Are the national technical information service's prices too high?

Are the National Technical Information Prices Too High?

Service’s

J. Timothy Sprehe*

Some have claimed that prices charged by the National Technical Information Service

(NTIS) for its information products and services are inappropriately high. The National Technical Information Service commissioned a study, carried out by the author, to determine whether these claims were substantiated. The study focused on 15 selected information products and services, and asked whether prices for these products were too high relative to NTIS’ costs, relative to prices for comparable commercial products, and relative to prices for comparable products from the Government Printing Office (GPO). NTIS breaks even in the aggregate, showing neither profit nor loss at the end of the year, although individual products may be priced higher or lower than cost. NTIS prices appeared to be competitive with comparable private sector prices, and 17 executives from information industry firms believed NTIS prices were about right or not too high. For comparable products from GPO, NTIS prices tend to be lower because of administrative decisions to underprice GPO. The study examined, in greater depth, issues surrounding two new information products, Big Emerging Markets and World News Connection. NTIS prices are not too high relative to costs, to comparable commercial products and GPO products.

In congressional testimony, published articles, and speeches, a number of people have made public claims that prices charged by the National Technical Information Service (NTIS) for its information products and services are inappropriately high, given the requirements of the Paperwork Reduction Act of 1995 and OMB Circular No. A-130, Management of Federal Information Resources. The persistence of these public claims damages the ability of NTIS to perform its mission. NTIS decided, therefore, to commission a study by a party external to NTIS to determine whether these claims are substantiated, and if so, what changes should be recommended in NTIS’s policies and procedures to correct the situation.

* Direct all correspondence to: J. Timothy Sprehe, Sprehe information Management Associates, Inc., 1301 Pennsvlvania Ave.. N. W.. Suite 507. Washinaton, DC 200041701 . Government Information Quarterly, Volume 13, Number 4, pages 373-391. Copyright 0 1996 by JAI Press Inc. All rights of reproduction in any form reserved. ISSN: 0740-624X

37-l

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The study, products and inappropriate, inappropriately appropriate. independently

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which my firm was hired to carry out, focused on how NTIS prices its services; whether the level of pricing for the products and services is given the legal and regulatory context in which NTIS exists; and if prices are high, what remedies NTIS should consider to make its prices more While the author extensively interviewed NTIS officials, he worked and his perceptions and judgments are his own, not those of NTIS officials.

BACKGROUND Although NTIS has roots in the 1940s, it was in September 1950 that Congress set up “a clearinghouse for the collection and dissemination of scientific, technical, and engineering information” ( IS USC I 152). From the outset, Congress intended that the service should be self-supporting. It

is the policy

of this Act, to the fullest

of this Act, that each of the services or self-liquidating other services (IS

USC

and that the general

which

extent i’casiblc and consistent

and functions public

provided

shall

with

the objcctivcs

herein shall be self-sustaining

not bear the cost of publications

are for the special use and benefit

of private

groups

and

and individuals

11.53)

The clearinghouse became known as the National Technical Information Service in 1970. The National Technical Information Act of 1988 (P.L. 100-5 19) further defined the powers and functions of NTIS. established an Advisory Board, and required various reports to Congress. One requirement of the 1988 Act was as follows: Sec. 212 (t)(2) Commerce including

Within

90 days after- the date of the enactment of this Act, the Secretary

shall submit

to the Congress

an explanation

a report on the current fee structure

of the basis for the fees, taking

into consideration

costs, and the adequacy of the fees, along with reasons for the declining of scientific,

technical.

and engineering

planned or taken to increase such salts

publications.

Such reports

at rcasonablc

fees.

ot

of the Service. all applicable

sales at the Scrvicc

shall explain any actions

NTIS submitted its report in satisfaction of this requirement in January 1989.’ NTIS reported that sales of its technical reports had declined by SO percent over the previous to this decline is an information decade. In NTIS’ view, “a major factor contributing explosion and the emergence of a major new industry, one dedicated to acquiring, marketing and disseminating information.” Moreover, technology had producing, improved so that a significant migration had occurred away from paper-based information products and toward the electronic realm of online databases. NTIS’s online revenues had grown but sales of its paper products had declined. The sale of technical reports was particularly affected by these developments because the reports are paper-based. NTIS believed technical report sales were falling because online searchers could more precisely identify their infimiation needs. because end users had become more dependent on intermediaries. and because competition from the information industry increased. In addition, NTIS had increased its prices for technical reports to adjust for falling sales: ‘I’hcdcclinc

in unit sales for these product? has forced NTIS

the costs of its operation.

Over

to raise prices in order to cover

the past decade, the price of the average paper technical

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175

report sold by NTIS has increased by approximately

180%. This is about in line with the rest of the information industry where the price of the average scientific/technical journal has increased by approximately 200% over the last ten years.

NTIS planned to increase sales with a new acquisition strategy that involved enhancing collection quality, increasing outreach to users and expanding coverage of foreign scientific and technical literature. NTIS would also improve current products, develop new products, pursue better customers relations, and aggressively push joint ventures. It is worth noting that NTIS’s decision to raise prices in the face of declining sales represents a commitment to a course of action that could only result in a vicious downward spiral, since raising prices would further contribute to sales decline. NTIS’s Cost Accounting

System

NTIS adheres to product line cost accounting. All NTIS products are grouped into product lines. Each product is identified by a product code as it is input into the NTIS financial system. Within the NTIS Cost Accounting System, all costs, labor, and revenues are related to the NTIS Product Code Structure. The product code numbers about 100 codes and defines the universe of NTIS product lines. The financial system produces revenue and unit sales by product line. Wherever possible, labor costs associated with a particular product are assigned directly to that product, as are nonlabor costs. From this, NTIS generates the three elements of product cost: “direct product costs” and “allocated processing costs,” and “General Overhead.” Direct Product Costs would be matters such as the cost of printing a given title. Allocated Processing Costs are broken down into orders, copies distributed, and revenue operations. General Overhead consists of space rental, utilities, departmental operational expenses, facilities management, depreciation, and NTIS management. Presumably, there are many ways one can allocate costs. NTIS’s allocation to the threefold breakdown elaborated above seems reasonable. NTIS’s finances are audited annually by external auditors and the results of the audit are published in the Annual Report and Financial Overview.* Were there irregularities in cost allocation from the standpoint of accepted business practices, the auditors would say so. The auditors have found nothing irregular in NTIS’s cost allocation procedures.

