The Loss of Access Copyright Royalties and the Effect on Publishers: Sifting Fact from Fiction (Part 3)

mhrOn May 29, 2014 the Quill & Quire published an article with the sensational title “Why the loss of Access Copyright royalties could be devastating for educational publishers”, which advances the thesis and leads the reader to the supposedly inescapable conclusion that the decision of many educational institutions to sever their ties with Access Copyright has already wreaked havoc with publishers and will continue to be. This is a second of a series of posts in which why these thesis and conclusions do not hold up to scrutiny.

The previous two parts examined the two “smoking guns” presented in the Q&Q article: the claim that the loss of Access Copyright royalties has been a decisive factor in Oxford University Press to close its Canadian K-12 division, and the argument that Broadview Press has been a victim of universities’ decision not to renew their Access Copyright licenses. This part examines the additional (and more general) claims made in the Q&Q article. Apart from proving two obvious points: that publishers would rather receive more money than less, and that running a profitable business may prove to be challenging, the Q&Q article doesn’t show any devastation, let alone one that can be causally connected to educational institutions’ decision to stop paying royalties to Access Copyright. Nor should anything mentioned in the Q&Q article be seriously considered as any indication that educational institutions should rethink their recent copyright-related decisions, or that the courts or Parliament should reevaluate their own recent recognition of broad users rights for educators and students.

McGraw-Hill Ryerson

The Q&Q article mentions two major publishers and three small ones. Other than Oxford University Press, the other major publisher featured in the Q&Q article is McGraw-Hill Ryerson (MHR). The Q&Q mentions that this multinational publisher has seen a decline of 27% in sales in the K-12 market last year, and it quotes its president and CEO David Swail as referring to a “spectre of change” that has been hanging over Canada’s educational and scholarly publishers in recent years. What seems to be troubling Swail is “not simply the short-term pain of Access Copyright payments being gone, [but] the longer term prospects of a significant decline in sales of original works that I think concerns all of us.”

Yes, Swail is concerned, and understandably so because, unlike OUP, which has seen growth, MHR has seen a steady decline in K-12 sales; not only last year but over the previous several years as well. Moreover, according to its latest Annual Report, MHR’s decline in K-12 sales (27%) was more than double the average industry (12%). But Swail’s concern is hardly a sign of any “devastation”, let alone one stemming from the loss of AC royalties.

Swail doesn’t even suggest that the loss of Access Copyright revenue could lead to any devastation, or that the decline in sales in the K-12 sector has anything to do with any of the recent copyright developments.

MHR’s latest Annual Report confirms that. It reveals that the company’s total revenue in 2013 was $71.1 million, and that “The Company’s sales revenue, less returns, decreased by 5.6% in 2013, with sales of $68.2 million, compared to $72.3 million in 2012.”1 This decline in sales revenue has not been unique to 2013, but continues a trend that goes several years back. The Report attributes the recent drop in K-12 sales (besides modest growth in higher education) to “nonrepeating 2012 sole source contracts and industry-wide sales declines, the result of a slow release of new curricula.”2 MRH’s public and audited reports do not even suggest that schools began substituting copying to buying, or that otherwise educators’ new fair dealing policies have had any effect on sales.

But what about the loss of AC royalties? Couldn’t the mere loss of those royalties exacerbate MHR’s troubles? Those are reported under “other revenue”, a category consisting of copyright, licensing, translation, and freight fees. Total revenue under this category in 2013 was $2.3 million (down from $4.3 million in 2012). Even if this amount consisted solely of Access Copyright royalties (which it certainly couldn’t), it only represents 3% of the company’s total revenue, and even if this entire amount disappeared while sales revenue remained stagnant, the company’s bottom line would still be positive. It’s true that loss of revenue of such magnitude might be devastating to a company manager’s prospects of getting a fat bonus, but it couldn’t possibly be devastating to McGraw-Hill Ryerson’s publishing business.

Importantly, as a publicly-traded company, MHR is legally required to disclose any material change, including any change in the business, operations or capital of a company that would reasonably be expected to have a significant effect on the market price or value of any of its securities. If any of the recent copyright-related developments in the educational sector could have any devastating effect, MHR should have disclosed that within 10 days of the change. MHR does not appear to have never done that. Its recent annual and quarterly filings mention those developments as part of a long list of general factors that may have some future impact on license revenue, but they are not treated as anything that could have a material effect on the company’s performance.

These may not be the greatest days for MHR, but it’s doing fine. Thanks for asking.

