Cost Centers and Measures
In The Networked Information Value Chain
Publishers
This Section Contains the Following Headings
To begin the discussion at each session, the attached
outline of cost categories (identifying every sector in the value
chain's primary value-added activities) was displayed for comment.
List of Participants
Jane Ellen Long, Electronic Publishing Manager, University of California at
Berkeley. The SCAN project (a partnership between the UC Berkeley, Irvine
libraries and UC Office of the President) seeks to publish books and journals
online.
Chuck Cressey, Director of Computing and Publishing Technologies, Princeton
University Press. Involved in the online catalog project for the AAUP. They
are attempting to place a complete catalog of their books on the Internet.
Princeton University Press is involved in "Project Unbound," collaborating with
several other university presses.
Janet Fisher, Journals Manager, MIT Press. MIT Press publishes
approximately thirty print journals and are now starting work on two electronic
journals and are planning two more.
Tim Clancy, Editorial Director and Associate Director, University of
Pennsylvania Press. He has worked in the journals division of the University
of Chicago Press (and the American Psychiatric Association). The University of
Pennsylvania Press is planning several electronic products although currently
all of their products are books.
Kate Wittenberg, Editor-in-Chief, Columbia University Press. Now
developing several new electronic products (both CD-ROM and online). They will
be publishing two books online with the Columbia University library and two
more online products next year.
Bob Kelley, Director of Journal Information Systems, American Physical
Society (who now publish seven physics journals). Physical Review Letters
Online was recently released through OCLC and the APS is developing a WEB
version of Physical Letters Online. The APS is planning to move all their
journals online in the future.
Ali Houssaini, Acquisitions Editor, University of Texas Press.
Coordinating efforts to mount scholarly monographs and journals online in
addition to undertaking several CD-ROM projects.
Susan Seiden, CD-ROM Products Manager, Association for Computing Machinery.
Part of the ACM joint project (with Stanford University) to restructure all ACM
publications (journals, magazines, and conference proceedings) into SGML format
for online delivery.
Liz Pope, Electronic Publishing Developer, Academic Press. Two CD-ROM
products have been released (a serial and a journal), and in 1996 Academic
Press will offer all journal titles online.
Steven Haynes, Manager of Research and Development, West Publishing
Company. West has mounted over 6,000 databases on Westlaw in the last 11
years.
Colin Day, Director, University of Michigan Press. Has ten electronic
projects under development (although none are yet up and running--except for
the journal of electronic publishing which is an experimental testbed). Also a
"Project Unbound" member.
Existing Publishing Model
To begin the session, the group viewed the preliminary list of functions
that "Publishers" (as a group) perform in the value chain. These included:
Conducting Business, Quality Control, Enhancing Presentation, Production,
Distribution, Marketing, Leveraging, and Enforcing/Protecting Rights. The
group was asked to add new functions, remove those functions or activities they
no longer perform (or for which they do not have a corresponding cost), and
define the list of functions and activities into terms they commonly use (and
will be able to assign costs to).
Additional Cost Categories
Publishers identified the following areas as important cost centers that
should be considered. For example, the moderator indicated that the function
"selecting" was present in the other groups studied (buyers and
intermediaries), yet it doesn't seem to be indicated among the publisher cost
centers--at least initially.
As one publisher noted, whether a function is performed internally or under
contract by an outside vendor, it remains a "cost" to the publisher (although
it was argued that it makes a significant difference as to how a particular
function is budgeted by the publisher). It is important that everyone
expresses and thinks in these terms.
Selection was immediately identified as its
own cost center as publishers agreed it was different from quality
control--mostly because all books are different and so must be evaluated
individually. Some publishers felt that peer-review costs should be
included in this area of publisher functions.
Acquisitions is an important publisher function
and (some publishers argued) should be included under quality control (as
editors go into the field to find material). This was not universally
accepted as several publishers indicated that acquisitions is a separate
function from quality control.
Several publishers included costs associated with the peer-review process
here, while others moved those costs to the "selection" function. However,
all agreed that there should be another element in this "cost matrix"
called acquisition.
Quality control is different from
"peer-review" and should be considered a separate cost category.
Peer-review is essentially the selection process, while quality control
is editing. Editing improves upon what the authors have created and in
the process checks the accuracy of the work. Peer-review and quality
control are two separate values that publishers add.
Enhancing presentation is basically
copy-editing and design. However publishers also have a manufacturing
cost which includes a large portion of this cost. In the "historical
model" publishers traditionally count manufacturing and production as
separate cost centers under "enhancing presentation."
Some publishers argued that "quality control" and "enhancing presentation"
were qualities imbedded into the entire publishing process while others felt
they were tools that could even be negotiated during the acquisitions process.
Finally, publishers agreed that "quality control" and "enhancing
presentation" should be included on the publisher functions list as
separate elements as they were both needed to measure overall costs
(identifying all the publishing elements was important).
Manufacturing or production/design could
become separate cost centers--unless either or both are included under
"enhancing presentation."
