Wednesday, August 31, 2011

More Thoughts About the Academic Publishing Racket

The academic publishing business is incredibly lucrative, because three firms have rolled-up the most prestigious journals that everyone needs to read and publish in. What the journal publishers did was really smart.

In the 1960s and 1970s, commercial publishers began to selectively acquire "top-quality" journals which were previously published by nonprofit academic societies. Due to the inelastic demand for these journals, the commercial publishers lost little of the market when they raised the prices significantly. Although there are over 2,000 publishers, three for-profit companies (Reed Elsevier, Springer Science+Business Media, and John Wiley & Sons) account for 42% of articles published. [wiki]
Now the margins are gigantic because of the lack of competition.
Investment analysts, however, have been skeptical of the value added by for-profit publishers, as exemplified by a 2005 Deutsche Bank analysis which stated that "we believe the publisher adds relatively little value to the publishing process... We are simply observing that if the process really were as complex, costly and value-added as the publishers protest that it is, 40% margins wouldn’t be available." [wiki]
Reed Elsevier is based in Amsterdam but it has an ADR (ENL). They also own Lexis Nexis! Springer-Verlag is owned by two private equity firms, EQT Partners and Government of Singapore Investment Corporation.

I think that these journals will actually be victims of their own success, because they will push scientists towards open source publishing. But it is an interesting case study of an industry roll-up that will have worked for at least several decades.

Thoughts from a Credit Bubble Stocks correspondent:
[ENL] looks very cheap (10X earnings) . . . people must be pricing in a change.

I know a very conservative value investor that won’t invest in companies if their profit margin is too high, because he assumes it will not be sustainable. I assume that the publishers are bribing the officials at the gov’t grant giving orgs to not make open source publishing a requirement. Really no reason at all that this stuff shouldn’t all be free or close to it online . . . not sure what else the libraries would spend their money on. Ipads for the homeless?
And, from another correspondent:
This is perfectly true in the short and medium run, maybe even in the semi-long run. I read free full text articles, either on-line or after printing them. I read the abstracts of paid articles. I never pay for an article. I occasionally ask authors for free reprints of paid articles Usually I don't bother. Sometimes I get them. I would always get them if I used a letterhead and title. I only reference free full text articles in my own writings. Of course I am not typical. So we cannot generalize from me.

However, the proportion of articles at the National Library of Medicine that are free full text articles has risen from 0 to 20- to 25-percent, with the free full text articles concentrated among the newer articles. This has happened in the past 6 or 8 years. Scientists sidestep lengthy print media publication delays and get quicker peer feedback at outfits such as PLOS One and at the for physics, computer science, math, nonlinear sciences, statistics, quantitative finance, and quantitative biology.

The prestige of journals comes from publishing articles that scholars frequently reference in their own articles. Free full text online articles will get referenced more often. This trend will be strongest in computer-literate, math-intensives disciplines, among the youngest scholars who have the lowest budgets. These will less frequently cite the currently prestigious journals. As a result, these journals will lower their prices or bleed prestige until they are replaced in the prestige hierarchy by free full text online publications that publish young scholars.

These paid text publications have a legacy position which is depreciating. They exploit cognitive slaves the way Amazon exploits book reviewers. They do not meet real needs now that publishing is moving to the web. Paid text publishers have a temporary position, like the British Empire or Blockbuster Video.

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