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Re: Cost of Electronic Resources 

Forwarded message:
Date: Fri, 31 Jan 1997 13:26:42 -0800
From: Pete Goldie <pg@lbin.com>
Subject: Re:  Cost of Electronic Resources

>It would be helpful to many of us who are either creating licenses or
>responding to them, to get a sense of:

A very interesting suggestion, one I hope will lead to some valuable input
from electronic publishers.  Here I will give you our experience as a small
publisher of academic titles.  We have only a few CD-ROM titles published
here, as most of our work is contract production of e-pub products for
non-profit and commercial STM publishers, so I will also relate some of
their licensing policies.

Let me begin by pointing out that electronic publishing is an risky way to
make money, and an excellent means of loosing your shirt.  Because a CD-ROM
or online service can offer a highly concentrated volume of content, the
cost of developing the mass of content is high and can easily end up being
priced beyond the budget of your readers.  A printed reference textbook
priced at $40-$60 is commonplace; but if you place 10 or so integrated,
hyperlinked textbooks on a CD-ROM, the price must rise accordingly.  Add
interactive multimedia features and one's development cost can be
staggering.  Now consider STM publishing, with a relatively small,
financially-strapped, potential market for print products, with even fewer
using computers, add to the mix the fact you are competing against your own
print versions, and you may imagine the challenge of controlling the prices.

I hear fiddles playing whenever I attempt to explain this to librarians and
other academics.  I don't want your sympathy, but your understanding is
essential.  If you doubt that electronic publishing is by and large
unprofitable, look at the companies that have failed, or are marginally
profitable, such as Voyager, Broderbund, Macromedia, Sony Electronic
Publishing, TW/New Media, etc.  Even Microsoft is loosing money on their
electronic titles, and just reorganized that division.  The best evidence
that the economics of electronic publishing are very shaky is the paucity
of quality titles.  Academic Press, Wiley and Elsevier publish 10s of
thousands of print titles, yet have produced only a few dozen CD-ROMs and
have very few new titles in development.  The revenue from e-pubs just
isn't there.

In 1991, I published the Darwin Multimedia CD-ROM.  Although primarily
designed as single-user, those seeking network licensing were asked to
contact us.  In 5 years, we received perhaps 3 queries from libraries, and
no network licenses were actually sold, despite a very low price.

We have just released the 2nd Edition of the Darwin Multimedia CD-ROM.
This product we are targeting for the general market and as course material
for secondary/university education.  The price has been cut in half (to
$49.95), and the contents more than doubled.  The new price is a bargain,
as one cannot purchase the equivalent contents in print for several times
this amount (especially as much of the contents are out-of-print).

Again the disc is primarily for single-users, but the advanced
windows+mac+unix interface enables easy cross-platform networking.  The
fact is we, and most publishers, have little control on our products being
networked, we cannot monitor the number of simultaneous users, and we
cannot prevent the CD-ROM from being copied.  The software necessary to add
these sorts of control would add about $50 to the cost of each disc,
pricing it too high for most students.

By aiming for a lower price, our intent is to increase the number of discs
sold.  Networking the product to a classroom represents 20-100 disc units
not sold, and would require pricing to reflect this.  We will offer 50% or
greater discount to educational organizations, delivered as CD-ROMs.  The
school will have a choice of networking as many workstations as discs they
buy, they can then allow the students to use the discs individually on
their PCs.  Thus, our networking license is directly tied to distribution
of the CD-ROM product, as the concept of simultaneous-user licensing is
flawed by being uncontrollable.

We are also giving free evaluation discs to any teachers of evolution,
history of science, philosophy of science, etc., courses.  We stipulate
they may not use the evaluation disc to teach in the classroom, but
obviously we will have no means of checking on this.  We will see how this
marketing experiment turns out.

Now, a few comments on STM publishers we have worked for.  When we began
making CD-ROM versions of print journals, we suggested publishers make the
discs a part of regular subscription services and roll the e-pub
development costs into their total budget.  This is the only model that
made economic sense to me, as only a fraction of subscribers will buy the
CD-ROM as an option and STM journals have such low subscription numbers
that the cost per unit would be prohibitive.  This model has been adopted
by a few publishers.

We made an interesting CD-ROM for Academic Press, "The Methods in
Enzymology CD-ROM (Recombinant DNA and Related Methodology)", containing 18
volumes and a 255 vol. cumulative index, all extensively hyperlinked.
Price for the print equivalent would be over $2500, the CD-ROM was priced
at $1000.  The CD-ROM purchase also included a 5-user network license.
This made quite a lot of sense, by allowing small research departments to
get a networkable product without additional cost or paperwork.  I believe
this is a good policy for high-priced, limited appeal titles.

In 1991, we began producing the Journal of Biological Chemistry CD-ROMs.
This title has been well discussed on this and many other lists, but few
have ever asked us about the project.  Last month we shipped our final JBC
CD-ROMs, concluding our relationship with ASBMB.  JBC e-pub is now limited
to the online service at Stanford/HighWire.

Publishers determine the price of their products, not producers like
Lightbinders.  When ASBMB first set the annual price of JBC CD-ROMs at $45,
we were shocked.  In 1992, this was over 20,000 pages and filled 5
discs/year.  The 1996 year were about 35,000 pages, filled 7 discs/year and
cost individual members $70.  Individuals could buy the CD-ROMS alone,
institutions paid the CD-ROM price on top of the print price.  The cost of
production could not be recovered unless over 50% subscribed to the CD-ROM.
Even at the very low price, only about 15% of the subscribers opted for
CD-ROM versions.

ASBMB's low price and marketing strategy guaranteed huge losses.  We also
faced difficulty dealing with other publishers, who assumed we must work
for peanuts to create JBC CD-ROM as such a low cost.  Libraries represented
only about 20% of the CD-ROM orders, and without attracting the
institutional market, the CD-ROM could not be economically sustainable.
Libraries did not accept the CD-ROM versions gladly, for some justifiable
reasons.  We could only get 2-3 months on a single disc, and the discs were
hard to control in a library.  Clearly the e-pub solution required
centralizing the contents into either a LAN or online/web, and we
demonstrated JBC online over 18 months before Highwire.  I am somewhat
perplexed to see such a lively discussion of JBC/HighWire online pricing
structure, now that it more closely resembles the actual costs of
production.  I never heard a single librarian complain the CD-ROMs were too
cheap, just that they were too much trouble to administer.  Now I hear
librarians complain the online version is too expensive and offers no
archive capability, and some want the CD-ROMs back.  Go figure.

Pete Goldie

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