Conducting business is a co-ordination
function. Most of the publishers indicated that their administrative
costs and costs associated with many other administrative duties belong
here. Publishers indicated that the greatest costs associated with
their journals are the journal editors.
Acquisition functions and costs associated
with acquisitions include: Peer review; Selection; Acquiring rights;
Editors and support staff; Travel and entertainment; Telephone; Readers'
fees; Telecommunication; Postage; Dues and subscriptions; Staff
development; Translator fees; Outside editorial support; Contracting.
Should "peer-review" not appear in quality control, publishers indicated
those costs would be placed here. Editorial support payments are not
considered royalties (outside editorial support payments for peer-review
activities).
"Editing" can be placed in with "enhancing presentation"--although this
could present some problems since enhancing presentation is normally
associated with visuals (and not the enhancement of content)--which is
how this particular group described editing.
Manufacturing functions and costs
associated with manufacturing include: Plant costs; First copy costs;
Printing, paper, and binding; Additional copies; Printing presses;
Permissions; and Off-print production.
Participants agreed to separate "graphic presentation" from "text
presentation." As each is distinct from acquisitions--and indeed are often
the next stages after materials have been acquired. Once a product has been
accepted for publication, it is developed and enhanced both graphically and
textually (in the traditional model, works move from copy editing to the
design department). As both "graphic" and "text" presentation are very
different functions--and are handled by different staff (with different
skills)--it is impractical from a cost standpoint to combine them.
Distribution functions and costs associated
with distribution include: Fulfillment; Storage; Freight; Shipping to
warehouse; Shipping to outlets; Postage; Business computing; Bad debt
and collections; Damaged copies and returns; Space and warehousing;
Packaging and recycling; and List maintenance.
There was some debate among publishers about the placement of shipping
costs (both in and out), postage, and the (distribution) computing system.
Some felt these cost and functions were better identified under "General and
Administrative" (G&A) while others were more comfortable including them
under distribution. In the end, they were placed with distribution.
Copy editing/Design functions and costs
associated with copy editing and design include: Proof reading;
Editing; Mechanical validation; Line editing; Indexing; Text design;
Jacket design; Art program; Proof handling (comparing reader proofs to
author proofs or keying second versions for comparison); Coordination
(a.k.a. production editing); Penalties and damages; Telecommunications
and postage.
Marketing/Sales/Promotion In terms of the
size of the category, this function is ranked either first or second for
commercial publishers. Functions and costs associated with marketing,
sales, and promotions include: Sales force; Direct mail; Catalogs;
Exhibits; Samples; Travel and entertainment; Advertising; Public
Relations; Image building; Telemarketing; 800 telephone numbers; and
Customer service/Technical support.
Financing functions and costs associated with
financing include: Risk absorption; Inventory right-down; Taxes;
Interest; A/R; New product development (investment); Capital equipment
and facilities; Royalty advances; Recruitment; Research and Development;
Bank debt (interest); and Acquiring capital/Fund raising.
Publishers felt that financing is a significant cost area to them--which is
often overlooked or lost while discussing the publishers contribution to the
value chain. Interest costs to publishers are a significant dynamic in the
publishing process. The "cost of acquiring capital" is yet another cost which
publishers feel is significant--and one that publishers identified as very
different from interest costs.
General & Administrative (G&A)
While this area may take up a very large portion of a publisher's cost
structure, it is mostly a grab-bag of costs. It is difficult to get a
clear handle on the "functional aspects" of G&A costs. Often,
G&A costs do not receive the same priority as the other cost functions
but since salaries and salary fringe benefits are often placed here, it
is near the top in terms of category size. Generally speaking, G&A
costs are second or third in terms of size and importance to publishers.
Functions and costs associated with general and administrative include:
Cost of conducting business (amounts dependant upon salary and benefits);
Management; Computers and software; Regulations; Legal; Physical office space;
Utilities/general postage; Accounting and auditing services; Salaries and
benefits (including fringes, bonuses, etc.); Systems equipment, and its
maintenance; Corporate dues, subscriptions, and memberships; Insurance;
Travel and Expenses; Human resources; Contracts and contracts staff; and
Penalties and damages.
Royalties Publishers often include
royalties with marketing (or sales costs on internal budgets). However,
in our definition they are separate cost elements. In order to clearly
define the publisher cost centers, and compare costs with the other
areas of the value chain, this group decided to identify royalties as
a separate cost center.
Functions and costs associated with royalties include: Payments to authors;
Institutions; Advisors; Editors and Series editors; and Payments to other
publishers.
Managing rights/Protections functions and
costs associated with the management of rights and protections include:
Copyright registration; Permissions; Legal costs and fees; Licensing;
and Rights management personnel.
In-house authorship/Works functions and costs
associated with in-house authorship/works include: Text-books;
Encyclopedias; Developmental editing; Fact checking; Work-for-hire
authors; Repacking/compilations of previous works; and Artwork/graphics.
Summary
Since the advent of the Local Area Network LAN, publishers feel their
productivity has increased by approximately half. Also, they believe that
the responsibility for various tasks has moved backwards through the value
chain (for example, authors also input or typeset) and with a Wide Area
Network the responsibility for archives may shift from library to
publisher (or publishers will have an opportunity to become archivers).
