According to recent reports, the advertising model underpinning digital media companies like Reddit, Buzzfeed, and others has been stretched too thin. There are simply too many companies trying to attract dollars that are finite and increasingly captured by Google and Facebook. The implications of these reports are captured in a recent article by Josh Marshall in Talking Points Memo, which lays out the case in convincing detail. Marshall is the editor and publisher of TPM. He writes:
What crystallized for me from this and a few other discussions I had yesterday, though, is that we’re actually in the midst of a digital news media crash, only no one is willing to say it. I’ve mentioned before that digital news media in the midst of a monetization crisis. But again, it’s a full blown crash.
Earnings reports for some digital media darlings led to the following tweet from Jeremy Owens, the San Francisco bureau chief for MarketWatch:
News in just the last few minutes:
– Buzzfeed missing revenue targets by 15%-20%, IPO next year unlikely
– Mashable selling for 20% of its 2016 valuation
– Vice missing revenue target
– NerdWallet laying off 11% of staff after missing profit targets
New media becomes old media
— Jeremy C. Owens (@jowens510) November 16, 2017
Buzzfeed’s missing IPO is another implication of the disappointing revenue reports, as venture funding, which can sustain new companies through initial revenue gaps and market headwinds, will now be less likely to materialize, if it comes at all. That means the end is nigh for some portion of these companies, once the VC funding is gone. And new companies looking to start won’t find ready funders. The boom in online news may be over, and all because there was an over-dependence on advertising revenue as the primary source of funds.
The obvious lesson is about market saturation — there is only so much money to go around, and the herd will be culled when sustenance runs short. The less glaring lesson is about the need for variety and redundancy in business models, the need to diversify the risk to revenues — if each of these entities had other significant revenue streams to offset down-cycles in advertising, they may be able to weather the ups and downs of the markets more easily.
In our industry, running parallel revenue streams is sometimes called “double-dipping,” a term soaked in overtones of illicit behavior and corruption. But is it corrupt to charge a subscription for a hybrid journal while also realizing revenues from article processing charges (APCs)? My stars and garters, what kind of scoundrel would do such a thing?
The answer is, every business. I’ve written about this before, outlining how governments, universities, OA publishers, non-profit publishers, commercial publishers, and others charge multiple times for the same thing. In short, it’s normal, expected, and helpful.
There is a rich history of blended revenues providing incredible information access, allowing free or inexpensive subscriptions for thousands of physicians and scientists.
There is a rich history of blended revenues providing incredible information access, stretching back to the heyday of print advertising allowing free or inexpensive subscriptions for thousands of physicians and scientists, to small processing or optional fees for publication offsetting editorial costs and allowing lower prices for libraries and subscribers.
Using the phrase “double-dipping” casts aspersions where none belongs. Multiple revenues streams help consumers and purchasers by spreading costs and decreasing the burden on any single payer. This is what can be missed in discussions of such practices. We are currently seeing the negative effects of an over-reliance on library budgets. Our information economy has grown tremendously in the past 10-15 years, driven largely by both organic growth and the emergence of China in particular as a source of new research findings. Absorbing these inputs has left publishers scrambling. At the same time, online advertising has proven less lucrative and reliable than print was, while APCs are largely capped and also lack the long-term flexibility of licensing or other traditional syndication approaches (in fact, open access [OA] largely eliminates licensing or syndication revenues, further constraining publisher options).
Imagine having to front the entire fee each day for your Internet service at home — the depreciation on the hardware, the salaries of the support teams, the pensions of the service people, the land leases with the various communities allowing wire or tower placements, the office leases, the healthcare costs, and the licenses for hardware and software. You probably couldn’t afford a minute of Internet access each day. But with these costs spread over millions of consumers, and with other revenue streams — business Internet, security services, hardware rentals, and more — the prices for Internet services are high but tolerable, which is to say value for money. Is the ISP “double-dipping” because they are charging multiple consumers for bandwidth? Are the “double-dipping” because they charge you for the high-speed modem and your DVR as well as the underlying services?
Markets by definition have multiple parties seeking value — producers and consumers, typically. One significant change in our market is that producers (authors) are now explicitly seeking value via APCs. Does their desire to pay for value obviate the consumer value proposition? If not, then there is no “double-dipping” in the traditional sense. There is only charging each party what they are willing to pay. That’s not illicit or unethical.