PRODUCTS

SELECTED FOR STUDY

In consultation with NTIS, I chose a list of NTIS products to study in detail. The list does not represent any kind of statistically representative sampling of NTIS products, but it does include all the different kinds of formats and delivery modes NTIS uses, and several products were chosen for their intrinsic interest. The list also does not include any of NTIS’s top 10 best-sellers. Table 1 shows the products and various characteristics. NTIS Bibliographic Database. No discussion of NTIS products would be complete without the NTIS Bibliographic Database which is at the heart of NTIS’s work. It contains summaries of virtually all scientific, technical, engineering, and business information products acquired by NTIS from 1964 to the present day. At present about 2 million items

& Index

0.04 11.61 40.38

Per title Annual subscription

6. Occupational

By title-hard By title-soft By title-disk By title-mag

IO. TOXK Substances Control Act Chemical Substances Inventory By title-CD’

By title

8. World Factbook

9. StatistIcal Abstract of the United States

Service publicatwns

Outlook Handbook

7. U.S. Foreign Agriculture

13.50 103.77 103.71

II.48 8.83

7.61

97.s4

Audiovisual Per label

4. Foreign language courses-Natmnal

Per title

Center

5 14.23

Annual subscription 103.77

‘s1.955.490

Total cost

Annual subscription

Costs: Direct

117.00 244.00 32.30

0.11 3.00 0.11

0.03 0.03 20.81

0.11 20.81

0.33

0.1 I

32.30

108.27

32.30

9.2 0

0

0.11

108

32.52

38.13

~~ $842.095

625.27

$133.928

Costs: Allot. Costs: Genera/ Process. Costs Overhd

Cost Factors and Sales Volume

Table ? How Costed

NTIS Products,

5. IRS Electronic Filers Mail List Service

5erwce on FedWorld

Reports Announcements

Database

3. Davi\ Bacon wbacription

2. Government

I. NTIS Bibliographic

Product

Selected

130.61 350.77 136.12

32.32 29.67

40.02

148.98

34.02

0.04

139.26

21 1.88

1177.62

$2.931513

CO8ts: Totals

195.00 360.00 250.00

30.75 28.00

29

Avg: 95 Range: 14 175

22

$35 per 1000

34 to 485

600

565

$10,000, + 40% of resale revenue

Price in N-96

Disk: 66 Mag: 20 CD: 63

1300

1300

2587

250

16,600 label sets

2500 units

178

239

25

Volume w-95

for Technical

Cost of Goods Sold (COGS)

are computed as follows:

2

Reports

19.50 27.00 etc.

51-100 101-200 etc.

9.00 17.50

II-50

$6.00

l-5 6-10

Domestic U.S. Price

Page Range

A-Codes (abbreviated)

Prices for Technical

37.22

51.52

41.02 46.19

42.77 26.47 355.00

and are pm-stocked

Reports = $10. I7 per unit. This unit cost is backed out of the direct unit cost and replaced by the specific unit COGS.

Reports regarding

‘The disparity between the two diskette and the two CD-ROM prices is due to products that are high-volume low-volume and must be prepared and processed on a “demand” basis.

COGS

Direct Costs for Technical

15. Big Emerging Markets

199.5.

Bv title

Cost figures are for FY

0.11

32.30

19.11

Average order

Notes:

0.11 0.11

32.30 32.30

8.61 13.78

By title-CD’

By title-mag

0.11 0.09 0.09 3.00

32.30 31.64 31.64 244.00

4.81 11.04 4.74 108.00

14. Technical Reports

13. National Health Interview Survey

By title-papr

12. FDA Food Code By title-disk’

By diskette

11. The Blood Alcohol Content Estimator 27

253

titles

a-

z z 0%’

9 w

10 212,000

2 z 2 zl vi v;