New Electronic Model
In general terms, publishers felt strongly that electronic publishing would
most significantly impact the areas of "Manufacturing" and "Distribution"
and greatly alter their costs and cost structures. In addition, several
felt their in-house author costs would increase significantly. Publishers
then proceeded to identify the impacts the emergent model would have on
their cost centers.
Manufacturing
Since publishers were able to find some production economies even
under the historic model, they began to separate their manufacturing cost
shifts in order to explain their projected costs in the new model. Most
publishers believed their manufacturing "plant costs" would remain stable
(or possibly increase) while costs associated with printing, paper, and
binding would decline dramatically. All agreed that their capital costs
would increase dramatically.
Under "plant costs" publishers included the creation of an image (that
image is then distributed in various media). Publishers felt that creation
costs were medium independent and would remain unchanged. They have
experienced declining composition costs in the emergent model as publishers
(newly converted from "cut and paste" methods to SGML-based composition
methods) have reduced composition costs by as much as 45%.
The technical advances many publishers perform to lower the cost of
producing paper and electronic products must be considered as they have
significant influences on the marketplace.
The technology also changes behavior and responsibilities for information.
In the flow of information from author to reader some positions and
responsibilities will change in the new model. For example, today the act
of archiving occurs after the paper product has been produced. A bound or
electronic copy is produced and saved somewhere (normally in a library).
In the new model, the act of archiving can occur first, at least that one
strategy being adopted by a publisher. From that "master" file all
spin-off products will be created and subsequently distributed (regardless
of format). The "master" is an SGML archive from which a print copy can
be produced (or a CD-ROM, etc.).
This way publishers can reduce composition and page-layout costs, archive
the source file, and allow for easy and inexpensive format changes. For
example, in one publication, the publisher is producing the same journal (in
five different formats) from the same SGML file (one in print, on the WEB, a
CD-ROM, on GuideOn, etc.) all at minimum cost.
Reliability and confidence checking also fall in the area of manufacturing.
Currently, should a user wish to check the authenticity of a page they receive,
the best way is to go to the library and check it against a page from the
original. A fourth-generation electronic copy is virtually indistinguishable
from the first generation--and yet may have been altered several times.
This cost is now borne by the publisher--at present the only "reliable"
electronic copy of the information is held by the publisher. In the future, it
is not known where that copy will be held or maintained. Who will eventually
handle and maintain an electronic archive of files is as of yet, uncertain.
Some organizations (Corporation for National Research Initiatives, for example)
believe that a central (or regional) area should be allocated for archives,
while others feel that individual publishers should be responsible.
While most publishers indicated that SGML tagging will lead to cost
declines (since it allows multiple formats to be created from a single source
file), many were concerned that repackaging costs would increase because of
SGML. They reasoned that publishers, in general, will begin to produce a
smaller number of a wider range of products--losing the benefits of economies
of scale.
To further illustrate the point, publishers have been approaching SGML
cautiously--evaluating if the added cost of SGML-coding (compared to
generic-coding or compositor codes) is cost effective in terms of the product's
use. Publishers have found (for technically sophisticated publishers) costs
will increase for the initial (or core) product (either print or electronic)
and cost savings are only achieved if the information is desired in multiple
formats (or if it is necessary to keep the information flexible for different
formats for future use). Therefore, it is not only the publisher that needs to
be technically sophisticated, a productive and fertile marketplace for
SGML-coded information includes technically sophisticated end-users as well.
Should the publisher not already be at a high technical level, then the move to
invest in SGML-based coding methods becomes a savings (for print production as
well as electronic products).
Technology Changes Behavior
Publishers in many disciplines have experienced increased changes in user
behaviors. They believe that the nature of information flow from author to
reader may not take the same shape as it has in the past. In the physics
world, for example, the existence of pre-prints has dramatically changed the
process of information dissemination. If the print model existed because of
its value to information transfer and rapid distribution of information, then
publishers will find it difficult to keep current with the new marketplace and
its use of electronic pre-prints.
Should the role of publishers change, they will seek other ways to add
value and remain a significant part of the information chain (retaining market
share and brand identity). Publishers are now considering ways to embrace
different services and include them in their value-added activities (linking
databases and other research, for example).
The journey of a pre-print work from submission through peer-review has
been studied and users/authors have found that its readability was improved and
its links with other electronic information sources had been enhanced.
Publishers and information sources are seeking ways to exploit the available
technology and provide the library community with many different types of
products (selling SGML files or providing electronic access to archives, for
example).
Managing Costs
Because of the changing nature of the industry, publishers are seeking
alternative ways to transfer information (or adding value to information).
While this search may create different costs, the challenge already exists in
every area of STM publishing. Each publisher recognizes that, when adding
value to information, new costs are added (SGML coding, for example) that must
be managed and recovered.
SGML-coding
The discussion turned to SGML coding and what explicitly is done to an
electronic file to add this value (and at what cost). SGML is content-based
coding and the added cost has to do with staff editing the work to embed the
codes in the appropriate places in the text. Some publishers equated it to
indexing as it requires intellectual organization. Publishers also indicated
that staff training costs will increase dramatically because of SGML-based
training.
