Select Committee on Science and Technology Tenth Report

4 The cost of journal provision

Journal pricing

49. Journal prices are important because they have an impact on access to publicly-funded research findings. If libraries and other subscribers can no longer afford to maintain journal subscriptions, some users may be denied access to the publications that they need, or at least access will become more difficult. Rising STM journal prices also have an impact on the library's provision of other information. In order to afford subscriptions, libraries may have to cut back on their provision of monographs, textbooks and other types of material, including publications in the arts, humanities and social sciences.[77]

50. None of the evidence we received disputed the fact that journal prices have risen very steeply over the past decade, although some witnesses and memoranda contested the extent to which they had risen and had varying views about whether or not such increases were justified. The average price of an academic journal rose by 58% between 1998 and 2003, compared to a UK retail price index increase of 11% over the same period.[78] For the different period between 1990 and 2000, Blackwell's Periodical Price Indexes show an increase in average journal price of 184.3% in medical journals and 178.3% in science and technology journals.[79] The Chartered Institute of Library and Information Professionals (CILIP) reported that "between 1996—97 and 2000—01 the information resource budget of UK university libraries has decreased by 29% in real terms, while the average journal price over the same time period increased by 41%. The proportion of university library information resource expenditure on journals has increased from 47% to 52%, but this increase has failed to maintain the actual number of journal subscriptions".[80] Although all these statistics refer to different periods of time, a clear pattern emerges of increasing prices against decreasing library budgets. Evidence we received from the American Association of Law Libraries and a group of other contributors told us that, in the US, the typical research library was forced to cut the number of journals to which it subscribed by 7% and to cut book purchases by 17% between 1986 and 2000.[81] Publishers frequently justify increasing prices on the basis of rising costs. This is discussed in paragraphs 71—83.

51. There were some discrepancies in the pricing data presented to us. We heard from Imperial College London that they had "recently received an invoice for our subscription to the Nature e-journal bundle, renewal for which falls due in June 2004. Our bill for the 14 titles making up the core of the collection has increased by 52%". Nature Publishing Group (NPG) justified the increase on the basis that their e-journals had originally been underpriced and the high cost of making them COUNTER compliant.[82] Imperial argued that "neither of these seems to us, or to other library colleagues, to justify the level of increase being proposed".[83] Despite the evidence of substantial year-on-year price increases, Reed Elsevier insisted that their prices were decreasing in real terms: "average cost for a retrieved article for UK users of ScienceDirect has fallen from £4.57 to £1.69 since 2001, a reduction of 63%. We estimate the cost to customers per article downloaded will be less than £1 within two years".[84] Blackwell Publishing told us that the price per article of their published content stood at only £0.025.[85]

52. The low and falling prices quoted by Reed Elsevier and Blackwell can be explained by differences in reporting methods. Three main factors are at play:

i.  Journals are frequently sold by publishers in bundles. Publishers typically include a core of titles within the bundle, with some or all of the remainder of their catalogue included for an extra sum of money. Thus, for a library that purchases the entire bundle, the price per article is significantly less than it would be if they were to purchase each journal separately. However, the library does not necessarily need or want all the journals included in addition to the core journals in the bundle. The price per article is low partly because libraries are paying for some material that is neither needed nor used. This is discussed further in paragraphs 56—68.

ii.  The back catalogue is sometimes a factor in the calculation used to ascertain the price per article of a publisher's content. Access to this is often included in the total price for a journal bundle. In many cases, the library has already paid a subscription for the original print or digital copy of each of the journals included in the back catalogue. The inclusion of the back catalogue in calculations of price per article thus distorts perceptions of how much subscribers pay for new journal articles. Access to back issues is discussed in paragraph 61.

iii.  The volume of scientific articles has increased greatly in the past decade, both in terms of the total number of articles and journals and in terms of length per article. In oral evidence, Professor Sir Keith O'Nions told us that "value for money is increasing, given the total volume of published material is increasing".[86] Nonetheless, increasing volume means that, were prices to remain constant, the price per article would appear to drop. The Public Library of Science (PLoS) told us that "many publishers justify subscription rates to potential subscribers in terms of the number of articles their journals contain, thereby creating an economic incentive for restricted-access journals to publish more papers".[87]

Quoting the price per article conceals the mounting price paid by libraries for access to STM journals. Libraries have a limited budget. This means that, even when the price per article is reduced, if the total price of journal subscriptions rises, libraries are unable to maintain subscriptions.

53. Citing prices in units based on the individual article does not reflect the difficult situation faced by libraries and other subscribers to STM journals. We recommend that the Joint Information Systems Committee develop an independent set of measures, agreed by subscribers and publishers alike, to monitor trends in journal pricing. This will help exert pressure on the publishing industry to self-regulate more effectively and will give libraries and other users greater knowledge when they are deciding which subscriptions to take. In the US, the Performance Assessment Links in Science (PALS) venture works with publishers, authors and libraries on guidelines for self regulation within the publishing industry.

54. Discontent surrounding journal price increases has tended to focus on the high profit margins relative to other sectors that are enjoyed by some publishers. Reed Elsevier, for example, makes an operating profit of 34%, with profits after tax totalling nearer 17%.[88] Wiley had an operating profit of 29% in the first half of 2003.[89] These figures are substantially higher than the average operating profit of 22% across the academic, educational and professional publishing sector as a whole[90] and the average surplus of 17% cited for learned and professional society publishers.[91] Referring to the cost-justification argument employed by many publishers the Museums, Libraries and Archives Council told us that "while libraries accept there is an element of truth in these assertions, they do not believe they justify what they perceive as the large margins on journal publishing, especially for scientific, technical and medical journals where the prices are much higher than in other subjects and far outweigh the higher costs of colour printing and complex mathematical character sets".[92] It is not for us to pronounce on the acceptability of the profit margins secured by private sector companies. Nonetheless, high publisher profit margins need to be set against the context of faltering library budgets and an impending crisis in STM journals provision. Cancelled journal subscriptions due to pressures on library budgets will have a negative impact on publishers. It is thus in everybody's interest for profit margins to be kept at a reasonable and sustainable level. We urge publishers to act on the recommendations of this Report to address these issues.