114 8500 900 113

in inventory versus products that are

45

30.00 count2

By page

23.00 17.00 590.00

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are carried in the database, including some sources outside NTIS holdings. The database is leased to commercial, academic, and corporate entities. About 10 commercial firms act as retail resellers of the database. In 1995, NTIS leased 25 copies of the bibliographic database in electronic format. Government Reports Announcements md Index (GRAM). GRACGI consists of summaries of U.S. government research reports and surveys; regulations; handbooks; directories; and recently developed computer software and data files. GRA&I is virtually the print equivalent of the NTIS Bibliographic Database. The number of sales for GRA&l stood at 239 in 1995, but the number is dropping from year to year as customer preferences switch to the electronic version. As a viable product, GRA&I’s days are numbered. NTIS believes it cannot lower the product’s price because of the substantial printing costs involved. The direct costs for the product almost equal the sales price. which is less than half the total costs for the product. Davis-Bucon Subscription Service. Under the Davis-Bacon Act, all U.S. government construction contracts and most contracts for federally assisted construction, above a certain threshold, must use Department of Labor wage rate determinations. Hence, the Davis-Bacon wage rates represent information that those involved in Federal construction must acquire. NTIS offers Davis-Bacon wage data on CD-ROM for $2,000 in a form that permits searching a history for 1994 and 1995. In addition, NTIS sells the Davis-Bacon database through FedWorld for a subscription price of $600 per year. Foreign Language Courses. Various Federal agencies offer language training, notably the State Department’s Foreign Service Institute, Department of Defense’s Defense Language Institute, and the Central Intelligence Agency (CIA), in order to teach language skills to Federal employees. More than 60 courses in over 30 languages are available to the public through the National Audiovisual Center.’ The courses consist of textual materials plus audio cassettes, and the volume of materials varies with the course. Courses are labeled basic instruction, Familiarization and Short-Term Training (FAST), Headstart, and Survival. NTIS’s experience has been that the language courses comprise about 17% of sales from the NTIS Catalog of Products and Services. IRS Electronic Filers Muil List Senvice. The Internal Revenue Service (IRS) provides mailing lists consisting of the names and addresses of people and firms who are transmitters of electronic tax filings or software developers for such filing; they are, in effect, those who have registered with IRS as qualified to perform electronic filing. IRS creates the database monthly from its Electronic Filing Applicants database, containing about 53,000 names. NTIS sells the mailing lists, either as an entire file or as subsets, either on paper labels or diskette. Users can purchase the full file on diskette or breakdowns by states or breakdowns by four IRS service centers. NTIS sells the lists for $35.00 per thousand labels. User interest in the product is most active from October through March. In 1995, NTIS sold 16,600 label sets from the service. Occupational Outlook Handbook, 1 W4-1995. The Department of Labor prepares the Occupational Outlook Handbook featuring information about the current job market. The work describes what the actual work is like; what education and training are required; and what job advancement opportunities the occupation holds; potential earnings a person can expect, and future outlook. It also details related occupations. More than 250 occupations.

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representing almost 9 out of 10 U.S. employment opportunities, are found in the book. NTIS sold 250 copies of the handbook in 1995. U.S. Foreign Agriculture Service Publications. The Foreign Agriculture Service of the Department of Agriculture prepares expert analyses of the agricultural export market by individual commodities. The publications provide timely and accurate information on changing consumer preferences, foreign buyers’ needs and the supply-demand situation in other countries. The publications appear as printed newsletters, and NTIS had 2,587 subscribers to the publications in 1995. World Factbook. The CIA publishes the World Factbook which contains up-to-date information about countries and geographic areas of the world. For each country, entries treat the geography, people, government, economy, communications, and defense forces. Color fold-out maps provide detail for countries and regions. The Factbook is a popular publication and NTIS sold 1,300 copies in 1995. GPO and commercial resellers also sold this title. Statistical Abstract of the United States. The Statistical Abstract of the United States has been published since 1878 and is the standard summary of statistics on the social, political, and economic organization of the United States. It serves as a convenient volume for statistical reference and as a guide to other statistical publications and sources in 3 1 major subject areas. The Statistica Abstract is another popular publication and NTIS sold 1,300 copies of it during 1995. The title, which is also available on CD-ROM, is also sold by GPO and commercial resellers. Toxic Substances Control Act: Chemical Substances Inventory. The Chemical Substances Inventory lists the latest information on 62,000 chemicals manufactured in or imported into the United States as defined under the Toxic Substances Control Act (TOSCA). Firms that manufacture or use these substances are required to file reports with the Environmental Protection Agency (EPA) every four years. Chemical Abstracts produces a magnetic tape for EPA, which EPA then brings to NTIS. NTIS converts the tape to diskettes, which are then sold. The inventory is also available on CD-ROM produced and distributed by Solutions, Inc. The inventory sold only about 20 magnetic tape copies in 1995. The diskette sells much better at 60 copies per year, and the CD-ROM is also a steady seller at 63. The product experiences a rush every four years because of the quadrennial reporting requirement. The Blood Alcohol Content Estimator. The National Highway Traffic Safety Administration has prepared a software program on blood alcohol content for use on microcomputers. The program calls for the user to enter into the computer a person’s weight, gender, number of drinks consumed, and time-period of consumption. Using these data, the program provides a quick do-it-yourself estimate of blood alcohol concentration. The product sold 114 copies in 1995. FDA Food Code 1993. The latest guidance from the Food and Drug Administration on preventing food-borne disease in restaurants, grocery stores, and vending machines is found in the FDA Food Code. The code includes FDA’s latest recommendations for updating state and local laws and regulations. The code is a best seller, accounting for 8,500 print sales and 900 diskette sales in 1995. National Health Interview Survey. The National Center for Health Statistics carries out annually the National Health Interview Survey. It contains responses to questions on acute

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and chronic conditions; loss of work-days and school days; types of medical contacts made; health promotion and disease prevention; assistive devices; hearing trouble; podiatry; and AIDS. The 1993 sample consisted of almost 45,000 households containing nearly 110,000 persons. In 1995, the product sold 113 diskette copies and 10 magnetic tape copies. Technical Reports. Technical reports is a term that encompasses the great majority of the 2 million items that NTIS holds in its inventory and archives. These are scientific, technical, and engineering papers produced by Federal agencies in the course of their work from 1964 to the present. For the most part, the public seldom requests copies of individual technical reports. NTIS retains the reports in accessible archives as part of its basic mission. The grand total for 1995 sales of technical reports was 212,000 titles. Big Emerging Markets (BEM). The Big Emerging Markets: 1996 Outlook and Sourcebook originated editorially from the International Trade Administration, U.S. Department of Commerce but was published as a joint venture between Beman Press and NTIS. BEM focuses on 10 markets around the world on the premise that opportunities for American businesses are particularly impressive in these markets. Sales of BEMs were 253 in 1995. ITA, NTIS and Bernan hope sales will grow higher in 1996 as more people become aware of the product. World News Connection (WNC). The CIA operates a program known as the Foreign Broadcast Information System (FBIS), under which the CIA monitors and captures broadcast and published news sources in foreign countries. The sources are “unclassified military, political, environmental, and sociological news, commentary, and other information including scientific and technical data and reports.” Under the new WNC service, NTIS is now making the FBIS database available online over FedWorld. NTIS introduced WNC in November 1995, had 20 subscribers in December, and that number had grown to 125 by mid-March 1996.

