• Fantasy Pricing – An Interview with Selden Lamoureux

    May 26, 2010
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    When I asked Selden Lamoureux, Electronic Serials Librarian at the North Carolina State University Libraries, “what are the most challenging issues for electronic serials librarians today?” we launched into a fascinating conversation about a topic that hits at the core of what it means to work in library acquisitions these days. Selden’s response was:

    “The list is long and ranges from things that are the natural consequences of a dramatically altered publishing landscape (such as the need for new management tools), to problems largely of our own making. It’s within this second category that I find one of the more insidious problems for large academic libraries: fantasy pricing.”

    Over the course of many weeks, the following interview-style Q&A unfolded. Selden is one of those people who have spent years cultivating intelligent and cooperative relationships between libraries and publishers. She is one of the founders of SERU (Shared E-Resource Understanding), a framework for eliminating the need for extensive and sometimes painful license negotiation for electronic resources such as e-journals, e-books and databases. Her invaluable contributions to librarianship have been recognized by her peers via awards such as the Coutts Award for Innovation in Electronic Resources Management and the John Merriman Award to support attendance at the UK Serials Group Annual Conference in Edinburgh, Scotland in April 2010 (volcanic ash cloud, included). Selden is an active leader in NASIG (North American Serials Interest Group) and ALA’s ALCTS (Association for Library Collections and Technical Services). The opinions and statements that follow are based on Selden’s experiences and come from the perspective of an acquisitions librarian working in the context of a large academic research library. Her insights may not reflect the experience of acquisitions librarians in other kinds of libraries, but hopefully give you a flavor of the state of serials acquisitions in the broad scale. Please share your thoughts, opinions and questions in the Comments section that follows this post.

    Question: What is “fantasy pricing”?

    Answer: Fantasy pricing is the practice of establishing a journal’s subscription price that, for the most part, appears largely divorced from production and distribution costs. In the print environment, journals had production and delivery costs that determined a minimum price. Electronic journal pricing is almost always based on the price of the print, but for electronic journals, the cost of delivering the content is cheap and there is little relationship between what it costs to produce and deliver the electronic journal and the asking price for its subscription. How do I know this? When a publisher can claim its collection of journals is worth more than $2 million, and also claim that the average price a library pays for all that content is less than 15% of the value of its titles, then something is amiss in the way that publisher values its titles! [Note: What Selden is saying here is that it doesn’t make sense that a publisher would claim that their journal collection is worth $2 million while also stating that libraries only pay 15% of that cost – why would a publisher sell their journal collection at such a loss if the value they claim is so much higher? Either the collection isn’t worth $2 million or the publisher is really desperate to make a sell.]

    Question: Why is there such a difference in the stated value of the journal collection vs. the cost to libraries?

    Answer: When pricing for online content is based on a library’s print subscription spending commitment, large research libraries, with their historically large number of print subscriptions, pay a disproportionate amount for electronic journal content. If all libraries shared in the savings, I wouldn’t object. But what happens in practice is that libraries wind up paying wildly different prices for the same content, pricing that is all out of proportion to differences among their institutions.

    An especially egregious example: One publisher offered a library consortium access to their complete collection of journals online. The consortium contained library members that ranged in size from large ARL (Association of Research Libraries) libraries to small institutions of under 5,000 students. The difference in price for the exact same content was 32 times at its most extreme. In terms of actual dollars, it meant one institution was asked to pay $1.5 million, while another paid $47,000 for identical content. If the value of the content is truly $2 million (let’s say, in this case, it is purported to be valued at around $2 million), then both libraries are getting a bargain; but if the value of the content is closer to the average cost (15%, or $345,000) then the larger library is paying too much and the smaller library too little. The publisher could never have offered the smaller libraries this same access to print journals, because the cost of printing and delivering the journal would have been prohibitive. Clearly, the negligible cost of distributing electronic journals is what makes this possible. [Note: Our reviewers pointed out that if patrons of the larger libraries use journals 32 times more than smaller libraries, then it might be somewhat justified that the larger libraries should pay 32 times more for the same content. We haven’t seen statistics to back this up consistently, but it is an interesting perspective to note. Additional cost for supporting higher capacity usage doesn't necessarily kick in until there is a very large number of uses and a publisher needs to invest in additional server infrastructure. There is still no good metric for identifying the value of a "use." ]

    Question: What is the impact of this pricing disparity on larger libraries?

