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Ubuntu developers: Greg Grossmeier: No body cares about your fixed costs

Posted: May 5, 2012 / in: Linux / No comments

I recently had the chance to hear a proposal on how we could increase the production of quality open access monographs (not scholarly articles, but monographs).

The method proposed can be summarized fairly easily:

  1. An author pitches a book to a publisher.
  2. The publisher and author work on it, as they do.
  3. The publisher submits the work to an Open Access Monograph Clearinghouse (OAMC).
  4. The OAMC then sends the list and descriptions of all submitted monographs that month/quarter/whatever to a group of institutions (libraries, universities, etc) that select books they want to fund.
  5. The funding level is set by the publisher depending on, presumably, their fixed costs and a margin for profit.
  6. If a sufficient number of institutions agree to fund a work, it is funded and made available as open access online under a CC:BY-NC license (the publisher reserving the commercial rights).

The benefits are pretty straight forward, as well:

  • The publisher gets their fixed costs covered (eliminating most risk) for these monographs.
  • The publisher then can provide add-on services (value add) on top of the underlying work and make (more) profit.
  • The institutions (and the public) get a lot of (presumably quality) open access monographs.

Now, I have some issues with this model.

Luckily, Mike Masnick of Techdirt wrote recently about part of my issue with this model: “Nobody Cares About The Fixed Costs Of Your Book, Movie, Whatever

His relevant points are:

If you did pricing based on the average cost, including fixed costs, you actually lose the incentive to be more efficient and lower your fixed costs, since you get to just bake them into the price. But the public doesn’t care about how much you spent. As far as they’re concerned, you may have spent stupidly and inefficiently. They only care about the marginal benefit they get from the copy.

In many ways this is reminiscent of the stupid debate we’ve had for years, where a lobbyist from NBC Universal kept challenging me to explain how he could keep making $200 million movies. But that’s stupid. If you start from the assumption of a high cost, you’re not building value, you’re just spending budget. All we should care about is how people can make profitable offerings, and there are lots of ways to do that at a variety of price points — but you should never set the pricing decisions on the fixed costs, because the buyer simply doesn’t care.

My additional points:

Let’s not forget about the “stakeholder-ness” of those who invest by covering the fixed costs. I argue that if we want to maximize social welfare (which, I assume, we do), those who invest by covering fixed/up-front costs should either:

  • receive sufficient rights that they are all equals (equal with the service provider, aka publisher, that produced the book) and thus are able to compete against each other (all of the investors) for commercial gains in the value add (supplemental material) markets.
  • the work itself should be shard with the world such that everyone can compete on the value add markets as the costs of the original are already fully recouped.

Having the service provide (publisher) be the only entity that has the ability to commercialize the base (paid for) work needlessly restricts future investment by the public.

“Why would they invest in the value add markets if they don’t have a monopoly on them?” you may ask.

They would hold a monopoly on any value add features (eg: audiobook, videos, supplemental material, etc, etc) of course. And that is where they should compete, on the additions.

This is the same argument that many make regarding publicly funded research (see: [1], [2], [3]. It is normally argued that those works should be available under the terms of (at most) CC:BY. This model maximizes public welfare two ways: the public get free access to the base works and everyone, including commercial publishers, are able to compete in the value add market.

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