Image created by Yael Fitzpatrick. Photo from jenni from the block on Flickr
Image created by Yael Fitzpatrick. Photo from jenni from the block via Flickr

As the season turns to autumn I find myself looking back over what seems a long summer of bustle and enterprise, fueled by the energy of long days and luxuriously temperate weather. This summer also witnessed a commotion of travel, with holidays, client visits, and a whirlwind tour of professional conferences.

In sitting down to organize the jumble of notes from the many conferences, one phrase stuck out. At the 36th Annual Meeting of the Society for Scholarly Publishing, I moderated a session with Jan Velterop (CEO of Academic Concept Knowledge), Toby Green (Head of Publishing at OECD), and Susan Hezlet (Publisher of the London Mathematical Society) on using “freemium” business models as an alternative to the common “author-pays” (or Gold OA) model for open access publishing.

During this session, Jan Velterop used the term “peak subscription” (as in “peak oil”) to describe the current market context for STM and scholarly journal publishing. The phrase neatly captures what is arguably the most important trend – a sea change – in STM and scholarly publishing today.

Since the late 1990s there have been two drivers of growth in STM and scholarly publishing:

  • Site Licensing – Including converting institutional subscriptions to site licenses, optimizing pricing tiers, and rolling up content assets into the “Big Deal” and other packages.
  • Global Expansion – Selling the aforementioned site licenses to institutions throughout the world, expanding into regions such as China, India, Eastern Europe, the Middle East, and South America where STM and scholarly publishers, most of whom are based in North America and Western Europe, have heretofore had limited customer bases.

These activities have proven successful for publishers, driving growth (in some cases, double-digit growth) for nearly two decades. These activities have been good for institutions and their faculty and students as well, providing more people access to more content than ever before at ever-diminishing costs (when measured on a cost per use basis).

As successful as these activities have been, however, we appear to be nearing, if not a peak, at least a plateau. While per-use costs have decreased, absolute prices have increased. This increase is due to the ever-increasing volume of content being published. Institutional library budgets have not, however, kept pace with the growth in global research output. The institutional marketplace is perhaps becoming, as Joe Esposito argues, a zero-sum game.

At the same time, institutional market penetration is nearing saturation for many publishers. There are only so many institutions in the world to sell site licenses to, and the sales forces that publishers have built (or contracted with) have been effective. Yes, there will be some additional growth in emerging markets, but nothing like the global expansion in licensing that occurred over the last fifteen years.

This does not mean that the site license or the Big Deal is going anywhere – the benefits for all parties remain too great. The Big Deal will continue to be renewed, providing libraries with large volumes of content and (some) publishers with incremental revenue growth. The key word here being incremental. We have reached the point where site licensing is likely to cease being an engine of significant growth for most publishers.

So the question is, where is the growth going to come from?

In surveying the publishing landscape, publishers appear to be pursuing three growth strategies:

  1. Growing Market Share. With library budgets lagging research output and the global marketplace nearing saturation, increasing your revenues increasingly means taking revenues away from someone else. In this zero-sum landscape, the stakes are raised ever higher for the Big Deal. The biggest of the Big Deals captures the largest slice of revenue. Publishers offering such deals will continue to add content, especially must-have society titles. Along with society additions, publishers will continue to develop new “daughter” titles associated with their own premium brands and will increase their use of cascading peer review strategies to flow papers to these titles.
  1. Developing New Revenue Streams. The most notable new revenue stream is, of course, the article-processing charges (APCs) associated with Gold OA titles. APCs often come from sources other than the library, including other areas of the institution as well as research funders. Gold OA allows publishers to continue to grow a product category in which they have existing economies of scale (e.g. composition, workflow systems, platform hosting), while at the same time opening up revenues from new sources.
  1. New Product Development. By this I mean development of new product categories beyond journals and books. Most prominent here are digital workflow and data products as such products are often licensed using institutional budgets outside the library. Additionally, publishers can often make compelling business cases for licensing workflow and data products that either boost productivity or improve work quality (or ideally, both). Examples of such products, which often combine software and content, include clinical decision support tools (McGraw-Hill’s ClinicalAccess, Wolters Kluwer’s UptoDate, American College of Physicians’ Smart Medicine), document sharing tools (Colwiz, Elsevier’s Mendeley), analytics tools (Elsevier’s SciVal, JBJS’s SocialCite and PRE-val, Digital Science’s Altmetric), board review and maintenance of certification products (McGraw-Hill’s USMLE Easy, American Academy of Pediatrics’ PREP, American College of Chest Physicians’ SEEK), and many others.

