Examination of Witnesses (Questions 64
MONDAY 1 MARCH 2004
Q64 Chairman: Welcome, Mr Davis and
Mr Jongejan. Thank you very much for coming along to help us.
You have been in the first session and I do not want to repeat
similar questions, so under the different headings for the questions
I wonder if you would like to take maybe five minutes to answer
some of the issues on bundling, digitalisation, pricing policy,
business models and so on? If you miss out any I am sure my hawk-eyed
committee will pick up on it, so please do it your way.
Mr Davis: On pricing, we have
put our prices up over the last five years by between 6.2% and
7.5% a year, so between six and seven and a half% has been the
average price increase. During that period the number of new research
articles we have published each year has increased by an average
of 3 to 5% a year. Last year it went up 5% a year, so it is the
same point as was made earlier. On top of that we have increased
the number of historic articles available by some 20-30% a year
by adding all of our back articles on to ScienceDirect. The number
of scientific researchers in this country accessing our content
has increased by between 15 and 20% a year over the last five
years. Usage, which is measured by librarians by article downloads,
has increased by between 50 and 90% each year. All of those have
significant costs to us to carry, obviously. Against those kinds
of increases we think that the price rises of six to seven and
a half% are justified. We also think that the institutional libraries
are getting significantly better value for money year on year.
They are getting more research papers, new research papers, each
year. They are now getting all the archival research papers going
back up to 150 years. They are getting massive improvements in
functionality through the ScienceDirect platform in which we invest
very heavily each year. More and more users are using our content
each year. Their cost per article download, which to them is a
key criterion, is falling by between 50 and 80% each year. To
give you an actual number on that, five years ago the cost per
article download was over eight pounds. In 2003 the cost per article
download averaged £1.69. We think this it will go down below
a pound. On bundling, there are a lot of misunderstandings about
bundling. The first is that all our customers, all librarians
and institutions, are free to choose whatever they wish. We put
in front of them a wide range of options. They can buy a small
or a large number of articles that they want. They can buy a small
or a large number of journals that they want. They can have those
in print, in electronic or both print and electronic. They can
buy subject collections, which are groupings. They can buy the
whole lot. They can have contracts for one year, three years,
five years. We have put the whole range option in front of them,
which we then negotiate. We do give discounts. Obviously, if they
expand beyond their core collections and take significantly more
journals we will give them those at a very significant discount.
There is no forcing. It is up to them to decide which they want.
We do now make available to every librarian exactly what the usage
was for each individual journal they took over the last 12 months
or the last three years or whatever the length of the contract
was, so they have total visibility and flexibility in terms of
what they decide to take.
Q65 Chairman: Business models?
Mr Davis: We are, I would say,
neutral on open access at the moment. We think that the present
business model has served the scientific world very well. People
often underestimate, I think, how well it is served. Today you
have 1.2 million articles published every year. Every one of them
is peer reviewed and every one of them is in a respected journal,
distributed to 250 countries round the world, reaching some 12
million scientists, over 90% of all the scientists available in
print and on line. I think that is an end result that the industry
can be proud of. Perhaps more important than that is that the
penetration of scientific research has widened hugely over the
last ten or 20 years. We calculate that over 90% of all scientists
globally now have access to our content. 97% is the actual number
in the UK, and it will be similar in the US, that have access
to our content. Productivity in terms of usage has gone up astronomically.
It is roughly going up by 50-90% a year. Last year there were
176 million article downloads just on ScienceDirect. I think that
the present model is working well and making a real contribution.
On open access our position at the moment is that we want to watch
and learn and see what happens, as we have done in the past. I
say we are neutral because at the moment there are some not insignificant
questions being asked, not just by us. We get an awful lot of
feedback from authors, from librarians, from researchers, from
scientists, who also themselves access all the internet chat rooms,
and the kinds of questions that are now being asked, and I do
not necessarily think we have answers to them today, are as follows.
The first is, will open access increase accessibility? All of
us are committed to increasing accessibility of scientific content.
I would argue that in the last ten years we have made a huge contribution
to that, and I think 90% worldwide of scientists and 97% in the
UK are exceptionally good numbers. Incidentally, any member of
the public can access any of our content by going into a public
library and asking for it. There will be a time gap but they can
do that. We make ours available both in print and on line. In
fact, open access would today have the result of reducing accessibility
to scientific research because it is only available on the internet.
In this country that would exclude some 20-25% of scientists;
globally it would exclude over 50% of scientists. In factual fact,
the business model we have today gives the widest possible access.
