Income for Electronic Product

Unfortunately, in a period when electronic publishing generates additional costs that must be funded, several trends apparent in the emerging purchase patterns of electronic products limit the income available to support publication costs and create further pressures on publishers to increase prices.

Slowness to Adopt University presses attempting to sell electronic product directly (as opposed to bundling it automatically in the paper price and offering "free" access) are finding that sales to universities are progressing more slowly than projected. Project MUSE sales, for example, are at 378 after two years; sales to MIT's electronic-only journals hover at around 100; in no case are there more than 50 library subscriptions. There are under 25 subscriptions to the online edition of The Cigarette Papers at the University of California/San Francisco Library's Brown and Williamson Tobacco site after nine months (http://www.library.ucsf.edu/tobacco/cigpapers/ ). Sales to SCAN are a handful (although access

has been restricted for less than one month at the time this paper is written). Even for publications for which no additional charge is being made, library adoptions are slow in coming. The Astrophysical Journal Electronic Edition, for example, has 130 libraries licensed to date. There are, of course, good reasons for this slowness: libraries face the same difficulties in building infrastructure, funding, and staff expertise that publishers do. But the low sales nevertheless make funding the transition more difficult, because publishers can't count on sales income from the electronic product to help to cover the costs of electronic publication. The growth curves to which publishers are accustomed from launching paper journals (even in this age of low library adoptions) are too optimistic when applied to electronic publications. This slowness has real consequences for funding electronic innovation.

New Discount Structures Emerging business practices and discount expectations lessen the income per subscribing institution (at the same time that the efforts necessary to obtain that subscription are intensified). The expectations of consortia for deep discounting (both for number of consortia members and for adopting a bundle of publications) can go as high as 40% for academic institutions, with nontraditional markets receiving even deeper discounts. If 70-85% of the list price represents first-copy costs, a 40% discount means that these subscriptions are no longer carrying their full share of the first-copy costs. Deep discounting cannot be a long-term pricing strategy.

In addition, other consortial demands (for example, demands that inflationary increases not exceed a certain percentage for several years or that access be provided to high schools free of charge) further lessen the ability of publishers to fund electronic innovation out of electronic product sales. Again, it is easy to empathize with these library positions and to understand why they are evolving. But these efforts by libraries to control costs actually have an inflationary pressure on overall prices, since the base price must increase to make up the losses.

Loss of Subscriptions Publishers are also worried about losing subscriptions. Some losses will surely happen. At a minimum, subscriptions will be reduced by another major wave (or waves) of cancellations as libraries try to cope with the ongoing costs of paper and electronic subscriptions from the major commercial science publishers and by the loss of any duplicate subscriptions still remaining on campuses. In addition, publishers are haunted by the potential for substantial shrinkage of individual subscriptions or society memberships as more and more scholars have "free" access from their campuses, though loss of individual subscriptions is less sure than library cancellations. (By December 1996, almost 60% of SCAN uses were coming from U.S. non-.edu addresses as more and more people obtain access from home workstations; it is possible that individuals will pay for the convenience of noncampus access, just as they now do for nonlibrary print access.) Nevertheless, because individual subscriptions play an increasingly important role in financing many journals (especially journals launched within the past

ten years, when library support has been so eroded), widespread cancellation would have a substantial impact that would force journal prices higher.

Possible Increases in Sales Two possible new revenue sources may somewhat balance the losses in income described above, although both are highly speculative at this point. First, publishers may obtain new institutional markets and wider distribution as consortia bring institutions like junior colleges and high schools to scholarly publications. Project MUSE has begun to see this trend. It is not clear, however, that these customers will be long-term subscribers. Given the present nature of scholarship, many of these new subscribers may conclude that any amount of money is too much to pay after two or three years of low use statistics, especially when on-demand access by article becomes widely available. There will be a substantial market for scholarship at junior college, high school, and public libraries only when the possibility of wider audiences through the Internet fundamentally changes the ways in which scholars write and present their work-a change that will surely take many years to materialize. Other publishers are more optimistic about this potential source of income.

Second, a substantial revenue stream may exist in sale of individual chapters and articles to scholars whose institutions do not have access, who do not have an institutional base, or who are willing to pay a few dollars for the convenience of immediate access at their workstations (people who are now presumably asking their research assistants to make photocopies in the stacks). And there may be substantial sales among the general public. This new product may represent enough income to relieve some of the pressure on journal finances, if the process can be entirely automated (at $6 or $7 per article, there is no room for the cost of an employee ever touching the transaction). This solution needs substantial traffic, because it takes seven or eight article sales to cover the first-copy costs of one typical humanities subscription.

Of course, the ability to purchase single chapters or articles will also diminish subscription revenues, as some libraries choose to fill user needs on demand and to cancel their present subscriptions. It is too soon to tell what the mix of new audiences and subscription cancellations will be, and whether the revenue stream from new sources will replace that from canceled subscriptions.

Aggregators So far, the models we have examined have all assumed that the publisher is providing access to electronic resources. Publishers could, of course, avoid many of these costs by providing electronic files to aggregators and leaving marketing, file service, file conversion, and archiving to outside suppliers who would provide a single point of purchase for libraries and individuals. This scheme offers a number of advantages from a library point of view. The instant connection between search engine and ordering ability that the larger services like UnCover and OCLC offer may potentially bring more end users.

But from a publishing point of view, this model has two very large disadvantages. The first is strategic. In an electronic world, one of the major values that

publishers have to offer is the branding value of our imprints as symbols of excellence resulting from peer review and gatekeeping functions, which will be ever more valuable in the time-starved world of the Internet. This brand identity is inevitably diluted in an aggregated world, especially if the aggregator is handling marketing and distribution.

Second, and more relevant to the discussion at hand, it is hard to see how the royalties most typically offered by aggregators (for institutional licenses or for ondemand use) can begin to replace the revenue lost from direct subscriptions. A 30-40% royalty does not cover first-copy costs of 80%. Only by retaining the entire fee can publishers hope to generate enough revenue for on-demand sales to make a sufficient contribution to the costs of publication. A wide-scale move to aggregation would have the effect of making the first-copy costs for the few remaining subscriptions very large indeed, in addition to reducing the perceived value of what we sell (yes, it is possible for a humanities quarterly to cost $1,200 annually!).

The University of California Press and most other nonprofit scholarly publishers would like nothing better than to price electronic products substantially lower than print. However, the low margins under which they operate, the demands of users that print continue to be provided, the high first-copy costs typical of scholarly publishing, the need to fund the development of electronic product, and the expenses of producing full-featured electronic publications all mitigate against low prices, at least during the transition period.