RE: APS pricing explained for 2003

["Waters, Donald" <DJW@Mellon.org>]

Colleagues,

As many of you surely did, I found the data that APS generously provided
below in its pricing explanation to be very interesting and provocative.
All sorts of qualifications and explanations, which aren't made explicit
in the document, are no doubt needed to understand the full implications
of these data .  For example, one would want to know how the aggregated
data break down over the individual APS products.  One would also want to
understand more specifics about the secular drop in subscribers.  Still,
because these data are offered as part of a general explanation for a set
of APS policy decisions about pricing, it is perhaps not completely unfair
to use them generally to raise a number of related policy questions.

I was particularly struck that growing pressure on the demand side for APS
products seems to be having no effect on the supply side.  That is,
subscriber demand is said to be dropping by 3.5% per year while, by my
calculation, the number of manuscripts published is going up on average by
3.6% per year over the period from 1997 to 2001.  The number of pages
published is growing at an even faster rate at 4.26% per year.  Given the
apparently inexorable rise in costs of publishing, why is the policy
decision to pass through the rising costs (at a low and declining margin)
in the form of rising prices to the subscriber.  Why isn't the choice,
given the declining demand, to constrain the number of articles and pages
published so that the total costs are reduced and so that the line could
be held (or reduced) on prices?

Roger Noll provides the classic answer [Serials Review 18 (1992):32-37] by
explaining the increase in supply in terms of the continuing pressure by
scholars to find specialized outlets for their articles, which results in
part from the tenure process.  However, the forces in Noll's explanation
are supposed to interact in a very specific way.  He accounts for
increased supply in the form of the creation of new and more specialized
journals and suggests that the logic of "monopolistic competition" would
drive individual journals (like Physical Review) to be increasingly
selective in the face of increased supply, thus driving up its quality and
its standing as a "must have" product in the face of buyer decisions to
cancel subscriptions.

APS, however, does not appear to be following the logic one would have
expected from Noll's explanation.  According to the data below, APS is not
becoming more selective in the face of increasing supply and declining
demand.  Instead, the acceptance rate of manuscripts published over the
period has stayed constant at about 58% of those submitted.  As a result,
because the supply keeps rising, the journal products just keep getting
fatter and prices keep rising.

Why are the economic forces not operating in the way that Noll predicted?
What compels publishers like APS to publish more, rather than be more
selective?  Is there no real economic advantage to greater selectivity now
that online publication is a factor?  And why aren't libraries objecting?
If they are, why aren't they more effective in changing the policy
decisions of the publishers?  Is a "big deal" effect at work here, where
work of lower quality is being bundled with the high quality articles,
making it difficult for a buyer to discriminate and buy only material of a
determinate quality?  In not pushing back on this kind of bundling, are
libraries effectively colluding with publishers, sacrificing quality for
quantity at an increasing cost to institutions of higher education?

Don Waters
Program Officer
Scholarly Communications
The Andrew W. Mellon Foundation


-----Original Message-----
[N.B.:  The 2003 Price Chart is available at: 
<http://librarians.aps.org/Price03.pdf>

Dear Tier 1 Subscriber:

Over the past years both the library community and the scholarly societies
have wrestled with the painful problem of escalating costs of the
scientific literature. This letter is to initiate a dialogue and to
provide you with advance notice of the APS pricing for the year 2003.

We will begin with financial data from the APS and follow with the
philosophy, which directs the APS pricing model, specifically its
multi-tier pricing. Then, we will provide APS pricing for the coming year
2003. With that we will close with a equest for continued feedback from
the community to guide us in future years.

BACKGROUND INFORMATION

Presented here are some historical numbers to set the context and to
demonstrate what is meant by running a publishing operation to just cover
costs.

Fiscal year ending June 30, 2001:
Total Society revenue from operations: $34 million
Total Society expenses for operations: $37 million
Revenue from publications $27.8 million
Expenses from publications $27.5 million
Net return on publications $ 0.3 million (1% of revenue)

Looking at Publications, from 1997 to 2001 the price per page of Physical
Review rose from $0.135 per page to $0.155 per page, this averages to 3.7%
per year.

During that period APS had average salary increases of around 4% and the
number of subscribers continued their long historical drop of around 3.5%
per year. APS continues to invest in technological advancement, by
digitizing all of our journals online and creating PROLA. We kept our
average price increase in the single digit range while article submissions
increased between 3.5% and 5.5% per year, salary inflation was 4%, and the
annual attrition of the subscriber base was 3.5%, by allowing the margin
on our operations to erode.

The following table provides additional background information.
Year	Manuscript	Manuscript Pages	Price/ Page    Price/
Price/Article
                Received  Published      Published   (US$)
Submission  Published (US$)

1997       22,119      12,789              89,195        0.135
0.546                 0.945
1998       23,276       13,349             92,430        0.140
0.555                 0.969
1999       23,734       13,438             93,263        0.149
0.586                 1.035
2000       24,228       14,245             99,164        0.151
0.620                1.055
2001       25,225       14,631             104,379        0.155
0.643                 1.109

The price increases in 2003 continues a process of just keeping even but
also a process of redistributing the cost.

[SNIP]

There are two points of view which both lead to increasing the fraction of
journal revenue, which comes from the more research active institutions.
One is from a business perspective. As cost pressures weigh on college
budgets, small institutions may feel forced to drop their institutional
subscriptions. This would be a significant loss, both for their students
and for the larger community. In particular, the loss in revenue will have
to be made up by the remaining institutions, since APS operates with no
profit margin to absorb it. By putting a constraint on the prices of the
small colleges we hope to keep them as subscribers. This is economically a
win-win situation.

The second perspective is more fundamental. The future health of physics
is heavily dependent on the educational activities of our small colleges
because they foster both the graduate schools and the technical workforce.
APS is committed to keeping the literature of physics accessible to all
portions of our community.

In keeping with these observations, we are adding two new tiers of
research active institutions for 2003, tier 4 & tier 5.  Tier 5 Very Large
Research Institutions (Represents less than 1% of all subscribers).  The
methodology used to determine this tier is based on the size, nature, and
scale of an institution's research activities, the degree to which an
institution regards research as a fundamental aim, the size of the
research budget in physical sciences, significant usage activity and
significant publishing activities of the institution's researchers in
APS's journals. Tier 4 Large Research Institutions (Represents
approximately 5% of all subscribers).  The methodology used to determine
this tier is based on the size, nature, and scale of an institution's
research activities, the degree to which an institution regards research
as a fundamental aim, the size of the research budget in physical
sciences, substantial usage activity and substantial publishing activities
of the institution's researchers in APS's journals.

Tier 3: Carnegie Research Extensive institutions and their overseas
equivalents, as well as government laboratories and corporations

Tier 2: Carnegie Research Intensive institutions and overseas equivalents

Tier 1: The remainder of the academic institutions and their overseas
equivalents

[SNIP]

The 2003 Price Chart is available at: http://librarians.aps.org/Price03.pdf

SUMMARY

APS recognizes the importance to the Community of maintaining stability
and predictability for your costs. We feel that change is necessary, but
do not wish it to be without involving the community. We intend to
maintain this structure and the institutional categorizations for at least
two years, during which time we will continue extensive interactions with
the library community. To help reduce the escalating publication costs,
APS is investing in technologies and looking at efficiencies to help
reduce our publication costs. We are also exploring other revenue sources
to help support the publications operation. Having reviewed the
background, philosophy and details of the 2003 APS pricing model, we
welcome discussion and comments. If you have any questions or concerns,
please write to as at assocpub@aps.org.

--end--