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STM information market still looks healthy

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David Mort, Director of IRN Research, reviews the European online STM information market

Online STM industry passes annual health check
In 2003, European sales of online scientific, technical and medical (STM) information increased by 24 per cent at current prices to reach €887m, according to a recent study by IRN Research (see 'About the study', below). As in 2002, this significant increase in sales is primarily due to the continued switch of spending from traditional hard copy sources to more online delivery. To put the increase in context, the total European STM information market (online and hard copy) is estimated at €1,802 million in 2003, but the overall increase in sales in this market in 2003 was only six per cent at current prices.

The overall annual sales growth of six per cent in Europe still represents a relatively healthy increase, in a market that continues to face declining or static budgets in core academic sectors. Growth has come mainly from commercial markets and specific sectors, such as healthcare and pharmaceuticals. Further penetration of some products into country markets, outside the core markets of UK, Germany, and France, has also helped sales. A six per cent growth in STM sales compares favourably with the growth in other European online information markets. For example, sales in the European online business information market remain sluggish, with 2003 value growth of no more than four per cent, following three per cent growth in 2002 (see Table 1 below).

The share of total European STM information sales taken by online products and services continues to increase. By the end of 2003, these products and services claimed an estimated 49 per cent of all European STM information sales (see Table 2 below) and, by mid-2004, this share had passed the 50 per cent penetration level. This compares with less than a third of all sales contributed by online delivery only two years ago. The majority of Elsevier and Thomson STM information sales are now delivered electronically, along with specific suppliers such as Questel Orbit and STN. Some of the other suppliers, notably the traditional publishers such as Wolters Kluwer and Wiley, have been slower to switch to online delivery but the online momentum is now also impacting strongly on these suppliers.

For example, by the end of 2003, some 60 per cent of Wiley's journal subscription revenues were under Wiley InterScience licences, the company's core online product.

Industry consolidation
Consolidation is still a feature in this market, which has traditionally been highly fragmented. While there are still many small publishers of STM information, the leading players are growing their market share through acquisitions and mergers, new product developments, increased penetration of European national markets, and the inclusion of more 'must have' content in their services. As the main STM information suppliers strive to increase their market share behind the market leader Elsevier, many medium-sized and smaller STM information companies can negotiate good deals for their companies and their content. IRN expects the pace of merger and acquisition activity to remain relatively strong in the next year or so, as the main suppliers look for more content to build up the scale of their operations.

The number of mergers and acquisitions in this sector between May 2003 and May 2004 (see Table 3 above) may have been fewer than in the previous year, but there have been two notable corporate changes that will have a significant impact on the structure of STM information supply. First, Candover Partners Ltd and Cinven Ltd, two leading European buyout specialists, purchased leading STM publisher Bertelsmann Springer from its German parent in spring 2003. In October 2003, the business began trading under its new name, Springer Science+Business Media. The two equity partners also acquired Kluwer Academic Publishers earlier in 2003, and the merger of this business with Springer Science+Business Media commenced in spring 2004. Together, the two companies publish 1,350 magazines and 5,000 book titles. This has produced a merged business with a much stronger presence in the European STM sector.

Secondly, in the last few years, UK-based Taylor & Francis has been increasing its penetration of the STM information market, mainly through acquisitions. In 2004, the company effectively more than doubled the scale of its operations by merging with business-to-business publisher and exhibition group Informa. The new publishing group has a combined turnover of around £500 million. Earlier in 2003, Informa had signalled its intentions to move further into the STM information space with the purchase of PJB Publications Ltd, a publisher of well-established newsletters and information services in the health, pharmaceuticals, and diagnostics sectors such as Scrip, Pharmaprojects, and Clinica. The management teams of Taylor & Francis and Informa have merged and the new company aims to exploit the cross-over demand for information in the academic, scientific, professional and commercial communities.

Published year-on-year sales growth from some STM information companies in 2003 has been considerably higher than IRN's European growth estimate of six per cent (see Table 4 below). Thomson Global STM sales, for example, increased by 9.8 per cent in 2003, while Taylor & Francis posted 2003 growth of 17.5 per cent. In both cases, much of this growth was attributed to acquisitions. Wolters Kluwer has seen a significant decrease in sales, but this was mainly due to the disposal of its STM publishing interests and a focus on the health market.

In 2003, company margins have generally improved or have been maintained as business restructuring and cost savings have accompanied more new product developments to boost sales. For example, Wiley rationalised its European operations in 2003 by integrating its subsidiaries into two key locations � Germany and the UK.

At Taylor & Francis, the STM journals division is now predominantly operated from Philadelphia, USA. The Health division at Wolters Kluwer is in the middle of a major restructuring programme as part of an overall restructuring of the group business to improve performance. The division reduced its head count by more than 200 in the latest financial year. Each operating division has identified ways to grow market positions and to achieve efficiencies, by consolidating functions, decreasing management layers, and combining locations. Wolters Kluwer will also standardise technology platforms, consolidate data centres, and increase its cost flexibility with offshore development and IT outsourcing.

The debate is intensifying over alternative business models for journal publishing and the high profits achieved by some STM publishers. The analysis of margins posted by many of the leading players in the last two years shows relatively high margins, typically well into double-digit figures. Operating margins for the two market leaders � Elsevier and Thomson � have been more than 30 per cent and 20 per cent respectively for the last two years.

