David and Goliath (part 2/3)
The Oligopolistic Nature of the Scientific and Academic Publishing Industry
In 2013, five academic publishers published over half of all scholarly papers released that year. The limited competition in the publishing industry affords publishers such as Elsevier too much control over subscription fees, and it is widely accepted that they are the undisputed leader of the scientific publishing industry. Year after year, publishers report multi-billion dollar revenues and the main players in the field like Elsevier report profit margins almost four times the average of any of its competitors in the London Stock Exchange. Elsevier’s profit margins also eclipse those of huge technology companies such as Google, Amazon and Apple. Let that sink in.
But how did we arrive at this point? How did Elsevier assertively position itself as the ultra-dominant platform? The high quality of the published papers have their merit, but the profit-making strategy the outlet has adopted is the real key. We are forever hearing about Elsevier buying more and more pieces of the academic market share: acquiring SSRN in May 2016, Hivebench in June 2016, Plum Analytics in February 2017, and Bepress in August 2017. There’s even a dedicated case study that analyzes Elsevier’s strategic acquisitions.
It’s also interesting to consider how the industry reacted to the emergence of the Web, which powered an ‘open access’ movement. As a consequence, standard publications were having a difficult time maintaining paid subscriptions when the news was available on the Internet, free of charge. This was in the same way that the music industry faced many of the same challenges. However, this issue didn’t ultimately permeate the academic publishing industry. In fact, the industry actually became more profitable, and because they were avoiding printing costs, publishers could claim more of the charged subscription fees.
The consolidation of the publishing industry is what led to an increase in the profits of academic publishers. Let’s take the evolution of Elsevier between 1991 and 2013 as an example. Between 1991 and 1997, both the profits and the profit margins increased steadily. While profits more than doubled over that period from $665 million USD to $1.45 million USD, profit margins also rose from 17% to 26%. Between 1998 and 2003, profit margins decreased, but profits on the whole remained relatively stable. Both profits and profit margins then started to rise again consistently, except during the economic crisis of 2008 and 2009. Industry profits would reach an all-time high of more than $2 billion USD in 2012 and 2013.
These drastically increasing profits speak to the peculiarity of the economics of academic publishing. Authors provide their goods without financial compensation and readers are isolated from the purchase. Price fluctuations do not influence demand because purchase and use are not directly linked. Academic libraries contribute 68% to 75% of journal publishing revenues, regardless of their needs, and they have to manage with less each time prices increase. The oligopoly of publishers means that libraries have their hands tied.