The Smaller Ones

So if the plight of Oxford, the Queen of university presses (with global revenue of £760 million (C$1.4 billion) and after-tax profit of £103.4 million (C$ 188 million) turns out to be a complete non-issue, and MHR is still doing fine. But what about small university presses such as Wilfrid Laurier University Press and small commercial publishers?

Wilfrid Laurier University Press

Although Wilfrid Laurier University Press’ Brian Henderson is quoted in the Q&Q article as acknowledging that “universities in all honesty have done their best to do due diligence [and] have created their own copyright clearance protocols” he still complains that there hasn’t been an increase in royalty payments directly from institutions, despite the fact that “when institutions started to cancel their contracts with Access Copyright, at that point the [AUCC] said the individual institutions would be contacting the publishers separately.” “Well,” he said “we don’t see any kind of increase in requests. We found that a bit strange.”

This sounds like a (polite) “gotcha”—giving the impression that those Canadian universities who decided not to renew their Access Copyright’s license have reneged on a promise to replace that license with surging requests for transactional licenses. I can’t speak for the AUCC, but as one of those who advocated that universities should severe their ties with Access Copyright, I don’t believe that Henderson should have expected any surge in such requests.

The decision to bid Access Copyright farewell has been animated by a combination of four main considerations:

  1. Most of what Access Copyright purports to license for a hefty fee does not require a license and can be done for free;
  2. Universities already pay millions of dollars for licenses that cover no less (and often more) than what the AC gives them;
  3. They can rely on the growth of open access material; and
  4. Seek transactional licenses when they identify a remainder of uses that do not fall under the previous categories.

I don’t have any reason to doubt Henderson’s statement that WLU Press has not seen any increase in requests for transactional licenses, but his “gotcha” explanation really (like the Press’s slogan) transforms some ideas, but there are much better explanations for that:

  • As some readers of this blog may recall, back in 2011, when universities began opting out, Access Copyright stopped granting transactional licenses and encouraged its members not to be responsive to requests for licenses from universities, and direct all such requests to Access Copyright. Many institutions that made such requests, either to publishers or to Access Copyright, were denied, and when AUCC asked the Copyright Board to compel Access Copyright to grant transactional licenses, Access Copyright strongly opposed.
  • Some publishers, such as Broadview Press, did not simply deny requests for transactional licenses, but proactively informed universities that it would turn down all such requests (Broadview later even sent a public letter to presidents of Canadian universities threatening legal action against universities who opted out). It is a bit disingenuous to be surprised that universities don’t make such requests when they had been systematically denied and that they turn to other alternatives (and it is a bit naïve not to expect that threatening your customers with legal action might not push them further away from you).
  • As far as WLU Press is concerned, it’s not even clear why any requests for additional transactional licenses be necessary at all. According to the information on its website, WLU Press publishes 30—35 titles a year and has over 365 titles in print. It proudly discloses that it has digitized its backlist, and that its ebooks are available from a variety of licensed resources. UofT, for example, has purchased licenses to WLU Press entire digital catalog, and indeed, I searched the term “wilfrid laurier university press” on the UofT Library catalogue and received 1605 records, 1215 of which are available in digital form through UofT’s various subscriptions. Thus, UofT students and instructors (and presumably those in many other Canadian universities) already have fully licensed and paid-for digital access to most if not all WLU Press materials. Good job, WLU Press! The system that you have created is working very well without Access Copyright. You granted universities licenses and they already pay you license fees; those licenses allow universities to do more than a license from Access Copyright would give them. What made you think that universities will need more?

So what have we got so far? One large successful academic publisher with buoying sales in print and digital in both the K-12 and the higher education sectors (OUP); one publicly traded multinational commercial publisher (MHR) who is doing fine despite decreased sales in the K-12 sector, but which have nothing to do with copyright developments; and a small academic publisher who has already licensed most of its content to universities but is still disappointed that universities don’t request to license these materials again. All in all, nothing resembling a devastated publishing industry.

Broadview Press and Fernwood Publishing

Which brings us to the two small, independent, local, and arguably struggling scholarly publishers, which, according to the Q&Q article may not be able to break even without the Access Copyright royalties that they have been used to receive.

According to the Q&Q article, “At Winnipeg-based scholarly press Fernwood Publishing (which focuses on the higher-education sector), Access Copyright royalties usually amount to the salary of one of its seven staffers. And at Broadview Press, Access Copyright payments total $50,000 per year. It’s clear that these royalties have a significant impact on publishers’ abilities to break even, pay their staff, and create new works.”