COMPARISONS By law, NTIS is supposed to be self-sustaining on the basis of its fees, and this means, among other things, that NTIS is required to break even on revenues versus expenses. For FY 1994, NTIS had revenues of $32,200,840 and showed a positive balance of excess revenues over expenses of $44,652, or a profit of one-tenth of a percent. For FY 1995, NTIS had revenues of $38,461,745 and expenses of $38,290,375, for a balance of $17 1,370 or four-tenths of a percent. In other years, NTIS has shown a small negative balance, so that over time the numbers even out. In Table 1, costs are broken down by Direct Costs, Allocated Processing Costs, and General Overhead. For the NTIS Bibliographic Database, the total annual costs were $2.9 million in 1995. The price shown in the table for the bibliographic database is the price for FY 1996. NTIS states that revenues for the bibliographic database were approximately $1 million less than costs, and that the difference was made up by revenues from other products. NTIS also prices GRA&I at almost 50% below cost ($ I 178 in cost versus a sales price of $565). Sales on this title are dwindling every year, with corresponding increases in the

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use of electronic products. NTIS foresees eliminating GRA&I in the future, and offering only the electronic version, because the paper product now loses money so steadily. For Technical Reports, NTIS uses a price schedule pegged to the number of pages in the order, as shown in footnote 2 to Table 1. The Allocated Processing Costs for seven of the products listed in the table are identical at $32.30. The products are Occupational Outlook Handbook, World Factbook, TOSCA Chemical Substances Inventory CD-ROM, the Blood Alcohol Content Estimator, the National Health Survey CD-ROM, Technical Reports, and Big Emerging Markets. The reason that the figures are identical is because Allocated Processing Costs were figured by product class and then allocated equally to all members of the class. Most of the products listed in the table show negative numbers for price minus cost. Apparent money makers are the Davis-Bacon subscription service; Toxic Substances Control Act Chemical Substances Inventory; and the National Health Interview Survey magnetic tape sales. NTIS appears to lose money on the IRS Electronic Filers Mail List Service; Occupational Outlook Handbook; the World Factbook; the Statistical Abstract of the United States, the Blood Alcohol Content Estimator; the FDA Food Code; and Big Emerging Markets. NTIS apparently loses money on these various products, in part, because of pricing policy decisions. For example, NTIS chooses to price the World Factbook and the Statistical Abstract below cost in order to boost sales volume for popular items (and to be competitive with the Government Printing Office (GPO)). What Table 1 shows is that NTIS loses money for some products and makes money for others. Additionally, the NTIS financial report shows that, in the end, revenues and expenses come out about equal. From these data one would have to conclude that in the aggregate, NTIS prices are not too high relative to costs. The question might then become whether NTIS prices are too high for individual products or groups of products. NTIS’s answer to the question is likely to be that, for every product whose price someone says is too high, they can point to a product whose price is arguably too low. At the very least, NTIS is not gouging its users with prices that bear no relation to its costs since NTIS breaks even each year and makes no profit worth speaking of. What Table 1 does not show is the effect of volume sales on cost versus price. For example, Allocated Processing Costs include Sales Desk Operations and Accounting Operations. These costs are independent of sales volume in the sense that the costs will not necessarily increase as sales volume goes up. In a given year, only so many people work at the Sales Desk and the number of people-and hence the personnel costs-will not change as sales volume increases (unless the rise in sales is unusually dramatic, such as doubling or tripling, which might trigger hiring more personnel). As sales volume goes up and the number of Sales Desk personnel remains the same, the Allocated Processing Costs per copy sold goes down and NTIS makes proportionately more money. Another question is whether NTIS’ costs are too high. After all, one could argue, NTIS prices are too high because its costs are too high. This study did not and could not address this latter question, other than to note that NTIS is audited annually by external auditors. Whether an agency’s costs are too high is the kind of management question that is properly addressed by the Commerce Department’s Inspector General.

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Pricing Comparisons:

