, where prices keep rising to cover the circulation shortfalls, thereby dampening demand even further.

    Of course, this is just an illustration. For many reasons the end result for a particular journal may be different. For instance, a creative publisher could turn an online presence into other revenue opportunities, such as advertising. But these opportunities may be wishful thinking. There is little reason to believe that a publisher who cannot sell ads in the print journal would succeed much better merely for having the journal online. Indeed, if the publisher does sell print advertising, there may be a loss of revenue, since many advertisers remain skeptical of the online medium, and highly resistant to paying prices similar to print advertising rates.

    Another possibility is that subscription losses of this magnitude may not occur. It is certainly true that the scenario described above allows some flexibility for the publisher to lose subscriptions. The break-even amount of subscription loss in the case above is around 16%. That is, assuming a drop in subscriptions to 8,400, and assuming the fixed costs for producing the journal stay the same, then the variable cost savings are enough to offset the increased portion of the price dedicated to fixed costs. So the problem for publishers isn't whether they will lose any subscriptions, but a more complicated problem: how much will fixed costs increase due to online publishing, how much will subscriptions decline, and how much variable-cost savings will there really be? It is the complicated interplay of these uncertain effects, along with the enticing but uncertain prospect of developing other revenue streams, that leaves the pricing of online journals a very tricky matter.

    10.4 Conclusions

    From the above example, we can ascertain a few principles to help guide publishers in assessing the risks and costs of a transition to electronic publishing. First, when the publication's variable costs are a larger portion of the total cost than the fixed, moving online will likely be less risky. This is because the greater the savings that can be accomplished from electronic publication, the deeper the subscription losses would have to be before they caused the fixed-cost distribution to rise more than the variable-cost savings. This enables us to create a profile of the type of journal that would be the best candidate for moving to online publication rapidly:

    • low circulation,

    • high page counts and/or high frequency,

    • narrow, focused editorial scope,

    • small, if any, reliance on advertising revenue.

    Low circulation and high page counts would tend to lead to poor economies of scale, thus one would expect substantial variable costs. In addition, if the circulation were mainly library subscriptions, not personal, and were mainly purchased at one copy per institution, the likelihood of revenue cannibalization or centralization of buyers impacting the journal would be smaller. Narrow editorial scope would contribute to maintaining relatively lower fixed costs. Lack of advertising revenue would simplify the risk assessment for moving online and reduce the chances of revenue cannibalization. These circumstances describe a very significant number of scholarly journals, particularly those published by non-profit discipline-focused societies.

    Should we, therefore, not expect to see journals moving online that do not meet these criteria? In some ways, high-circulation journals with a variety of revenue streams might seem to have everything to lose and nothing to gain by undertaking the transition. However, recall from the discussion at the beginning of the chapter that the attractions of online publishing for larger scholarly journals are many:

    • greatly enhanced reader benefits,

    • broader and more convenient accessibility,

    • brand extension and preservation,

    • possibility of substantial variable-cost savings combined with the promise of novel revenue streams,

    • ability to remain up-to-date and relevant to readers, to defend against obsolescence.

    With both reader demand and library demand for enhanced service so high, it is inevitable that journals of all stripes will begin moving online. One important factor for the larger publications will be trying to create some way to either preserve the print subscriptions or translate the broad print audience of buyers to an equally broad audience of buyers online. The more widely fixed costs can be distributed the lower will be the price for all parties. In the print world, of course, this would be a commonplace understanding. Ironically, however, in the current context of online publishing, this modest insight seems like heterodoxy, since it follows from the counterintuitive assertion that, in some circumstances, online publishing could actually result in higher priced subscriptions than print.

    Publishers, librarians and readers of scientific journals are all rightly inspired and intrigued by the great possibilities for electronic publishing to revolutionize and democratize scholarly communication. But if the publishing and peer-reviewing processes add value to those communications—and most observers continue to agree that they do—then these cooperating parties will need to come to a fuller understanding of the economics that underlie the process. Care must be taken that in the rush to implement new technologies to benefit readers, we do not undermine the fundamentals that make publishing a useful, as well as a financially viable, enterprise.

    Notes

    Thanks to Jeffrey MacKie-Mason for his many excellent and thought-provoking clarifications and improvements to this chapter. I would also like to thank several readers at AAAS who offered comments on earlier drafts, particularly Phil Blair, Colleen Struss, and Marlene Zendell.return to textreturn to text