    Answer: One problem is that these business models lock in historic spending commitments of libraries at the same time that they disallow or severely limit libraries’ ability to cancel subscriptions. When library budgets are flat, the only way to subscribe to new journals is to cancel previous subscriptions. If, however, a library’s spending level for a given publisher’s journals is fixed, and the annual increase is fixed, and the ability to cancel is restricted, then the library budget equilibrium is broken.

    Another problem exists in the inherent inequality of having no “real” price for a journal. There is a tradition, established long before there were electronic journals, of asking larger libraries, with their larger budgets and more extensive research needs, to pay more for content than smaller institutions (e.g., the Carnegie Classification was often used to establish tiered pricing for content). In those days, however, the disparity between costs paid by large research libraries vs. small academic libraries was never as disproportionate as it is now. [Note: Selden isn’t suggesting that tiered pricing models are disagreeable; just that the growing disparity is much more difficult to justify.]

    These days, the ambiguity of how to value (and therefore charge for) electronic subscriptions not only compounds the pricing disparity between large universities and small colleges, but also between institutions of relative parity where there are different historic spending patterns. In the same consortial example cited previously, there happened to be two large universities with very similar student populations and PhD programs. One was an up-and-coming university that had grown rapidly in the last few years; the other was the flagship university with a long, storied tradition. In this example, where the two institutions were nearly identical in their current academic profiles, the flagship university was charged nearly 2.3 times the cost for the same content, since pricing was based primarily on historic spending commitments. Noblesse oblige cannot begin to explain this pricing disequilibrium.

    Question: How did this kind of business model come about? What are the advantages for publishers?

    Answer: This is a model that is often referred to as the “Big Deal,” and it’s not hard to see what its advantages are. For publishers, there were (and still are) real costs associated with the transition from print to electronic publishing: a web presence had to be established, a journal delivery platform created, and people had to be hired who had the necessary skills to build the new access and delivery system. Once those costs were met, other costs came into the picture such as the cost of maintaining online access (unlike print, where the commitment stops once an issue is delivered), managing complex access levels, providing extra user services (e.g., table of contents alert services), customer service for authors, libraries and patrons, and reporting of metrics such as usage statistics. For publishers, there was a lot of risk and uncertainty. [Note: There is considerable debate about the actual cost of electronic production of articles within the scholarly communication marketplace. The costs of electronic production are not what are being brought to light here – rather, it’s the disparity in what is charged to one library versus another library for the same content and the contradiction of average charges to libraries vs. the stated value of a publisher’s electronic journal portfolio.]

    One strategy that minimizes the risk to publishers’ bottom lines is to lock in library spending at historic print spending levels, lock in an annual inflation cap (i.e., an annual price increase), and limit the ability to cancel subscriptions. That way, a publisher guarantees a predictable annual income and predictable revenue growth. Under this model, since large university libraries were often the biggest consumers of print journals, they are the customers who now provide the biggest online revenue.

    The revenue from smaller college libraries which have not traditionally been able to afford (or necessarily have much interest in) the journals then becomes bonus income because the base line cost for the content has already been covered by the large libraries, and distribution costs (after covering the costs of technical infrastructure for production and maintenance with a core customer base of large academic libraries) become relatively small.

    Question: What were the advantages for libraries?

    Answer: Just as publishers were experimenting with electronic journals, so were libraries. A decade ago, we didn’t know how library users would react to electronic journals. This model offered us access to a lot of content for a price that was within range of what we were already spending. The carrot was that we would lock in our spending commitment and receive access to hundreds of new titles (of course, the stick was if we canceled, we’d lose access to all those new titles; there was very little middle ground). In addition, there was the promise of electronic journals eventually becoming cheaper than print, and we were willing to experiment with new business models in the short term as we all figured out the shape of the future.

    Question: Why is fantasy pricing such a problem now?