The first strategy – growing market share – is a defensive one that any publisher with a strong market position must attend to. The vast majority of revenues in the STM and scholarly publishing industry are derived from subscription products – products and revenues that are not going away and, in fact, are likely to continue to grow at a modest clip. But revenue gains are likely to be unevenly distributed and advantages lie with those organizations with the largest portfolios and/or “must-have” brands.

The second strategy – developing new revenue streams – is (to use management consultant speak) a “no brainer.” Gold OA means new revenue sources without having to incur the risk of entering a new product category. Publishers can continue to leverage the economies of scale, workflows, technologies, and talent they have developed in publishing subscription products, bringing these to bear for Gold OA titles. This is essentially a product-extension strategy, employing existing capabilities and delivery systems to capture new revenues with relatively modest levels of investment.

It is important to note, however, that revenues from APCs are miniscule, accounting, according to Outsell, for approximately 1% of STM industry revenues or just over 2% of the journals market excluding society memberships (see Outsell’s Open Access: Market Size, Share, Forecast, and Trends report, which you can download free here courtesy of the Copyright Clearance Center). This figure should serve as a caution for those who assume APCs will replace or match subscription revenues in the foreseeable future. It also underscores how nascent open access publication models remain, with long-term funding for APCs uncertain. That said, the growth rate for Gold OA is much higher than that of subscription products (albeit starting from a much lower base). Outsell projects open access revenues to grow at a CAGR of 27% from 2012 to 2015 across the industry. Growth rates for subscription products are meanwhile hovering in the mid-to-low single digits. Given the low level of investment required, the ability to capture revenues from new sources, and the growth rate, this strategy is increasingly being viewed as an opportunity for many organizations.

The third strategy – new product development – is more complex, costly, and in many ways more risky, but the rewards are also potentially greatest. Successful workflow and data products can generate high margins, create deeper engagement with users, and often boast high rates of renewal. It is also difficult to compete with organizations with entrenched workflow or data products as such products are often integrated into other systems and processes. This strategy, however, requires making relatively substantial investments in products that may or may not prove successful. Such products may not be able to leverage any existing economies of scale and may require new approaches to marketing and new sales channels. Further, the techniques and skills required to be successful in forging new (to the organization if not the market) product categories are often different than those employed in product line extensions. Because of these complexities publishers are creating entirely new “innovation centers” focused on such products, the most prominent being Macmillan’s Digital Science.

These strategies are not mutually exclusive and in fact most publishers, large or small, will want to consider all three. Larger publishers, of course, have an advantage with regard to growing market share and they bring economies of scale to Gold OA publishing. But they do not hold all the cards with regard to OA publishing. Open access publishing is a competition for authors, and society publishers are often closer to their member authors than a commercial house might be. This area of the market (Gold OA) remains so nascent that it is too soon to tell which organizations and organizational strengths will result in long-term competitive advantage.

And while commercial publishers can often make larger investments in R&D related to the development of digital workflow and data products than society publishers, this should not dissuade society publishers from pursuing this strategy (and I say “often” not “always” as there are many examples of professional associations sitting on substantial reserves that can used to fund such investments). There are examples of successful workflow and data products from professional societies, who are in an excellent position to anticipate the workflow needs of their members. Being smaller can, in some cases, have advantages.

Each organization will need to assess their existing portfolios and determine the most appropriate path forward with regard to each of the above strategies. In some cases, product lines can even shift between strategies. Nature Communications, for example, was originally launched as a hybrid OA/subscription product in support of a market share growth strategy. Just last week, however, Nature Publishing Group announced it was shifting the publication (which has been successful in commanding relatively high APCs) to a Gold OA model supporting a new revenue sources strategy.

While there are certain to be examples of organizations that focus successfully on only one of these strategies, most publishing concerns will pursue diversification and the hedging of risk that comes with it. Managing the product pipeline and the level of investment associated with each of these strategies will be the great challenge of organizational leadership in the coming decade.

Note: Thanks to PH for thoughtful comments and edits and YF for graphics support.

