v29 #1 The Economics of the Big Deal: The Bulls, the Bears and the Farm

by | Jun 22, 2017 | 0 comments

by Susann deVries  (Interim University Librarian and Department Head, Eastern Michigan University Library,
200F – Halle Library, 955 W. Circle Drive, Ypsilanti, MI  48197;  Phone: 734-487-2475)

(This article was originally published in the February 2017 issue of Against the Grain.)

One of the fundamentals of economics is the study of supply and demand.  There are different ways to approach this subject.  Adam Smith outlined in Wealth of Nations (1776), the concept of a free market with lack of intervention and a laissez-faire approach to the economy.  John Maynard Keynes in his book, General Theory of Employment Interest and Money (1936), pointed out that markets tend to react very slowly to changes in the equilibrium (especially with price changes) and intervention is sometimes the best method to get the economy back on track.  We seem to be in somewhat of a standstill with Big Deal journal packages. I would argue that libraries and the publishing world have been too focused on a free market approach and that we are quickly approaching a need to depart from the classical school of economics and swing our focus for a movement to a more Keynesian approach.

The pros and cons of acquiring serial publications via the Big Deal have been discussed in depth since they started to appear in the 90s;  which is appropriate because changing from an a-la-carte approach to the bundling of subscriptions means there is a lot of money at stake.  According to the ACRL 2013 Academic Library Trends and Statistics, academic libraries typically spend 68.7% of their materials budget on ongoing resources purchases, with doctoral degree granting institutions spending on average 74.3% ($6,305,337) and comprehensive degree-granting institutions 75.4% ($774,701).  We’re talking billions of dollars, folks.  Publication companies want to sell journal packages and libraries are predisposed to subscribe, but the question remains whether the future will sustain willing buyers of Big Deal packages in a fiscally challenged environment.  Something has got to give.

The Triple Bottom Line (TBL), coined by John Elkington in 1994, is an accounting basis that has gained significant attention in the business sector.  Whereas the traditional, single bottom line only focused on profit, the TBL approach differs from profit-based or financial outlook to include social and ecological measures for assessment.  I am proposing a slight twist to the TBL.  All libraries have to take into account the financial consideration, but we also have to take into account our social obligation to our patrons’ research needs, and we must develop a long-term sustainable approach to access when analyzing the pros and cons of purchasing any Big Deal.  Multiple dimensions and perspectives have to be taken into account.

Big Deal journal packages were supposed to be a help to libraries, but in the long run it seems to be an unsustainable model lacking budget flexibility.  The big question libraries are asking themselves is, how they can allocate increasingly shrinking fiscal resources to satisfy unlimited publication growth in academia?  Can all parties come together and find a TBL where publishers, authors and libraries can make it financially feasible on all sides of the fence to support the furthering of intellectual thought and growth in a sustainable manner?  

Limitations and Challenges

The library budget is similar to a one-year financial bond between the governing body of the institution and the library in a non-public exchange to maintain ongoing operations.  The budget is fixed without a built-in contingency, nor a rainy day fund for emergencies.  What libraries pay to vendors is apparently on a sliding scale and typically costs are perceived to be based on FTE and classification rank; but who exactly determines that cost?  There is a lack of transparency on pricing of journal packages without enacting The Freedom of Information Act (FOIA).  We all want to know, what is considered to be reasonable?  What other models could be explored?  For example, at the end of a year, could a university qualify for a discount if they did not use a platform as heavily as had been expected for their Carnegie/FTE level?  There ought to be more options.

On the flip side, the vendors expect a profit.  I often hear from publishers the need for percentage cost increases due to the growing number of titles offered, rising costs to produce and so forth.  While the norm of percentage increases used to be in the double digits 15 years ago, I am dismayed that vendors are consistently asking for numbers above the standard inflation rate, during a time when academia is in a fiscal chokehold.  The demands for inflationary rates are crippling libraries and forcing institutions to critically look at:  Options vs. Needs, Costs vs. Budget.  

In order to keep prices down (or at least predictable), vendors offer different types of incentives to lock in sales for the short term.  Making multi-year commitments to Big Deals in order to get a better price over time is scary.  You hope for the best and that all will go well at the time the commitment is made, but in the back of your head you know the future situation is a bit scary and it could very well end in tears.  Why is that?  As mentioned earlier, most libraries work on a year-to-year budget.  They cannot predict what future student enrollment will actually be, what state appropriations will look like (if a public institution), what the return on investments will provide and if budget cuts have to be made, whether or not they have to consider cutting staff lines in order to meet multi-year legal commitments with vendors.  There are very serious consequences at stake if wrong decisions are made or unexpected dips in the economy force our hand.