55. It may, of course, be of benefit to the UK's trade balance if, in a global industry, UK-based publishing houses record high profit margins year on year. Nonetheless, as the George Green Library at the University of Nottingham pointed out, such profits "should be seen in the context of where the money has come from (often the public purse) and how it is used (invested or distributed to shareholders)".[93] We sought a Government view on the relationship between the public money spent on research and high publisher profit margins. Professor Sir Keith O'Nions told us in oral evidence that "I am not going to express a view on whether their profits are reasonable or unreasonable. It is a matter for Government, to decide whether it is an industry it chooses to regulate or not regulate".[94] We were baffled by this response, particularly because Sir Keith himself appeared before us as a representative of Government. Government invests a significant amount of money in scientific research, the outputs of which are expressed in terms of journal articles. It is accountable for this expenditure to the public. We were dismayed that the Government showed so little concern about where public money ended up.


56. Many of the major commercial publishers sell their journals in "bundles", also known as "the big deal". A bundle is a non-negotiable group of journals that is supplied to the buyer at a fixed cost over a fixed period. Many publishers include all their journals within the bundle. In 2003 JISC completed negotiations on a national licensing deal, the National Electronic Site Licence Initiative (NESLi2). NESLi2 is a model licence for electronic access to journals negotiated to meet the needs specified by the UK library and user community. This is discussed in paragraphs 102—105.

57. The majority of bundling deals are struck with the larger commercial publishing houses. However, several organisations, including the Association of Learned and Professional Society Publishers (ALPSP), have created multi-publisher packages to help smaller publishers to compete with the bundles offered by large commercial publishers. Some learned society publishers also offer modest bundled deals: the IoPP, for example, offers an "all-journal" pack containing all 40 of its journals at a discounted rate.

58. Bundling deals were initially attractive to libraries because of a shortage of library funds for subscriptions. This led libraries to form consortia, taking out joint subscriptions to a wide range of journals packaged together in order to meet all of their growing and very different needs. SPARC Europe noted that "Big Deals are initially attractive to libraries as they allow the library to extend the range of material that they can offer to their researchers".[95] In written evidence Blackwell Publishing states that "the big deal and its variants are based on the low cost delivery to more readers with online systems and have enabled libraries greatly to improve access to journals".[96] Martin Richardson of Oxford University Press told us that bundling deals offered greater economies of scale.[97]

The impact of bundling on libraries

59. There is widespread discontent amongst libraries with bundling. The most common complaint was that bundling did not allow libraries to tailor their journal collection to the needs of their community. Professor Robert Cahn, a semi-retired academic from Cambridge University, told us that "almost all libraries are being forced (the word is not too strong) to subscribe for a huge basket of many hundreds of journals published by one and the same publisher; they cannot pick and choose".[98] Cambridge University Library reported that "libraries have to make cancellations elsewhere to finance the 'big deal scheme', thus putting the smaller journal publishers (learned societies and university presses) and the publishers of monographs at a more disadvantageous situation in the publishing market".[99] This occurs because library budgets are finite and do not increase in line with journal price increases, forcing libraries to choose between journal providers when the budget is under strain.

60. Publishers deny that bundling deals lack flexibility. Sir Crispin Davis of Reed Elsevier told us that libraries "are free to choose whatever they wish".[100] Blackwell Publishing offers flexible bundles, with a core of titles and the remainder on a pay-per-view basis. Dr Charkin of Nature Publishing Group envisaged even greater flexibility in future: "flexibility, I am sure, is going to come".[101] Whilst no library is forced to subscribe to a bundled deal, it is clear that many bundles make the most of the high reputation of some of their headline journals when negotiating subscription rates. Procurement for Libraries told us that "publishers can offer libraries a stark choice: pay a much higher fee for the 'big deal' or cancel. Few academic libraries will be able to refuse the 'big deals', because they contain so many must-have titles".[102] Although it would theoretically be possible for libraries to subscribe individually to the "must-have titles" contained within the bundle, we suspect that the cost of doing so is prohibitive, even where the library decides not to subscribe to the majority of lower-impact journals within the bundle. Answers to supplementary questions by Blackwell Publishing demonstrate that it is the most popular, core titles within the bundle that are the most expensive: "a typical UK university would subscribe to 150 of our journals at a cost of £75,000. Our standard deal is online access to an additional 500 titles for £7,995".[103] Thus, although there is no compulsion for libraries to subscribe to bundled deals, there is no financial incentive for them to do otherwise whilst the cost of the individual core titles remains high.

61. We learned that many libraries had fallen foul of tough cancellation clauses for bundled deals. The Council for the Central Laboratory of the Research Councils (CCLRC) complained that the no-cancellation clauses attached to their multi-year multi-journal deals with Elsevier and the American Chemical Society had "led to uneven cancellation of titles to make the budget balance. The result is that the little-used Elsevier and ACS titles must remain in our portfolio when the more popular titles by other publishers are cancelled".[104] The hazards of cancelling a bundled digital subscription also have consequences for continuing future access to journals covered by the subscription. The University of East Anglia noted that "many publishers are still failing to guarantee perpetual access to online archives covering the active years of a subscription, so that cancelling an online journal subscription brings the risk of losing the archive".[105] This view was reinforced by Peter Fox of Cambridge University Library who told us that, whereas paper journals remained on a library's shelf after the expiry of a subscription, "if you subscribe to an electronic version of that journal only and cease to subscribe, almost always you lost access to everything that you have paid for in the past".[106] The risk of losing the archive is a disincentive for libraries to move to digital-only provision. It is unreasonable for publishers to deny libraries access to back issues to which they had previously subscribed when they cancel bundled subscriptions. Publishers should make the relevant back issues available either on CD ROM or via a discrete section of their website accessed by username and password. We recommend that the Joint Information Systems Committee ensure that provision for continuing access in the event of cancellation to articles published during the subscription period is written into its next national licensing deal.

