Paying twice.

Photographer: Alfredo Sosa/Christian Science Monitor/getty Images

Academic Publishing Can't Remain Such a Great Business

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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Publishers of academic journals have a great thing going. They generally don't pay for the articles they publish, or for the primary editing and peer reviewing essential to preparing them for publication (they do fork over some money for copy editing). Most of this gratis labor is performed by employees of academic institutions. Those institutions, along with government agencies and foundations, also fund all the research that these journal articles are based upon.

Yet the journal publishers are able to get authors to sign over copyright to this content, and sell it in the form of subscriptions to university libraries. Most journals are now delivered in electronic form, which you think would cut the cost, but no, the price has been going up and up:

This isn't just inflation at work: in 1994, journal subscriptions accounted for 51 percent of all library spending on information resources. In 2012 it was 69 percent.

Who exactly is getting that money? The largest academic publisher is Elsevier, which is also the biggest, most profitable division of RELX, the Anglo-Dutch company that was known until February as Reed Elsevier. Here are its results for the past decade:

RELX reports results in British pounds; I converted to dollars in part because the biggest piece of the company's revenue comes from the U.S. And yes, those are pretty great operating-profit margins: 33 percent in 2014, 39 percent in 2013. The next biggest academic publisher is Springer Nature, which is closely held (by German publisher Holtzbrinck and U.K. private-equity firm BC Partners) but reportedly has annual revenue of about $1.75 billion. Other biggies that are part of publicly traded companies include Wiley-Blackwell, a division of John Wiley & Sons; Wolters Kluwer Health, a division of Wolters Kluwer; and Taylor & Francis, a division of Informa.

The great challenge of the Internet Age for media companies has been figuring out how to make back the money they spend on content. The ability to effortlessly copy and disseminate digital files has upended some media sectors -- music, most obviously -- and challenged almost all of them. Media companies in the academic publishing business have so far been able to get universities to both produce their content and buy it from them. Again, what a great business! But it's also clearly an endangered one if the universities were ever able to get their collective act together.

The history here is that most early scholarly journals were the work of nonprofit scientific societies. The goal was to disseminate research as widely as possible, not to make money -- a key reason why nobody involved got paid. After World War II, the explosion in both the production of and demand for academic research outstripped the capabilities of the scientific societies, and commercial publishers stepped into the breach. At a time when journals had to be printed and shipped all over the world, this made perfect sense.

Once it became possible to effortlessly copy and disseminate digital files, though, the economics changed. For many content producers, digital copying is a threat to their livelihoods. As Peter Suber, the director of Harvard University's Office for Scholarly Communication, puts it in his wonderful little book, "Open Access":

Imagine a tribe of authors who write serious and useful work, and who follow a centuries-old custom of giving it away without charge. … If authors like that exist, at least they should take advantage of the access revolution.

These authors are of course scholars -- university professors, for the most part -- and in the early 1990s some of them began putting their papers on the Internet for all to read, under the slogan of open access. One approach, pioneered by physicists, was to deposit versions of their journal articles in an online, open-access archive; this is now known as "green OA." The other was to create new open-access journals; this is called "gold OA."

While this open-access movement was getting going, the traditional journal business (Suber calls it "toll-access publishing") went through a consolidation wave. Bigger publishers bought smaller ones, and used their increased bargaining power (composed largely of their ability to demand that libraries subscribe to large bundles of different journals) to extract more money from libraries. Librarians complained, and had to cancel some subscriptions, but generally kept paying. At the exact moment that technology was making it possible for academic research to be disseminated for free, toll-access publishers were making it harder and more expensive to get to.

About a decade ago, the universities and funding agencies began fighting back. The National Institutes of Health in the U.S., the world's biggest funder of medical research, began requiring in 2008 that all recipients of its grants submit electronic versions of their final peer-reviewed manuscripts when they are accepted for publication in journals, to be posted a year later on the NIH's open-access PubMed depository. Publishers grumbled, but didn't want to turn down the articles.

That same year, Harvard's Faculty of Arts and Sciences adopted a similar rule, albeit one that gave professors the right to waive the requirement if a publisher demanded it, and the rest of the university's schools have since followed suit. About 80 universities around the world now have Harvard-style open-access policies, Suber says, and another 440 have other (usually weaker) open-access rules. And at Harvard at least, fewer than 5 percent of professors have asked for waivers.

Elsevier in particular has been aggressive about demanding that professors take down published papers not covered by these agreements, and Suber says publishers still lobby against attempts to extend the NIH rules to other government agencies. But in general the industry has been learning to live with green OA.

Meanwhile, open-access journals have become more common, too. There are now 10,697 peer-reviewed open-access journals -- accounting for more than a third of all peer-reviewed journals. Since buying open-access BioMed Central in 2008, Springer has actually been the world's biggest open-access journal publisher. For-profit open-access journals make money by charging authors submission fees, which universities and funding agencies often pay. But that doesn't generate anything like the profit margins that toll-access journals do.

Open access is clearly the future of academic publishing, but it's still not clear when exactly that future will fully arrive. University administrators would like it to come sooner rather than later, so their professors' research is more widely disseminated and they can stop blowing so much money on journal subscriptions. But they can't band together to bargain down toll-access journal prices because of antitrust concerns, and they can't force professors to publish in open access journals because you can't force professors to do anything. Universities also want their professors to publish in the most prestigious journals, and most of those are still controlled by the big publishers.

For the big publishers, meanwhile, the choice is between positioning themselves for the open-access future or maximizing current returns. In its most recent annual report, RELX leans toward the latter while nodding toward the former:

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 alternative business models to address the needs of customers and researchers.

Who exactly expects paid subscriptions to remain the primary distribution model? Well, RELX shareholders, for one: The company's share price is up 100 percent during the past five years and is now near its all-time high. One of these days, I would guess, they are going to be sorely disappointed.

(Corrects name in 13th paragraph of article published Nov. 3 to Harvard's Faculty of Arts and Sciences, not Harvard's College of Arts and Sciences.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net