Many publishers feel, that for some applications, the level of SGML coding
is not essential and an automation of the print environment is more appropriate
(for areas where SGML is a not cost effective). When a file is prepared for
mounting on Westlaw, it may have as few as five code--and can be used
effectively by thousands of users (including: title, author, citation, content,
among others). While it is possible, with the development of sophisticated
coding software, that SGML-coding responsibilities could shift to the author,
or that it may eventually be possible to convert a wordprocessing file (MS
Word, for example) into an SGML-coded document. Publishers, however will still
need to intervene to edit and peer-review the work. In addition, many
publishers remain unconvinced that software will ever have the ability to
perform SGML coding effectively--likening it to the software available which
can automatically provide an index. SGML coding, like indexes, requires human
intellectual abilities, analysis, discretion, and judgement.
Some publishers felt that leaving "format" choices in the hands of authors
was characteristic of the print environment. What publishers want is an
environment that is format minimal (or format translatable) by the author. For
example, the National Science Foundation is experimenting with Adobe Acrobat as
a vehicle allowing an infinite number of ways to create a file and one standard
way to present it. While Acrobat may not be the definitive answer, that is the
direction they are currently heading.
If a file is presented to the publisher in paper form, then it costs a few
dollars (per page) to convert it into machine usable format. Should it arrive
in a "WebTeck" file then it is a few dollars less expensive (per page) to
convert it into a more flexible electronic format. However, it is important to
note that publishers do not want authors formatting documents (as they will
change it again anyway).
In either the print or electronic environment (historic or emerging
models), having authors provide format minimal electronic content reduces
publisher costs. In the past, it was not practical to accept content in any
word processing format (the IEEE attempted to but it proved too costly)--in
fact most content was re-keyed entirely).
"Format minimal" (at least in the physics community) describes the
following structure: an author provides the format of the equation (and tables,
etc.) and the text portion of the content is format specific (but not in terms
of font size or type, etc.).
Archiving
Publishers feel that archiving would greatly increase their costs, since
they have not performed that function previously in the value chain--at least
not such a sophisticated manner that it can be used as a resource by many.
Publishers believe that the costs associated with archiving will
increase.
Impact Areas
Publishers feel that costs will increase in the new environment (while not
dramatically) in the following areas: coding; adding value to products and
services; and, archiving. Permissions, fees, rights, and new media rights will
also have an increased presence in the new environment (also increasing
costs).
If the market's perception is that the value of information will increase
because of greater electronic dissemination of information, then there is a
good chance that permission fees for information use in other published
materials will also increase. If this is not the case, and only the volume of
information increases then the cost of permissions and rights will remain the
same--actual dollar volume increases yet per unit charges for information will
remain the same.
Costs
First-copy costs versus overall costs were discussed next. Permission and
fees were not considered first-copy costs (so volume per unit of information
can be measured). However, it was argued that coding is not discussed
in this way--it is considered a first-copy cost, while permissions are
allocated for a number of copies (x copies). Coding is an addition cost and is
usually charged, based upon the size of the material you request.
Size of print run may be a consideration for permissions, but it is not the
only factor to consider (distribution patterns should also be used--worldwide,
massmarket, paperback, for example).
Footnotes
In some instances, fees could turn into licenses and publishers also
discussed "the Xanadu Factor" (the process of entering a database through
another source without a fee). Some users employ a uniform resource locator
(URL) and hyperlink to information rather than ask permission first. Some
publishers felt that footnotes were also moving in the same direction. If the
infrastructure includes a means of charging for information as it is used then
it becomes a publisher-independent function (and linking to material can pass
fees for permissions on to the ultimate consumer). However, in this scenario,
there is a maintenance cost to the publisher (allowing them to capture
information at some point) and so costs may increase marginally in the new
environment.
Publishers are monitoring new developments in this area. One such
innovation is the universal resource number (URN), allowing documents to be
traced much more efficiently.
Scholarly Monographs
From the publisher's point of view, printing, paper, and binding will
eventually disappear in the new environment. Users will print their own copies
at their printer (depending upon volume). For high-volume journals or books,
centralized printing makes economic sense.
Publishers have more than just their customers to consider in this model.
Should a scholar propose a project (and will be using it as the basis for
tenure, promotion, or a better position) then, for at least the foreseeable
future, there must be a physical, tangible product as the end result. Most
publishers have decided to use the SGML-coded file as the main product and
perform short print-runs for the tangible artifact (print copy). Once it is
out of print, it would be available as print-on-demand or in an electronic
version. Publishers believe that it not as much the tangible object as the end
result of the process that is valuable (that it has undergone peer-review and
been accepted). Some publishers still believe that the hardcopy "book" is
still an important part of the process and remains more significant than anyone
in the value chain is willing to admit.