The second question that increasingly is being asked is the inherent
or potential conflict of interest if a publisher is receiving
money from the author to publish that article. There is an inherent
conflict there in terms of quality, objectivity, refereeing and
so on. One of the real strengths of today's model is that there
is no conflict there. We reject well over 50% of all articles
submitted. Other journals do that or even higher. If you are receiving
potential payment for every article submitted there is an inherent
conflict of interest that could threaten the quality of the peer
review system and so on. Fourthly, people are starting to ask
the question, is it actually right that the author or the authoring
institutional university should pay to have the article published
rather than the end user? There are quite significant implications.
One is purely the affordability and the real question is whether
third world institutions and authors would have the capability
and the funds and whether this would inherently favour wealthier
institutions or authors. It also means a very significant transfer
of funds from, for example, the commercial sector. Twenty five%
of our revenue comes from the commercial sector and this could
be companies like the Ford Motor Company or Boeing or Merck Pfizer.
Under the open access system they would get all the research free
of charge, they would pay nothing, while the producing institutions,
whether that is Imperial College or Yale or Oxford, would be the
ones who paid or the authors would pay. That is a very debatable
shift of funds. As I have said, it has serious implications for
research institutions in this country. This country is a producer
of research rather than a consumer. You have seen the numbers.
We produce 5% of the world's research and we consume 3% of the
world's research. These are the kinds of questions that are out
there now on open access, and I think that over the next few years
we will gradually develop the answers. Some of them may be positive,
some of them may be negative, but I think that these are serious
questions, important questions, that not just us but the whole
scientific research world is asking, and we have got be very careful
to develop the right answers.
Q66 Chairman: Thank you for that.
Before I turn you over to the wolves let me ask you a question.
I have it from a whistle blower that you think this inquiry we
are carrying out will do very little to change policies in the
publishing field and that really we are an embittered bunch of
old, tired academics. Is that whistle blowing in your view correct?
Mr Davis: No.
Q67 Chairman: How would you correct
that for the record?
Mr Davis: I would say that is
complete rubbish and just not true at all. Right from the word
go we have decided, and I think have tried, to be as co-operative
and open as we possibly can be. We have submitted a very full
report in answer to your questions. We invited you round to our
offices. We are absolutely ready and committed to provide all
the help, information and data we can on this.
Q68 Chairman: So you welcome this
Mr Davis: Absolutely.
Q69 Chairman: Do you think it is
opportune at the minute in this field of scientific publishing?
Mr Davis: The industry has been
going through a period of extraordinary change over the last five
to ten years, mainly due to digital technology, and it is quite
an exciting time. Business models are changing, access is changing,
usage is changing, productivity is changing. My answer is that,
if it is an objective, inciteful inquiry, absolutely.
Q70 Chairman: I think the number
of people in the audience reflects the interest.
Mr Davis: Absolutely.
Chairman: We do not get it for every
inquiry, including renewable energy, I might add.
Q71 Dr Turner: One of the things
which has surfaced in the national press recently has been the
practice of some pharmaceutical companies to pay authors to put
their names on research which they have not necessarily done.
What do you have to say about possible malpractice or fraud of
this nature in research publication?
Mr Davis: That absolutely would
be 100% against our policy and our practice. In an industry that
publishes over a million articles a year you are always going
to get the odd one that slips through, but generally the track
record of the industry and ourselves has been, I think, unbelievably
high in terms of the monitoring of quality and so on. We absolutely
would not for one minute countenance what you have just described.
Mr Jongejan: That is exactly the
reason why we are concerned on the open access model.
Q72 Dr Turner: Do you think that
you have got possibly too big? Is it in the public interest that
you command as much of the market of publication of STM titles
as you do?
Mr Davis: I will give the answer
in two parts, first just factually. This is an extraordinarily
fragmented, diverse industry. There are over 2,000 publishers
in this industry. The top six publishers have about 35% of the
market, so this is not a consolidated industry per se. There are
new journals regularly being launched. There are, as I said, 2,000
by and large flourishing publishers of all sizes and you have
got different business modelscommercial, university and
society. Within that we are the market leader with, depending
on how you calculate it, something like 20% of market share. If
you ask is this helpful or not, in the last seven years we have
led the industry and the scientific publishing world to on-line.
I think most people would agree we have pioneered it through ScienceDirect
and through the electronic platform. You can ask anyone in this
research community has it been massively beneficial in terms of
penetration, usage, access and so on, and the numbers I have already
given you. That would not have happened if we did not have the
scale to invest what turned out to be in excess of £200 million
to develop the ScienceDirect on-line platform.
