Information Today
Volume 19, Issue 4 April 2002
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IT Interview
Not Pleading Poverty
Elsevier Science chairman Derk Haank addresses industry and end-user issues
by Richard Poynder

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 laurels.

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 it?

A No, there are no constraints. It was cleared completely.

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 so controversial?

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 prices—and I accept that we at Elsevier contributed to that—so they turned on us.

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 situation.

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 earlier.

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 cancel—leaving you with 5-percent extra revenue—it 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.

Q How?

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 lot—lock, 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 extra.

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?

A $20.

Q Is this the eChoice option announced earlier this year?

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 people—including librarians—prefer 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 incur them.

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 academics—via their institutions—then 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 with it.

Q But the BOAI goes beyond open archives alone. There are also plans to support alternative journals in the manner of SPARC, aren't there?

A If people feel unhappy and want to develop alternatives, that is always possible. But is it wise? One of the SPARC initiatives is Organic 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 methods.

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 Exactly—with 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, or whomever.

Q So you are ruling out the possibility of any new acquisitions?

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 at—in my opinion—a 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 Financial Times. His e-mail address is richard.poynder@journalist.co.uk.

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