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Switch to online delivery continues to gather pace

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Where traditional STM publishing is starting to feel the pinch, the online sector is burgeoning, outlines David Mort in his annual industry overview

Market size and trends

In 2004, European sales of online scientific, technical and medical (STM) information increased by 16 per cent at current prices to reach €1,030 million. This is a lower growth rate than the 24 per cent growth recorded in the previous year, but still a clear reflection of the continuing switch of spending from traditional hard copy sources to online delivery.

In contrast, the total European STM information market (including online and hard copy) increased by only four per cent at current prices in 2004, to an estimated €1,874 million.

An annual review of the European online information market is published by IRN Research, a UK-based research consultancy (www.irn-research.com). The review is based on detailed desk research of the accounts and reports of information companies, combined with primary research among key suppliers and users of STM information.

Key findings from these surveys are described in this article, which provides an overview of developments in online STM information in Europe, with a particular emphasis on corporate and market trends. This is the third annual article to appear in Research Information on the survey. In this article, Europe covers the 15 member states of the EU at the start of 2004, plus Norway and Switzerland. The new EU members as at May 2004 are not included in the market size data.

The overall annual sales growth of four per cent for the total European STM information market represents the lowest increase in the last three years. Traditional academic markets continue to suffer from stagnant library budgets and a decline in science courses. Growth has come mainly from commercial markets and specific sectors such as healthcare and pharmaceuticals.

The share of total European STM information sales taken by online products and services passed the 50 per cent level in 2004 and continues to increase. By the end of 2004, online products and services claimed an estimated 55 per cent of all European STM information sales, compared with only 42 per cent in 2002.

The majority of Elsevier and Thomson STM information sales are now delivered electronically, along with specific suppliers such as Questel Orbit and STN. Other suppliers are catching up fast - Wiley, for example, now generates 45 per cent of its STM revenues from online sales.

Supply structure

While there are still many small publishers in the STM information market, the leading players continue to grow their market share - although, in the last 12 months, this has been mainly through new product developments and more content sources in their services, rather than significant acquisition and merger activity.

For example, the leading player Elsevier published 1,200 journals in 2003 (according to its annual report) and this increased to 1,700 in 2004. Scopus from Elsevier has been the major product development in 2004. There were also various other initiatives including the launch of online archive collections from many suppliers, more new product development activity aimed at medical practitioners, and upgrades and improvements to established services (some of these are highlighted later in this article).

Following the completion of the high-profile mergers between Informa and Taylor & Francis (now T&F Informa), and Springer and Kluwer Academic Publishers in May 2004, merger and acquisition (M&A) activity in the 12 months from June 2004 has been much quieter. Much of the M&A activity has been in North America rather than in Europe, led by the notable acquisition by Thomson of Information Holdings Inc (IHI), providers of the Micropatent patent solutions brand. The table below includes key European acquisitions or acquisitions by leading players in the European market.

As this article was going to press, Reed Elsevier announced that it had made an offer to acquire MediMedia's European and US Netter professional medical publishing businesses (MediMedia MAP) for h270m. Core markets for MediMedia in Europe are France and Spain, plus UK and Italy.

Published accounts from some of the leading STM information companies in Europe show mixed fortunes in terms of sales. Global STM sales at Elsevier, Wolters Kluwer, and Questel Orbit fell in 2004 contrasting with healthy increases in sales at companies such as T&F Informa, Thomson, and Wiley. For T&F Informa and Thomson, 2004 sales growth (in the STM businesses) of 39 per cent and 10 per cent follows healthy sales increases in 2003 as well but, in both cases, much of this growth can be attributed to newly acquired companies rather than organic growth.

The good news for most of the leading suppliers in 2004 has been that the improvement in margins that began in 2003 has continued in 2004. Of the leading companies, Elsevier has posted the best performance with operating margins increasing from 31 per cent in 2003 to 34 per cent in 2004. Operating margins at Thomson Global STM increased from 24 per cent to 27 per cent over the same period and from 24 per cent to 28 per cent for T&F Informa. Questel Orbit also reported a seven per cent increase in operating margins. Among the leading players only Wolters Kluwer failed to report an increase.

Key strategies for 2005/2006

  • Increased online penetration in Europe
    While more than 50 per cent of sales are now via online delivery, there is still scope for switching from hard copy to electronic delivery in many European country markets and this trend will continue in 2005. Electronic delivery is expected to take more than 60 per cent of all STM information sales by the end of the year. There is also a growing emphasis on multi-year subscription packages for scientific content, which will replace annual subscriptions.
  • More M&As
    The relatively low level of M&A activity in 2004 compared with 2003 was probably inevitable following a busy 2003 and early 2004. It partly reflected the focus of newly merged companies such as T&F Informa and Springer Science and Business Media on internal restructuring and transformation. However, most of the leading players have funds to invest in new businesses and most of the leading players see further acquisitions as a key part of their strategies for the next few years. M&A activity is likely to increase in the next 12 months.
  • Growth in practitioner markets
    There are few signs of any upturn in the core academic and research markets for STM information but, as in 2004, key practitioner market segments such as healthcare and pharmaceuticals are expected to be the main growth areas. Elsevier's healthcare businesses performed much better than its traditional STM businesses in 2004; this pattern was repeated for other STM suppliers. Recent new product development (NPD) activity aimed at medical practitioners includes the Communities@Ovid portals developed at the end of 2004 by Ovid, and the move by Nature Publishing into the clinical practice market with the launch of a new journal series, which will be expanded in the next two years.
  • New Product Development
    There has been plenty of other NPD activity in recent months. A growing number of suppliers have created online archive collections. Elsevier was at the forefront of archiving developments but new archive initiatives have come from Nature Publishing, Springer, ISI Web of Science, and Wiley. Wiley has an ambitious archiving programme to create online backfiles back to the 1800s by 2007.
  • Market growth in 2005
    Feedback from leading suppliers suggests they are expecting improved sales growth in 2005. Many expect high single-digit (typically between seven and nine per cent) growth. Some price increases will help to grow revenues. The core academic market is unlikely to witness any significant change in budgetary limitations and, as in 2004, growth is likely to come from new products and delivery options targeted at practitioners.

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.