|With Reed Elsevier's acquisition of Harcourt cleared by the antitrust
authorities, and online sales now approaching $2.8 billion this year, Elsevier
Science chairman Derk Haank says in this interview that he's looking forward
to a period of stability. But with an increasingly hostile customer base,
and new user-driven initiatives aimed at wresting peer-reviewed literature
from the hands of com-mercial publishers, he cannot afford to rest on his
Q Can you start by saying something about yourself
and your role in Elsevier Science?
A I joined Elsevier in 1986, before the merger
with Reed. I spent 5 years in science and then 8 years in business-to-business
publishing. In 1998 I returned to science, where I am now in charge. This
consists of all of Elsevier Science plus the parts of Harcourt that were
scientific and medical, including Academic Press, W.B. Saunders, and Churchill
Livingstone. Currently we have around 6,000 people. I am also on the board
of Reed Elsevier.
Q And before you joined the company?
A I was a researcher at university for 8 years,
in economics. I specialized in industrial organizations, including industry
structure, barriers to entry, economies of scale, and so on.
Q Reed Elsevier's recent acquisition of Harcourt
was referred to the antitrust authorities in both the U.S. and the U.K.
Did they impose any constraints on Reed Elsevier when they finally cleared
A No, there are no constraints. It was cleared
Q In the wake of the acquisition, how many journal
titles does Elsevier Science now own, and what share of the market is this?
A We have about 1,500 titles. The market share
depends on how you calculate it, but assuming around 8,000 titles overall,
we have some 20 percent of the market.
Q Why do you think the Harcourt acquisition was
A We are clearly bigger than our nearest competitor,
and the most dominant player in any industry tends not to be very popular.
People didn't like a lot of what they saw in the industry, such as high
pricesand I accept that we at Elsevier contributed to thatso they turned
Q In fact, journal-price inflation has been an
issue for the library community for some years now. What, in your view,
were the causes of this?
A Since the Second World War more funding has been
made available for research every year. The more research there is, the
more articles to be published. However, this was not reflected in library
budgets, so libraries were unable to subscribe to everything they wanted.
This forced them to make selections, and eventually start canceling titles.
At the same time journal prices were increasing each year, both to allow
for inflation, and because growing scientific output meant the journals
were increasing in size. Since we had to spread these costs amongst fewer
and fewer subscribers we got into a spiral of price increases. The higher
the price increase, the more cancellations there were. It was a Catch-22
Q Do you believe that libraries see it that way?
A I don't think they would disagree with me. The
question is: Could we have done something sooner?
Q And what is the answer?
A There was nothing in our behavior that made us
any different to anybody else in the industry, so it was a generic industry
problem. But yes, the scientific publishing industry could have done something
Q Some would disagree that Elsevier Science is
no different to any of its competitors. Georgia Institute of Technology's
Mark McCabe for instance.
A McCabe claimed two things: That our journal-price
increases had been higher than others, and that after mergers, prices go
up. The examples he gave were those of Pergamon, which is ours, and Lippincott,
which is Kluwer's. I cannot speak for Lippincott, but in the case of Pergamon
we proved that it was not so. It was purely the impact of exchange rates,
not Elsevier's policy.
Q Nevertheless, the idea of "exchange-rate profits"
is just as galling for users, isn't it?
A Let me be very firm on this: We are not in the
business of making exchange-rate profits. We don't control the exchange
rates, and we don't want to benefit from them. That is absolutely the policy.
The problem arose when, in the mid-'80s, the dollar took a beating, and
our American customers faced a 15-percent to 20-percent increase on top
of the annual inflation increase. We decided that that can't be right,
and began to price in three major currencies: the euro, the dollar, and
the yen. We then hedged ourselves in these three currencies, and made a
commitment to the market that no matter what happened with the exchange
rate there will never be more than a 10-percent price increase again.
Q To go back to journal-price inflation: What should
publishers have done to break the spiral to which you referred?
A We should have realized that although in the
short term it doesn't matter if you increase prices by 10 percent, and
then have 5 percent of your customers cancelleaving you with 5-percent
extra revenueit does damage you in the long run because your circulation
falls, and the visibility of the journal is diminished. So we should have
broken the spiral sooner.
A Maybe through partnerships with librarians. We
could, for instance, have limited the price increases in exchange for certain
commitments from libraries. However, this is a complicated issue. If we
had taken the lead on this, and our competitors had continued to increase
prices, we could have still had cancellations, since journals are canceled
across the board.
The long-term solution today, however, lies in converting people to
our electronic products, and then delivering a service where people say,
"Wow!" If we can do this, then the money that our customers spend with
us will be perceived as reasonable.
Q I have had a lot of people e-mail me suggesting
questions for you. Many wanted to know how the IDEAL online service will
be integrated into ScienceDirect following the Harcourt purchase.
A Technically we will integrate it as quickly as
possible, using the ScienceDirect platform. The contractual situation is
more difficult, since the two services have similar but slightly different
conditions and features. The biggest difference was that IDEAL had a purchase-by-the-article
option that ScienceDirect didn't. We thought this was a neat option, so
we have expanded it to the whole offering.