Michael Clarke

Michael Clarke

Michael Clarke is the Managing Partner at Clarke & Esposito, a boutique consulting firm focused on strategic issues related to professional and academic publishing and information services.


21 Thoughts on "Peak Subscription"

Good post, and it sparked a few additional thoughts. The lower growth rates for the much, much larger subscription business still produce far more cash than higher growth rates in APCs. For publishers with large subscription businesses, a 2% growth on $100,000,000 is far better on a cash basis than a 20% growth rate on a $50,000 line item. Profit is an opinion; cash is a fact.

Also, recently, the library market has been rebounding (see for a recalculation of Elsevier’s fate with OA for some interesting reading on this topic and others), but we continue to face the problem that the larger commercial publishers are positioned to reap most of the rewards from better library budgets and from OA growth.

Being smaller can have advantages, but it only gets you so far. At some point, being small means being small — poorly funded, easily outspent, with limited marketing and sales capabilities, unable to negotiate favorable contracts, etc. “Peak subscription” can also be a driver for consolidation, through contract publishing, acquisitions, or mergers. This is another rational response not mentioned here, and I believe one that fits many market trends.

Kent’s last thought, in passing, is worth serious consideration:
“Peak subscription” can also be a driver for consolidation, through contract publishing, acquisitions, or mergers.

Lurking in the background is a small movement stirring, the use of other publishing venues that can/may prove acceptable for promotion and tenure, particularly with the growth of social media, not all in the trivial/populist domain. A related area is a move more into the lay reader market which Nature and others have done successfully. This latter could compete with Gold OA for usage and a subscription form of revenue streaming.

Sitting in the background with “Big Data” are sophisticated search and aggregate engines that can parse down to words and phrases. While publishers are providing this across their journals, Libraries should be able to go across publisher journals for their readers.

Some of the ideas mentioned in the article still see a firewall around their aggregate bundled publications. This is the same issue with which academic institutions are just coming to grips. Most of the ideas above are short/intermediate options which need means testing against “possible, preferable, preventable” futures, longer term

Yup – all good points. In addition to the low existing base, it notable in the Outsell report that although the growth rate for APCs is much higher than for subscriptions (though, as you note, the absolute dollars associated with that growth are much lower), that growth rate has been slowing from 34% in 2012 to a projected 24% in 2014. Still impressive but it may also signal that Peak APC is not as distant as some may assume.

Thanks for mentioning consolidation – agree it is rational (and likely) response to Peak Subscription and would fall under the first strategy (growing market share) described above.

Pursuing growth is certainly important but it is also important that leveling off after a long period of sustained growth is potentially disruptive for an organization. Growth gets built into an organization in many subtle ways. If the industry is leveling off then management should be analyzing that potential, in addition to trying to keep on growing. In particular, what has growth been funding?

This analysis, which strikes me as right on the money, applies to journal publishing. It would be interesting to know what the future holds for scholarly book publishing. Do all three of these strategic approaches exist for books as well, and in what ways and with what potential for success?

My library has begun canceling subscriptions and providing individual articles on demand. Since this can be done in near real time it is a good substitute for the long tale part of the content we wish to provide. We are saving considerable amounts in some cases. You can buy a lot of $30 articles when you cancel a $10,000 subscription. Obviously this doesn’t work for all titles, but it does for a surprising number. If more libraries move jun this direction, this might constrain subscription cost increases. We also let the users know what we are paying so they can at least to some extent take price into account.

These activities have been good for institutions and their faculty and students as well, providing more people access to more content than ever before at ever-diminishing costs (when measured on a cost per use basis).

Careful — although the word “cost” appears in the phrase itself, cost-per-use is not a cost measurement. It’s a value measurement–it describes whether or not the library got good value (as measured by real-world usage) for the money it spent on a subscription or package. But cost is not value, and value is not what determines the sustainability of a subscription. What determines the sustainability of a subscription is its actual cost (i.e. price) in the context of budget. A very low cost-per-use may indicate that a particular subscription represents a great value, but if the price is higher than the library can sustain, it will be canceled regardless of its great value. In other words, declining cost-per-use is not the same thing as declining cost.