Many publishers held that it is not only (per page) printing costs forcing
them to change scholarly publishing. Warehousing, shipping, postage, returns,
handling and administrative overheads are all important considerations. While
a best-selling book allows a publisher to employ economies (centralized
printing and distribution, for example), sales rates of 200 copies of a
scholarly monograph over 10 years, does not allow such cost savings.
Tenure decisions (and the need for scholars to attain legitimacy) and for
research are two of the many uses for the scholarly monograph. The nature of
its use in the scholarly community lends them perfectly for online access, as
it is the rare monograph that is read cover to cover. Researchers seek
specific information from monographs which is one of the advantages of the
networked environment. It is the contention of many publishers that the
economics of scholarly publishing should be promoting online information
development in areas (like scholarly monographs, for example) which are at
present not practical or cost effective to produce in print.
University presses, for example, are seeking to change the perception of
their parent institutions by adding liberal arts to the electronic publishing
arena and prompting other schools to follow along. Publishers are optimistic
that this process will force authors and institutions to become more
comfortable with online publishing. Once a critical mass is built and the
scholarly community realizes it can search text easily and efficiently--then
the economics will become much more clear.
Some publishers believe that while they are trying to change the perception
of authors toward electronic products, print publishers are becoming more
competitive and will offer competitive (or more favorable terms) for an
author's work in print.
Capital Costs
Publishers believe that the cost of each component in their computer system
will continue to fall. The amount of equipment necessary for the system to
work effectively will continue to increase. Many publishers are caught in
transition (that period of time before a new system produces new product). For
most publishers, this transition period has been particularly difficult with
large capital cost increases, maintenance cost increases, and necessary service
upgrade costs--many of which were not in place before.
Publishers attempted to compare capital costs in the historic model to
those in the new emergent electronic model. Most projected that (on average)
capital costs would decline (and in most instances decline substantially).
However, if publishers are forced to maintain an entire list on a server,
capital costs will increase as the list increases (as the list will never go
out of print). Maintenance, backup, and staff costs will increase (to name
just a few).
Typesetting/Reformatting
Typesetting will have a different context in the emergent model--possibly
changing into formatting. If typesetting is defined as only the process where
materials are prepared for printing, then it will decline and almost disappear.
However, typesetting is also the arrangement of words, images, or displays on
the page and the taking of one form of input and changing it into another.
That process or function will still take place.
For example, one could define typesetting as taking an archive file and
creating a World Wide Web page and a CD-ROM--transformations (or repackaging,
and reformatting for output). Traditional typesetting was primarily formatting
information. The other aspects of the process are actually not in the
typesetting area so it would not disappear from the new model. While the word
"type" may no longer be appropriate, however, the same process will occur in
the new electronic environment.
In comparison, many publishers have programmed SGML-coding costs into their
budgets--and in fact they replaced (less expensively) traditional print
typesetting. Graphics can be considered cost-neutral, since they must be
reformatted in the new arena as compared with color separations in a
traditional process.
Manufacturing Summary
While SGML allowed progress from the traditional "historic" model, the need
to prepare for the "emergent" model strongly motivates publishers to develop
entirely new products and services (archiving at the source, deriving
alternative formats and products, etc.). While first-copy costs may increase
(as composition costs for SGML-coded files increase initially), the SGML-coded
result is more flexible and derivative products and services will eventually
become less expensive. This cost relationship is also a function of the level
of advancement of the publisher (prior to the decision to move to SGML-coding).
The more technically advanced, the more expensive it will be for an individual
publisher to change to SGML-coding. Also to be considered in this equation of
costs, is that the use of electronic file systems have already reduced
publisher costs significantly in the historic model--making the leap to
SGML-coding more complicated and costly. Some publishers are changing to
archival publishing--driven by the need to have the electronic flexibility to
develop products which add value to new systems which are based increasingly on
the distribution of pre-
prints.
These new value-added services also entail new costs to the publisher. The
SGML-code is "smarter" than traditional typesetter-based coding--and in that
way are more similar to indexing (content-
based
rather than descriptive coding). Later in the development of electronic
information supply, a change to author-supplied coding is imaginable (however,
author-supplied SGML coding is now difficult to predict with any certainty).
Automated coding features are also predictable, however publishers now fear the
system may not work any more efficiently than automated indexing. Another
drawback is that author formatting will likely interfere with a publisher's
flexibility, prompting publishers to request format-minimal submissions
(software products similar to Adobe Acrobat also address this requirement).
Publishers are attempting to minimize redundancy and the need to create new
processes for each derivative product in the electronic publishing marketplace.
Archiving, as now performed, is a new and likely significant cost to publishers
and end users.
Many publishers feel that fees for permissions will increase because of
concerns about network "leaks" (leading to the assumption that the number of
distributions will actually be greater than claimed). Some publishers are
already charging fees as a function of the number distributions, but not the
majority. Several publishers believe that products based currently on "fees"
could turn into "licenses," and that links from one networked resource to
another will drive costs down. A maintenance cost for monitoring and updating
these links must be created and employed as it is a new cost to publishers--one
not previously identified in publisher products or budgets.