A misapplication along these lines of the term “double-dipping” can be seen in a recent tweet from Richard Poynder, citing a practice from SAGE Publications involving a publication charge levied for certain types of content:
The scholarly publisher @SAGEPublishers appears to have come up with a new form of double-dipping. It levies a subscription plus a "publication charge" of US$775 per article +VAT. What am I missing here? https://t.co/lzTL7VsOML pic.twitter.com/HlYqeLi7Rp
— Richard Poynder (@RickyPo) November 14, 2017
Publishing has a rich history of cobbling together multiple charges in order to generate revenues and keep other charges from going up too much. From page charges, color charges, and other publication charges to submission fees, APCs, and soon I’m sure data-handling charges and open data storage fees, small charges on the front end or back end of publication have been common for decades, and will continue in all likelihood. In my opinion, it’s entirely likely that preprint servers will soon be levying charges, assuming the form gains enough credibility, something that appears bound to happen in 2018 or 2019 (at the latest).
Multiple revenue streams make sense for any business. In our economy, if authors pay a small amount or percentage of fees, while institutions pay another larger share, and advertisers perhaps contribute some portion of revenues, while rights deals and other secondary revenues provide additional income, a publisher has a good variety of sources, some more predictable than others. For professional societies, a membership fee or allocation of dues can also provide another stable source of revenues. Is the publisher “double-dipping” by charging members and institutions a subscription fee?
Uncertainty of funding is a major issue for any business. For example, eLife recently secured another philanthropic revenue stream to support its underlying services, adding the Knut and Alice Wallenberg Foundation to its list of founding funders (Wellcome, HHMI, and Max Planck). Diversifying its funding options increases its likelihood of success. The German government’s infamous negotiations with Elsevier are another example of uncertainty, as are new sources of competition (the new OA journals from the Gates Foundation), changes in the macro environment (new EU approaches to OA, new pressures on US universities due to decreasing overseas applications and potential changes in the US tax code that could stifle post-graduate education and tax endowments), and simple bad luck (natural disasters, getting hacked). Businesses have to survive a lot of uncertainty. Organizations that put all their eggs in one basket are vulnerable to failure from one unlucky environmental or market change.
From a purely selfish perspective, libraries should be encouraging double-dipping, in fact, as it reduces the likelihood of either untenable price increases or cancellations of useful resources. If APCs, advertising, licensing, and other revenue streams mean the difference between a 2% vs. an 8% or 10% price increase, aren’t they helping relieve the burden? Aren’t they allowing more information to flow through the library and reach patrons?
One downside of effectively diversifying revenues can be that outsiders can believe that what they pay is the actual cost, after some back-of-the-envelope math. Let’s assume I’m paying a $1,500 APC for a hybrid OA journal, and they publish 1,000 articles this year. I might calculate that it costs them $1,500,000 to run this journal. However, diversification conceals the full costs by allowing the APC prices to be lower than the full cost. The journal actually costs $3.8M to run and return a decent margin. If fully supported by APCs, the charge to each author would more than double to $3,800. Diversification defrays costs to every participant in a business’ micro-economy.
Unfortunately, smaller non-profit publishers in our world seem more vulnerable to double-dipping objections, because they are less complicated organizations with smaller portfolios run by boards that are more likely to find appeal in the objections. The current focus on this certainly has a chilling effect on normal revenue diversification approaches for smaller non-profit organizations, causing them to talk themselves out of adding reasonable fees or subscription increases. I’ve heard a few of these conversations, and the imprecision of the objections can cause editors, boards, and publishers to quash new revenue streams simply to avoid being accused of double-dipping. Doing so leaves them with few options, which over a period of a few years can lead them to simply throw in the towel and contract with a large commercial publisher. These publishers, with their larger portfolios, global customer base, complicated fee structures, and vast existing diversification can shift revenue streams around more capably and without setting off alarms, appearing to avoid double-dipping while retaining their diversified revenue streams.
Double-dipping purists indirectly drive market consolidation in this manner.
Watching the larger information space, there are lessons to be learned about relying too much on a single revenue stream — whether a funder, a set of purchasers, a single payment approach. Doing so is risky to the point of being reckless. Calling prudent revenue diversification and the normal practice of stacking smaller fees up to get to sustainable revenues “double-dipping” is casting aspersions without considering how helpful diversified revenues are — to managing prices overall, to ensuring sustainability, to making information affordable, and to smoothing out revenue variations. It’s more akin to creating a safety net, so that a crisis doesn’t wipe out valuable scientific or scholarly outlets.
If we want a scholarly publications economy that works for more organizations than just a few large corporations, we need to allow smaller organizations to diversify their revenue streams, perhaps to the point of actively encouraging it. There is only good that can come from fostering diversified economics that work at the small and large scale. Otherwise, we’ll continue to move toward a commercial world where revenues concentrate. Such a world isn’t good for libraries or publishers. Worse, we would have helped this happen by portraying revenue diversification as an illicit and unacceptable reality, when in fact it’s exactly how any business, and smaller organizations in particular, survive.