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Almost every day brings news of more retrenchment in the not-for-profit scholarly publishing sector.  The Rice University Press has been shut down, as has the Press at the University of Scranton; journals from professional societies are being hit hard by cutbacks in library funding; and the communication and certification regime that relies on such publications is increasingly under pressure.  There is no magic bullet to counter this trend — not open access, as some contend, or even, more fancifully (but put forth by some in all seriousness), a tax on the rich to support library materials budgets.

If not-for-profit publishers are going to survive and even thrive in the coming years, they will have to develop carefully focused plans and implement them with care.

It should be noted that a challenging economic environment affects commercial as well as not-for-profit publishers, but it’s an easier slog for a commercial publisher because commercial publishers pray only to Mammon, but not-for-profits must genuflect to Athena as well.  Athena is the harder taskmaster. Mammon simply asks, Does it make money?  If it doesn’t, stop doing it.  Athena, on the other hand, demands that her acolytes look beyond the marketplace, and in that world beyond, the vision is not always crisp and clear.  Is this book important?  Well, how to measure that?  Will this article change the course of a field?  Perhaps that is a question better left to the Fates.

If every not-for-profit publisher had unlimited resources, acting in accordance with an organization’s cultural mission would be an enormous pleasure, but most not-for-profit publishers can barely rub two dimes together.  This makes the pursuit of the publisher’s mission treacherous at best, when Mammon comes to collect his debt.

To balance economic requirements with a cultural mission, not-for-profit publishers have to look at their assets and programs with a certain degree of granularity.  This is what it means to manage a portfolio.  Some elements of the portfolio may generate cash, some may consume it; some may be supported by an endowment, others may draw on the general operating budget of a parent institution; and of course some may be largely or even wholly supported by earned revenue.  It is unrealistic, however, to hope that all not-for-profit publishing activity can find a sufficient market to support the enterprise.  If earned revenue were such a sure thing, the commercial publishers would already be chasing that market.

The key thing about developing a portfolio strategy for a not-for-profit publisher is that some assets in the portfolio may lose money, some may make money, but in the aggregate the financial performance of the portfolio meets the requirements of the organization’s sponsor.  The obvious point to make here is that the more assets there are in the portfolio, the easier it is to strike a financial balance, as there are more opportunities to offset operating losses in culturally important segments.

Let’s explore this with a hypothetical university press.  The press has $10 million in annual revenues overall and operates at a deficit of $1 million, which the parent university makes up each year.  The press has books ($6 million), journals ($3 million), and a small distribution business, whose clients are other, smaller academic publishers; the fees on the distribution services come to $1 million a year.  (I know of no press that has a profile quite like this, but bear with me.)  The press director has been getting hints that the university administration would like to reduce or even eliminate that $1 million annual subsidy.  Where to find the money?

Analyzing the portfolio, the director finds that after taking all costs including overhead into account, the journals division makes $500,000 on its $3 million in sales, the distribution business makes $300,000 on its $1 million in revenue, but the book division loses $1.8 million on its $6 million in sales.  Mammon says, Cut, cut, cut the book business.  But Athena rightly says, Not so fast; these are important books and it is your mission to publish them — find a way.

This is a hard task for any press director.  The best way to proceed is:

  1. to assign different targets for each division (thus books may be permitted to lose money — up to a point — but distribution may be required to make money — the more, the better)
  2. to seek ways to optimize the performance for each division without compromising the organization’s mission
  3. to look for other areas of activity that could generate a surplus to help offset the loss in books

The management of a not-for-profit publisher must come up with policies about each component of the portfolio. I would suggest that mission-based organizations should take a hard line when it comes to components that are not cultural in nature.  Thus, for the example above, if a university press has a distribution business that does not reliably deliver a surplus, then it should go on the chopping-block.  Similarly, one might choose to look very hard at the trade book programs some scholarly publishers have created.  Do they make money?  Well, then let’s keep them.  But if they lose money, the question is whether such books are draining resources from other activities more central to the organization’s mission (e.g., the publication of scholarly monographs).

Let’s allow that what is “on mission” and “off mission” is not always self-evident. Some observers of the university press world decry regional publishing. Well, maybe yes, maybe no. If it generates a surplus, what’s not to like (assuming the books are not embarrassments)?  But even if they lose money, they might speak to other important constituencies. For example, a press associated with a public institution may want to publish books for the constituencies beyond the academy — taxpayers, for example.  In this scenario, regional publishing by a university press could be an act of institutional ambassadorship.

What not-for-profit publishers must come to realize is that they rarely have the luxury of managing a single business; rather they must manage a collection of businesses, a portfolio, and the operating and strategic requirements of each unit must be thought of differently.  This perhaps puts greater demands on managers in the not-for-profit sector than ever before, but no one said that the new era of publishing was going to be easier.

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Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.

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Discussion

4 Thoughts on "The Portfolio Strategy: Developing a Financially Sound Plan for Not-for-profit Publishers"

Often the financial situation could be improved simply by increasing prices – especially backlist prices.

Joe’s description of a portfolio strategy is an accurate account of how most university presses I am familiar with, including the one I directed for 20 years, actually conduct their business. I would affirm that regional publishing can be justified as an outreach activity within the overall mission of a public university, but even so, it is not as much a core activity as monograph publishing is and, at my press at least, we would not generally publish any regional books we did not think could at least break even and most we published expecting some profit. Similarly, while publishing scholarly journals can be construed as a core activity, we looked to our journals program to produce a healthy surplus to help underwrite the costs of publishing monographs. We rarely engaged in trade publishing (outside of regional publishing) because, for a smaller press, the risks of losing money were too great. There is an irony here that Joe misses, however, and it was noted by the Ithaka Report (2007), which pointed out the Catch-22 for presses that are too financially successful and thus viewed as not needing support by their parent universities (or, worse, viewed as a cash cow).

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