I don’t have access the financial reports of these two publishers, but it’s plausible that the loss of Access Copyright royalties may be tough for those two small, independent, and local publishers. Now, let’s put aside the possibility that Access Copyright’s own policies might have harmed those publishers by encouraging professors and students to copy more and buy less, and assume arguendo that the money that they received from Access Copyright could make the difference between making and breaking, and that without it they would indeed not be able to break even, pay their staff, and create new works. What conclusion are we supposed to learn from that?

The Q&Q article and Access Copyright would like us to draw the conclusion that the plight of these publishers is an outcome that ought to be avoided, and that universities should mend their ways, resume paying license fees to Access Copyright, in order to rescue those two small, local, and independent publishers.

Of course, all things equal, who would not like to prevent the plight of these publishers; who could object to having more prosperous local publishers, employing more people, and publishing new works? But not all things are equal, and budgets are not unlimited, and when universities pay more money to Access Copyright they can spend less money on other purposes: employ fewer teachers, produce less research, buy fewer books (or microscopes, or desks, or whatever) leading other suppliers to produce less, employ fewer people, etc. So this type of arguments really goes nowhere.3.

Essentially, the argument that without the Access Copyright royalties those sympathetic publishers might not be able to break even boils down to three remarkable claims: (1) that these publishers (small, independent, Canadian, but still private corporations) deserve guaranteed annual income and should be bailed out if they can’t break even; (2) that subsidizing those publishers is the responsibility of Canadian universities; and (3) that universities should continue paying gratuitous payments to Access Copyright (most of which will be distributed to large, prosperous, and multinational publishers and on maintaining an organization that has lost its direction) so that tiny bits of those payments would trickle down to a few small and withering local publishers.

It would be nice if everyone’s income could be guaranteed, but Fernwood and Broadview don’t have a better claim for such guarantee than any other Canadian. Yes, there are very good reasons to publicly fund scholarly work (and its publication) because the social benefit of such activities may be greater than what the market can channel to those who engage in it. Indeed, as a beneficiary of such public funding I would be remiss to deny its importance, and personally I would be happy if more public funds were devoted to such activities than spent on many other purposes, but this is beside the point.

The point is that universities are not funding agencies: they have other mission and mandate, and if Broadview and Fernwood deserve receiving public support for their activities then there are several federal and provincial programs devoted for that. Indeed, Broadview and Fernwooed already receive support from various federal and provincial programs that are specifically designed for this purpose.4

If more support from the public purse is needed and justified, it should be done through these kinds of programs, and in a transparent and open way, as part of the relevant federal or provincial budgets. It is neither appropriate not desirable to demand that educational institution pay fees that don’t need to be paid to an unaccountable, non-transparent private organization such as Access Copyright. And in any event, if we were to provide more funding to struggling, local, and independent publishers, this should better be done directly, and not lumped with much bigger gratuitous payments to large, prosperous, and multinational ones.5

Who subsidizes whom?

Some publishers might object to the notion that paying Access Copyright fees is a form of subsidy to them. In fact, they frequently make the claim that not paying those fees and the large and liberal meaning that the Supreme Court of Canada gave to fair dealing is unfair because it forces copyright owners to subsidize education, by taking, or diminishing the value of their “property”. However, some self-reflection and humility would not hurt them. Not only copyright itself is a form of indirect subsidy (“a tax on readers for the purpose of giving a bounty to writers”, as Lord Macaulay famously remarked in 1841), publishers also take for granted, or at least tend to forget the enormous benefit that they derive from a publicly funded, or publicly supported, education system. So to remind publishers how publicly funded and supported education is an indirect subsidy of which they are among the greatest beneficiaries, let us all read The Chronicles of Broadviewlandia.

 

Posted in Blog, Copyright, Copyright Collectives, Stationers Tagged with: ,
7 comments on “The Loss of Access Copyright Royalties and the Effect on Publishers: Sifting Fact from Fiction (Part 3)
  1. Andy Morris says:

    Publishers can of course respond by publishing less, and you can’t copy what hasn’t been published.

  2. Ariel Katz says:

    Yes and no. Each individual publisher can decide to publish less if it makes less profit, but in a competitive market if one publisher decides to publish less, another (more efficient, less risk-averse, etc.) may decide to publish more. Publishers might be interested collectively to publish less, but then they would have a serious antitrust problem.

