In 2011 the Imax Group achieved an excellent profit result that delivered an S&P industry leading return on shareholder’s equity of nearly 50% over the financial year. In number two position was business information service McGraw-Hill at 42% ROE. Can you guess what type of business came in third place above Viacom and Dolby Laboratories?

The answer is academic publishing business Elsevier Reed with an ROE of nearly 40%. Fellow academic publishing house John Wiley and Sons also made it into the top 10 media stock list with an ROE of 22%. Anyone who says that you can’t make money out of publishing hasn’t found these fabulous cash generators that make a lot of money out of selling access to academic journals.

I’m not going to argue that it’s wrong to profit from academic research (I do work in a business school after all) but I do want to make a point about how the concentration of journal ownership and the market power that these companies enjoy is restricting the capacity for academics to make valuable contributions to industry and society. Of course universities aren’t the only source of innovation for industry but they do have an important role in exploring frontier ideas that wouldn’t normally be supported by businesses.

Publishing research in peer-reviewed journals is a significant part of most academic’s jobs. Surveys of business also show that journals are also important for getting new ideas into the public domain and are a significant source of innovation. The following example from the Center for Business Resarch at Cambridge University is very typical with informal contacts, student recruitment and publications being the most prevalent sources of innovation, while formal IP such as patents and licenses is relatively unimportant.

Importance of University Innovation Source for Business

Publications are an important part of getting ideas out into the public domain and also shared with other academics. In other words, an effective publication process is essential for univerities to matter to society, business and each other. However, we have reached the point where about half of all academic journals are owned by three publishing companies- Elsevier, Wiley and Springer. What is more, there is a fundamental misalignment between what is good for these businesses and what is good for the university innovation ecosytem.

Basic business strategy theory tells us that it’s only possible to make those spectacular returns on equity when there are high entry barriers to the industry, suppliers have low bargaining power to raise prices and buyers have little choice but to accept the prices that they are asked to pay. In this case, getting a new journal started is extremely hard, academics are mostly sole-operators with limited power over the journals and libraries must pay whatever price is asked to subscribe to the leading journals.

There have been some efforts to create alternative publication channels but some publishers have been working hard to preserve their market power. Elsevier has been particularly active in this respect by supporting the Research Works Act in the US that would have prevented government-funded employees (most academics) from publishing in open access journals. The backlash from the academic community has been impressive with over a thousand signatures to a boycott of Elsevier that cites predatory pricing behaviour and initiatives such as the support for the Research Works Act that is aimed at making sure that established journals, such as those owned by Elsevier, remain the toll-bridge for publication.

As an academic, I think we have to take a fair bit of responsibility for getting into this situation. In many ways we have increased the barriers to entry into the industry by increasing the power of a limited number of established journals. Starting up a new journal has always been hard but journal ranking systems now make it nearly impossible. Journal quality is most commonly assessed with citation metrics. The more that articles in the journal are cited, the more highly that journal is ranked. Promotion and grant success is now more determined by these metrics than what has actually been discovered. Rather than hear a colleague say that “I discovered something new last year” it is now more common to hear “I had three tier-1 publications”. That might sound harmless but it takes several years to build up citation metrics and nobody wants to submit their best work to a journal without citation metrics. The result- no new journals.

So the situation is that the quantity of research in the academic world is increasing but the number of journals isn’t catching up. As a result, many journals are now claiming rejection rates of well over 90%. My guess is that the top 30% of most journal submissions contain valuable information and I would defy a journal with a 99% rejection rate to explian what the quality difference is between articles in the top fifth percentile. In short, valuable ideas are not getting out to where they should be and this is an economic waste. Taking several years to get a paper published is not unusual.

But it gets worse than that. As the difficulty in publishing in highly-ranked journals increases, so does the amount of time and effort taken to succeed. Where does this time come from? Sadly, it probably comes from the top two sources of university contacts that matter for innovation in the form of informal relationships and educating student graduates.

Peer review is important and we should never lose sight of that. However, the journal publication model is broken and plays into the hands of oligoplists. I’m not expecting the number of blog tweets to feature in my performance review any time soon but it’s certainly time for a change.