Printing, paper, and binding costs to the publisher will decline, yet most
likely will increase in a user's budget (as users print copies for inventory or
for on-demand use). It is important to note that user costs for these printed
products will be proportionally higher, as they will be proportionally lower in
volume. The need for printed versions of a product seems to hinge on the
requirements of recognition and reward.
Reliability and confidence checking (authentication) is a new and
significant cost to publishers. In law, for example, some judges no longer
accept cases printed from computer files (as some attorneys have altered
cases). It remains an open question who will pay for this publisher cost.
After the transition to digital information has been completed, capital costs
will have declined greatly--even under the archival publishing model. While
graphic costs will increase, because of the greater variety of display devices
involved and their different characteristics (particularly resolution), many
publishers felt that (for manufacturing especially) total staff costs will
decline. However, the publisher's need for new specialists implies added
expenses. While the number of employees on the manufacturing side may be the
same, more have to be in-house (at least for the time being) driving
publisher costs up. One method of addressing this cost problem is a trend
toward piece-work. Indeed, the industry is moving slowly in that direction.
Manufacturing space costs will also decline as a result of more flextime
and quality, affordable connections to the office.
- In the emerging technology, coding--(a first-copy cost) will increase the
publishers costs incrementally if the publisher handles it and will decrease
the publisher's costs (incrementally) if the author codes the document.
- Added-value products and services--the ability to reformat and transfer
the already existing coding into a wide variety of products (print, CD-ROM,
etc.) will increase.
- Archiving costs are projected to increase for the publisher since it was
not a function previously performed by the publisher.
- Fees for rights and permissions--publishers do not have a strong position
just yet. There are many variables to be considered (value, how the products
will be used, how transferred, etc.) and publishers remain uncertain.
- Printing, paper, and binding costs will increase for small on-demand
printing and will disappear under all other conditions.
- Reliability and authentication are also added costs in the new model.
The group was undecided as to who will bear the added costs (publishers, a
central storage area or bureau, the user, etc.).
- Capital costs will increase dramatically during the transition period to
digital information as a new infrastructure is built. Publisher costs will
continue to increase should they be responsible for archiving files. However,
when compared to the costs of printing presses, the costs of archiving
electronic files are dramatically less.
- Plant costs for typesetting (now described as formatting) are
projected to decline. While "graphics" replaces "color separations" costs are
anticipated to remain neutral or increase only slightly.
- As the use of graphics is expected to increase--with fewer restrictions
in the electronic environment (especially on the use of color, video, audio,
etc.) costs will also increase. While each element may cost less on a
one-to-one basis (and authors may eventually provide more original material in
digital format) these saving are anticipated to be more than offset by the
increase in volume.
- Overall, personnel costs in manufacturing are projected to increase as
new technologies require greater numbers of technically capable staff members
(commanding higher salaries). One result of this trend is that publishers are
beginning to keep (in-house) functions that printers and other vendors now
perform. Many publishers believe that a highly integrated institution (West
Publishing, for example) will limit costs. Other publishers feel that an
integrated approach will have the effect of increasing personnel and physical
space costs, yet will drive down vendor costs.
- As more and more publishers are returning staff in-house, their physical
space costs are increasing. There may be a short-term return to using vendors
and outsourcing in a transitional period. Publishers are willing to demand
more space for the short term, as they anticipate the virtual electronic
environment will assist them in reducing it in the long term.
Distribution
The process of archiving information electronically should allow publishers
to merge manufacturing and distribution functions. While the functions are
merged, physically the activities will not be together. (A DocuTech system,
for example, will not move to the archive, it will be distributed.) Publishers
felt that distribution systems will shift from an "output" system to an
"access" system. This distribution shift will also lead to greater customer
interaction (and an increased demands for customer and technical
support--education, user groups, etc.). Access will shift from the publisher
to the buyer and user.
In the new environment, a "product" could be "access" to information, or
the actual shipping of electrons to a user (an Email electronic journal, for
example). Shipping content electronically will drive the cost of distribution
down dramatically.
Several publishers identified an additional capital cost associated with
distributing multimedia products electronically. Because multimedia files are
large, many publishers develop "mirror" sites which house the information and
allow reasonable information transfer times as holding it in one place is
inefficient. The cost of mirror sites is not much different from "inventory"
in the historic model. Mirror sites may be a short-term fix--until more
efficient technology or access methods are developed. Despite some cost
increases in the short term for a few functions, when compared to warehousing,
overall costs are significantly less expensive.
Physical packaging (and returns for damaged products) would just about
disappear. However, there would still be a need for some physical packaging (a
"software envelope" for example). Should it be necessary (or other types of
similar products), then their development, implementation, and maintenance
costs would need to be included in the marketing plan.
User Interface
User interface costs vary greatly, depending on the type of electronic
marketplace--an open system or proprietary one. Many publishers residing in
open systems initially placed the development of their user interface with
other product design costs--indicating that it was a transitional cost and
minimizing its importance (assuming the network interface was mandatory and
universal). Publishers of "proprietary" systems feel differently and develop a
unique interface designed to appeal to a repetitive user base (which will
continue to return for their content) and to stimulate interest from a larger
overall community.
