Tight budgets affect scholarly information market

The European scientific, technical, and medical (STM) information market has been one of the most buoyant information market segments over the last decade – but even this sector has not been immune from the economic downturn. Annual market growth in 2008 and 2009 is the weakest for many years.

Despite this dip in annual growth, the STM information sector still remains one of the strongest European information markets. Most research and development spending, a key driver of STM information demand, is part of a long-term planning process and is less affected by economic cycles. The majority of income for most leading suppliers comes from subscription services and there is limited reliance on advertising income, where spending has dropped dramatically in recent months. As a result, the business models of the larger players are better placed to deal with an economic recession. Investment in software and workflow solutions has also helped the larger players to maintain sales growth by introducing added-value services for their larger clients.

Some of the smaller STM publishers have been less fortunate and it is in this segment of the market where the pressures on margins are strongest. Many of these are traditional print publishers, which have been unable to switch quickly to a digital model, and are facing growing pressures from the larger publishers.

Market size

In 2008, revenues in the European STM information market increased by 4.5 per cent to reach €2.3bn. This latest annual sales growth was the lowest since 2001, when sales increased by just under five per cent, and followed growth of 4.6 per cent in 2007 (see Table 1).

There were mixed fortunes in terms of sales for the leading STM players in 2008. Double-digit sales growth was achieved by some; for example Elsevier and Informa. Springer recorded growth of 5.6 per cent, while STM sales at Thomson Reuters fell slightly – but this was largely due to the disposal of the Dialog brand. Healthcare sales at Thomson Reuters increased by 3.5 per cent. Annual sales performance at Wolters Kluwer continued to lag behind the market – 2008 revenues fell by 12.5 per cent on the previous year.

Nevertheless, the leading players continued to maintain healthy profit margins. Elsevier continues to be ahead of the pack with an operating profit margin of over 33 per cent in 2008 following a margin of 32 per cent in 2007. Informa registered an operating profit margin of 32 per cent for its STM business. STM operating profit margin for Thomson Reuters was 27.2 per cent, and 18.2 per cent for its healthcare business. Profit margins for most of the leading players have remained at high double-digit levels since 2002.

However, one sign that cash is tight and investors are cautious is the dramatic drop in merger and acquisition (M&A) activity in the sector. The last major deal affecting the European market was the purchase of BioMed Central by Springer Science + Business Media in Autumn 2008. Since then, M&A activity has been almost non-existent in a market that, until recently, was highly attractive to potential investors. While there have been rumours about a big sale (for example Springer Science + Business Media, and Informa), these have been denied. It seems that, in the current market conditions, any M&A plans are being abandoned or postponed.

Healthcare strength

Growth is still strongest in the healthcare sector with clinical decision support solutions, particularly those at the point of care, leading sales growth. Pharmaceutical sales are still relatively weak and the academic market is still facing budget cuts in real terms.

Workflow and content management solutions, and added-value features such as data mining and analytics tools, remain at the centre of the growth strategies for most of the leading players. Growth is coming primarily from sales of workflow solutions to existing clients. Once these are embedded in the client’s organisation, relatively high switching costs encourage customers to stay with their current supplier.

Open-access trends

We are also likely to look back on 2009 as the year various emerging developments finally became mainstream, such as open-access publishing and e-books.

Interest in open access has grown significantly in the last two years. This has been driven by demands for mandatory open-access publishing by research funding bodies, more investment in open-access publishing models by leading publishers, and increased understanding of open access among STM authors.

Springer became the largest open-access publisher in the world with its purchase of BioMed Central in 2008, but the number of all publishers offering an open-access option has grown significantly in the last 12 months.

A recent study (Scholarly Publishing Practice: Academic Journal Publishers’ Policies and Practices in Online Publishing, 2008) for the Association of Learned and Professional Society Publishers (ALPSP) noted that the proportion of publishers offering optional open access to authors has grown from nine per cent in 2005 to 30 percent in 2008. While many of these publishers may only be committing limited resources to open access, the growth rate is still impressive.