Value for money?

62. The arguments for and against bundling turn on the question of value for money. Two measures are used to guage the value of a particular journal to the user community: level (volume) of usage and impact factor. Usage statistics have only become available since the provision of journals in digital format; they are obtained by counting the number of downloads from each online journal. Impact factors are "a measure of the frequency with which the 'average article' in a journal has been cited in a particular year. The impact factor will help you evaluate a journal's relative importance, especially when you compare it to others in the same field".[107]

63. One of the main justifications given by publishers for raising the price of electronic journal bundles is evidence of substantial demand for those journals to which libraries had not previously subscribed that are now included in the bundle. Martin Richardson of Oxford University Press (OUP) told us that "there are increasing amounts of usage coming from the journals which are participating in these schemes and lower cost per usage across the board".[108] In written evidence Blackwell Publishing stated that, as a consequence of bundling, publishers "report annual doubling of usage".[109] Reed Elsevier supplied statistics for usage growth between 2001 and 2003 for a representative selection of journals. These are reproduced in figure 4, opposite:

64. There are a number of countervailing arguments that have influenced our interpretation of the usage statistics cited by publishers as a factor in bundle price increases. Firstly, before journals were available electronically, publishers had no equivalent means of measuring usage patterns: citation indexes assessed the impact of a particular journal but could not determine how many times it had been read but not cited. As there is no comparator, it would be impossible to prove that electronic journal bundles have generated an increase in usage. Indeed, some of the evidence we have received contests the claim that bundling has increased usage across the entire spectrum of bundled journals. The Geological Society of London stated that "libraries are paying ever more substantial amounts of money for journals packages that contain titles they do not even want".[110] Procurement for Libraries reported that, "at the University of North Carolina, 28% of ScienceDirect titles accounted for 75% of downloads; 85% of subscribers to the Emerald "big deal" viewed less than 5% of the available titles. Such usage seems to replicate hard-copy patterns".[111] These statistics suggest that only a very small proportion of bundled journals are widely used. This does not necessarily contradict the statistics cited by Reed Elsevier: usage rates can show a marked increase whilst still remaining very low relative to the market as a whole. If, for example, a journal was downloaded 100 times in 2001, an increase of 450% would only signify a total of 450 downloads in 2003. Increased usage does not necessarily indicate significantly increased demand for non-core titles.

65. Secondly, as is explained in paragraph 60 bundled journal deals are squeezing journals published by smaller publishers out of libraries. The effect of this is that all the journals in the bundle, including the lesser known titles, are disproportionately well exposed to the library's community of users. It is therefore impossible to determine the relative value of non-core titles within a bundle by comparing their usage rates to those of non-core journals that are not given similar exposure through inclusion in a bundle. Procurement for Libraries likens the disproportionate exposure of some journals to a "vicious circle: the journals in 'big deals' have higher and higher impact factors, to the detriment of journals outside 'big deals'".[112] The same is inevitably true of usage rates. Bundles provide a mechanism by which publishers can raise the profile, the usage and ultimately the impact of their lesser-known journals through increased exposure to the academic community. This in turn provides increased justification for including them in the bundle and for raising prices. The usage and citation statistics for these journals should be interpreted within the context of their high levels of visibility, particularly when escalating usage of low impact journals is cited as a justification for bundle price increases.

66. Finally, as they currently operate, libraries cannot pass the costs of increased journal prices due to increased usage on to the end user. The library has a fixed budget, regardless of how many and how often people use its resources. By employing usage statistics to help determine or justify prices, publishers are effectively penalising libraries for disseminating subscribed content widely within their user communities. Increasing usage rates do not equate to an increased ability for libraries to pay for journal bundles. The recent availability of usage statistics should not be used as a justification for publishers to raise their prices.

67. Usage does not equate to usefulness. Niche journals publish research of minority interest that is nonetheless of great importance to those who work in the field. The relatively low usage rates and impact factors of such journals do not reflect their value to their, sometimes very small, communities of readers. It is therefore very important that access to journals with lower usage rates and impact factors continues to be provided to the communities that need them. However, bundling ensures that those niche journals that are contained within the large-scale journal bundles offered by the bigger commercial publishers are sometimes provided at the expense of the unbundled niche journals published by smaller publishers. As Procurement for Libraries explains: "we have replaced must-have titles with must-have publishers".[113] This is not in the best interests of the communities that libraries serve because it does not reflect their individual needs. Although libraries may aspire to provide access to every scientific journal, they cannot afford to do this. It is inevitable that difficult choices between a number of journals with lower usage rates and impact factors will have to be made. Nonetheless, these decisions should be made in response to local user needs rather than as a side effect of bundling. In chapter 5 we discuss the ways in which collaborative library procurement procedures at a national level can be tailored to accommodate local needs.

68. We were told in oral evidence that bundling deals were on their way out. Bob Campbell of Blackwell Publishing said that "in our view it is a transitional model and we are moving to different sorts of pricing models".[114] The recent market analysis by Credit Suisse First Boston describes a likely consequence of "unbundling" subscription deals: "less well-regarded journals tend to have fewer papers submitted to them and consequently have higher profit margins [because rejecting papers costs more money]. What this means is that if libraries are successful at unbundling Reed Elsevier's low-impact-factor journals, it is likely to have a disproportionately negative impact on margins".[115] Current levels of flexibility within the journal bundle do not present libraries with value for money. Whilst we accept that unbundling STM information carries risks for the main commercial publishers, only when flexible bundled deals are made available will libraries achieve value for money on their subscriptions. Furthermore, although we recognise that bundled deals may be advantageous to libraries in certain circumstances, we are concerned about the potential impact bundling may have on competition, given limited library budgets and sustained STM journal price growth. For a discussion of competition issues, see paragraphs 90—94.

Triple payment?