So technically and commercially the business models are not dissimilar.
However, the average customer now has two contracts: one with IDEAL and
one with ScienceDirect. So we will work with each individual customer to
see how we can merge it into one contract, either now or when one of the
contracts expires. In the short term, however, there will be no change.
Q Presumably when the IDEAL contract expires there
will be no choice but to sign a ScienceDirect contract?
A Right. It will be an Elsevier Science contract.
Q Users tell me that under the IDEAL arrangement
they paid 15-percent extra andgot access to everything, whereas with Elsevier
they pay 15-percent extra and get access to only a 4-year archive.
A I think it is widely agreed that the ScienceDirect
conditions are much more favorable than the IDEAL conditions. Lower cost
and more access. In fact, our surcharge is lower than IDEAL's. Moreover,
with IDEAL you really only had one option: You had to buy the whole lotlock,
stock, and barrel. With ours you can buy per journal, per group of journals,
or everything. So you can choose, and that is where we are changing the
IDEAL model. Users can now also subscribe to individual journals in IDEAL
rather than having only the "all you can eat" formula.
So really it is too good to be true for users. Certainly I have not
been informed of any complaint from any librarians that they feel it has
not worked out that way for them.
Q Perhaps they are all e-mailing me instead! The
messages I have received certainly imply a great deal of suspicion over
the way in which ScienceDirect pricing is arrived at. There is a feeling,
for instance, that different institutions, different consortia, different
groups of people from different states and different countries get different
deals. Couldn't there be more transparency?
A Right now we are in a migration process. Each
university is being migrated from a paper holding to an attractive electronic
holding. These are customized negotiations, so we may accommodate differences
around the edges and there may be small deviations here and there. But
this is done with very strict fixed elements that are applied across the
board. If there is one customer community in which everyone talks to each
other it is the library community, so we are not under the impression that
we can offer different conditions to different customers, and I believe
the process is transparent.
Q Yet one librarian who contacted me has been told
by Elsevier that his pricing for 2003 would be determined by a formula
based on 2002 usage, but that the formula has not been decided. That doesn't
sound transparent does it?
A I think he is mixing different signals, so let
me correct it. The situation is that a library starts with a current paper
holding, then switches into an electronic holding. It pays a small surcharge
for ScienceDirect functionality and as part of the deal, normally gets
a lot more access. On average, a library's holding will go up by almost
100percent. So we are talking about win, win. What will happen after the
initial contract period? God knows! Maybe that is what he meant.
Q Right. His point was that a number oflarge contracts
in the U.S. are coming up for renewal, and there is some uncertainty over
future pricing. What is this formula he was referring to?
A There is no formula. Every university that subscribes
to 500 titles pays, on average, a $500,000 annual subscription. Then, after
a 3-year initial contract, we sit down together and negotiate a new contract.
The conditions will not be materially different from the previous conditions
unless there is a good reason.
Q Is there a published price list?
A Like any industry, there is a published price
list. Of course, there are volume discounts and peculiar circumstances.
But there is a list price for the paper journals, and that comes with electronic
delivery via ScienceDirect at no extra charge. If you then want the full
ScienceDirect functionality, including all the linking and navigational
tools plus archival access going back a couple of years, you pay15-percent
Q Does this provide access to everything in ScienceDirect,
or just the titles in which print subscriptions are held?
A It gives you access to your own subscriptions.
If you want to expand access to the whole of ScienceDirect you pay an extra
surcharge. Again, there is a price list. In addition, you can buy subject
collections. So if you are a specialist university and you have 40 of the
60 chemical titles we would say, "How about taking the remaining 20 at
a considerable discount?" This would be something like 85 percent.
Q And how much does it cost for the backfile?
A There is a one-off fee. Depending on the number
of articles in the file this will vary from around $8,000 to $40,000.
Q How much does it cost a nonsubscriber to buy
a single article?
Q Is this the eChoice option announced earlier
A eChoice is a purchase option where customers
can electronically subscribe to a journal they did not previously subscribe
to at 90 percent of the print price.
Q Some fear that although electronic delivery brings
many benefits, as services like ScienceDirect get bigger and more functionality
is added, libraries will increasingly have to put more and more of their
budget into paying for these services, rather than buying books and other
items libraries need.
A On the contrary, the point about electronic publishing
is that while the total cost doesn't diminish, the marginal cost of delivery
is moving to the point of virtually nil. That is why it is possible in
switching from paper to electronic delivery to allow more access.
I would add that peopleincluding librariansprefer to forget that
electronic delivery reduces their costs too. Previously they were not able
to subscribe to everything they wanted, so they relied on photocopying and
interlibrary loan. There were also storage costs. Studies show that the
average library pays 40 percent over and above the subscription price in
cataloging and storage costs. While this provides no income for publishers,
it enormously increases the cost base of the library. With electronic delivery
these costs go away, since if everybody subscribes to everything, you don't
Q As you implied, although electronic delivery
all but removes distribution costs, the platform-development costs remain
and are often far from insignificant. I was reminded recently that Elsevier
spent a lot of money on its TULIP project, which was abandoned when the
Web took off.In effect, these costs were charged to your customers via
their subscriptions, weren't they?