According to IRN’s research with academic researchers, the overwhelming majority submitted articles to traditional, peer-reviewed journals in the 12 months to December 2008. In contrast, submissions to open-access journals in the same period were confined to just 11 per cent of interviewees. In the next 12 to 18 months, this is likely to increase significantly: 44 per cent expect to be submitting articles to open-access journals in this period. Similarly, in 2008, almost a third of respondents supplied reports and documents to institutional repositories and, in the next 12 to 18 months, this rate is likely to increase to 46 per cent.

E-books are becoming established

IRN’s survey of academic researchers also found that the overwhelming majority of respondents – 88 per cent – were using e-books in some way. This increased use has been helped by a substantial increase in the e-book portfolios offered by the major STM information providers, and by more flexible approaches to the provision of e-books.

Other recent, larger surveys echo the IRN results. The JISC National Ebooks Observatory Project in the UK surveyed 43,849 users in academic institutions in January 2009 and found 64.2 per cent of students used e-books, compared with 61.4 per cent a year earlier.

The lack of content available in e-book format, limited access rights, and technological obstacles have been major disadvantages preventing the widespread use of e-books up to now. Improvements in reader technologies can be expected in the longer term. Enhancements and improvements to e-book interfaces and platforms are beginning to appear now to address criticisms that these interfaces were not intuitive enough, and that platforms were too restrictive and frustrating to use.

There are still concerns that not enough content is available in e-book formats, reader technologies have still to develop, and many e-books packages are USA-biased. Librarians and information specialists also note that many bundles of e-books offered often contain only a small selection of titles that are actually used regularly.

In addition, publishers’ models have not always adequately considered user needs. For example, there are often no concurrent usage rights to allow multiple users to use an ebook at times of high demand. However, initiatives from publishers and e-book providers are gradually beginning to deal with these issues. For example, content available in e-book packages is growing substantially while some providers are offering bespoke solutions where clients can mix and match titles rather than purchase off-the-shelf book bundles. Concurrent usage options, and unlimited concurrent usage, are becoming more common. Demands to search across e-book content from different publishers are also being addressed.

The spread of Web 2.0

The spread of Web 2.0 applications, such as networking sites and resource sharing sites for scientists and researchers, is also likely to be a feature of 2009 and beyond. IRN’s 2008 research amongst academic researchers in the UK suggests that, so far, only a minority are using these sites and that the sites are yet to have the major impact that has been predicted. However, a majority of researchers and scientists believe that they will start to use networking sites linked to their research more in the next year or so.

Use will grow as more researchers begin to appreciate the value of these sites for the exchange of information and ideas, but increased use is also likely as a result of the economic downturn: these sites offer a free and effective alternative of finding and exchanging information to the traditional paid-for services. In mid-2008, feedback from academic librarians and information specialists in the UK suggested that very few were taking notice of these networking sites. Now, however, many more are suggesting that they will look at these sites as possible alternatives to using traditional paid-for services.

So far, most of these sites are in the ownership of individuals and groups of scientists/researchers but the major STM players will begin to explore these applications with more vigour in the coming months. They are likely to look for investment opportunities in this space, just as the general social networking sites became investment targets for media and technology companies and others.

Looking ahead

IRN Research is forecasting sales growth of four per cent in the European STM market in 2009, just below the growth achieved in 2008. In the immediate future, growth in STM information sales is likely to remain weak – particularly in the academic community, where budgets are being squeezed.

Workflow solutions and the widespread conversion to e-books in the academic community will help sales growth. Some Web 2.0 applications are likely to offer investment opportunities for the leading players as they look to broaden their business models.

David Mort is director of IRN Research, a UK-based market research and information company specialising in the analysis of European information and content markets. For more information, see European STM Information Market 2009. IRN Research. June 2009. www.irn-research.com