    Answer: If library budgets did nothing but grow, just as the price of journals do, I suppose there wouldn’t be a problem. But that’s not the case, and has never been the case. In addition to publishers minimizing risk by locking in library spending, there is a trend for more and more publisher mergers. When I follow the trajectory of the past several years, what I see is a future with a handful of publishers, delivering the same online content to every library, at a price that absorbs each library’s entire budget. Simple. We all get the same content, and we each pay all our budgets to have it, whether my budget is $100,000 or $10 million. If all library needs were the same, that might be a desirable model despite its bizarre pricing scheme, but libraries needs are not uniform, and libraries need the ability to customize their content. If pricing were more in line with actual production, distribution and support costs for the library market, I would bet that my library would see considerable cost reductions for commercial journal content.

    Question: And what would the smaller academic libraries do if pricing were more in line with actual production and distribution costs? Wouldn’t their costs increase?

    Answer: Perhaps costs to smaller academic libraries would increase. But, maybe they could rely on previous methods of sharing resources, and use Inter-Library Lending (ILL) for the content their budgets cannot afford to cover. That’s what we’ve all done in the print environment; that’s what we continue to do now. Perhaps it’s one of the strategies for sharing information that ought to survive in the electronic environment.

    Question: What’s the future of scholarly journal pricing models?

    Answer: There are a lot of things happening in the production and dissemination of scholarly content that are competing with the commercial publishers (e.g., institutional repositories, open access initiatives, non-journal publication venues), so I expect there will be many solutions – eventually. For now, however, libraries are still investing large percentages of their budgets in commercially produced content. What I’m hoping for is a short term solution. And because my perspective is that of someone at a large academic library, I’m most interested in changes that alleviate their problems first! I would like to see publishers redistribute the cost of their Big Deals; shift their pricing models toward a model that is closer to the actual cost of the journal; and pass some of the savings realized by low distribution costs to the large academic libraries which have been their best customers for years. Another offer they can make, while prices are inching closer to costs, is to offer the large research libraries something they value which smaller institutions traditionally don’t care about: ownership of the content (perpetual access to the digital content even if the subscription is canceled) rather than leased access (whereby access is lost if the subscription is canceled).

    Question: What do you think are the chances that publishers will move away from fantasy pricing?

    Answer: It won’t be easy! If there had been a pricing model at hand that was clear, fair, and low risk publishers would be using it already. This is not an easy problem to solve. There’s the added difficulty that most publishers still have print production costs as well as electronic format costs. What I’ve seen recently that makes me think we may be about to turn a corner, however, are a few publishers who are candid that their interest is in keeping library spending levels stable, and they are not so tied to which particular journal titles are delivered. I think this has been true for a long time; they are just now more comfortable in expressing this. If, in fact, we move away from the all or nothing Big Deal to a more nuanced exchange of dollars for value, some of the equilibrium will have been restored. [Note: Publishers and libraries alike are still trying to figure out next steps. We don't know the true impact on journal value of things like web publishing platform enhancements, server maintenance, expanding online customer service, electronic article submission and editorial processing systems, electronic resource management systems (ERMS), access verification tools, etc. The road ahead isn’t totally clear, but there are some things coming into focus as a result of good faith collaborative negotiations between libraries and publishers.]

    Question: Any final thoughts?

    Answer: I find myself caught in the tension between my impulse to provide a service (access to information) to as wide an audience as possible, and my desire to be a good steward of my institution’s financial resources. I don’t want to see small institutions lose access to commercially produced online journals, but I don’t want my institution to underwrite the bulk of the cost for that access. A difference of 3,000% between what libraries are asked to pay is absurd. Large academic research libraries are paying too much for electronic content. Pricing needs to move out of the fantasy realm and anchor itself closer to production and delivery costs appropriate for the academic library market. [Note: Selden and I didn’t discuss open access publishing models in any depth in the framework of these interviews. Open access publishing has played a significant role in the many debates about journal pricing; however, as long as scholarly communication continues to rely on traditional publishing being coordinated through external publishing organizations and corporations, libraries will continue to deal with the consequences of journal valuation models and disproportionate pricing tiers.]

    Acknowledgments: Many thanks to Ellie Collier (In the Library with the Lead Pipe and Austin Community College) and Victor Lao (Springer) for their thoughtful review and feedback on previous drafts of this article. Their comments/feedback on the content in this article represents their personal opinions and do not necessarily reflect the views of their employers.

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    This article is licensed under a Creative Commons Attribution-NonCommercial 3.0 United States License. Copyright remains with the author/s.

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