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posted: 9/14/2013 7:27 AM

iPad-toting doctors fuel publisher profits as paper fades

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Bloomberg News

Ohio doctor Mrunal Shah recently shipped four boxes of medical texts to developing countries because he can't recall the last time he cracked a book rather than tapping for information on his iPad.

"There is no paper chart in any of my hospitals, and it's rare to see people even using paper and pen," said Shah, 41.

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While that's good news for Apple, the shift has also been a boon for Wolters Kluwer and Reed Elsevier, academic-journal publishers that trace their roots to the 19th century. Both now employ more technology staffers than editors as doctors trade in dusty volumes of "Gray's Anatomy" for digital tools such as UpToDate, an online medical encyclopedia from Wolters Kluwer or a similar product from Reed Elsevier called ClinicalKey.

"Before doctors would read and call their peers who wrote an article to discuss it," Wolters Kluwer Chief Executive Officer Nancy McKinstry said in an interview. "Now that can be explained on a tablet and the procedures can be seen online."

Shares in the two companies -- which together dominate trade and academic publishing -- have jumped more than 60 percent in the past 15 months. From five-year lows in June 2012, both have surged to all-time-highs in recent weeks as strategies to shift away from print and buy back shares have paid off. Still, analysts caution that a growing movement advocating free access to scholarly research poses a risk to future profits.

"These companies have succeeded in the transformation to digital by shedding all those printing and shipping costs," said Claudio Aspesi, a media analyst at Sanford C. Bernstein in London. "They are less cyclical than other media stocks, and now is a good time to be boring."

Reed Elsevier's 2012 net profit rose 41 percent to 1.07 billion pounds ($1.68 billion). Wolters Kluwer's net income last year more than doubled to 322 million euros ($427 million), a five-year high.

Their growing strength has made Wolters Kluwer and Reed Elsevier targets of groups that say research should be widely available at no cost since it's often funded by taxpayers and publishing costs have plummeted with the switch online.

A website called thecostofknowledge.com has gathered almost 14,000 signatures from university staff and others vowing not to do business with Reed Elsevier because of what they say are high fees. Reed Elsevier typically sells journals in print and online formats in bundles to universities at prices the company doesn't reveal. A subscription to the British medical journal "The Lancet" costs consumers $222 per year.

"The minute publishing moved online, the game changed," said Caroline Sutton, co-founder of open-access publisher Co- Action Publishing and former president of the Open Access Scholarly Publishers Association. "The costs to deliver a digital product are cheaper and cheaper every year."

In an April 2012 memo to staff, Harvard University said it pays as much as $40,000 a year for some journals, and a total of almost $3.75 million annually. The memo didn't name publishers, but said the top two had more than doubled their prices in the past six years. Calling the situation "untenable," the school urged professors to publish in open-access journals to help lower costs.

"It's come to a crunch because even the wealthiest universities need to cut costs these days," said Alex DeGroote, a media analyst at Panmure Gordon & Co. in London. "When Reed Elsevier or Wolters Kluwer presents them with a high bill this is against the backdrop of tough economic times."

Reed Elsevier declined to comment on open access, though Chief Executive Officer Erik Engstrom in February said a White House memorandum on access to research "recognizes the value that the publishing industry brings to the table." He noted Reed Elsevier's collaboration with the U.S. National Institutes of Health to post research and articles in free online databases 12 months after publication.

Wolters Kluwer's Medknow Publications in India, which publishes peer-reviewed online and print journals in science and medicine, allows free online access to its almost 300 titles and publishes dozens of open-access journals.

Even with the pressure from open-access advocates, well- established players like Wolters Kluwer and Reed Elsevier will benefit from their close ties to universities, said Ian Whittaker, a media analyst at Liberum Capital Ltd. in London.

"The challenge for these brands now is can you push through price increases and keep customers," he said.

The threat from the open-access movement is mitigated by the breadth of the companies' offerings. In addition to their academic titles, both have more commercially oriented products such as reference guides for doctors, Wolters Kluwer's Bouvier Law Dictionary, and Reed Elsevier's "Estates Gazette" property journal and its LexisNexis law and news database.

Sam Allen, a medical malpractice lawyer in South Carolina, says he has come to rely on a LexisNexis offering called MedMal Navigator. A current case involves a man in his 40s who went in for a "routine endoscopy" and ended up in a vegetative state. Allen says the man was given too much of the anesthetic propofol, the drug that contributed to the death of singer Michael Jackson.

Allen used MedMal to quickly locate a propofol expert in his region, a task that earlier would have taken hours of rifling through books and making phone calls.

"The program makes you think through each step of the case," Allen said. "And it does it quick and fast."

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