Re: Wiley-Blackwell 2009 Subscription and Licensing Options

["Joseph J. Esposito" <espositoj@gmail.com>]

Sally is referring to total costs, which are knowable and 
(sometimes) known. I was referring to the imputed cost per unit, 
which is derived from an economic model and is thus dynamic. 
Total costs increase with greater sales, unit costs decline with 
greater sales.  No conflict here, but I did not express myself 
clearly.

Joe Esposito

----- Original Message -----
From: "Sally Morris (Morris Associates)" <sally@morris-assocs.demon.co.uk>
To: <liblicense-l@lists.yale.edu>
Sent: Tuesday, October 07, 2008 4:23 PM
Subject: RE: Wiley-Blackwell 2009 Subscription and Licensing Options

>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