  3. “But not all things are equal, and budgets are not unlimited, and when universities pay more money to Access Copyright they can spend less money on other purposes.”

    In most of the universities, it’s the students who pay Access Copyright directly as part of their supplementary fees, or via the purchase of course packs. So it’s not even the educational institutions that are (allegedly) sustaining the small publishers, it’s us.

  4. Matt says:

    When publishers say they haven’t an increase in requests for transactional licensing, I wonder if they’re including requests made through the Copyright Clearance Center.

    The CCC is always my first stop when I need a transactional license. I would never think to contact a publisher directly for a license unless it could not be obtained through the CCC. The CCC’s online licensing tools are just too convenient compared to the process of obtaining a license directly from a publisher. (Some publishers are better than others of course, but the CCC’s online tools are as good as the best of the publishers).

    If tomorrow I quadrupled the amount of transactional licenses I was purchasing, it’s entirely possible that would result in quadruple the money flowing back to publishers but would not result in even a single additional request directly to a publisher for a license.

  5. Andy Morris says:

    I doubt publishers would have any need to collude on publishing less. It’s simply a matter of economics. If revenue and profits are challenged, they will stop publishing the lower margin and speculative titles. It doesn’t follow that these would be attractive to any other publisher. This may not matter – after all, if sales are low then interest is low, right? – but if you talk to any publisher they will confirm that they are publishing less, and also investing less in the editorial process.

    • Ariel Katz says:

      It may be true that if revenue and profits were down publishers might publish less or take less risk (and if revenue and profit disappeared, in theory they might stop publishing altogether). But it might also be true that declining and profit might lead some publishers to publish more, take greater risks, and invest in quality, because this might be these publishers’ only chance to survive. Likewise, less competition, higher profits, or collectively imposed fees on users could ensure greater profits for publishers, but if prices are high, and if it costs consumers more to use the books that they’ve purchased, they will buy fewer books, and stop buying those whose value is smaller or less obvious. If the economics of copyright were indeed simple we wouldn’t have to argue about the proper scope of copyright because getting optimal copyright protection would be a simple matter.

      The topic of this series of posts is not discussing how strong copyright should be in the abstract, but to examine the specific claims about whether and how the drop in Access Copyright royalties have affected publishers. It’s one thing for publishers to say that if they earn less they will publish less or reduce quality–that’s exactly what you’d expect them to say. The question is what evidence they have presented to substantiate the claim. Even if it can be confirmed that they publish less, the question is whether this reduction a result of the copying practices of universities (and even if it were, this doesn’t necessarily determinative of the question of whether this copying should be permitted or not. It’s a relevant consideration but not the only one).

  6. Cedric says:

    Though you have carefully explained that the publishers’ evidence should be handled with care, their figures are officially used to oppose any change in copyright in Europe. See here: http://www.ifrro.org/sites/default/files/letter_commissionerkroesjuly2014_copy.pdf

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Notes:

  1. McGRAW-HILL RYERSON 2013 ANNUAL REPORT, at 7.

  2. Ibid.

  3. Here’s another surprisingly obvious revelation: when you pay more to use what you already have, you have less money to buy more things. So when universities pay additional license fees to make copies of articles or parts of books that they have already purchased, they have less money for new acquisitions, and when their acquisition budgets are more constrained, they would tend to prioritize the core journals or books in every field, at the expense of those for which demand is lower. This tends to affect small publishers more than the large ones, which is another way how paying unnecessary license fees actually harms small publishers and the authors who write for them

  4. Fernwood, at the bottom of its homepage “acknowledges the financial support of the Government of Canada through the Canada Book Fund and the Canada Council for the Arts, the Nova Scotia Department of Communities, Culture and Heritage, the Manitoba Department of Culture, Heritage and Tourism under the Manitoba Publishers Marketing Assistance Program and the Province of Manitoba, through the Book Publishing Tax Credit, for our publishing program.” Broadview, at the bottom of its homepage “acknowledges the financial support of the Government of Canada through the Canada Book Fund, and also acknowledges the support of the Ontario Media Development Corporation. Freehand Books, an imprint of Broadview, acknowledges the support of the Canadian Council of the Arts.”

  5. In fact, the claim that universities should subsidize publisher is not limited to the local, small, independent, and struggling ones. The large, multinational, and profitable are happy to make such claims too. See Witness Statement of David Swail, MHR’s CEO, supporting Access Copyright’s case before the Copyright Board, paras. 18-23.

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