69. It has been argued that public money is used at three stages in the publishing process: to fund the research project; to pay the salaries of academics who carry out peer review for no extra payment; and to fund libraries to purchase scientific publications. As one of our submissions asked, "what other business receives the goods that it sells to its customers from those same customers, a quality control mechanism provided by its customers, and a tremendous fee from those same customers?"[116] A 2004 report by the investment bank Credit Suisse First Boston concluded that "we would expect governments (and taxpayers) to examine the fact that they are essentially funding the same purchase three times".[117] There is evidence that, if not the Government, its associated bodies are uneasy about the current situation. Research Councils UK (RCUK) told us that they were "concerned that the output from publicly funded research is handed free of charge to commercial organisations that appear increasingly to make it more difficult to gain access to publications derived from the same research".[118] Many libraries share the University of Hertfordshire's view that, because research has already been paid for from public funds, the money spent on journal subscriptions is essentially used to "buy this material back".[119] Of course, the university is not simply buying its own research back; it is paying for the service that publishers provide and for access to research carried out in other institutions across the globe. Nonetheless, there is cause for concern if libraries are no longer able to afford to pay to access the published record of research findings, including that of their own institutions.

70. Under the terms of their contract no researchers are explicitly required to carry out peer review. Nonetheless, they are encouraged to do so by their institutions and funding bodies, and such activity yields dividends for their own reputations and that of their departments. Our 2002 Report, The Work of the Engineering and Physics Research Council, noted that EPSRC offered modest incentives for university departments whose researchers carried out peer review work for the Research Council. Under the terms of the scheme, departments are paid £35 per review carried out by a staff member. We concluded that "the introduction of modest incentives for peer reviewers is an imaginative way of rewarding the contribution of peer reviewers to scientific endeavour".[120] By carrying out reviews, researchers add value to the services provided by publishers. Whilst it would be inappropriate to pay reviewers personally, some recognition, made to their department, of the value of their contribution would be welcomed, particularly in view of the fact that many researchers are paid from public funds. Publishers should publicly acknowledge the contribution of unpaid peer reviewers to the publishing process. We recommend that they provide modest financial rewards to the departments in which the reviewers are based. These rewards could be fed back into the system, helping to fund seminars or further research.

Cost of publication

71. Journal price rises are frequently justified by publishers on the basis of high costs.[121] In order to assess this argument we sought to obtain an accurate breakdown of the costs of publication. We were hampered in this task by the diversity of the STM journals market: each journal has a set of individual traits that heavily influence the costs involved in its production, making generalization extremely difficult. In addition, we received mutually contradictory analyses from various publishers. For example, Nature Publishing Group (NPG) told us that "NPG adds value to the research it publishes" through substantial investment "in editorial IT systems, developmental editing, and the commissioning of related editorial material to provide context to the original peer reviewed papers it publishes".[122] This claim, made in similar terms by other commercial publishers, was flatly contradicted by Vitek Tracz of BioMed Central who told us that "I think that the role of publishers in the process of publishing scientific papers is wildly, incredibly exaggerated and overblown, completely out of proportion".[123] Both NPG and BioMed Central have a business interest in the way that the costs of publication are presented, which largely explains the difference in their evidence to us. In the light of such discrepancies in costs and reporting of costs, what follows is not a detailed cost analysis but is intended to provide a framework within which such analyses, carried out elsewhere, can be assessed.[124]

72. In our inquiry we focused on the cost per article of publishing STM research findings. This cost is variable because of a number of factors, particularly variations in rejection rates. Nonetheless it is possible to make some generalisations. Although there are problems with the Wellcome Trust's comparison of the costs of author-pays and subscriber-pays business models, which will be discussed in paragraph 146, we found the basic analysis of the costs of traditional subscriber-pays journal publishing that was given in their April 2004 report on Costs and business models in scientific publishing to be very helpful. The figures that they produced for this are given in table 1 opposite.Table 1
Cost element Good-to-high-quality journal (cost in £*) Medium-quality journal (cost in £*)
First copy costs per article 820410
Other fixed costs per article 8040
Variable costs per article 600330
Total costs per article 1,500780

Costs are converted from the US$ cited by the Wellcome Trust.[125]

The Wellcome Trust, Costs and business models in scientific publishing, p 15

First copy costs are the costs involved in making an article ready for publication. Other fixed costs relate to journals, but not individual articles, for example reviews, editorials and marketing, and to other non-product related costs. Variable costs vary according to output, and relate to the costs of subscription management, sales and distribution.

73. Amongst witnesses to the inquiry it was almost unanimously agreed that the area in which publishers added the greatest value to the publishing process was peer review. Peer review is a quality control mechanism used to allocate research grants and other awards as well as to decide which articles meet the standard required for publication. In publishing, experts in a given field are identified by the publisher, and sometimes the author, and are invited to review the article in question in terms of the quality of the research and the manner in which it is reported. Peer review is administered by the publisher and is perceived to be crucial to the integrity of the scientific process.

74. We heard some concerns that publishers tended to overstate the costs of peer review in order to justify high prices. As the Association of Learned and Professional Societies (ALPSP) told us "referees are rarely if ever paid, other than by covering their expenses; most journal boards feel that payment could risk tainting the process".[126] Given the lack of author payment the principle costs of peer review are associated with its administration and with the establishment of a network of contacts to supply the necessary experts. Again, we experienced a wide variation in estimations of the cost of peer review. The Public Library of Science (PLoS) told us that "for our future PLoS community journals (with staffing and publication standards similar to most society journals), we estimate that peer review will cost no more than US$200 [£100] per article".[127] Blackwell Publishing, however, told us that peer review cost an estimated £264 per accepted article, with the amount rising to £372 if editorial honoraria were taken into consideration.[128] NPG told us that peer review represented 66% of the total publishing costs per published article.[129] This compares to the 13% cited by Blackwell (based on a total publishing cost of £2, 091 per article).[130]

75. Any analysis of the costs of peer review is complicated by two factors. Firstly, journals have different rejection rates. For a widely-read journal such as Nature, the rejection rate can be as high as 90%, although ALPSP told us that a figure lower than 50% was more common.[131] This partly explains the discrepancy in costs cited by different publishers. Peer review costs more for a journal with a higher rejection rate because more articles are reviewed per article published. This variable makes it difficult to generalise about the costs of peer review. Nonetheless, the Wellcome Trust reports that "Rowland (2002) estimates reviewing costs at $200 [£110] per article published. Tenopir and King estimate review costs to be $20 [£11] per article reviewed. At $20 per article reviewed, a rejection rate of 90% would result in a reviewing cost of $200 per article published".[132] The rate of £11 per article reviewed strikes us as an acceptable basis for an analysis of costs.