INFOKMATUN

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Products

The NTIS bibliographic database is now sold for $10,000 per year plus 40% of resale revenue. The closest comparison to the bibliographic database product is offered by Engineering Information, Inc. (Ei), which acts as both wholesaler and retailer of “the world’s most comprehensive engineering database.” Ei’s Compendex Plus is said to coverage of significant applied engineering and technology provide “worldwide literature.” Engineering Information sells its products and services in many formats. The most expensive is Ei Compendex Plus on magnetic tape. The full database, covering all back years to 1990, now costs over $50,000, not including search software and with a prohibition against resale. The figure of $50,000 includes the one-time cost of purchasing cumulative backfiles; annual updates are about $14,000. Engineering Information has much cheaper services, including a World Wide Web site known as the Engineering Information Village. as well as CD-ROM versions. A university can purchase the NTIS bibliographic database and make the database available for free (i.e.. no resales) over a university-wide LAN for $10,000. To make Ei’s Compendex Plus and the Ei website available to up to 2.000 users would cost the university $13,500 per year. The Ei prices scale up with number of users; fewer than 500 users costs $6,750 per year, while up to 12,000 users costs $44,000 per year. On balance, therefore, it appears that NTIS’s prices for its bibliographic database are somewhat cheaper than Ei’s prices. NTIS sells the IRS Electronic Filers Mail List for $35.00 per thousand. NTIS believes its prices for mailing lists to be substantially lower than commercial prices. Commercial mailing lists typically sell for upwards of $50.00 per thousand. Views of Private Sector Providers In preparing the report, the author interviewed 17 persons from fimts in the information industry. Those chosen for interviewing were selected on the basis of the fact that their firms dealt in the same general publishing market as NTIS and/or the fact that they personally were known to be conversant with both Federal and commercial publishing. The unstructured interviews centered on the following questions: l

l l

In your judgment, are NTIS prices too high, too low, or about right for each item in the set of typical products’? How would you price each of these products if you were selling them? What other views would you like to express about NTIS‘?

In general, private sector interviewees either stated that NTIS’s prices were about right or “not too high,” or said they did not have enough information to judge. Some were exceptions to this generalization, believing that NTIS’s prices were too high either because the prices are greater than the costs of reproduction and distribution (i.e., a philosophical disagreement regarding NTIS’s self-supporting status) or because they thought NTIS’ costs were too high. Where an interviewee’s firm sold a product similar to an NTIS

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product, the interviewee went into detail about that particular product, the upshot generally being that NTIS’s prices were competitive. Interviewees tended to spend more time in discussing larger aspects of NTIS. Several focused on the question of whether NTIS subsidizes some money-losing products with money-making products. They had the impression, for example, that NTIS charges high prices for the NTIS bibliographic database and subsidizes money-losing products with the excess of revenues over costs on the database. (In fact, the opposite is true. The NTIS bibliographic database is a money-loser-it lost about $1 million in 1995-that is subsidized by other information products and services.) The answer, in general, is that NTIS does subsidize money-losers with money-makers, and breaks even over all products. NTIS believes it could not behave otherwise and still be self-supporting. As a practical matter, it would be impossible to break even on each and every information product. NTIS believes its responsibility is to break even in the aggregate, not on the individual product level. Some products make money and some lose money, but at the end of the year NTIS is as close to a no-loss-no-profit status as all of its efforts can make it. Comparisons

with GPO Prices

For some of the products on the list in Table 1, the author sought out comparable prices. The results are shown below: Product Occupational Outlook Handbook World Factbook Statistical Abstract

GPO Price $23.00 29.00 37.00

GPO

NTIS Price $22.00 29.00 29.00

Also, all three of these products are also sold by a private publisher, BemanRJnipub, of Lanham, Maryland, and Beman’s prices are identical to GPO’s Hence, in this limited comparison, NTIS’s prices are below the GPO and commercial prices in two cases, and identical in a third. NTIS sells the Davis-Bacon subscription service online through FedWorld for $600 per year. GPO sells the Davis-Bacon subscription service in paper for approximately $2,000 per year. Although online and paper are different media, the NTIS price appears to be significantly cheaper. “Pricing

Government

Information”

In 1994, James Love, Director of the Taxpayer Assets Project, published a paper entitled “Pricing Government Information.“4 After elaborating a number of economic concepts, Love examined pricing of government information products at the GPO and NTIS; he considered pricing under the Freedom of Information Act and discussed copyright of government information. Love presented a table in which he compared prices for 19 selected GPO and NTIS databases. For these products, Love found that the NTIS prices were higher in every case than the GPO prices. The author checked Love’s prices for the NTIS products and found them generally accurate.

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Love’s findings are an artifact of his selection process. Although he claims the products were selected in a “nondiscriminatory manner, ” in fact, he chose 19 products where the NTIS price was higher than the GPO price. He could just as easily have chosen 19 products where the GPO price was higher than the NTIS price. Indeed, for products that are popular with users such as the Statistical Abstract ofthe United States, NTIS prices tend to be consistently lower than GPO’s The reason for this is that NTIS generally follows a policy of underpricing GPO for high volume titles that both agencies sell.

TWO

SPECIAL

CASES

Case I. Big Emerging Markets In September 1995, Bernan Press and NTIS, in a joint venture, published The Big Emerging Markets: 1996 Outlook and Sourcebook (BEM), a report that originated editorially from the International Trade Administration, U.S. Department of Commerce. Big Emerging Markets was published at no cost to ITA; indeed, ITA received 1,000 free copies of the report. Beman paid for printing BEM, which was marketed jointly by Beman and NTIS. Beman also offered to provide the Federal Depository Library program with 1,400 copies of a microfiche version of BEM. The Interagency

Strife

A key question germane to the BEM joint venture was whether or not ITA and NTIS were obliged to print and sell the report through the GPO under Federal printing laws in Title 44 United States Code. In August 1995, Robert Galpin, Director of the Office of Administrative Operations in the Department of Commerce, requested an opinion from the Commerce Department General Counsel’s office as to whether NTIS is exempt from section 207 of the 1993 Legislative Branch Appropriations Act, P.L. 102-392. Section 207 enforces Title 44 by prohibiting Federal agencies from using appropriated funds for the production or duplication of government publications unless procured through GPO. Responding to Galpin on August 28, 1995, Barbara S. Fredericks from the General Counsel’s office stated that an agency must procure its printing services through GPO unless there is an applicable exception. According to Fredericks: There are only three instances where Federal agencies are not required to procure printing services through GPO: (1) where the entire cost of printing is not borne by the Government or where printing is not exclusively for the government, (2) where the agency possesses specific statutory authority otherwise, and (3) where the Joint Committee on Printing approves an exception.. Because NTIS is statutorily directed to collect user fees to recover at least the cost of the materials, the entire cost of printing by NTIS is not borne by the government. As a consequence, this office has consistently opined that NTIS is not required to go through GPO to procure printing services.’