Interim results from some of the suppliers suggest a further improvement for sales and margins in 2004. Thomson Global STM increased sales by five per cent in the first quarter of 2004 but, again, this was mainly due to acquisitions. Wiley is forecasting mid-to-high single-digit growth for its global STM sales in 2004. Wolters Kluwer's first-quarter 2004 results showed revenue growth at constant prices for the global health division of six per cent, and an EBITA margin of 9.4 per cent, compared to 7.2 per cent in the previous year.

Key strategies for 2004
There are a number of common themes running through the strategies of the companies in this sector:

  • Increased online penetration in Europe
    There is still scope for switching from hard copy to electronic delivery in many European country markets, and this trend is likely to continue in 2004 with electronic delivery likely to take almost 60 per cent of all STM information sales by the end of the year. Most of the leading players have strategies to further penetrate country markets with online options.
  • New EU member states
    In May 2004, 10 new member states joined the European Union. Many of the leading players already have a presence in these countries, but we can expect to see more content acquisitions from these areas in the coming months and more products concentrating on information from these countries. For example, Questel Orbit is planning to release four new databases covering the Czech Republic, Hungary, Lithuania, and Poland in 2004. T & F Informa is developing more conference sales (and linked content sales) in some of the new EU member countries, as well as in Russia (which is not a new EU member).
  • Health and Pharmaceuticals
    While IRN Research surveys suggest that most core academic STM information budgets are still static or declining, the leading suppliers are targeting practitioners, the private sector, and key market segments such as healthcare and pharmaceuticals, to drive further growth. Market-leader Elsevier's stated strategy in its STM businesses is to focus on expanding its penetration of health markets, particularly in Europe and Asia. Thomson has identified clinical and drug information, and the medical education segment, as the markets likely to show the strongest growth in the next few years.

    Wiley's partnership with UK-based Cochrane Collaboration, established in 2003, has resulted in Wiley publishing Cochrane's medical information content aimed at healthcare professionals. T & F Informa will expand the range of products available from drug and healthcare specialist PJB Publications. At Wolters Kluwer, the strategy for 2004 is to further increase sales of its flagship online health information product Ovid. It plans to do this through further market penetration and more content partnerships, and to boost sales of pharmaceutical and clinical tools.

    The leading suppliers are pointing to increased medical spending in Europe, and further growth in R&D spending by the pharmaceuticals companies as competition increases, as the key drivers underpinning demand for more healthcare and pharmaceutical information products. More demands from practitioners for health information at the point of care should boost the supply of information, via mobile devices and PDAs. IRN Research believes that there are significant opportunities in these markets in the next two years but competition is increasing and there are likely to be some product casualties.

  • New Product Development
    New product developments are focusing on bespoke products for specific customer groups, improved navigational tools to reach more STM electronic content, more digital backfile collections, and more products integrated into internal applications (such as Microsoft Office) and workflows.

    Elsevier launched digital backfiles and subject collections in 2002, and these initiatives helped boost online sales in 2003. Other suppliers have also developed electronic backfiles, while a more recent example of a specific subject focus comes from STN. The international database host announced plans at the end of 2003 for the development of �subject-related, customised sci-tech information solutions for information, knowledge, and publication management'. This will see the creation of its new E-Science business operations within FIZ-Karlsruhe, STN's host company in Europe.

    In June 2004, Thomson ISI introduced a new version of ISI Web of Knowledge that offers more full-text links to more than 10,000 journals. And coming to the same market space shortly is Scopus, a new product development from Elsevier. Scopus is a bibliographic database product that is currently being tested, and is due for release in the final quarter of 2004. This new navigational tool will offer easy-to-use search menus to 13,000 international journals and their content, across various scientific disciplines. Scopus will also simultaneously search the scientific web.

    Pay-per-view services are likely to increase sales as suppliers target more non-core users and potential users in non-subscribing institutions. The pay-per-view option is also attractive to some organisations that are facing budget constraints; access to core journals is maintained on subscription, while information from unsubscribed journals can be purchased via pay-per-view. One of the latest to reach the market is a pay-per-view service from Ovid. A pay-per-view offering from Wiley InterScience was introduced in 2003.

Market growth in 2004
In spring 2004, IRN undertook a survey of 60 UK academic STM librarians and information professionals for its European Online Information Market report. Answers to the question on budgetary trends in the next 12 months suggest that there will be little positive movement (Table 5, below). A majority of those questioned (65 per cent) stated that they expected decreased or, at best, static budgets, while only 30 per cent were expecting some increase. The only encouraging sign is that the percentage expecting a budget decrease is down slightly on the previous year's level. However, for most academic users, tight budgetary constraints are likely to remain in the coming months.

The consensus among the leading STM information suppliers is that sales growth in the year 2004 will be around the mid-single digit level. In other words,at a similar level to the six per cent growth recorded in 2003. Given the continued fiscal limitations in the core academic market, growth is likely to come from new products and delivery options targeted at practitioners and scientists in the commercial sector, the mixing and matching of pricing models, and further cost cutting programmes.

about the study

This article represents key findings from European Online Information Market 2004, which is IRN Research's annual review of the amrket. It also presents results from other surveys conducted by IRN during the year.

'Europe', in this article, describes the 15 countries that were members of the European Union (EU) at the start of 2004, plus Norway and Switzerland (the new EU members that joined in May 2004 are not included in the market size data).

IRN Research is a UK-based research consultancy specialising in the analysis of European information markets. For more information visit www.irn-research.com