WSJ Reed article - excerpts

[Ann Okerson <aokerson@pantheon.yale.edu>]

1/19/04 Wall St. J. B1

The Wall Street Journal
(Copyright (c) 2004, Dow Jones & Company, Inc.)

Monday, January 19, 2004
Reed Elsevier Feels Resistance To Web Pricing
By Charles Goldsmith

CORNELL UNIVERSITY decided the math just didn't work anymore. The Ivy
League school was paying $1.7 million a year to get about 930 scientific
journals from ScienceDirect, an online publishing unit of Anglo-Dutch
media giant Reed Elsevier. But Cornell wasn't happy knowing that those
journals, amounting to 2% of its journal subscriptions, were eating up 20%
of its periodicals budget -- and many of them were hardly ever read.

Unlike with printed journals, Cornell could see exactly how seldom
students accessed some of these scholarly publications. "It's now a lot
easier to see what gets used," says Cornell's associate collections
librarian, Ross Atkinson. As a result, the university is now negotiating
with Reed and expects to eliminate at least 150 journal subscriptions to
curb costs.

Reed's ScienceDirect has been much-admired among big, old-line publishers
for its innovative use of the Internet. But some university librarians are
starting to rebel against Reed's dominance by dropping subscriptions to
its journals; some academic researchers are supporting alternative online
publishers of academic research. The disgruntled faction is the thin edge
of a wedge that in coming years could widen cracks in Reed's vaunted
online strategy.

[SNIP]

Reed overhauled the model, offering some 1,200 titles -- including the
Lancet -- online through a service that bundled hundreds of subscriptions
for one discounted, albeit steep, price. Since launching ScienceDirect in
1999, Reed has seen its science-medical revenues double to $2.33 billion
-- or about a quarter of its overall sales and nearly 40% of its operating
profit in 2002.

University libraries typically sign multiyear contracts with ScienceDirect
for access to a huge number of journal titles. Universities looking to
trim costs by "unbundling" would have to eliminate a large portion of the
journals before realizing a cost savings -- one reason Reed has been able
to push through annual subscription increases of about 7% a year.

Recently, though, Reed has encountered resistance from subscribers. Some
are deciding the cost savings are worth unbundling their Reed
subscriptions and taking far fewer of the journals. Harvard University,
for example, expects to save several hundred thousand dollars a year by
cutting 100 Reed titles. "Unbundling gives us more control over how we
allocate our funds,"  says Sidney Verba, director of the Harvard
University Libraries.

[SNIP]

Last month, at a UBS media-analyst conference in New York, Mark Armour,
finance director for Reed Elsevier, dismissed talk of new threats to its
science- journal model as a "lot of noise." He said the company's
subscription model continues to serve the scientific community "very, very
well."

Still, media analysts are increasingly troubled by the threat that free
online scientific research could pose to Reed's pricing power as
ScienceDirect contracts come up for renewal. Reed's share price
outperformed most media stocks in 2002 in large part on the strength of
ScienceDirect; in 2003, Reed's share price fell more than 12%.

[SNIP]

At the UBS conference, Mr. Armour questioned whether the PLOS journal can
function without substantial, ongoing grants: At present, the journal
requires its researcher-authors or their institutions to pay a $1,500 fee
per article published. Mr. Armour and other rival publishers say that
charging researchers a fee to publish could freeze out researchers who
lack deep wells of foundation funding. Seeking to address this, the PLOS
announced last week an institutional membership system for universities
and other organizations that would allow publishing discounts for authors.

"We will continue to engage in the debate" over open access and other
publishing methods, Mr. Armour told the conference. Reed's commercial
model "as it stands has a lot of legitimacy."

*******