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C&E Perspectives

The Agency Model and Publishing Services RFPs

July 14, 2020  |  By

Orange chair

The publishing services RFP (request for proposal), in which a smaller publisher (often a society publisher) contracts for services with a larger publisher, is often managed as if it is a “procurement” or “vendor selection” process. This is problematic, as such processes are typically designed to evaluate proposals for fee-for-service vendors (association management systems, content management systems, publishing platforms, learning management systems, conference abstract management systems, and manuscript submission and peer review management systems, to name a few examples). Publishers, however, are not vendors, and they do not typically operate under fee-for-service arrangements.

Why PSAs Are Not Vendor Agreements
Although a publishing services arrangement may share some aspects of a vendor relationship, the difference between the two is critical: A publishing services agreement (PSA) is a licensing agreement whereby the publisher pays the society or association for the right to publish (produce, market, sell, distribute) a journal or journal portfolio for a fixed period of time. In a vendor relationship, the money flows in the opposite direction: the society pays the vendor for tools and services. Societies that fail to comprehend this distinction — and run these RFPs like vendor selection RFPs — are likely to leave a lot of money on the table or overlook opportunities to grow the value of their portfolios.

The stakes for these two kinds of arrangements are very different. The publisher selection process, and the negotiation of terms favorable to the society, are among the most important activities that a society will undertake. A society’s PSA represents a significant strategic and financial decision for the organization (in many cases, the most significant financial decision), and a negotiation that results in even modest improvements over current arrangements can have a substantive financial impact on the organization.

Beyond the economic value of an agreement, the term of a PSA is usually much longer than a typical vendor agreement. Vendor agreements tend to last 1–3 years, whereas the typical PSA is 5–10 years. (PSA terms are necessarily longer as they involve significant migration activities, relationship building, and sales relationships with institutional customers who in turn require multiyear agreements.) This means that selecting the right partner and negotiating the right terms are essential — the society may live with the agreement for as long as a decade.

A further consideration is that most vendor relationships involve services, often performed in the background, that support activities of the society. A publisher, by contrast, is front and center in the society’s journal publishing activities and is directly interacting with the society’s subscribers, authors, reviewers, and editors. Readers are interacting with the society’s journal on the publisher’s platform. The publisher represents the brand of the journal — and by extension the society — throughout the world. In some markets the publisher may be better known than the society. A PSA is a strategic relationship — in order to be successful, it requires an alignment of culture and values and a congruent set of objectives.

Vendor Agreement vs PSA

The Agency Model
If the procurement model is not suited to selecting a publisher and negotiating an agreement for publishing services, what is the alternative? In our view, the better approach is the agency model. The agency model for journal PSAs borrows from the book trade, where agents routinely represent the interests of authors in licensing a broad array of rights. It also borrows from mergers and acquisitions (M&A), where M&A advisers represent clients in acquisitions and divestitures. In particular, the level of financial analysis, strategic orientation, scrutiny of a wide-ranging set of deal points, and facilitated bidding required in negotiating a favorable PSA are most similar to an M&A transaction. The agency model brings together the sophisticated financial analysis, strategic perspective, and point-by-point dealmaking of an M&A adviser with the content licensing orientation of a book agent.

The agency model is focused not simply on running a process but on delivering an outcome. That outcome is a strong strategic relationship underpinned by financial terms favorable to the society — and one that creates a foundation for the growth of long-term asset value. A key question asked in the agency model is, Will the society’s journal be worth more in the marketplace in 10 years than it is now? Arriving reliably at this outcome requires a different approach.

In going through the process to select a publishing partner, it is important to focus discussion on the most salient issues, but it is also important to leave room for exploration. Too often the procurement model seeks to circumscribe discussion too narrowly. A PSA is a long-term relationship and one that will adapt and evolve in the wake of market dynamics and other forces. Focusing too narrowly during the RFP process can result in weighting decision-making on short-term considerations at the expense of factors that will matter more over the long term. Publish and Read agreements, for example, did not exist even a few years ago and could not have been addressed in PSAs. Yet such agreements are rapidly proliferating and are essential for doing business in certain regions of the world and with notable institutions. Societies that have a strong, flexible relationship with a publisher that the society trusts to navigate the complexity of such deals, and a contractual framework for preserving revenue and asset value for the society, will fare better during periods when business models and market dynamics are in flux. Overly constraining discussion during the selection process also robs the society of direct communication with the publisher team the society would work with over the contract term; the “fit” between the society and this team can be an important consideration in the selection process.

Agency Model vs Procurement Model

A further distinguishing characteristic of the agency model is the level of financial analysis involved compared to the procurement model. PSAs are complex agreements that span numerous financial elements: different revenue types (institutional licenses, member subscriptions, page charges, open access charges, permissions and licensing, royalty payments, reprints, advertising), royalty formulas, guaranteed payment categories (signing bonuses, guaranteed minimum royalties, editorial support payments), and chargebacks to the society (e.g., for fulfillment of member subscriptions). Publishers participating in the RFP process will have different ways of presenting their offers — understanding how those offers compare to other bidders, as well as the society’s current financial picture, requires normalization and relatively sophisticated financial modeling. Interactive models must be developed that allow for rapid iterative discussions and negotiations. (For a detailed discussion of the structure of PSAs, please see The Journal Publishing Agreement: A Guide for Societies.)

In addition to supporting deal evaluation, this interactive financial modeling supports risk assessment. Many societies enter into PSAs to reduce the risks inherent in self-publishing. But PSAs can introduce new risks, first and foremost the possibility of publisher lock-in. Publisher lock-in occurs when direct subscriptions to a journal (primarily from institutional customers), and their value, are replaced by sales of publisher packages that include many journals. When this happens, the society will continue to earn royalty revenue based on participation of its journal in publisher packages, but that revenue is not portable. Unlike direct journal subscriptions, revenue from publisher packages does not transfer to other publishers – it is locked into the package. As a consequence, other publishers participating in an RFP to publish the journal are not able to put forward competitive offers — the journal’s value becomes tied to a specific publisher and its package. Note that publisher lock-in is not limited to the subscription model, but can also impact open access and hybrid journals as Publish and Read agreements proliferate. (For a detailed discussion of the advantages and pitfalls of publisher packages for society journals, please see Navigating the Big Deal: A Guide for Societies.) In such circumstances, the society is then locked into a renewal with the current publisher, potentially on unfavorable terms. Assessing such risks and designing risk mitigation strategies to avoid publisher lock-in is a hallmark of the agency model.

Conclusion
PSAs are complex, long-term licensing agreements that, if brokered properly, will provide the society with a stable revenue stream, risk management, and the operational expertise and scale of a deeply resourced partner. Given the stakes involved in such deals, it is essential to use a model that is fit for purpose. The agency model is designed for publisher selection and negotiation and provides the framework most likely to lead to long-term success.