Then there are the limitations of cost variation based on discipline.  I have yet to comprehend the inflexible and exorbitant pricing of science and medical journals, which are often cost prohibitive to many institutions.  Journals contain content that scholars and students want.  Due to the nature of academic publishing, that exact same content (the results from a particular study or experiment) cannot be found in another journal.  These mini-monopolies put power in the hands of publishers, as scholars need access to that particular content at exorbitant prices.  It’s kind of like the way that Netflix or HBO can control its subscription price.  If you want to watch House of Cards or Game of Thrones, you have to subscribe and they set the price.  While entertainment shows are a luxury and access to these shows are not considered to be a necessity, this is not the case with scholarly content.  Access to scholarly content is the social right from which to base further research in order to stretch the boundaries of intellectual thought.  This makes it very difficult for libraries to walk away from content, as most feel obliged to subscribe to the journals patrons demand.  

The Bulls, the Bears and the Farm

The massive consolidation of commercial publishing and library technology consolidation is a significant development, limiting supply options.  Last year Rakuten purchased OverDrive, Bibliotheca bought 3M Library Systems North America and ProQuest acquired Ex Libris.  To reference the traditional nursery rhyme, “so they all rolled over and one fell off.”  Now there are just a few in the bed, but I’m pretty sure not everyone is singing, “If You’re Happy and You Know It.”  In the meanwhile, libraries are diligently singing “Row, Row, Row Your Boat” while competition is being eliminated.  With the formation of monopolies, prices rise and the giants get to charge whatever they think the market will bear.  Remember the golden rule of negotiating, he who has the gold, sets the rules.  

Analysis of Holdings

With so much money at stake, both sides of the fence are producing data sets to aid with decision-making.  The development and growth of e-resources management systems (ERMs) to analyze Counting Online Usage of Networked Electronic Resources (COUNTER) via the Standardized Usage Statistics Harvesting Initiative (SUSHI) to pull in cost information from publishers to determine cost-per-download, all aid with analyzing the value of money spent and set acceptable thresholds from which to base seemingly sound decisions.  People think if they can just do enough analysis and break everything down sufficiently, then they will make sound judgment calls.  Numbers don’t lie, right?  

However, Terry Bucknell in his 2012 article “Garbage in, Gospel Out: Twelve Reasons Why Librarians Should Not Accept Cost-per Download Figures at Face Value” in The Serials Librarian, makes a compelling case for challenging the reliability of the data which is collected as the numbers may or may not be comparable.  It becomes complicated in a New York minute if you are willing to delve into great depth and detail.  We all have to look at the data and determine if we are comparing oranges to oranges or apples to oranges.  

While we would all like to take a logical approach, even Spock had to admit that the Vulcan approach was not always the best approach.  Is strictly going by numbers the best way to go?  Spock had to embrace his normative judgment side, or human element, to also consider information from all sides based on past experiences.  What other factors come into play?  

Is your library purchasing leasing rights to journals or are you also getting archival privileges with your Big Deal?  Some may argue that if libraries are only getting annual subscriptions with just access rights, then it may be similar to leasing a car and prices should be lower.  For example, with some science disciplines where the last five years are the most downloaded, then there is no residual value to access rights like a car would have after the lease is up.  On the other hand, the social sciences and humanities depend greatly on long-term archival access, which is considered essential for scholarship.

A few libraries such as Southern Illinois University and the University of Oregon have left Big Deal packages and the rest of us are avidly watching their publications to see if they think they have made the correct call.  More and more libraries are following suit as they feel the financial Vulcan death grip and have chosen to depend on interlibrary loan or on-demand article options such as Copyright Clearance Center’s Get It Now.  So the vicious circle continues. Libraries cancel subscriptions. Publishers see their subscriber numbers fall and to maintain or increase their revenues, they raise the subscription prices still higher.  It seems that in the long run there needs to be cooperation for sustainability.

What will your library do after considering all sides of the financial, social and sustainable factors?  How risk-averse is your institution?   Are you going for a long-term strategy, or just a five-year outlook?  In the decision making process you will have to ask yourself:  are you a bull, a bear, a chicken or a pig?  

A bull represents the attitude of an investor with an optimistic, “bullish” outlook.  A bear looks at the market pessimistically and has a grumpy, “bearish” outlook.  And then there is “the farm,” or the chickens and the pigs.  Chickens are characterized by investors who are afraid to take risks and tend to see a low return on their investment.  Pigs on the other hand are the opposite of Chickens.  These are high-risk investors are looking for a big score in a short length of time.  They tend to follow hot tips and invest without sound decision making.  Often, the bulls and bears reap profits from pigs because of the latter’s recklessness in investing.  Thus the old stock market saying, “Bulls make money, bears make money, but pigs just get slaughtered.”  

Taking the TBL approach when considering Options vs. Needs and Costs vs. Budgets relies on:  evaluating data, considering and setting value thresholds, balancing patrons’ wants along with mission of the library and factoring risk aversion in the current fiscal economy to arrive at sustainable decisions concerning Big Deal packages.  There is no easy answer.  As with investments, we all have to be diligent in watching the economy and assessing how the supply and demand will play out, for there are never any guarantees.  You may be a bull or a bear, but always learn from the chickens and pigs.  


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