Subsequent to receiving this opinion, NTIS issued a Request for Information in the Commerce Business Daily asking for expressions of interest from commercial firms that wished to perform printing services for NTIS for documents printed with funds that NTIS recovers from fees.

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On October 31, 1995, Public Printer Michael F. DiMario wrote to the Secretary of Commerce to express concern on several grounds regarding the publishing arrangements for BEM. First, neither ITA, NTIS, nor Beman had arranged to supply the GPO depository library program with copies, and DiMario requested 1,218 copies of the book for distribution to the depositories. Second, GPO believed the arrangement was in violation of Section 207 of the 1995 Legislative Branch Appropriations Act requiring Executive Branch agencies to obtain printing services from GPO. Third, the Superintendent of Documents was deprived of the opportunity to include the book in the document sales program. Finally, the arrangement was said to be contrary to OMB Circular A-130’s prohibition on establishing exclusive or restricted distribution arrangements that interfere with the timely and equitable availability of government information products. DiMario asked that the BEM project be suspended. On December 6, 1995, William W. Ginsberg, the Commerce Secretary’s Chief of Staff, responded on behalf of the Secretary. Ginsberg said the Commerce Department was satisfied that “because of its clear statutory mandate, NTIS is not required to procure printing services through the GPO.” Contrary to DiMario’s assertions, Commerce believed that its dissemination strategy guaranteed maximum availability of BEM both to the depository libraries and the public. Because the printing of BEM did not use appropriated funds (Beman paid for the printing), the 1995 Legislative Branch Appropriations Act did not require NTIS to use GPO’s printing services. Commerce declined GPO’s request that the BEM joint venture be suspended. NTIS and Beman had offered GPO 1,400 copies of the microfiche version of BEM for the depository libraries. DiMario’s letter said this was insufficient because “the physical characteristics (3-color process) and high public interest content of this publication render it inappropriate for conversion to microfiche.” Not only did GPO want printed copies of BEM for the depository libraries, but GPO also wanted the opportunity to offer BEM through the Superintendent of Documents’ sales program. The Commerce response was that GPO could have printed copies of BEM, purchased under the same terms that GPO sells print publications to NTIS. This was a clever hoisting of GPO on its own petard. In August 1994, GPO had informed NTIS that, since NTIS was a reseller of government publications from the GPO viewpoint, NTIS could enjoy the “rider” price only for the first 250 copies of a title that it purchased. When NTIS purchases more than 250 copies, NTIS would have to pay the price paid by commercial resellers, namely, sales price less 25%. NTIS, in other words, would not receive the financially-favorable treatment accorded other Federal agencies but rather would be treated like a commercial reseller. In its December letter, Commerce returned the favor, proffering the identical terms back to GPO for printed copies of BEM, terms GPO was unlikely to accept. This brought matters to an impasse, with NTIS offering free microfiche or purchase of printed copies and GPO insisting on free printed copies. The Poliqv Issues

The foregoing details make picaresque anecdotes about interagency bureaucratic strife, but they also contain interesting policy questions. First, in my experience, this is one of the rare instances when an agency general counsel was willing to render a legal opinion that appeared to contradict the traditional understanding of Federal printing laws fostered by

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GPO and the Joint Committee on Printing (JCP). Arguably, the legal basis for Fredericks’ opinion was in existence 5, 10, or even 20 years ago. What was new, therefore, about Fredericks’ opinion is the change in political climate and the new willingness of an executive agency’s legal counsel to render an opinion likely to upset another agency (GPO) and a congressional committee (JCP). Many have argued that the Federal printing laws are an unconstitutional trespass upon the separation of powers insofar as they convey upon a legislative agency, GPO, monopoly rights over an executive management function, namely, printing.’ While Fredericks’ opinion does not cite aconstitutional argument, it is nonetheless a kind of landmark in the longstanding conflict between GPO and its client agencies. Second, a more fundamental question arises in the BEM case. Granted, for the sake of argument, that NTIS has no legal requirement to use GPO for printing in this case, what about ITA’? Does not ITA have to abide by the Federal printing laws? Can ITA, in effect, use NTIS as a way of circumventing the printing laws? Or, is NTIS in the nature of a legitimate loophole for avoiding some of the restrictions of those laws? William Ginsberg’s letter appears to address these questions somewhat obliquely by saying: ITA has chosen to use NTIS and its joint venture authority to assure the broadest possible distribution of its information into the private sector. The joint venture proactively extends the reach of the information to audiences well beyond the traditional channels of distribution.’ Ginsberg

also points

out that NTIS is not using appropriated

funds

and, therefore,

is not

in violation of Section 207 of the 1995 Legislative Appropriations Act-an echo of the Fredericks’ opinion. Although this may be putting words in the Commerce Department’s mouth, Ginsberg appears to argue that, Section 207 aside, ITA’s primary legal obligation in the BEM case is to satisfy its responsibility for delivering BEM to ITA’s public in the most effective manner. In Commerce’s view, NTIS was the most effective way for ITA to proceed, particularly since the partnership with a private sector publisher ensures the marketing of BEM to audiences “beyond the traditional.” If one extrapolates this argument, it seems to say that an agency’s responsibility to reach its public may outweigh its responsibility to abide by the Federal printing laws, and if it does so, the agency is justified in exploring arrangements not contemplated in those laws. Doubtless the Commerce Department never intended Ginsberg’s letter to bear such heavy policy freight. Hence, one should not push the foregoing arguments very far. At best, it is perhaps an ancillary argument, yet perhaps also the harbinger of executive agency thinking. Indeed, the argument harkens back to the many voices who have urged that GPO represents a bottleneck, rather than a facilitator, to disseminating government information. For the present case, it is enough to say that Commerce was satisfied that ITA’s use of NTIS was within the boundaries of legality. The Precedent

