RE: Digital publishing and university presses

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

Let's be sure to add apples and apples.  The cost of something is 
one thing; who pays that cost is another matter.  This is a long 
post, I'm afraid, but talking about accounting takes space.

The American university presses (excluding OUP and Cambridge) 
have total operating costs for their book operations in the range 
of $300-$350 million a year.  About ten percent of that figure is 
covered by institutional and philanthropic subsidies, including 
endowment income.  About 25 percent is covered by sales to 
libraries.  About 65 percent is covered by sales of books to 
individuals.

If we add digital programs and do not reduce print programs, the 
costs would be higher and would largely fall to the presses' 
parent institutions in the form of larger subsidies.  If we add 
digital programs and reduce print, the revenues of the presses 
will decline, as most individuals prefer to purchase books in 
hardcopy.

Individuals' preferences are not a matter of speculation.  Ebook 
sales are now under 1 percent of the industry, and sales of PDFs 
for books are tiny. Thus reducing print programs will actually 
increase the subsidies to the presses (flat costs, lower 
revenues).  This could change in the years ahead as the use of 
ebooks becomes more widespread, but even a 10 percent forecast 
for ebook market share in 5 years is aggressive.  Thus the 
migration of presses to digital programs will increase 
institutional subsidies from 10 percent of total operating costs 
to some larger, unknown figure.

On the cost side, digital technology potentially costs less to 
users but more to the presses.  This apparent paradox can be 
explained by the fact that publishing costs fall into two 
categories:  fixed and variable costs. Within fixed costs there 
are direct and indirect costs.  Variable costs are for things 
like paper, printing, binding, and royalties.  By eliminating 
print, the variable costs could drop to zero (assuming no 
royalty).  Digital advocates and open access advocates in 
particular focus on this one part of the costs, but it is only 
part of the picture.  The fact is that for a publisher, all of 
the variable costs are entirely paid for--they are in fact 
"free."

How's that again?  Suppose a book has a retail price of $35; it 
can be purchased at a college book store.  The publisher receives 
perhaps $20 for that book.  Out of that $20 the publisher must 
subtract the variable costs, which average (according to AAUP 
statistics)42 percent ($8.40) of the money received.  In other 
words the gross profit on that $35 book ($20 to the publisher 
before subtracting variable costs) is $11.60.  All of the 
variable costs, including the cost of paper and printing, are 
thus covered by sales. For a publisher, print is not only free 
but profitable.

But there are still the fixed costs.  The indirect fixed costs 
are those that apply to all the press's operations, whether in 
print or for digital products.  This includes general 
administration and the cost of operating an editorial department, 
which is the heart of any publisher.  These costs are unchanged 
if a press works in digital form.

The fixed direct costs are those associated with a particular 
medium (print or digital).  These costs are higher for digital 
products than for print because managing Web servers costs more 
than telephoning a vendor for a print run.  Recall that most (not 
all) of the costs associated with print are variable and not 
direct fixed costs.

Thus a fully digital program has lower variable costs, the same 
fixed indirect costs, and higher fixed direct costs.  Since the 
publisher only pays for the fixed costs, and the user pays for 
the variable costs, for publishers switching to a digital program 
increases costs substantially. This increase will likely be borne 
by the presses' parent institutions or the presses' output will 
be cut back.  The latter is the more likely scenario.

We are at this time in the middle stages of a paradigm shift for 
university press publishing, where the presses are moving from 
their status as a profit center with a modest (10 percent) 
subsidy to a component of a cost center, typically a university 
library, where the presses' costs are entirely assumed by the 
parent.  With all the competition for an institutions' funds, the 
question is where will university press financing stand in the 
queue.

Joe Esposito



-----Original Message-----
From: owner-liblicense-l@lists.yale.edu
[mailto:owner-liblicense-l@lists.yale.edu] On Behalf Of Courant, Paul
Sent: Tuesday, April 14, 2009 3:12 PM
To: liblicense-l@lists.yale.edu
Subject: RE: Digital publishing and university presses

My guess is that you are both partly right.  Making scholarship 
public, like the rest of the production of scholarship, will 
require continuing subsidy. That's in the nature of the work.

It is also the case that digital production and distribution is 
(or ought to be) intrinsically less expensive than older models, 
so costs should come down.  This is good news, because it frees 
up more resources to be used in the production of scholarship 
itself, which is the point in the first place.

Paul Courant