A When they developed the airline industry they
didn't build a jumbo jet in one go. It started with the Wright Brothers,
and then you had various stages before you got to the jumbo jet. But let's
not be mistaken, we have invested $100 million in technological developments,
all of which we funded ourselves. I am not pleading poverty here, but at
the same time the margins at Elsevier Science have been decreasing.
Q Many are concerned that more and more scientific
literature is being acquired by an increasingly smaller number of commercial
publishers, including Elsevier Science. These companies end up owning research
that was paid for by the taxpayer, and which academicsvia their institutionsthen
have to buy back. Should we worry about this?
A That is an incorrect argument. Yes, research
is paid for by the taxpayer, but the taxpayer doesn't pay the cost of publishing.
Obviously a different model could be used, and I would be happy to change
the model if everybody wanted it. But the costs don't go away if you change
the model, and you still have to recoup them somehow.
Q Might open archiving prove a viable alternative
model? Certainly February's announcement that George Soros' Open Society
Institute is giving $3 million to the Budapest Open Access Initiative (BOAI)
suggests that it is becoming an increasingly popular movement.
A We consider open archiving to be in line with
our policy of open linking, which we have always supported. As a founding
father of CrossRef, we realize that other initiatives like open archiving
could be another means to the same end.However, while it is an interesting
development, the jury is still out on whether it will materialize, and
what impact it will have. If it develops into a standard, we will comply
Q But the BOAI goes beyond open archives alone.
There are also plans to support alternative journals in the manner of SPARC,
A If people feel unhappy and want to develop alternatives,
that is always possible. But is it wise? One of the SPARC initiatives is
Letters, which we're told is a lot cheaper than our Tetrahedron
Letters. But since the new journal is a third of the price and a third
of the size, this is not surprising. In fact, on a cost-per-article basis,
including electronic delivery, our publication is cheaper than Organic
Letters. So something is wrong there.
Q You imply that open archiving is the same as
CrossRef, but CrossRef assumes that linked articles are all behind a financialfirewall.
Open archiving, by contrast, depends on researchers self-archiving their
articles on the Web so that anyone can access them at no cost. Supposing
an academic wants to publish a paper in one of your journals, but to self-archive
it on the Web as well. Would that be acceptable to Elsevier?
A Yes. You can put your paper on your own Web site
if you want. The only thing we insist on is that if we publish your article
you don't publish it in a Springer or Wiley journal, too. In fact, I believe
we have the most liberal copyright policy available.
Q Does it not worry you that people will choose
to access these articles for free via an open archive rather than pay to
access it through ScienceDirect?
A The way I see things developing is that more
and more of our customers will have access to the whole ScienceDirect database,
and they will find it much easier to use ScienceDirect than alternative
Q On the assumption that since it is the institution
that pays for ScienceDirect, the end-user gets free access anyway?
A Yes. The individual researcher is always part
of a university or a company. As such, everyone within the institution
willhave access to everything. What more would they want?
Q Nevertheless, that doesn't satisfy those who
argue that you are overcharging institutions for research that they gave
you in the first place, particularly now that many academics believe they
can publish their papers themselves on the Web.
A Exactlywith the emphasis on "think." The costs
don't go away because you start doing it yourself. On the contrary, I will
make you a bet that the costs go through the roof.
Q Looking to the future: There were rumors in the
press of renewed merger talks between Reed Elsevier and Wolters Kluwer.
Where do we go from here?
A Nowhere is the answer. Elsevier Science is probably
out for any major expansion on the academic journal list. That is the reality.
So we are not interested in pursuing Wolters Kluwer, Springer, Blackwell,
Q So you are ruling out the possibility of any
A Yes, unless there is a change in the industry.
You need a certain size in electronic publishing, and we think we are now
big enough to justify all the investments and to play a major role, so
there is no need for us to get any bigger.
Q In the meantime, Reed Elsevier is still attracting
a lot of hostility from its own users. What can you do about this?
A That is the question that keeps me awake at night.
This is an industry with very intelligent people, but who have very long
memories. Consequently, it will take many, many years of consistent behavior
from us and our competitors before the distrust goes away.
This is frustrating because I feel we have done a lot to help academic
publishing. In the paper world we came in and successfully started new
journals and developed new fields in an environment where losses had been
made for tens of years.
And in the electronic field we have taken the lead in investing very,
very heavily. As I say, I am not pleading poverty, but I think we are now
using electronic publishing in the interests of developing new business
models that will eventually allow every researcher access to everything
he wants atin my opiniona reasonable fee.
Richard Poynder is a U.K.-based freelance journalist who specializes
in intellectual property and the information industry. He writes for a
number of information publications, and contributes regularly to the London
Times. His e-mail address is email@example.com.