A word on calculating costs

[Joseph Esposito <espositoj@gmail.com>]

I am responding to only one point in David Goodman's recent post, which
was in itself a response to Phil Davis's interesting analysis of costs and
prospective payments for research publications.  Here is David's point:

"1. Phil, as I interpret footnote 4, "figures include overhead and
profit"--please correct me if I'm not seing this right, but the
publisher's cost including overhead and profit is the price the publisher
charges the library. As librarians, you and I think of that as _the_ cost,
because it's our cost. (subject to my note 3)

It is however _not_ the cost to the publisher.  The cost to the publisher
does not include profit; he can price his product to attain whatever level
of profit he thinks is appropriate and possible. The cost for the
publisher to produce a journal , including overhead, might be $1000, and
if he prices it at $2000 then the library's cost is $2000, and the
publisher makes a very good profit. . With the same $1000 cost to the
publisher, he might price it at $1000 and break even, which may be all a
particular non-profit publisher wants."

JE:  I don't wish to quarrel with these figures specifically, but it
should be noted that *almost all* profit from publishing journals comes
from so-called back-office consolidation.  For those on this list who are
unfamiliar with business-speak (enviable folks), the back office is that
part of a business that is mostly invisible to the end-users of the
product.  The back office typically includes such things as accounting,
IT, internal audit, real estate management, the human resources
department, etc.  It does not include editorial or marketing.  When one
journals publisher acquires another (an act of consolidation), the
back-office operations typically are merged or consolidated, reducing the
overall cost per journal; hence the cost per article.  It is almost
impossible to make money with a limited-circulation journal if you only
have a single one.  You simply cannot charge enough to the universe of,
say, 1,000 subscribers to cover your overhead.  But when you have 20
journals you have a chance at making money; 100 journals is better; and it
should be clear to one and all why Elsevier has 1,400.  If Elsevier's
journals were all published by stand-alone companies, I doubt any of them
would make any money.  Elsevier's profits, in other words, are a function
of mergers and acquisitions and the consequent streamlining of operations.  
I know Elsevier has few fans on this list, but the company is simply
brilliant at managing acquisitions.  (John Wiley may be even better.)

So when we talk about moving to some form of Open Access publishing with
the aim of reducing costs, we should also consider who would underwrite
the mergers and acquisitions that make cost-savings possible.  Surely not
the shareholders of Elsevier, who will by this time have put their captial
into, say, hog bellies or for-profit educational companies (e.g., Apollo).  
It seems more likely that these cost-savings will disappear.  Therefore,
in discussing the cost per article under an OA regime, we should not
expect to transfer publishers' profits back to the research community.

-- 
Joe Esposito