76. The second complicating factor is that the costs that can reasonably be covered by the term "peer review" are nebulous and difficult to define. For example, NPG includes the costs of staff (43%), overseas travel (1%), editorial IT systems (2%), layout and design (3%), general administration (11%) and publishing and management (6%), within the total 66% of its costs that it attributes to peer review.[133] Although all these elements relate to the production of peer reviewed content, some of them cannot strictly be said to relate to the peer review process itself. We suspect that the costs of peer review are lower than is implied by the major publishers. This view is reinforced by the Wellcome Trust's recent cost analysis, which concludes that the figures for peer review "appear relatively low on the basis of perceptions reported in interviews with key figures in the publishing world".[134] We do not doubt the central importance of peer review to the STM publishing process. Nonetheless, we note a tendency for publishers to inflate the cost to them of peer review in order to justify charging high prices. This lack of transparency about actual costs hampers informed debate about scientific publishing.

77. Publishers have invested significantly in technologies designed to enhance the functionality of the journals they publish in a digital environment. This has inevitably added to their costs. Elsevier, for example, has invested £200 million in its online journal platform.[135] ScienceDirect is the world's largest electronic collection of STM full text and bibliographic information. It contains all Elsevier journals as well as some journals published by other companies. In written evidence, Reed Elsevier told us that "ScienceDirect allows users to perform complex searches and to retrieve full text articles, to link to other articles cited, to export content to local databases and citation management software, and to receive alerts when new journal issues are released".[136] The Biochemical Society told us that "publishers need to make profits […] to support the massive investment in new hardware and software systems, and processes, such as the provision of technical support for electronic journals, necessary to stay in business".[137] Publishers have also invested collaboratively to create a unique identity system for articles (DOI), a collaborative search system (Cross Search) and a system for tracking articles throughout their online history (Cross-Ref). The technological advances funded by publishers were generally welcomed by academics. Professor Williams from Liverpool University told us that "I run a very large research group, I look at the functionality of my laboratories at the present time and I think they have been enhanced enormously in the last five years. My staff, my post-docs, my students have immense access to a wide variety of publications with tremendous facility. Comparing that to five years ago, the time saved in technology is very, very significant".[138] Most users would agree that publishers have acted in their best interests by investing in enhanced functionality.

78. We applaud the development by publishers of new technologies for digital journals. Innovative products such as ScienceDirect have brought increased functionality to researchers and users, making journals a more valuable research tool.

79. The advent of the digital journal has been expensive for publishers. Not only have they had to invest in the technology to make the provision of journals in digital format possible, many publishers have also had to produce journals in both print and digital formats simultaneously. Nonetheless, as publishers move towards a digital-only model, the costs associated with electronic publication should reduce accordingly. They will no longer have to sustain dual publishing formats. Whilst there will always be costs associated with maintaining and updating digital publishing technologies, it is generally accepted that digital publication is cheaper than print production overall. As the Chartered Institute of Library and Information Professionals (CILIP) told us, "to the publisher the cost of providing electronic access to all titles is virtually zero".[139] The market report by Credit Suisse First Boston concluded that "in the longer term, we anticipate that costs savings accruing from digital-only distribution (we estimate that printing and distribution costs are 15% of total costs), partly offset by increased technology expenses, should also provide some support to margins".[140] In addition, technological developments bring increased revenue for publishers. The UK's National Electronic Library for Health told us that publishers "are creating 'value-added products' whose main aim is not primarily to meet the needs of librarians and users but to inter-link their own products".[141] Whilst we cannot agree that interlinkage is the only incentive for publishers to develop new products, it certainly does yield this benefit, making visible sections of a publisher's content that would otherwise have had a very low profile. Technology improves functionality for users of STM journals but it also reinforces a publisher's profitability. We are persuaded that the costs to publishers associated with digitisation will reduce over time. Consequently, we would no longer expect these costs to be used as a justification for steep increases in prices. In the meantime we are concerned that financially powerful STM publishers may be using their strength during this digital transition period to make excessive profits whilst the going is good. Competition issues are addressed in paragraphs 90 to 94.

80. It is worth noting that some costs associated with the digitisation of journals should not be included within the price of a particular journal. In answers to supplementary questions, ALPSP made a clear distinction between the publication costs of digital journals, included in the subscription price, and the costs of retrodigitisation, the digitisation of the back catalogue: "those publishers which have articulated comprehensive retrodigitalisation plans have treated these direct costs as quite separate from ongoing publishing, and indeed have priced the resulting back volume collections quite separately from ongoing subscriptions".[142] We believe that publishers should make it clear to subscribers what services and costs are and are not covered by the overall subscription price, enabling libraries and other users to weigh up the costs and benefits of taking out the subscription. We urge the Joint Information Systems Committee and other buying bodies to press for greater transparency in this area.