Q73 Dr Turner: None the less, when
you were contemplating a merger with Harcourt, the Competition
Commission examined this and one of their analysts came to the
conclusion that the merger would be against the public interest.
Can you allay his concerns?
Mr Davis: Yes. First, I ought
to point out that the inquiry concluded that it would not be against
the public interest and gave the go-ahead for the merger to happen.
The one individual was particularly concerned on pricing, that
Harcourt and Elsevier together would have excessive pricing power
which we would exploit. At the time Harcourt was putting its prices
up each year by 8 to 10%. We were putting our prices up, as I
said, by 6 to 7%. His concern was, "When this happens I know
what is going to happen. You are going to end up putting all the
journals up by 8 to 10%". We said, "That is not the
case. It will be the opposite. We will move the Harcourt pricing
down to our level", and that is what has happened. Since
the Harcourt acquisition we have put our prices up in the range
of six to seven%. The other point I would add, and we can send
you all the data, is that every year we analyse every price increase
from every publisher on a graph. This is announced price increases.
Every year for the last five years we have been in the bottom
quartile or bottom tertile in terms of the level of price increases.
That is factual. We can give you the data. I think therefore we
have been a moderating influence on pricing in this industry over
the last five years.
Q74 Bob Spink: You have given a very
good account of yourself this afternoon, particularly on bundling.
You provide flexibility on the packages you offer and customers
have a choice of what they take. I just wondered if you could
explain why and how you have managed to increase the number of
articles by 200 to 300% since 2001.
Mr Davis: We have increased the
number of articles?
Mr Jongejan: Article downloads?
Q75 Bob Spink: Yes.
Mr Davis: The primary driver has
been the ScienceDirect on-line platform which gives increasing
functionality in lots of areas. Researchers tell us absolutely
consistently that it is an enormous boost to their productivity,
which is why they are using it more and more. The first reason
is that existing users are using it more and more as we add more
and more functionality, so there is a cross-reference capability
where they can move to other publishers, there is a linkage capability
to other articles. They now have access to the world-wide web
through our search engine and so on. Secondly, more scientists
are using it. There is a 20% increase a year in the number of
scientists and, lastly, the number of institutions who are taking
it, so more scientists, more institutions, more functionality.
Q76 Paul Farrelly: Mr Davis, there
have recently been examples of your losing editorial boards. People
have been setting their own journals up, screening the pricing
policy, defecting to rival publishers. Some people might say that
that is the market working, but at the same time you began your
address by saying that over the last five years you have been
able to put through price increases of seven, 7.5%.
Mr Davis: Between six and seven
and a half.
Q77 Paul Farrelly: Year on year?
Mr Davis: Yes.
Q78 Paul Farrelly: I know you have
got a background in consumer goods because I remember as a City
editor of The Observer reporting on your appointment. Those
are price increases that you in your previous life would have
given your eye teeth for. What I would like to get to the bottom
of is what features of the market you are now operating in allow
you to sustain price increases of this order, substantially above
inflation, year on year? I am not asking you to justify them,
but what features of the market allow you to sustain those price
Mr Davis: The biggest single factor
is usage. That is what librarians look at more than anything else
and it is what they determine whether they renew, do not renew
and so on. We have usage going up by an average of 75% each year.
In other words, the cost per article download is coming down by
around 70% each year. That is fantastic value for money in terms
of the institution, so I would say that is the single biggest
factor. The second factor is ScienceDirect. We are continuing
to invest well over £100 million developing new technologies,
new features of functionality, and I think those are genuinely
appreciated by our end users and allow us to continue to invest
but also give them value for money.
Q79 Paul Farrelly: So it is demand
Mr Davis: The last factor is that
we are publishing three to five% more research articles each year.
Mr Jongejan: From the consumer's
point of view, clearly the functionality we now provide is so
increased that to run a library you basically should be able to
take advantage of this. You ask how can you sustain that kind
of price increase in a market where the budget grows at three%.
My response would be by increasing functionality and efficiency
at the consumer end. I think every publisher and librarian agrees
that what we offer now saves an enormous amount of work walking
from A to B and so on.
Mr Davis: We could position it
a different way and if I were in my old consumer business I might
by saying that in the last five years the cost per article has
come down every single year, the cost per user has come down every
single year for the last five years, so there is a different way
of looking at it. Our investment has gone up every year and increasingly
up every year for the last five years.