Electronic site licenses: Electronic site licenses: Big Deals and Raw Deals Big Deals and Raw Deals

Ted BergstromUCSB

Industry Leaders

Conferring with an industry leaderConferring with an industry leader

Pricing of Paper EditionsPricing of Paper Editions

• The 6 most-cited journals in economics The 6 most-cited journals in economics are owned by non-profit groups.are owned by non-profit groups.• Average price to libraries is $180 per year.Average price to libraries is $180 per year.

• Only 5 of the 20 most-cited journals are Only 5 of the 20 most-cited journals are owned by commercial publishers.owned by commercial publishers.• Average price to libraries is $1660 per year. Average price to libraries is $1660 per year.

Costs of Economics Costs of Economics Journals Journals

Publisher Publisher TypeType

Number of Number of JournalsJournals

Price Price per per PagePage

Price Price per Citeper Cite

Non-ProfitNon-Profit 9191 $0.18$0.18 $0.15$0.15

For-ProfitFor-Profit 206206 $0.82$0.82 $2.40$2.40

Costs of a Complete Costs of a Complete Economics CollectionEconomics Collection

Publisher Publisher

TypeTypePercent of Percent of CostCost

Percent of Percent of CitesCites

Non-ProfitNon-Profit 9% 62%

For-ProfitFor-Profit 91% 38%

JournalJournal Prices by DisciplinePrices by Discipline

Ecology 1.01 0.19 0.73 0.05Economics 0.83 0.17 2.33 0.15Atmosph. Sci 0.95 0.15 0.88 0.07Mathematics 0.70 0.27 1.32 0.28Neuroscience 0.89 0.10 0.23 0.04Physics 0.63 0.19 0.38 0.05

CostCost per pageper pageFor-profitFor-profit NonNon-profitprofit For-profitFor-profit Non-profitNon-profit

Cost per citeCost per cite(In US $)(In US $)

Monopoly Profits in Academic Monopoly Profits in Academic Publishing?Publishing?

• Hint: University press and Hint: University press and professional society journals are professional society journals are usually usually notnot subsidized subsidized

• They charge 1/5 as much per They charge 1/5 as much per page as for-profit journals.page as for-profit journals.

If there is free entry, how can If there is free entry, how can there be monopoly?there be monopoly?

• Unlike market for shoes or groceries, Unlike market for shoes or groceries, competitors are prevented by copyright competitors are prevented by copyright from offering perfect substitutes.from offering perfect substitutes.

• Coordination and reputation makes it Coordination and reputation makes it hard for new entrant to attract top hard for new entrant to attract top quality articles. quality articles.

Elsevier Financial Elsevier Financial StatementStatement

• Elsevier reports revenue 2 billion Elsevier reports revenue 2 billion Euros in 2002. Euros in 2002.

• Claims to have 3d biggest internet Claims to have 3d biggest internet revenues, behind AOL and Amazon.revenues, behind AOL and Amazon.

• Reported profits equal 33.6% of Reported profits equal 33.6% of revenuerevenue. .

Why “only” 33 % profit Why “only” 33 % profit margin?margin?

• If they charge 5 times as much as non-profits, If they charge 5 times as much as non-profits, why aren’t Elsevier’s profits even greater?why aren’t Elsevier’s profits even greater?

• Smaller subscription bases, due to high priceSmaller subscription bases, due to high price• Rent dissipationRent dissipation

– Elsevier CEO got ~$2 million pay and $8 million in Elsevier CEO got ~$2 million pay and $8 million in shares this year.shares this year.

– New stock options of ~$32 million for top execs.New stock options of ~$32 million for top execs.

– Armies of lobbyists Armies of lobbyists

The Cost of Going OnlineThe Cost of Going Online

• In 1998 almost no journals were online. In 1998 almost no journals were online. In 2002, almost all were. In 2002, almost all were.

• Top non-profits $0.10/page in 1998 and Top non-profits $0.10/page in 1998 and $0.12 in 2002 --paper plus online.$0.12 in 2002 --paper plus online.

