Wall Street is in a tizzy over the upcoming IPO of Springer Nature. I have been taking calls from analysts about this and have found the conversations to be stimulating. This is a good opportunity to see how scholarly communications looks to the people who invest in it. It’s worth remembering that if you add up the big for-profit companies’ revenues (Elsevier, Springer Nature, Wiley, Taylor & Francis, Wolters Kluwer, and SAGE) you get something close to half of all publishing revenues generated from academic research. That’s not half of all money spent on research (a much, much bigger number) but half of the sales for publications. Nor do sales figures fairly represent all research activity, as some fields (literary study, philosophy, etc.) generate small numbers even as these disciplines play a large and vital role in higher education; nor do these figures represent the relative weight of open access (OA) publications, which typically bear less revenue than their paywalled counterparts. But you get the idea: there is money flowing into this sector from investors looking for a return on their money, so the very presence of these investors says something about the prospects for scholarly publishing. Would you buy a stock if you thought it was going down?
As a business guy who spends a majority of his time with not-for-profit organizations, I am amused by the schizophrenia of how the two parts of the ecosystem for scholarly communications look at the same situation. To use the blog posts on the Scholarly Kitchen as a sample, we find great interest in this community in peer review, libraries, demographic diversity, the quality of research outputs, the metrics that are intended to be a proxy for quality, and privacy and the so-called surveillance economy. I have never heard a Wall Street type raise any of these issues except with regard to potential liability (A hypothetical example: If they have a “Me Too” problem, will they end up in court and have to pay damages?). A prospective investor does not seek to know the answers to every question but only to those that bear on the value of an investment and the attendant risks. A successful investor must pass through the eye of a needle, leaving behind anything that does not lead to a return on investment. This is significant because Wall Street is ultimately behind the biggest companies, whether selling stocks or bonds, and thus has a bearing on who gets to lead these companies and the priorities these executives set.
Of course, anyone who listens to the chatter about scholarly publishing would run away from investing in this sector. The prevailing narrative would have it that publishing is about to slide beneath the waves, punished at last for its greed, its alienation from the scholarly community, the disruptive implications of digital technology, the ability of universities and other players in the not-for-profit sector to replace commercial services with community-based solutions, and the OA movement, which will bring power back to the researchers themselves at the expense of the neoliberal organizations that attempt to dominate them. And thus a phone call with a financial analyst usually begins with this question: Is this industry doomed?
To this question I always respond with an anecdote. Some years ago I was given a copy of a financial reference work published by the investment bank Veronis Suhler (now Veronis Suhler Stevenson). This reference included detailed financial profiles for all segments of the media industries: movies, music, magazines, publishing, television, advertising, etc. Each profile included several years of trailing revenue and profitability and a forecast for several years more. Flipping through the pages I saw what was growing, what was not growing. And then this gem on the section on book publishing: “Book publishing continues to outperform perception.” It was a mature business then, but it continued to eke out gains, despite the conviction among pundits and technologists, and even within the industry itself, that publishing was sliding into the abyss. (In one of the many ironies of this business, my partner at STM Advisers, David Lamb, was the original editor of this reference work.)
With its strong position in OA publishing, Springer Nature gives the lie to this narrative. This does not mean that there aren’t challenges to the business, but publishers have shown themselves to be resourceful, navigating troubled waters to growth and profitability. It’s also easy to forget that a challenging environment is not equally challenging to all participants. In an earthquake or hurricane, it is the poor that suffer most; in a hostile economic environment, it is the less advantageously positioned organizations that are likely to lag behind the rest of the industry and even to be driven to its margins. Thus, for example, ubiquitous OA publication hurts not-for-profit professional societies, which often are too small to develop strong cascading publishing programs, far more than they impact the big commercial houses. The rifle that is OA advocacy misfired, missing the targets of Elsevier, Wiley, et al., and hitting the not-for-profit professional societies instead.
What then should investors be on the lookout for?
- The gap between revenue per toll-access article and OA APCs. The industry average for revenue per article published is in the vicinity of $5,000. If APCs are set lower than that, whether by market forces or the funding agencies that bankroll most APCs, then many publishers will come under margin pressure. As a point of reference, PLOS ONE charges $1,495 and Scientific Reports, which is owned by Springer Nature, charges $1,760.
- Piracy and other unauthorized uses. Whether Sci-Hub will survive in the coming years, I do not know, but there is at this time no clear path to restricting piracy and hosting sites of questionable legitimacy, as we see with ResearchGate. This enables librarians to be much harder-nosed in their negotiations with publishers, as it is pointless for publishers to deny access to libraries’ constituencies if those constituencies can simply find copies somewhere on the bad side of town. I hasten to add that I am not suggesting that librarians are cynical but that the cynical environment helps them without their asking for or even welcoming such help.
- Involvement by funding agencies, including governments, in publishing. This is the big one and, speaking only for myself, it is the factor that was largely unanticipated. If research dollars are tied to forms of publishing and even to the fees publishing services may charge authors, then scholarly publishing is moved outside a market economy to a matter of social policy.
What all this means is that a successful investor is going to be one who chooses an organization that is adroit in wending its way through the environment. Such an organization weeds out irrelevant or unnecessary information in its decision-making, understands the implications of social policy, outperforms other publishers facing the same environment (who thus yield market share to the better managed), and displays creativity in developing new products and marketing programs. Such an organization will continue to outperform perception. Thus it is management that makes the difference. Oddly, no analyst has ever asked me about the quality or resourcefulness of any management team.