RE: Wiley-Blackwell 2009 Subscription and Licensing Options

["Sally Morris \(Morris Associates\)" <sally@morris-assocs.demon.co.uk>]

I find Joe's perspective (as ever) very refreshing

However, I'd take issue with one point:  surely the best way to 
reduce total costs (in the print world, anyway) is to sell as few 
copies as possible?  A publisher would make considerably more 
profit selling one copy at $1000 than selling 1000 copies at $1.

Fortunately for all of us, the journals market is sufficiently 
competitive (and sensible) for this not to happen!

Sally Morris
Consultant, Morris Associates (Publishing Consultancy)
South House, The Street
Clapham, Worthing, West Sussex BN13 3UU, UK
Email:  sally@morris-assocs.demon.co.uk

-----Original Message-----
From: owner-liblicense-l@lists.yale.edu
[mailto:owner-liblicense-l@lists.yale.edu] On Behalf Of Joseph J. Esposito
Sent: 06 October 2008 23:12
To: liblicense-l@lists.yale.edu
Subject: Re: Wiley-Blackwell 2009 Subscription and Licensing Options

Thomas Krichel's wit is worthy of Swift, but the underlying
economic principle of his entertaining satire is simply wrong.
Publishers do not set prices based on costs, even in
not-for-profits, and they can't, any more than we can slow down
the speed of light so that the less advantaged can catch up.

Publishers cannot set prices from costs because they do not know
what those costs are.  They establish prices, to a greater or
lesser degree of sophistication, through an assessment of the
markeplace. This is not because publishers are ignorant of the
structure of their own operations (though some have faulty or
incomplete analyses of those costs), but because the costs are
unknowable.  Publishers, including not-for-profit publishers,
base their decisions on market forecasts, and they do so even
when they think they are simply adding some margin to costs.  As
William Goldman famously said, Nobody knows anything.

If this sounds inordinately cranky or mysterious, consider what
it would mean to "get at" the costs.  Imagine the publisher of
ten journals, whose fixed costs (staff, rent, etc.) run at $5
million a year.  (I am ignoring variable costs--paper, printing,
bandwidth, etc.-- for this discussion.) How to allocate those
fixed costs to each journal?  A discussion thus ensues about
whether the overhead is to be allocated equally or by some other
measure (e.g., Journal A gets a higher allocation than Journal B
because the art department puts more work into it).  In the end
you come up with a figure for costs that is derived from an
economic model for assessing overhead.  The "cost" is an economic
abstraction.  This is a small part of the reason that nobody
knows anything.

The larger part is that the abstraction known as "cost" has to be
applied to unit sales:  it is necessary to forecast (using a
mathematical model) how many customers will be found, when they
will sign up, and how rapidly they will pay their bills.  Let's
suppose that Journal B of the example above had allocated costs
of $300,000.  Will this journal reach 500 paying customers? One
thousand?  Two thousand?  If we knew what the costs were, we
wouldn't have to ask this question, but the cost is not a real
item but an element of a dynamic economic model.  With a forecast
(How reliable is that crystal ball?) of 500 customers, Journal B
has an imputed cost of $600/unit.  With a forecast of 1,000
customers, the "cost" is cut in half.  To which figure does a
publisher add on margin?  At every moment the publisher is making
decisions not from the inside out (costs to the marketplace) but
outside in (from a forecast about the marketplace in to an
assessment of the utilization of organizational resources).
This yields the basic paradox of a scalable business such as
publishing:  the best way to reduce costs is to sell more copies.

There are times when publishers can and do ignore this situation,
and that is when the market forecast is a constant.  Let's
suppose that Journal C has an imputed overhead of $200,000, has
been published for years, and has for at least 5 year or
thereabouts had the same number of subscribers--say, 1,000.
With such a stable market condition, the publisher assumes costs
of about $200 per unit and then adds on some margin to that.
Without that stable market condition, however, this method does
not work.  The limitations of this shorthand should be clear:
it is impossible to introduce a new product using it, as new
products require market forecasts, which vary; and products in
dynamic markets (a growing or diminishing number of customers)
require that publishers revisit their economic models regularly.
If you happen to believe, as I do, that the number of current
publications and content types is but a tiny fraction of what we
will be seeing in the years ahead, the "cost-plus" shorthand is
of negligible utility.

This thread began with Fred Friend asking, Why does the stuff
cost so darn much?  It's a reasonable question.  But we can't get
to an answer by impugning people's motives or engaging in
financially unsophisticated arguments.  The crisis of scholarly
communications is that a small number of people want a real lot
of stuff.  It is thus a small and expensive market to serve.

Joe Esposito


----- Original Message -----
From: "Thomas Krichel" <krichel@openlib.org>
To: <liblicense-l@lists.yale.edu>
Sent: Friday, October 03, 2008 3:28 PM
Subject: Re: Wiley-Blackwell 2009 Subscription and Licensing Options

> Joseph Esposito writes
>
>> I suppose there are some publishers who justify prices based on
>> the costs incurred, but I have never met any of them.
>> Publishers typically justify prices (if they feel the need to
>> justify them) based on the value of the products.
>
> I suppose there are some publishers who justify prices based on
> the value provided, but I have never met any of them. I doubt
> I'll meet any of them soon. How would a publisher be able to set
> a dollar amount for that value in any objective way?
>
> Cheers,
>
> Thomas Krichel                    http://openlib.org/home/krichel
>                               RePEc:per:1965-06-05:thomas_krichel
>                                              skype: thomaskrichel