Waiting for the Dust to Settle; Lessons From the Swets Bankruptcy. Part 1
Is the Subscription Agent Business Still Sustainable?
Late last month, the bankruptcy of Swets Information Services B.V, closely followed by its parent company Swets and Zeitlinger Group sent shockwaves through the publishing industry and the academic library sector alike, with some comparing it to the RoweCom/Faxon Library Services Bankruptcy over a decade ago. It was also a loss that some of our team at Digital Science have felt quite keenly, as several of them worked at Swets for many years and know people personally affected. The dust has far from settled and the Swets postmortem in the blogosphere and on listserves is likely to continue for some time, but what is apparent is that Swets has been struggling for a while now. According to their annual report (Section 3.9) published in August, Swets Information Services B.V, made losses of over €50million during FY2013, were heavily leveraged, and in breach of their covenant requirements to investors.
While we at Digital Science, don’t know whether Swets’ struggles are related to strategy, financial management or something else entirely, I felt that it might be a worthwhile exercise to take a look at the subscription agent business in general, how the digital age has changed it, and whether there are lessons to be learned from what other companies are doing to adapt.
To get a better understanding, I decided to approach some of my colleagues with direct experience of both Swets and the subscription management business and ask some of them a few questions. I spoke first to Betsy Donohue, one of the VPs of Business Development in our publisher relations department. Betsy has been in publishing for nearly 2 decades and worked at Swets for about half of that. I asked Betsy about the traditional subscription agent model, and how it has changed over the years.
BD: Absolutely things have changed, subscription agents were traditionally firmly routed in print, which isn’t really surprising, given that publishing was exclusively a print business for hundreds of years. The basic service included paper catalogues for libraries and the aggregation of orders and payments for both libraries and publishers. It made perfect sense as it reduces the administrative burdens and can help shoulder financial risk on both ends. From a business model point of view, agents can try to charge both libraries and publishers for their services but they can also benefit from variations in exchange rates and collect interest on payments, during the period between being paid by libraries and paying out to publishers.
PJ: That’s an interesting way to look at it. In a sense, subscription agents are in the financial services business, almost like a bank.
BD: In a way, yes, or at least they used to be. These days, web scale eCommerce and stronger relationships between publishers and libraries has changed expectations in terms of immediacy of payments. It would be a challenge, I suspect, for an intermediary to gain significant revenue in that way anymore. Another consequence of these strengthened relationship and the workflow savings afforded by eCommerce is that publishers and some academic libraries have seen less value in working via intermediaries and have pushed for lower commissions.
PJ: So, I guess that brings us to the thing that we at Digital Science care most about, technical and business model innovation. Could you tell me a little more about the sort of things Swets and other subscription agents are doing to adapt to the changing landscape.
BD: Sure. What Swets, and their major competitors like EBSCO have both tried to do, is move towards being more of a library service provider. They’ve evolved the print catalogue into online platforms that enable libraries to see their subscription histories and price per use. They also providing a variety of tools to aid in selection and budget control, as well as access management.
PJ: You mentioned EBSCO just now. At least from the outside it seems, EBSCO are adapting well to the new realities of digital publishing. Particularly their aggregator arm (EBSCO Publishing) is the market leader in that space. To what extent do you think that that movement has been important to EBSCO?
BD: It certainly seems to have been good business for them, but the reasons go beyond simply opening up a new revenue stream. EBSCO’s E-Resource Management platform, which is the equivalent of SwetsWise, is tightly integrated into their aggregation platform, EBSCOhost, and their web scale discovery layer, EBSCO Discovery Solutions. This enables them not only to do a lot of the usage metrics and analyses without taking data from other sources, but also allows them to bundle the subscription management platform with content.
It seems that while Swets did put a lot of effort into adapting the traditional print catalogue into an online platform for subscription management, they didn’t go as far as others have in creating new business synergies and making use of data.
Next I spoke to Adrian Stanley, who is also VP of Business Development in the publisher relations department at Digital Science. Adrian has over 20 years experience in publishing and is a former CEO of the Charlesworth Group(USA). Amongst other things, the Charlesworth Group acts as a sales and marketing agent in developing markets, particularly in China. I started off by asking Adrian how well trends in the emerging markets mirror those in Europe and North America.
AS: It’s similar in some ways but there’s a little bit of a different landscape internationally, I think. In the BRIC countries (Brazil, Russia, India, China) for instance, companies like the Charlesworth Group work really hard to build local knowledge and maintain relationships with libraries, library consortia and researchers to really understand their needs, and be a two way bridge between local needs and publishers here in the US and Europe. To succeed here, it’s important to understand that human and cultural factors matter a great deal, like being able to speak the language, understanding cultural differences, and be aware of pain points and local challenges. One trend that is very similar, however, is that the BRIC countries are becoming increasingly important in terms of research output and content creation.
PJ: To what extent do you think that agents in emerging markets will have to respond in terms of technology, in the same way that European and North American agents have?
AS: In many ways, they already are. Companies, agents and resellers in China, like CNPIEC and CEPIEC have built metadata platforms for library search. They’re innovating in similar ways to agents in Europe and the US, however many publishers here don’t know or fully trust their brands and offerings yet, which creates another market need in terms education and consulting.
PJ: What do you think the future holds for subscription and sales agents that specialise in emerging markets?
AS: There are many pressures on businesses these days, however the future looks good for the local sales and marketing companies who can bridge the international divides and provide real value added services. Despite the obvious advances in communication technologies, there’s still a strong need to maintain personal relationships and understand complex markets on a human level. That personal connection and bridge building is a big part of the value that local agents provide. From a strategic point of view, there will always be new emerging markets. Right now, there’s a lot of talk about the MINT countries (Mexico, Indonesia, Nigeria, and Turkey), these markets have their own cultural identities and specific needs, which have to be explored and analyzed so that publishers can better serve them. I don’t see any reason why this trend shouldn’t continue, as more and more countries emerge as consumers and producers of scholarly content.
As an aside, last month I attended the excellent SSP fall educational seminar on journal production. One of the questions asked was why we still typeset for print, when so many scholars appear to use only the electronic versions. There are a number of reasons for this and I won’t address them all here, but one assertion was that for some emerging markets, print is still popular because it doesn’t rely on having universal broadband internet access. It’s worth considering perhaps that in certain emerging markets, what we consider to be legacy print models may not really be all that outdated.
It’s clear from talking to both Betsy and Adrian that there is still a future for subscription agents able to adapt to emerging challenges and needs. In Europe and North America, that future may involve the creation not only of new business models and revenue streams, but also coming up with innovative ways of tying data together to provide new services for libraries. Internationally, the story is a little different, and perhaps it’s more about looking at global trends to see who is likely to be the next emerging market, investing in and learning about that market early, in order to be ready to serve its needs as it evolves.
In my next blog, I’ll talk to Richard Bennett, who is Head of institutional sales for the EMEA and APAC regions at Digital Science. Richard is also an industry veteran who has worked in a variety of commercial roles, working for the likes of Elsevier and Springer, but was also head of institutional sales at Mendeley, and was heavily involved in their relationship with Swets. Finally, I’ll speak with Mark Hahnel, founder of Figshare, a member of the Digital Science portfolio, but also another innovative company that partnered with Swets.