for the Future

The BEM title page bears the Commerce Department seal and states: “U.S. International Trade Administration, Ronald H. Brown, Secretary [of Commerce].” It also states that the volume is “published by Beman Press in conjunction with the National Technical

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Information Service.” Big Emerging Markets thus represents an instance in which NTIS entered a joint venture with a private sector partner to produce and disseminate what might have become, in the traditional course of events, a routine government information product. It now seems possible that NTIS could market to other agencies the idea of following the example of BEM. The National Technical Information Service and the agencies could enter into agreements with private firms to split the costs and profits deriving from the enterprise. Whatever else happens, BEM already symbolizes a precedent in that it marks the occasion when the Commerce Department’s General Counsel opined that, under certain circumstances, NTIS is free of the responsibility to use GPO for printing services. To the extent that this is a legitimate legal loophole, other agencies may find BEM an attractive exemplar. A key question, which cannot be answered at the moment, is whether BEM and ventures like it will result in adequate profits for the private partners. Indications are that, in the case of BEM, the private partner did not make a profit, but the reason for this seems to be ITA’s unrealistic expectations for BEM. That is, ITA was convinced that BEM would sell over 5,000 copies and insisted on a corresponding print run. Actual sales have been about half of ITA’s expectations. If nothing else, BEM was certainly a learning experience for both NTIS and the private partner. In the future, perhaps both NTIS and its private partners will negotiate more firmly with originating agencies. If the joint ventures prove unprofitable for the private sector, the willingness of Federal agencies to enter the ventures will be moot. Hence, it remains to be seen whether private firms will want to do business with NTIS over the longer term. This depends, in turn, on whether the joint ventures realize profits and whether NTIS and the originating agencies are satisfactory business partners. Case II. World

News Connection

In November 1995, NTIS announced World News Connection (WNC), billed as “a new online service that gives you the power to quickly and easily locate time sensitive news from thousands of non-U.S. media sources.” Although the WNC brochure nowhere says so, the service is basically an online version of FBIS which NTIS has been publishing in print for 24 years as FBZS Daily Reports. Foreign Broadcast Information System (FBIS) is a program of the CIA. The CIA monitors foreign radio and television broadcasts, news agency transmissions, newspapers, books and periodicals under its general mandate to collect, produce, and disseminate foreign intelligence. The agency translates into English those materials that come from non-English-language sources. FBIS represents what the intelligence community labels as “open source intelligence,” meaning information that can be freely gathered or purchased by anyone with the means to do so. The intelligence community estimates that perhaps as much as 40% of its information is open source in nature. Traditionally, the intelligence agencies have shared information only within agency walls or among the intelligence community, but not beyond Federal agency boundaries. This is now changing and the CIA’s memorandum of understanding with NTIS to make WNC available outside the Federal government is a case in point. Other elements of the intelligence community are actively considering making their open source intelligence

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available to the general public.’ The impetus for this movement is found partially in the efforts to reinvent government and partially in the desire to justify intelligence activities in the climate of diminishing resources in the post-Cold War era. In this new atmosphere of openness, the intelligence community is concerned about problems of copyright. So long as the agencies summarize their sources and share within the Federal government, no copyright problems appear to arise. To the extent, however, that the agencies redisseminate whole works to the general public from their open source holdings, they will encounter problems of copyright, especially as regards the Beme Convention. In March 1989, the United States joined the Beme Union by signing a treaty called the Beme Convention for the Protection of Literary and Artistic Works.’ At the same time, the United States modified its copyright law to satisfy obligations under the treaty. The effect of the Beme Convention is that all 79 signatory nations agreed that copyright in authors’ works will be automatically protected both within their boundaries and internationally. The United States and other members agreed to treat nationals of other countries like their own nationals for purposes of copyright. One additional effect is the abolition of a mandatory notice of copyright for published works. Failure to place a copyright notice on copies of published works no longer results in loss of copyright. For U.S. Federal agencies dealing in international STI, the impact of joining the Beme Union is that the agencies must presume all open source information from other countries is copyrighted. So long as such information was intended only for agency internal use, this presented no problem. As intelligence agencies have begun discussing dissemination of open source intelligence to the general public, the agencies are threatening to run afoul of the Beme Convention. NTIS is accepting responsibility for administering copyright in selling the FBIS holdings through WNC. NTIS has established a set-aside escrow fund into which a portion of the sales price for each item sold is deposited and NTIS will pay royalties to copyright holders from this fund. NTIS canvasses copyright holders to ask whether they agree with the NTIS arrangement, which is to pay each holder royalties from the escrow account based on the number of “hits” received in the online WNC service. Thus far, about two-thirds of the copyright holders have agreed to this arrangement, although not all have been heard from yet. Since WNC was launched in November, NTIS says about 20 subscriptions have been purchased. Expectations are that the service will grow slowly but steadily. NTIS is preparing a version of WNC that will be For Official Use Only and available only to Federal agencies. Currently WNC goes back to July 1994. NTIS is studying how far back to go in online presentation before the user hits a backfile function. Also under study are the options of publishing a CD-ROM version and subdividing the service by subject matter. The Precedent

for the Future

WNC is an online service that depends for its existence on the continued willingness and ability of a Federal agency to maintain a program generating the service’s content. Relatively few Federal agencies create and maintain continuous information services like WNC that are also salable. Indeed, within the past 2 years, the Justice Department

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announced that it would no longer maintain its Juris system for computer-assisted legal research, opting instead to purchase services from private vendors. In other words, one example parallel to WNC has recently disappeared. In my judgment, therefore, WNC offers limited opportunity as a precedent for the future. There are now, and will continue to be, very few cases in which the Federal government maintains internally a dynamic information database that is of sufficient interest to the general public.