To invoke my favorite analogy: you may offer me a brand-new Rolls Royce for $25,000, and we can both agree that this represents a fantastic value for the money. But if I only have $20,000 to spend on a car, the value represented by your offer is irrelevant. In the context of library subscriptions, this applies a little bit differently, since it’s always at least theoretically possible to cancel one subscription to make room in the budget for another one that is of greater value. The problem is that, in most academic libraries, we’ve now already canceled the lower-value subscriptions, and the ones that are left all tend to offer a pretty high value (as measured by cost-per-use).

Yes, but what if having a Rolls was vitally important to keeping your celebrated mechanical engineering professor who is considering a departure to a rival university? Or attracting students specializing in European Luxury Car Studies?

At a certain point, every organization must make tradeoffs based on an organization’s strategic objectives. A university may decide to reallocate a small portion of the money it spends on groundskeeping to increase its library budget if it decides that its European Luxury Car Studies program is more important than repaving the campus sidewalks.

You are representing a the view of the library where there is a fixed budget, but really the budget is not fixed as the university can make tradeoffs if it so chooses.

Of course, given the competition for undergrad tuition dollars, many universities have made the strategic decision to focus more on groundskeeping and rec centers and new dorm rooms, perhaps at the cost of library acquisitions… it is always good to know where one stands in the priority list.

Your point about value vs cost is well taken but ultimately the analogy breaks down as a Rolls is a single physical good whereas a site license is a bundle of goods and services. The better analogy is probably to look at where Rolls Royce (the part that isn’t owned by BMW) makes all its money, which is in service contracts for airplane engines. Let’s say a university has a fleet of planes it uses for research (atmospheric, arctic, oceanography, etc.). The faculty fly around doing various research and Rolls services the engines. Rolls Royce works on getting more and more efficient so they are actually able to reduce the cost per flight of servicing. But yet each year the price of the service goes up because the faculty are flying more because they are doing more research and also all those undergrads want to come along so they have to take more trips. What do you do in that scenario? Tell the faculty to fly less? Come up with strategies to better consolidate research flights (PDA)? At a certain point the university must decide whether it reduces its flight-related research or, if that is important, it reallocates money from elsewhere.

Another imperfect analogy (as all analogies are, by definition) but the the point is we are not talking about physical goods but rather a bundle of goods (articles/books) and services (hosting and delivery) that changes from year to year (in volume and in features/functionality).

Yes, but what if having a Rolls was vitally important to keeping your celebrated mechanical engineering professor who is considering a departure to a rival university? Or attracting students specializing in European Luxury Car Studies?

This is a situation we deal with all the time. To switch back to the real world from the analogy, the answer is that we end up canceling the journal that someone else needs–because regardless of the value presented by that other journal (even as represented by a very low cost-per-use), we can’t pay both invoices with our limited budget.

You are representing a the view of the library where there is a fixed budget, but really the budget is not fixed as the university can make tradeoffs if it so chooses.

No, I’m representing the view of a library where there is a limited budget. You’re absolutely right that the university has the option of increasing the library’s budget (at least to some degree; its budget is also limited), and you’re also right that the library budget itself isn’t literally “fixed”–it changes from year to year. But this doesn’t change my point, which is that when publishers increase our use-per-cost, thus offering us a better value in terms of cost-per-use, they are not decreasing our cost. The only thing that decreases our cost is a lower price on the invoice.

Your extension of the car analogy continues, I think, to confuse cost with value. I think you’re arguing that the luxury car represents value that goes beyond what’s represented by the price of the car itself, and again, you’re right. But its value proposition still doesn’t represent its cost. What represent its cost are the figures on the invoices–whether you’re talking about a single purchase invoice or a series of invoices paid over time to service agencies. Whether those prices represent good value for money is a very important question, but it’s a completely separate question from whether the car owner has enough money to pay them.

Completely agree that value and price/cost are separate things and that value is irrelevant if the price is too high. My (very poorly made point) here is that publishing, writ large is a service more than it is a product. And across academia, writ large, there is more and more being published. Let’s be specific: there are more articles being published. The price paid per article is decreasing yet the overall price paid for all articles is increasing. If a consumer of a service uses more of that service (article publishing in this case) it stands to reason that service should cost more. Yes, the service provider can offer unit cost reductions due to increased economies of scale (e.g. better value) that offset the cost increases, but more still costs more, arguments of value to the side (this was the point of my fanciful analogy: more flying = more engine servicing).