• Top for-profits $0.79/page in 1998 and Top for-profits $0.79/page in 1998 and $0.89 in 2002 --paper plus online.$0.89 in 2002 --paper plus online.

• ConclusionConclusion: Going online cost about : Going online cost about $.02 per page. Prices of for-profits are $.02 per page. Prices of for-profits are not determined by costs.not determined by costs.

Pricing of Electronic Pricing of Electronic Journals Journals

• Electronic distribution allows new Electronic distribution allows new pricing methods not available with pricing methods not available with paper.paper.– University-wide site licensesUniversity-wide site licenses– Price discrimination by size of Price discrimination by size of

universityuniversity– Bundling of Journals with all-or-Bundling of Journals with all-or-

nothing pricingnothing pricing– Consortium pricingConsortium pricing

A Publisher’s View A Publisher’s View

““So, we should have models where we make a deal with So, we should have models where we make a deal with

the university, the consortia or the whole country, where the university, the consortia or the whole country, where for for

this amount we will allow all your people to use our this amount we will allow all your people to use our

material, unlimited… And, basically the price then depends material, unlimited… And, basically the price then depends

on a rough estimate of how useful is that product for you; on a rough estimate of how useful is that product for you;

and we can adjust it over time. It is a principle, which, and we can adjust it over time. It is a principle, which,

in my view, is not immoral.” in my view, is not immoral.”

From a speech by Derk Haank, CEO, Elsevier ScienceFrom a speech by Derk Haank, CEO, Elsevier Science

A Librarian’s ViewA Librarian’s View““In the Big Deal, libraries agree to buy electronic access to In the Big Deal, libraries agree to buy electronic access to all of a commercial publisher's journals for a price basedall of a commercial publisher's journals for a price basedon current payments to that publisher, plus some on current payments to that publisher, plus some

increment.increment.Academic library directors should not sign on to the Academic library directors should not sign on to the Big Deal or any comprehensive licensing agreementsBig Deal or any comprehensive licensing agreementswith commercial publishers…with commercial publishers…You read that right. You read that right. Don't buy the Big DealDon't buy the Big Deal……the Bigthe Big Deal serves only the Big Publishers.Deal serves only the Big Publishers. “ “

Ken Frazier, head librarian, University of Wisconsin.Ken Frazier, head librarian, University of Wisconsin.

An Economist’s ViewAn Economist’s View

• ““Morality” of price discrimination and Morality” of price discrimination and bundling is not the issue. bundling is not the issue.

• Benefits and costs to the academic Benefits and costs to the academic community is what concerns us.community is what concerns us.

• Profitability is what concerns Profitability is what concerns

commercial publishers.commercial publishers.

Benefits of Price Benefits of Price Discrimination and Discrimination and

BundlingBundling• Price discrimination allows access for Price discrimination allows access for

small colleges, poor countries.small colleges, poor countries.• Bundling allows big universities to get Bundling allows big universities to get

everythingeverything a publisher produces. a publisher produces.• Cost of access for extra subscriber Cost of access for extra subscriber

is nearly zero, so this improves is nearly zero, so this improves efficiency.efficiency.

Benefits for Whom?Benefits for Whom?

• Profit maximizing seller can charge close Profit maximizing seller can charge close to total willingness to pay of to total willingness to pay of university users, leaving no net university users, leaving no net benefit to subscribers.benefit to subscribers.

• This is worse for users than outcome if This is worse for users than outcome if libraries refused to buy overpriced site libraries refused to buy overpriced site licenses and forced seller to deal licenses and forced seller to deal with one user at a time.with one user at a time.

Price discrimination by Price discrimination by non-profitsnon-profits

• With non-profits, a different story.With non-profits, a different story.• Price discrimination & bundling improve Price discrimination & bundling improve

efficiency and access.efficiency and access.• Library site licenses provide revenue to Library site licenses provide revenue to

cover costs and if properly priced, allow cover costs and if properly priced, allow access to nearly everyone.access to nearly everyone.

