Two events this week turn us back towards this perennial question. One is the purchase of Springer by BC Partners after a prolonged affair and a lover’s tiff which forced the price up a notch to $4.4 billion, but left 10% of the equity in the hands of the sellers. The other is the latest set of results from Wiley, covering the fourth quarter and thus the complete picture in 2013. While Wiley is the larger company, by virtue of its major presence in education markets, the two are very comparable in size terms in the science, technology and medical sectors. Both have STM units of plus or minus a billion dollars, and both have STM market shares of around 3% each. And they have another shared characteristic: neither of them is showing much by way of organic topline growth, and there are some very good reasons for this. Global recession and library budget cuts do not suggest growth, and nor do the consequent falls in book and journal purchasing. But both companies have gone digital to the extent that print declines are largely offset by eBook and eJournal supply, though often at lower revenues (and greater margin). This again does not indicate growth, but confirms a view of settled publishing environments in fairly stable markets with high margins: the impression that they like to give, and which analysts and investors like to believe. But underneath the surface, I believe that these markets are now boiling over with activity, and that both of these companies, and all of their peers, now face challenging growth targets if they are to deliver to private equity investors and shareholders real growth in returns in recovering economies, as well as investing in retooling for a digital data age.
In the first instance, digital transition from print is now over. Nothing more marks the point than the news this month that Elsevier the sector leader in journals, is to outsource its eJournal transaction completion to Atypon. This then is just a cost, and each player will seek opportunities to drive it as low as possible. Journal articles are getting commoditized and will be universally available before long, so this is not a growth area. Wiley’s growth in its Research sector – its new name for STM, was -1% in FY13. It is hard to imagine that Springer was more than low single digit, and indeed it is possible that the industry average is less than 2%. Given current constraints on price increases (between 5 and 9 % across the sector) and it is easy to imagine that we are suffering a market contraction. Yet private equity investors cannot do financial restructuring all the time and shareholders expect dividend growth as markets come back. So what are the growth strategies which will deliver that?
It seems to me that there are two current hopes for sustainable long term growth. Neither will be new to these two companies, since in a number of ways both of them are experimenting here. Both involve investment, but in both cases the investments will lead directly to productivity gains, and to the possibility of very rapid new product development. Neither is a long stretch beyond the current managerial capacity of these players, since both have strong and capable technology strength. The key question is whether they are flexible enough in managerial terms to embrace a future beyond the formats and business models on which they were reared and upon which they have grown comfortable in historical times. The two directions both rely upon the data they already hold, and data which they can obtain by alliance and joint venturing with third parties. They can be described as the development of workflow tools for the processes of research on the one hand, and the building of analytical tools and datasets/knowledge stores for researchers on the other. In order to play here the publishers will need a data platform which allows the cross-filing and searching of content-as-data, and ways of developing search in this context on both structured and unstructured files. They will be pushing the envelope on metadata development, imposing text enrichment disciplines to increase the value of their content, building extensive triples stores, and using their expertise as a draw for researchers to deposit experimental/evidential data with them, as well as publishing their articles. And, having decided their niches, they will be collaborating with other publisher data-holders, sourcing Open Data deposits and turning themselves into a part of the research value chain itself. When peer review gives way to PPPR (post-publication peer review) their grip on the “barrier to publication” cycle, in which the publisher-managed peer review is necessary for the researcher to enter the market, will be broken anyway.
So what will these new products and services look like? Well, both of these players already know something about that. Springer has successfully re-platformed on the widely-used MarkLogic system, which creates a completely different data-handling opportunity and is widely used in the sector. And Springer has form in the researcher workflow market through its recent purchase of Papers, the Dutch article production software (Mekentosj BV). Likewise, Wiley have made real strides in developing knowledge stores in support of their chemistry browser project and in response to the strength of their chemistry list (as noted here already). But these instances are swallows, not summer. There has to consistent and sustained development to create batteries of data services in chosen sectors, and the data enrichment must be widespread, not experimental. The workflow tools will include some acquisitions, but will reflect a great deal of home grown learning as many publishers discover, for the first time, what the eventual user (not the library intermediary) does for a living – and how he can be helped and supported by data-charged service modules which will become as essential to his view of research as, well, journals once were. The real issue, then, is not technology: it is the mindset to forge a new business out of the old, with end-users, not buyers, and with data, not pre-formatted reporting, at its core. It sounds like a choice, but it isn’t really. Growth in real terms is the key to survival. It is time to start thinking again about how we satisfy markets, and investors.keep looking »