I understand that no specific university requested an increase in the volume of published research (though obviously many contributed more research). You, as a librarian at the University of Utah, did not ask for more articles, and yet you are being asked to pay for more. Your budget has not been indexed to the increase in research output. Difficult tradeoffs must be made that reflect institutional priorities (as you describe in your thoughtful recent post on this topic). And publisher sales reps trying to sell you on cost-per-article or download or citation are not going get to make a sale if there is not money in the budget.

And yet from a system-wide perspective, more research is being publishing and so either prices must go up or more customers must be found to help support the overall, system costs. Both of these things (raising prices and finding new customers) have gotten harder over the last few years (you are here speaking to the challenge of raising prices) and thus publishers are now pursuing the three strategies for revenue growth elucidated above.

My (very poorly made point) here is that publishing, writ large is a service more than it is a product.

Absolutely, and that difference is both real and important. It has no impact on the cost vs. budget issue, though. Whether we call the thing being sold a product or a service, as far as the cost vs. budget issue is concerned publishing is nothing but a price on an invoice (or series of invoices), and that number is the same no matter what the cost-per-use value is.

If a consumer of a service uses more of that service (article publishing in this case) it stands to reason that service should cost more.

I have colleagues who would argue with that logic, but I tend not to agree with them. Regardless, though, with the word “should” we’ve moved out of the empirical (how do cost and value interact?) and into the philosophical (what constitutes a fair price?). And I generally try to avoid fairness arguments. They’re unwinnable by either side, which in my experience means they generally just devolve into shouting matches.

Ah, but the important question is, whether there is more good research being published, or just more research.

A university may decide to reallocate a small portion of the money it spends on groundskeeping to increase its library budget if it decides that its European Luxury Car Studies program is more important than repaving the campus sidewalks.

Groundskeeping? I’m sure there are other things at the university that are vastly less worthwhile that can be cut in its stead:

College leaders and reformers don’t pay enough attention to the financial impact of college sports, not to mention the issues of equity and morality that arise from those often-invisible subsidies. Thanks to USA Today and Indiana University’s National Sports Journalism Center, we know that even among the Division I powerhouses, only about two dozen of 228 public universities take in more from tickets, licensing, broadcast deals, and donations than they spend, according to the latest data.

I was even more struck by the data compiled and analyzed by Jeff Smith, a management instructor at the University of South Carolina Upstate, who has documented how at dozens of colleges—many of them smaller public institutions that serve low- and middle-income students and a high proportion of adults—more than $1 out of $5 in tuition revenue goes to subsidize intercollegiate athletic programs.

As Mr. Smith has noted, for a lot of those adult students, many of whom are also busy working and caring for their children, that’s money for games they will probably never attend. For many of the rest, it’s an expense that could add thousands to student-loan payments for years to come.

Costs for intercollegiate athletics are rising faster than other university expenses, according to the Knight Commission on Intercollegiate Athletics, with coaches’ salaries and facility expenses growing at “unsustainable rates.” Yet if anything, many more colleges are now looking to raise their intercollegiate-athletics profile, rather than rein it in.

That’s a whole other topic about which i have written a lot. I basically agree with you, but to be fair to the other side, sports boosters do try making the argument that successful big-time sports teams increase the number of applications, boost enrollment (hence adding more tuition dollars that can be used to hire more and better faculty), make a lot of alumni happy who will then increase their annual giving, etc. In fact, i just heard these arguments made the other day by a spokesperson for Baylor. For a very few universities like this, I believe there is some truth to the arguments. But one has to ask such questions as: what kind of students apply in increasing numbers–students who are superior academically, or students who like to party and get drunk on football weekends?

Seriously, are these universities really hurting for applicants? Is the goal simply to improve their rejection rates, to pad their stats for bragging rights? Or are they counting on the revenue from increased application fees?

Yes, as the demographics are now showing fewer college-age kids in the overall pool, there is more competition for warm bodies, assuming they contain a requisite amount of grey matter. And, yes, there is the gamesmanship about rejection rates, to make the university seem more selective. There is also a push for more out-of-state applicants for state schools because they pay substantially more in tuition. Right now the U. of California is undertaking a study about the growth rate of out-of-state admits in recent years. This has political as well as financial ramifications.

The same goes for technology transfer programs: they are only profitable for a small slice (at the top) of all universities.

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