• Probably should be priced at marginal cost Probably should be priced at marginal cost (free?) to small libraries.(free?) to small libraries.

Bundling and Entry Bundling and Entry DeterrenceDeterrence

• Elsevier’s bundling policy deters potential Elsevier’s bundling policy deters potential entrants.entrants.

• Elsevier prices rise about 7% per year. Elsevier prices rise about 7% per year. Library budgets grow less rapidly. Library budgets grow less rapidly.

• This leaves no room in budget for new This leaves no room in budget for new cheaper journals unless library drops cheaper journals unless library drops entireentire Elsevier collection.Elsevier collection.

What should libraries do?What should libraries do?

• Pay attention to prices per use.Pay attention to prices per use.• Decentralize some decision-making to Decentralize some decision-making to

department levels. department levels. • Replace “allocation by whining” with Replace “allocation by whining” with

real monetary tradeoffs.real monetary tradeoffs.• Money saved by dropped subscrips could Money saved by dropped subscrips could

subsidize pay-per-view or new subsidize pay-per-view or new journals.journals.

Collective Action?Collective Action?

• Acting jointly, libraries should simply refuse Acting jointly, libraries should simply refuse to buy site licenses for much above to buy site licenses for much above average cost. average cost.

• Overpriced journals would have to Overpriced journals would have to either cut prices or lose readers, authors, either cut prices or lose readers, authors, and editors. and editors.

Individual BargainingIndividual Bargaining

• With price discriminating publishers, With price discriminating publishers,

bargaining becomes possible. bargaining becomes possible. • There are mutual gains, don’t let the There are mutual gains, don’t let the

publisher get them all.publisher get them all.• To bargain well, you must be “prepared To bargain well, you must be “prepared

to walk.” to walk.”

Bargaining tips,Bargaining tips,Elsevier Elsewhere? Elsevier Elsewhere?

• Determine what you’ll do if Determine what you’ll do if bargaining breaks down. bargaining breaks down.

• If no deal, outcome isn’t “No access”. If no deal, outcome isn’t “No access”. – Individuals can subscribe. Individuals can subscribe. – Pay-as-you-go access to journals is possible. Pay-as-you-go access to journals is possible. – Money saved on subscriptions can go to Money saved on subscriptions can go to

departmental “Elsevier Elsewhere funds.”departmental “Elsevier Elsewhere funds.”• Set a reservation price that you like much Set a reservation price that you like much

better than the no deal option. better than the no deal option.

Bargaining Bargaining • Remember publisher would much Remember publisher would much prefer a Big Deal to dealing with prefer a Big Deal to dealing with customers one at a time.customers one at a time.• Stick to your guns. Refuse to pay more Stick to your guns. Refuse to pay more

than your reservation price. than your reservation price. • Enlist faculty support.Enlist faculty support.• Consider hiring a bargaining expert. Consider hiring a bargaining expert.

What should scholars do?What should scholars do?

• Refuse to referee for overpriced journals.Refuse to referee for overpriced journals.• Encourage cheap journals. Encourage cheap journals.

– Referee for them.Referee for them.– Cite them. Cite them. – Publish in them.Publish in them.

• Encourage professional societies to expand their Encourage professional societies to expand their journals and start new ones.journals and start new ones.

• Keep copyright on your own work and keep Keep copyright on your own work and keep allall of your papers on the web.of your papers on the web.

ReferencesReferences• Free Labor for Costly Journals, by Ted Bergstrom— J

Economic Perspectives, Fall 2001 • Comments on above article JEP Fall 2002. • At http://www.econ.ucsb.edu/~tedb/Journals/sitelicense.html

– Do university site licenses benefit the academic Community? by Carl Bergstrom and me

– The Librarian’s Dilemma, by Kenneth Frazier, from D-Lib Magazine– Is Electronic Publishing Being Used in the Best Interest of Science: The

Publisher's view Speech by Derk Haank.