81. The argument that increased journal prices are caused by rising publisher costs is undermined by variations in price growth rates across the sector. Several memoranda highlighted the difference in price between commercial and society journals. Professor Robert Cahn told us that, in his experience, "this price explosion is considerably greater for journals published by the big international commercial publishers than it is for journals published by professional societies".[143] In oral evidence Dr Julia King of IoPP told us that "we are not Elsevier and we are not as pushy, we do not hike our prices up as much".[144] Sally Morris of ALPSP added that "there have been quite a lot of published studies comparing the prices of commercial and non-commercial publishers in different subject areas and they all seem to show that on average non-commercial publishers have lower prices".[145]

82. On 1 March 2004 we heard oral evidence from a group of commercial publishers that the price differential could be explained by a difference in costs. Dr John Jarvis of Wiley told us that society publishers do not have to "build the kind of infrastructure which commercial publishers have had to build. It has been the commercial publishers over the past five years who have been very delighted and excited to do it". He also referred to the "enormous costs that many commercial publishers have put into transitioning a business from 1997, a total print business through the mail to a highly efficient digital business".[146] The idea that commercial publishers bear the burden of technological advances in publishing was disputed by Dr King of IoPP:

"Some of the things the learned society publishers and smaller publishers have done have driven the larger publishers to move forward faster in the electronic medium. The Institute of Physics was the first publisher to get all of its journals available on line long before some of the larger commercial publishers did. Sometimes you see the smaller, more agile publishers driving innovation, even though they may not have the same sorts of funds to spend as some of our larger colleagues."[147]

Commercial publishers tend to have larger profit margins than society publishers. It is reasonable to assume that higher levels of investment in technology and innovation can be expected from publishers making high profits and having substantial cash reserves. Nonetheless we do not accept the argument that learned societies have been slow to invest in this area and are not convinced that investment in new technologies on its own explains the significant price differential.

83. In its 2002 report, The market for scientific, technical and medical journals, The Office of Fair Trading (OFT) reported that it was "not persuaded by this cost justification argument".[148] It is difficult to assess how a publisher's costs relate to the prices that they charge because of variations in costs between journals and variations in methods of reporting costs between publishers. Nonetheless, the significantly lower prices charged by society publishers for their journals suggest that publishing costs are being overplayed by some commercial publishers. Commercial publishers enjoy significant profit margins of up to 34%. This would appear to belie the argument that the main driver of price increases is cost. Like the Office of Fair Trading, we are not entirely convinced by the cost-justification argument employed by publishers to explain rising prices. Publishers undoubtedly add value to the scientific process, but they also profit from it.


84. When the UK introduced VAT in 1973, it signed up to the general agreements that covered the application of VAT throughout the Common Market. Under these and successive agreements the UK has been able to maintain zero-rate VAT reliefs for certain specified goods, including printed publications, which were also exempt from the purchase tax that preceded VAT. Digital publications, however, still incur the full rate of 17.5% VAT.

85. The differential treatment of print and digital publications for tax purposes was widely criticised in the evidence we received. The University of Hertfordshire noted that "the significant cost difference for the same content in a different format is anomalous and a disincentive to widespread availability of scholarly information to UK higher education".[149] Libraries and publishers alike complained that the VAT charged on digital publications was hampering any move towards a digital-only environment. The Scottish Confederation of University and Research Libraries (SCURL) argued that, from a library perspective, "the application of VAT to electronic publications has added an additional burden and is a disincentive to move to electronic only access".[150] Blackwell Publishing agreed: "library overheads could be greatly reduced by complete migration to online-only journals, but there is currently no financial incentive as libraries have to pay full VAT on online subscriptions".[151] We heard in oral evidence that VAT amounted to 5% of the University of Hertfordshire's total information provision budget.[152] Some publishers offer discounts on their digital publications in order to compensate for the VAT charged on them. Although this measure reduces the impact of the problem for libraries, it does make it difficult for publishers with a large digital output to compete on equal terms. ALPSP noted that VAT was helping to maintain high publishing costs: "the cost savings (up to 20-25%) which might be realised by the abandonment of print would be welcomed by publishers, but the current VAT situation means that most of the saving is negated".[153]

86. Many witnesses called for Government action on the issue of VAT. RCUK stated that "the Government should consider rectifying this anomaly if it wishes to create a level playing field in the publications market.".[154] Aslib argued that "the UK should lobby the EU for parity on the VAT applicable to paper and electronic formats".[155] Another suggestion, made by the Publishers Association, was that "the Government should consider allowing relief to be attached to the UK based institutional recipients of essential scientific information to be used for educational purposes, if not to the content itself".[156] Given the unanimity of these calls, made by parties that found it difficult to agree on most of the other issues raised by this inquiry, we were surprised by the Government's lacklustre approach to the issue. All that the three departments involved in compiling the Government evidence, DTI, DfES and DCMS, could muster in response to the problem was a bald statement that "VAT liability for electronic works but not for printed works is an issue that has been raised by all sides".[157] In oral evidence, however, we learnt that DTI had made representations to HM Customs and Excise on the issue.[158] It is not enough for the Government departments involved to declare themselves to be aware of the problems surrounding the imposition of VAT on digital, but not print, publications. As the issue is so critical to the adequate provision of scientific publications and to reaping the full anticipated benefits from digitisation, we recommend that DTI, DfES and DCMS all make a strong case to HM Customs and Excise for a change to the existing VAT regime.

87. We asked HM Customs and Excise for a note explaining why print and digital publications were subject to different VAT regimes and what measures, if any, it intended to take to alter the situation. In response it cited two reasons why the VAT regime could not be changed. Firstly, whilst the terms of the existing agreements "allow the UK to retain one of the most wide-ranging and generous packages of zero rate VAT reliefs anywhere in the EU, they also prevent us from introducing any new ones".[159] We do not understand why the terms of existing agreements should "prevent" the introduction of new VAT reliefs. The EU is constantly adapting its regulations to meet the changing needs of its members. The UK Government has lobbied the EU for change on many occasions, and it strikes us as odd that it should neglect to do so now on an issue that is so important for the effective functioning of the UK research community.