Update Frequency
Several publishers felt it important to mention that the update frequencies
of their products have changed because of electronic information. In the past,
a print product was updated annually, an electronic version (of the same
product) is updated monthly (with information shipped to subscribers online).
While no physical object is shipped each month, their staff gathers, updates,
and distributes new information each month. There is a significant difference
between the two--electronic products are information-intensive and print
products are format-intensive.
Returns
Returns will continue, even in the online world, because searches will not
always be handled correctly, delivery systems will fail, and credit information
will be lost or stolen. The costs associated with credit and credit
administration will remain and, in many instances, increase. Additionally, not
having a physical object to return has its own set of problems--as publishers
cannot simply ask for a return (all a user needed to do historically was send
back a copy). Postage involved with shipping actual products to users will
virtually disappear, as most electronic products will be shipped
electronically.
User Access Costs
Many publishers feel that user access costs will be borne by the individual
user, department or institution. Most publishers and users accept them as a
necessary networked information infrastructure costs (a subscription for
access, club fees, dues, or other payments).
Other publishers believe that user interface costs are borne in the cost of
manufacturing (and should not be placed in with distribution costs). These
publishers are concerned that by placing user interface costs with
distribution, they will have difficulty separating out costs associated with
distributing product, distribution of marketing materials, customer service
correspondence, and other distribution. These publishers would prefer to place
user access costs in their G&A costs (or along with manufacturing costs).
While all publishers recognize it as a real cost, most publishers allocate it
differently.
Debt Collection
In an ideal electronic setting, instant approval and debiting on an account
prior to the release of information would be automatic. However, in many
instances (especially with third-party or library vendors, for example) that is
not possible. Credit card vendors (and other middle men) will enter this
marketplace to take advantage of opportunities. It is premature, however, to
predict how costs associated with debt collection will be affected.
List Maintenance
Many publishers could visualize conditions in which costs associated with
list maintenance would increase in the future (rather than decline). For
example, keeping and maintaining links to other databases and access points is
but one form of list maintenance (an infrastructure and/or maintenance cost).
Warehousing
One area where most publishers agreed that their costs should decline
significantly would be warehouse space requirements. The physical space
necessary for warehousing (and the cost of warehousing) should decline.
Business Computing
The accounting/tracking process to keep up with order processing (and the
number of users) will continue to be very complicated--especially with regard
to the assignment of royalties. The networked versions of many products will
allow pieces of a work to be accessed. This makes each transaction much more
complex (and more expensive). Automating the royalty collection system is a
new and as yet uncertain area. How it will be managed in the new environment
is not clear.
While there may be increased volume, what many publishers are hoping is
that there is increased concentration through only a few intermediaries
limiting the amount of direct contact and business accounting.
Personnel
Personnel costs are projected to decline to only a few necessary --and
highly skilled members of the staff. The number of warehousing staff (those
not technically advanced) will decline while product support personnel will
increase. The "personnel" line will not likely decline--while it may be
distributed differently as an overall cost--it will not decrease
significantly.
Distribution Summary
Archival publishing changes the cost process as both manufacturing and
distribution merge. Education, technical support, and customer service will be
very important functions in the new environment. List maintenance will likely
take a new form, and a much more significant and strategic place in the
business plan.
Distribution costs will also interact with expanding demand. There will be
claim costs associated with unwanted information. The cost of maintaining a
proprietary interface versus an open one and the cost of supporting either
remain undecided. Debt/debt collection costs may decline, should the ability
to credit-
check
in real time prove practical and efficient, also depending upon the willingness
of credit agencies to assume risks.
Business systems may disappear with the emergence with a limited number of
intermediaries (NetBill, for instance), even though the volume of business may
increase significantly. Personnel costs are anticipated to decline as a
smaller number more highly paid staff work with fewer traditional "pickers and
packers" (many are to be replaced by networked (phone as well as electronic)
staff taking orders and offering support. Space requirements for distribution
will shrink dramatically.
Marketing
Several publishers felt that a few of the lessons and methods learned in
"distribution" may transfer to marketing. Encouraging the marketplace to
access information through other sources (linking) is more effective than the
wide-view marketing approaches many now employ. WEB pages are another example.
Publishers have learned that name recognition is important in an electronic
environment.
Only a minority of publishers felt that direct-mail marketing would be
replaced by Email marketing or other services designed to reach subscribers and
potential subscribers electronically. While several societies and electronic
publications are testing response rates for users contacted electronically,
most publishers are wary of such approaches for marketing/sales and instead,
will continue to employ proven direct-mail marketing techniques into the near
future.
The majority of publishers would prefer a plan that would assist in
reducing the waste of current mailings and continue to refine their direct-mail
campaigns to traditional subscribers. At the same time, they are exploring
costs, response rates, and the effectiveness of marketing electronically. Many
felt that international markets may be a good place to begin.