CONCLUSION:

ARE NTIS’S PRICES TOO HIGH?

Within the limited scope of this study, I concluded that NTIS’ prices for its information products are not too high. When compared with its costs, NTIS prices are not too high, almost by definition. When compared with commercial products, NTIS prices are not too high. When compared with prices GPO charges, NTIS prices are not too high. Beating GPO’s prices is not a particularly difficult thing to do. Many in the Federal publishing community have long contended that GPO’s prices are too high. Private firms such as Beman Press are able to republish Federal documents, sell them at GPO’s prices, and apparently make a nice profit. NTIS prices seem high to some observers because of the comparison with prices charged by other Federal agencies that are not self-supporting from fees and whose prices reflect little more than the cost of reproduction and distribution. I doubt that the other agencies even accurately represent their dissemination costs, since it is common practice not to include sunk costs and many overhead factors when computing their prices. I see no alternative to accepting NTIS as currently constituted, namely, as a Federal agency that by law is self-supporting from fees charged for its products. Given that fact, I see no alternative for NTIS but to apply the Paperwork Reduction Acts’ (PRA’s) cost-ofdissemination pricing rule in the aggregate, meaning that some individual products will be money-makers and some money-losers but that at the end of the year profit and loss will balance out to zero. Does NTIS subsidize some money-losing products with revenues from money-making products? The answer is yes. However, contrary to what some think, the NTIS Bibliographic Database is not one of those money-makers that is sustaining the moneylosers. Rather, the opposite is true. The bibliographic database currently costs about one million dollars more per year than it generates in revenues. Does NTIS make a profit off of sale of its products? The answer, both de jure and de facto, is no. NTIS breaks even; sales revenues roughly equal costs. The deeper question here is whether NTIS’s costs are too high, because NTIS prices appear to be completely cost driven. Some interviewees who had dealt with NTIS for years thought the costs were entirely too high; others said they had no basis for judging. One suggested that, rather than cost-driven pricing, NTIS practiced price-driven costing, meaning that NTIS kept its costs as high as the market will bear; so long as the market sustains the costs, NTIS has little motivation to reduce its costs. Should NTIS be legislatively transformed into a government corporation, this interviewee thought NTIS would have an extremely hard time surviving because of its high costs. It is important to remember that many costs-personnel, for example-in Federal agencies are more beyond the control of management than they would be in private firms.

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NTIS is an agency that must market in two directions. Most obviously, it markets information products and services to the public. Less obviously, NTIS must also market itself to Federal agencies in order to convince the agencies that their interests will be well served if they disseminate agency information products through NTIS. Without a vigorous supply of attractive new products and services proffered through NTIS by the agencies, NTIS would wither and atrophy. NTIS’s ability to offer new products and enter into new joint ventures or cooperative agreements with the private sector depends very much on NTIS’ reputation with the agencies and companies. The study uncovered some problems facing NTIS in the area of work culture. Many, if not most, of those contacted for this study had extensive firsthand experience with NTIS. They believed that, despite a bright new management face on NTIS, the agency underneath was still the same old inefficient government bureaucracy. They lamented the absence of a customer-driven mentality, saying that NTIS’ response to customers inquiries and complaints was as slow as always, that staff were bound to outmoded procedures and mired in paperwork. Assuming current trends bear fruit, a key challenge facing NTIS for the future will be a cultural transformation from a Federal agency to a private corporation. If NTIS is to continue to pursue joint venture agreements with private firms, it must find ways to make the joint venture processes more user friendly to the firms. Some of the interviewees for this study stated flatly that they would never again consider entering into a joint venture with NTIS, no matter how profitable, so unpleasant was their past experience. Finally, the existence of this study is, in its own way, a testament to the openness of NTIS to change and improvement. NTIS did define the study’s scope, but also did not object when my inquiries went beyond that scope. All infomlation 1 requested was forthcoming. At every turn I was invited to call things the way I saw them. While NTIS staff freely expressed their opinions, no one attempted to coerce or shape the author’s conclusions. Perhaps, as some believe, NTIS has a distance to travel before it is ready to stand on its own as a government corporation. but NTIS’s willingness to open itself to this study’s scrutiny is evidence that the journey is already well underway. NOTES

AND REFERENCES

Are the NTIS’s

7. 8.

9.

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Letter from William W. Ginsberg, Chief of State to Secretary Brown, Department of Commerce, to Michael F. DiMario, Public Printer, Government Printing Office (December 6, 1995). These issues are under active consideration by the Interagency Gray Literature Working Group. Gray literature, as used by the intelligence community, means information that is not readily available through routine publishing sources, such as conference and workshop proceedings. See Copyright Office, “The United States Joins the Berne Union,” Circular 93a (Washington. DC: Library of Congress, February 1989). Copyright Office, “Highlights of U.S. Adherence to the Beme Convention,” Circular 93 (Washington. DC: Library of Congress, August 1989).