88. The note from HM Customs and Excise also states that the technical differences between print and digital publications preclude their being included in the same category for tax purposes:

"CD-ROMs and internet-based material often include search facilities, audio and video recordings, internet links and games or other interactive content, which are neither characteristic of, nor possible for a printed paper product. These differences not only mean that it would be impossible to bring digital publications within the existing zero rate for printed publications, but also make it reasonable to consider digital and printed publications separately, and on their own merits, when determining tax treatment."[160]

Whilst we accept that the format of print and digital publications is different, we fail to see why this should be a barrier to subjecting digital publications to the same zero rate VAT relief as print publications. As HM Customs and Excise states in its note, the zero rate of VAT currently applies to a range of goods and services, including food, children's clothes and public transport fares, all of which have distinct characteristics: their dissimilarity to each other has not been an obstacle to their similar treatment for tax purposes. Furthermore, a consideration of digital publications "on their own merits" need not prevent them from being granted VAT relief. We recommend that HM Customs and Excise make strong and immediate representations within the European Commission to bring about the introduction of a zero rate VAT relief for digital journals, in line with the zero rate currently charged on print journals.

89. We understand that the solution we have proposed will take time to implement. Given the urgency of the problem, a quicker remedy is clearly required in the immediate term. In oral evidence, Frederick Friend of JISC suggested that HM Customs and Excise should "allow libraries exemption. […] Already there is a precedent for medical equipment which universities can identify themselves and then be given exemption from VAT. […] it would not contravene European regulations, if that exemption were extended to electronic information".[161] Given that such an exemption would benefit both libraries and publishers and would not contravene existing EU regulations, we see no obstacle to its implementation. Other countries have already taken steps in this direction: in Sweden, for example, Government and municipal educational, health and other institutions which do not themselves charge VAT pay the VAT on scientific publications but subsequently have it repaid in full by the State.[162] We recommend that HM Customs and Excise exempt libraries from the VAT currently payable on digital publications whilst it negotiates for a more permanent solution within the EU.

Competition issues

90. Much of the written evidence to this inquiry raised concerns about the competitiveness of the market for scientific publications. The Authors Licensing and Collecting Society (ALCS), for example, told us that "the current dominance of the scientific journals market by an increasingly small and monopolistic group of global conglomerates (Reed Elsevier et al) has a significant effect on individuals, on research, and on users".[163] Consistently high profit margins would suggest that competition within the market is poor. The majority of such concerns related to Reed Elsevier, which, according to Electronic Publishing Services Limited, currently has a 25.8% share of the total STM information provision market.[164]

91. In 2001, the proposed acquisition of Harcourt General Inc by Reed Elsevier plc was referred to the Competition Commission under the merger provisions of the Fair Trading Act 1973. The Competition Commission concluded in its report by a majority of two to one that the merger was unlikely to operate against the public interest and the merger proceeded as planned. The dissenting member of the Commission, Mr J.D.S. Stark, set out his reasons for diverging from the consensus in a supplementary note to the report. He concluded that the merger would result in:

a)  "Higher prices for access to STM journals in electronic or print form than would otherwise have been the case; and

b)  More restrictions on the development of other mechanisms to facilitate access to STM journals via other, non-Elsevier, portals than would otherwise have been the case".[165]

The report also stated that "the inquiry has brought to light a number of features of the market for STM journals that are unusual and may benefit from further examination".[166] Accordingly, the Office of Fair Trading (OFT) announced an informal consultation on the market for STM journals, and published a report in September 2002. The report concluded that no further action should be taken at present; that further action may be needed in future "if competition fails to improve, or should additional significant information come to light"; and that action might best be taken at an international level.[167]

92. Several witnesses were strongly opposed to the view that the market is not competitive and thought that Government should not intervene under any circumstances. The Royal Society of Chemistry told us that "publishers should continue to innovate with their products and services, should compete to publish the best work, and should charge prices which are regulated by the market not by Government".[168] Reed Elsevier is itself a fierce advocate of regulation by market forces. In written evidence, it stated that "the government should continue to allow market dynamics to ensure that publishers continue to meet the needs of scientific research communities effectively and efficiently".[169] In oral evidence Sir Crispin Davis, the Chief Executive Officer, told us that his company had not taken advantage of its market position to raise prices: "I think […] we have been a moderating influence on pricing in this industry over the last five years".[170] We note that Reed Elsevier have moderated their price rises and kept percentage increases in single digits, although we do have some reservations about the way in which prices are reported, as is detailed earlier in this chapter. Nonetheless, we agree with the findings of both the Competition Commission and OFT that there are certain characteristics of the STM journals market that make a conventional assessment of how well it is functioning difficult. The Wellcome Trust explains that "this market does not behave conventionally. It is not well positioned to deliver the benefits of unfettered free markets and if left as it is could produce outcomes which are in the interests of very few".[171] The peculiarities of the market become crucial to an understanding of how well it is functioning.

93. Neither journal prices nor a breakdown of publishing houses by market share is sufficient by itself to understand the concerns raised by the reports of both the Competition Commission and OFT. It is the interrelation of these two factors that gives most cause for concern. The Competition Commission report commented that price competition does not occur in the STM journal market: "if a very well-regarded but expensive journal increases its price further, it is the cheaper, but less-well regarded journals in the same field that are cancelled, so that the subscription to the leading journal can be maintained. This means that a publisher sometimes has the potential to increase his market share by raising his prices".[172] This feature of the market is well illustrated by a graph based on an analysis by Credit Suisse First Boston. See figure 5, below:

Reed Elsevier typically accounts for 30-50% of library acquisitions budgets.[173] If a library has a nominal budget of 100 units, a 3% increase in budget would give it 3 additional units to spend. Figure 5 shows how many of those extra units Reed Elsevier would take if it increased its prices by a rate of 6.85% from a number of starting positions, expressed as percentages of the total library budget.[174] At a 30% share of the library's budget, Reed Elsevier would take just over 2 of the units. At a 50% share, it would take 3.4 units, 0.4 units more than the library's budget increase allowed. Thus, because library budgets generally have a fixed ceiling, by increasing prices, the publisher with the largest share of the budget can gain an even greater share and may also force other publishers out of the budget altogether.

