Growth slows, but new technology holds promise

For many years, the scientific, technical and medical (STM) information market has been seen as a safe haven for investors: most companies in this market have achieved healthy annual increases in sales and profi ts, and investors have been attracted to this sector at a time when returns in other information markets have been more erratic.

The continued growth in research funding and scientifi c research output are overall trends that will have a positive impact on the market. However, the emergence of new publishing models, the spread of Web 2.0 applications in the scientifi c community and information budget weaknesses in some market segments could start to have a stronger negative infl uence on information company margins. So, are there any signs from the recent market trends data and corporate fi nancials that suggest an STM information market downturn?

In 2007, sales in the European scientific, technical and medical (STM) information segment increased by 4.6 per cent to reach €2.2bn. Measured by revenue growth, 2007 was a modest year for the larger STM providers. Some, such as Springer, Thomson Healthcare, and Informa, still posted doubledigit sales growth. However, this was often the result of acquired businesses being added to the revenue total. Organic growth for many of the leading players was considerably lower at around 4 per cent (Elsevier, Springer) or just 1 per cent in the case of Wolters Kluwer.

However, while sales growth may have dipped in the latest financial year, profi t margins for the leading players are strong, continuing a trend which began in 2001/2002. Over the last fi ve or six years, most of the leading STM information players in Europe have been able to post year-on-year double-digit profit growth for most of the time.

In terms of profit, Elsevier leads the way with an operating profi t margin of almost 32 per cent in 2007, followed by Informa with an operating profi t margin of 31 per cent for its STM business. And profi t margins for most of the leading players have remained at high double-digit levels since 2002. In a separate exercise, IRN tracks the sales and pre-tax profi ts of around 50 UK information and content companies. In 2007, the UK STM information suppliers in this group produced an average sales increase of 6.8 per cent and saw their average pre-tax profi t margin increase to 4.6 per cent from 3.9 per cent in 2006.

Trends and issues

In the STM information market, online sales now take an estimated 66 per cent of all sales compared to less than 50 per cent in 2003.

Feedback from key suppliers suggests some common themes and issues. Firstly, healthcare continues to be the main driver of sales with clinical decision support solutions, particularly those at the point of care, leading sales growth. For example, Informa, Thomson, and Wolters Kluwer all reported strong sales in their clinical solutions services. In contrast, pharmaceutical information sales have generally struggled. For example, Elsevier, Springer and Wolters Kluwer all highlight weaker sales in this sector.

Suppliers also note that the development of e-book packages for institutional users has fi nally become a mainstream activity for most leading suppliers. Companies such as Elsevier, Springer and Wiley are all establishing strong e-book programmes and are expecting good growth from their e-book publishing activities in the next two years.

Workfl ow and content management solutions, and added-value features such as data mining and analytics tools are increasingly being developed by leading providers to gain a competitive edge. By moving into these sectors, traditional STM publishers are coming into competition with new players, primarily technology-based companies with no traditional publishing experience.

With growing concerns over weaker sales in the maturing markets of North America and the European Union, suppliers are increasingly targeting the Asia Pacific market. Thomson Reuters, for example, is focusing on developing more specialist localised STM content for the Asia Pacific market.

Mergers and acquisitions in the European STM sector have been limited over the last year and fewer deals have been completed compared with the previous two years. Some of the major deals impacting on the European STM sector have been essentially USA-based – Thomson buying Prous Science and Proquest’s purchase of Dialog, for example. There has been more emphasis on purchases of individual titles and specialist publications, and partnerships with software and technology companies rather than big deals. However, the current interest in Informa from a number of venture-capital companies suggests that another major deal may not be far away.

User perspective

At the time of writing this article, IRN is halfway through a survey of STM information users and has preliminary fi ndings from academic users. In the academic sector, most libraries and information centres are reporting year-on-year budget increases at least in line with infl ation. This reverses the trend of budget declines in real terms up to 2006.

So how is this money being spent? Unsurprisingly, many of the responses mirror what the suppliers are seeing in their sales fi gures. According to IRN’s preliminary findings, the majority of journals purchased by academic institutions are now e-journals. In addition, where possible and where costs allow, more institutions are turning to electronic journal archives despite some concerns over long-term availability and accessibility.

It also appears that e-books are finally beginning to gain acceptance. Our survey suggests that it is academic users who are demanding more titles in e-book formats. There are still concerns that too many e-book packages are USA-biased and focus on heavy tomes rather than quick-access reference texts and simple course guides.

Librarians and information specialists also note that many bundles of books contain only a small selection of books that are actually used regularly.

Most academic researchers have embraced the open-access publishing model and most now understand the need to include an element in research funding applications for open-access publishing costs.

Users, who are very familiar with easy searching via Google and Google Scholar, are demanding similar easy and flexible searching options from the major providers.

They say that they are increasingly frustrated by traditional structured search models. While networking sites for the STM community are on the increase, survey feedback suggests that it is still only a minority of users that have signed up to these sites, and no-one site has achieved critical mass as yet. Around 20 STM networking sites have been identified by users so far. These include those from conventional publishers such as 2Collab from Elsevier and Nature.Network from Nature Publishing, privately-funded sites such as Lalisio, and independently-run sites such as Epercinus and Laboratree. Most users agree, however, that these networking sites will become increasingly important.

Looking ahead

According to announcements from most of the leading players, 2008 revenue growth will be similar to the levels achieved in 2007.

For example, Thomson Reuters is expecting global scientific sales growth of around 4 per cent, although its global healthcare business is projecting 2008 sales growth of 6 per cent. Elsevier’s sales increased by 3 per cent in the first half of 2008, while Springer is the most optimistic, targeting organic sales growth of 5 per cent in 2008.

Wiley is expecting weaker sales in 2008 compared to 2007, while Wolters Kluwer is still facing annual sales growth of less than 2 per cent in 2008. Overall, IRN Research is forecasting sales growth of 5 per cent in the European STM market in 2008, unchanged from 2007. We can expect to see double-digit profit margins for most of the leading players for yet another year. Workflow and data mining solutions, plus analytical tools, are likely to become major drivers of revenue growth while, after a long period on the margins, e-books are set to become widely adopted and a strong growth area for providers. Leading providers will also be watching the Web 2.0 space closely and we can expect further investments here.

Academic users clearly see networking sites as a key resource for the future although, at this stage, use of these sites is still in its infancy and this use is being diluted across a range of sites. IRN’s survey also shows that user awareness of e-books and open-access journals is now widespread, and user demand is beginning to turn these into mainstream markets.

Further information

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.

IRN Research’s ‘European STM Information Market 2008’ report was published in October 2008. This report is based on detailed desk research of information company accounts and reports, and primary research amongst key suppliers and users of STM information.

See www.irn-research.com for more information.