Reed Elsevier: Announces higher journal price increases than expected

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By Sami Kassab, from the lib-license listserv at Yale, August 7, 2009

Hello, please find enclosed a comment on Reed Elsevier (-) announcement regarding its 2010 science journal pricing announcement:

* Reed Elsevier has announced its 2010 journal price increases Elsevier has just published its 2010 print journal price list. We estimate the median price increases at 5% with key titles such as The Lancet up 9.5% and Cell Press up 4%. While these price increases only pertain to print-only subscriptions (c 10% of divisional revenues), we believe they suggest that Elsevier has maintained an aggressive pricing policy despite current library budget constraints. Its main competitor, Springer, also announced a 5% price increase for 2010.

* More aggressive pricing than expected

Given library budget pressure, we have assumed 2010 net price increases of 3% in our model (0% for 2010 subscription renewals and 5% for existing contracts), resulting in -1% Elsevier's organic revenue decline in 2010. As is the case elsewhere in Media, listed prices increases can vary considerably from net price increases due to significant discounts. We expect pressure on Elsevier's discounts and renewal rates to be under pressure in the coming months.  We maintain our 2010 organic revenue growth forecasts for Elsevier but they now look conservative.

* Open Access is putting pressure on pricing

We see Elsevier's decision to cuts prices for its nuclear physics journals by 20% as a reflection of the progress of Open Access, which prevails in this discipline. Should Open Access reach critical mass in other disciplines, similar pricing pressure is likely. With the FRPAA act likely to pass in the US, Open Access will continue to grow.

* Cautious view maintained

We continue to believe the stock could remain 'dead money' until further clarification of the new investment budget and 2010 top-line trends. While we would close short positions, we continue to prefer Pearson (+) and Wolters Kluwer (-) in publishing.