94. Currently, the potential for large publishers to increase their share of library budgets, combined with a lack of library purchasing power (see chapter 5), a lack of substitutability and the reluctance of academics to engage with the issue, ensure that theoretically there is nothing to prevent Reed Elsevier and other large publishing companies from raising their prices still higher. Even where such publishers impose only minimal price increases, the negative impact upon the library budget is substantial. These factors have led us to agree with OFT "that there is evidence that the market for STM journals may not be working well".[175] Whilst there is no new evidence relating to competition to report, OFT did make provision to re-examine the situation "if competition fails to improve".[176] It is certainly the case that the industry is in flux. Reed Elsevier and other publishers are facing increased competition from other information service providers. In April 2004 Google, for example, announced a deal with MIT and 16 other universities worldwide to provide keyword searching across the scholarly content held within the repositories at these institutions.[177] The intervention of large companies offering navigational tools is a potential threat to publishing companies such as Reed Elsevier that offer similar services. It remains to be seen how these developments will affect the market but it is important not to exaggerate the threat that digitisation poses to the leading STM publishers against the opportunities it offers to cement market leadership. It is, for example, the case that the digital revolution is a factor in causing smaller publishers to sell out, further increasing concentration in the industry. We find it hard to disagree with Mr Stark's minority opinion, published as part of the recent Competition Commission report into the merger of Reed Elsevier and Harcourt General, about the potentially damaging impact of such mergers on pricing. We recommend that the Government Response to this Report provides information on the measures being taken by the Office of Fair Trading to monitor the market for STM journals. We urge the Office of Fair Trading to commit to biennial public reporting on the state of the market, including how STM publication prices are developing; how prices change following mergers and acquisitions in the sector and the impact of bundling deals upon competition.

77   See, for example, memoranda submitted by the George Green Library, University of Nottingham, Ev 213, and the National Library of Scotland, Ev 250 Back

78   Ev 121 Back

79 Back

80   Ev 411 Back

81   Ev 166 Back

82   COUNTER (Counting Online Usage of Networked Electronic Resources) is an international initiative designed to facilitate the recording and exchange of online usage statistics. Publishers can opt to sign up to its Code of Practice. Back

83   Ev 440 Back

84   Ev 193 Back

85   Ev 306 Back

86   Q 337 Back

87   Ev 452 Back

88   Q 80 Back

89   Wolters Kluwer: 16.3%; Thomson: 24.5% Back

90   EPS Market Monitor June 2004 Back

91   Ev 448 Back

92   Ev 348 Back

93   Ev 213 Back

94   Q 337 Back

95   Ev 162 Back

96   Ev 305 Back

97   Q 121 Back

98   Ev 81 Back

99   Ev 371 Back

100   Q 64 Back

101   Q 46 Back

102   Ev 152 Back

103   Unprinted answers to supplementary questions from Blackwell Publishing. Back

104   Ev 299 Back

105   Ev 203 Back

106   Q 231 Back

107 Back

108   Q 122 Back

109   Ev 306 Back

110   Ev 62 Back

111   Ev 152. Emerald is predominantly a publisher in the economics, business and social science fields. Back

112   As above Back

113   As above Back

114   Q 45 Back

115   Credit Suisse First Boson, Scientific, Technical and Medical Publishing, April 2004, p 4 Back

116   Ev 64 Back

117   CSFB, p 3 Back

118   Ev 294 Back

119   Ev 190 Back

120   Ninth Report of the Science and Technology Select Committee, Session 2002-03, The Work of the Engineering and Physical Sciences Research Council (HC 936), p 22 Back

121   See, for example, written evidence from the Publishers' Association, Ev 101 Back

122   Ev 466 Back

123   Q 182 Back

124   See, for example, The Wellcome Trust, Costs and business models in scientific publishing Back

125   Currency conversion rate used throughout the Report: 1 USD = 0.551288 GBP Back

126   Ev 87 Back

127   Ev 453 Back

128   Unprinted answers to supplementary questions from Blackwell Publishing. Back

129   Ev 465 Back

130   Unprinted answers to supplementary questions from Blackwell Publishing. Back

131   Ev 87 Back

132   The Wellcome Trust, Costs and business models in scientific publishing, pp 11-12 Back

133   Ev 465 Back

134   The Wellcome Trust, Costs and business models in scientific publishing, p 12 Back

135   Q 72 and Ev 193 Back

136   As above Back

137   Ev 177 Back

138   Q 276 Back

139   Ev 411 Back

140   CSFB, p 5 Back

141   Ev 351 Back

142   Ev 447 Back

143   Ev 80 Back

144   Q 96 Back

145   Q 99 Back

146   Q 31 Back

147   Q 129 Back

148   OFT, p 10 Back

149   Ev 314 Back

150   Ev 325 Back

151   Ev 306 Back

152   Q 242 Back

153   Ev 92 Back

154   Ev 294 Back

155   Ev 328 Back

156   Ev 102 Back

157   Ev 381 Back

158   Q 352 Back

159   Ev 426 Back

160   Ev 426-7 Back

161   Q 242 Back

162 Back

163   Ev 458 Back

164   EPS Market Monitor, Scientific, Technical & Medical (STM) Information: Market Trends and Industry Performance, Issue 3, vol 1, June 2004 Back

165   Competition Commission, Reed Elsevier plc and Harcourt General, Inc: A report on the proposed merger (Cm 5186), July 2001, p 26 Back

166   Competition Commission, p 4 Back

167   OFT, p 21 Back

168   Ev 208 Back

169   Ev 197 Back

170   Q 73 Back

171   Wellcome Trust, Costs and business models in scientific research publishing, p 9 Back

172   Competition Commission, p 15 Back

173   CSFB, p 25 Back

174   Q 64. Crispin Davis told us that Reed Elsevier had increased its prices by between 6.2-7.5% per year over the last five years. Figure 5 thus assumes an average yearly price increase of 6.85%. Back

175   OFT, p 21 Back

176   As above Back

177   EPS Market Insight, "Google and OAI: New Effort to Search Across University Repositories", April 2004 Back

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