Another possibility that many publishers are investigating closely is that
some direct-mail promotions could be replaced by WEB servers (and other links
created on the Internet). However, it will take time before this method of
electronic marketing becomes the standard and accepted form of subscription
generation and promotion. For example, for several years (in the physics
community especially) preprints were similar to direct-mail promotions. Each
researcher had a "target market" that was sent materials. Over time, it became
more expensive to send research in the mail and lists were trimmed to include
only important and core colleagues. When wide Internet access became
available, physicists applied the technology to their preprint network and
created an inexpensive electronic pre-print service. Pre-prints are now
available by request and can be sent to a present "list." This may be an
indicator of a new method of electronic marketing on the Internet. It also
places a different type of burden on the publisher--as they must create
exciting online materials that entice users.
For example, an Email catalog linked with a WEB site will be visited by
users searching for material on a particular subject. The question that
remains, will users browse, download available electronic files, or purchase
entire print or electronic records? While publishers remain unsure, they are
confident that a virtual bookstore of some kind would eventually occur. List
serves were also discussed as a possible future marketing opportunity.
Selling their "imprint" has become very important to publishers in the
electronic environment (contrary to print publishing experiences of the past).
Marketing print products was generally by the item--a journal title, monograph,
magazine, etc. Now that the marketing focus has shifted to the company,
publisher, or location where a particular product can be found (often a
publisher's WEB page), the electronic marketplace places great importance in
trusted and reliable information resources. However, publishers remain
uncertain as to whether it is more or less costly to market products this
way.
There are several considerations to take into account. Most users are
unaware who publishes their primary print sources. While it is possible they
would seek out publishers directly, it is more likely they will go to an online
vendor to search for information. If that is what occurs, then the identity of
the publisher is again subsumed into the system (for example, "I just ordered
Nature through America Online.").
To combat this problem, many publishers are seeking additional cooperative
ventures--recognizing that buyers do not wish to jump from publisher to
publisher seeking information. Cooperative ventures with other publishers and
third-party intermediaries as well as a system of electronic links to related
information are appropriate in the electronic environment as buyers prefer to
enter the Internet from a single source.
Some publishers fear that the distinction between "information" and
"publication" may begin to blur in the electronic environment. Publishers wish
immediately to establish to the marketplace that they are the source of
authentic, up-to-date information. In addition, marketing strategies will need
to include methods designed to draw users to a location--and not only to a
product. This approach will involve new costs (events featuring an author
online and samples of works released without fee, are examples)--in fact
"Dial-a-Book, Inc." is entirely based on providing samples (i.e., tables of
contents) without fee.
Exhibits and Trade Shows
The majority of publishers felt they required a strong presence at exhibits
and trade shows as face-to-face interaction is still and important part of
their marketing plan. In addition, since authors are often solicited or
discovered at shows, they remain an important acquisitions tool. Exhibit costs
continue to increase--especially if demonstrations of new electronic products
are included in the future.
Advertising
While publishers anticipate advertising over the Internet, they do not
foresee a significant increase in costs. While budgets may not increase, many
believe that new advertising opportunities will become available to them. None
of the publishers present were confident that their advertising costs or
budgets would either increase or decrease.
Sales Force
Most participants felt that a smaller, but much more technically advanced,
sales force would be required to sell their new electronic products. Few
publishers have been successful is utilizing their regular exhibit staff and
print sales force to demonstrate or sell products available on their WEB sites.
It seems (at least at this time) that a more technically knowledgeable staff
and sales force may be necessary to sell electronic products and services
effectively.
Licensing
Publisher costs are projected to increase in terms of staff and time
required to review and develop the necessary licenses and agreements for the
sale and licensing of electronic information.
Other
Public relations and company catalogs available electronically may prove
important in the future. Publishers were unsure how costs would be
effected.
Physical space requirements do not appear to be changing, at least
initially. Publishers believe that these costs would remain about the
same.
Marketing Summary
Many of the marketing opportunities in the new online environment seem to
be reactive--as the market now accesses the publisher (a store-front
model). This is one reason that publisher name recognition and promotion is
much more important than with previous direct-mail "title" promotions.
While publishers felt that direct-mail promotions has not been cost-effective
for some time, most agree that direct-Email will not generate successful
response rates for some time to come either--as the marketplace is not prepared
for electronic marketing yet. In addition, new marketing questions come into
play, "Who does one market to, and how can you target them?" (intermediaries or
intelligent agents, institutions, and/or individuals, for example).
Publisher sales forces must be much more technically and content
knowledgeable in the future in order to sell online products. Many publishers
also see themselves expanding their involvement in cooperative agreement
programs (publisher to publisher, publisher to intermediary, publisher with
buyer group, etc.). In terms of staff requirements in the future, most
publishers see staff with a greater technical expertise level, or at least,
fewer lower-level staff members. In addition, allocation for training will
increase greatly as will technical and content support.
Generational Effects in Publishing
Because of the transition from print to electronic publishing, most
managers (at traditional publishing houses) are not as technically
sophisticated as their product users (marketplace). In the area of product
development, STM publishers are not as technically sophisticated as their
marketplace. In the past, a user's unwillingness to read large files from a
computer screen was a limitation. One participant indicated that "While he
printed large files onto paper, many of his younger colleagues read vast
amounts of material directly from the computer screen."
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