Digital Book Report 2016
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Educational textbook and digital ebook publishing industry analysis with a focus on current disruptors. Are textbook prices really too high? Who profits? Why isn't digital significantly less expensive? Are alternative models scalable and sustainable? The answers to these questions may surprise you.
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Digital Book Report 2016
- 1. The Digital Book Report 2016 June Jamrich Parsons Marlys Mayfield Presented at the Textbook and Academic Authors Association Conference San Antonio, TX June 25 2016
- 2. EDUCATIONAL PUBLISHING IS IN DISRUPTION Why is the industry vulnerable? What are the disruptors? How does this disruption affect authors?
- 3. AUTHOR INCOME & OPPORTUNITIES PUBLISHING INDUSTRY EARNINGS & TRENDS $ PUBLISHER FINANCES AFFECT AUTHORS
- 4. INDUSTRY RIVALRY Publishing Companies THREAT OF SUBSTITUTES Rentals Used OER Digital THREAT OF NEW ENTRANTS Edtech Developers Non-profits Schools States & Feds BARGAINING POWER OF BUYERS Students Professors School Boards BARGAINING POWER OF SUPPLIERS Authors STATE OF THE EDUCATIONAL PUBLISHING INDUSTRY
- 5. U.S. EDUCATIONAL PUBLISHING INDUSTRY REVENUES 2015 $7.3 BILLION REVENUE $4.1 BILLION HigherEd 7% DECLINE IN 2015 HigherEd Enrollment decline only 1.7%
- 6. FOUR MAJOR EDUCATIONAL PUBLISHERS
- 7. 2006: International Thomson sells its educational publishing division for $7.75 billion to Apax Partners, a private equity firm. Name change to Cengage Learning. 2013: The company is unable to generate enough sales to repay the debt and files for bankruptcy. 2014: Emerges from bankruptcy.
- 8. $1.63 BILLION REVENUE 2 % DROP CENGAGE REVENUE FISCAL 2016 $72 MILLION LOSS
- 9. CENGAGE (CNGO) STOCK VALUE 2015-16
- 10. April 2016: Cengage lays off 100 employees SINCE 2012: 40 PERCENT TURNOVER Cengage CEO promises 150 new jobs "most of them tech-related."
- 11. CENGAGE DIGITAL SALES 2016 Digital unit sales outpace print textbook sales for the first time 3.5 MILLION DIGITAL EXPERIENCES 12 PERCENT INCREASE
- 12. • British company. • Includes Addison-Wesley, Peachpit, Prentice Hall, Longman, and other imprints, such as Allyn & Bacon and Heinemann. • It is the world's largest educational publishing company. 66% SALES NORTH AMERICA
- 13. 16% DECLINE 2010-2015 2 % DROP FROM 2015 PEARSON FINANCIALS 2015 $6.44 BILLION SALES PROFIT
- 14. January 2016: Pearson cuts 4,000 jobs Projects sharp profit declines in 2016 and 2017 before earnings recover in 2018.
- 15. PEARSON (PSO/PSON) STOCK PRICES
- 16. • 21% of higher-ed market. • 2013: Purchased by a private equity firm Apollo Global Management LLC for $2.4 billion. • McGraw-Hill is not a public company, so its stock does not trade on a stock exchange. • The company originally planned an IPO in the fall of 2015, but has since delayed that move by a year.
- 17. 45% DIGITAL HigherEd $36K PROFIT MCGRAW-HILL EDUCATION FINANCIALS 2015 $1.24 BILLION SALES
- 18. $1.5 BILLION DEBT “There can be no assurance that we can continue to attract and retain key authors and talented personnel and, if we fail to do so, it could adversely affect our business.” MCGRAW-HILL EDUCATION FINANCIALS 2015
- 19. • 1959: Infamously rejected Julia Child's Mastering the Art of French Cooking. • 1962: Becomes a publicly traded company on the NYST. • 2009: After a series of acquisitions, and mergers, which included a merger with Harcourt, the company had accumulated $7.3 billion in debt. • 2012: Houghton Mifflin Harcourt emerges from bankruptcy and goes public. • Houghton Mifflin has a trade division and an educational division that focuses on PreK-12.
- 20. HMH FINANCIALS 2015 $1.21 BILLION $1.21 BILLION $1.25 BILLION 201520142013 REVENUE 4500 EMPLOYEES 40% MARKET SHARE 48% BILLINGS DIGITAL $4K PROFIT
- 21. HMH (HMHC) STOCK PRICES
- 22. INDUSTRY SUMMARY A small number of companies control the educational publishing market in the United States. Their extensive list of educational titles and strong sales force have been substantial barriers to competition. Revenues and profits appear to be trending downward. Half of the top-tier companies have been in bankruptcy over the past five years. None of the companies is awash in profits.
- 23. STAY VIGILANT As publisher revenues decline, authors can expect commensurate declines in royalties. Authors can track the financial status of their publishers. 1. Set Google Alert based on publisher’s name. 2. Check company financial information online from annual reports. Look for links to investor relations. 3. Watch stock prices by googling ticker symbols, such as HMHC, CNGO, or PSON.
- 24. INDUSTRY RIVALRY Publishing Companies THREAT OF SUBSTITUTES Rentals Used OER Digital THREAT OF NEW ENTRANTS Edtech Developers Non-profits Schools States & Feds BARGAINING POWER OF BUYERS Students Professors School Boards BARGAINING POWER OF SUPPLIERS Authors THE BARGAINING POWER OF BUYERS
- 25. DISSATISFIED CUSTOMERS FIRST YEAR 25% SENIORS 30% DO NOT BUY REQUIRED TEXTS USED
- 26. Option Retail Savings NET Author Price Price Royalty Paperback - Buy $129.95 0 $97.46 $11.70 Paperback - Buy used $77.44 40% $58.08 $ 0 Paperback – Rent* $54.21 58% $40.66 $4.88 Kindle – Buy* $107.49 17% $80.62 $9.67 Kindle - Rent for 1 month $49.31 62% $36.98 $4.44 BryteWave 180-day ebook rental $54.49 58% $40.87 $4.90 VitalSource 180-day ebook $57.49 56% $43.12 $5.17 VitalSource Download $71.49 45% $53.62 $6.43 Previous edition 180-day rental $17.46 87% $13.10 $1.57 Chegg* $55.00 58% $0 $0 * Authors get royalties only on the initial sale of the book to the rental company. WHAT IS THE PRICE OF A TEXTBOOK?
- 27. 63% of students believe that the cost of textbooks is excessive and that the cost of education is the #1 issue facing the country today. COST OF EDUCATION CRIME COST OF HEALTHCARE TERRORISM 86 PERCENT instructors “COST TO MY STUDENTS” IMPORTAN T
- 28. MISLEADING STATISTICS FUEL A REVOLT
- 29. THE COLLEGE BOARD DATA
- 30. THE DISCREPENCY $1200 PER YEAR COLLEGE BOARD $663 PER YEAR NACS Actual expenditures Estimated cost of full- price print textbooks $120 $6 3
- 31. $21.63 PER HOUR INSTRUCTION TEXTBOOKS: THE VALUE PROPOSITION $2.88 PER HOUR OF USE
- 32. SUMMARY BPOB • Spending about $660. per year on textbooks seems small in comparison to cost of tuition, room, and board. • Students, awash in sea of free information, have decided textbooks are not worth the cost, and therefore seek discount alternatives. • Unfortunately, authors have little control over the textbook prices set by publishers. • Despite the current cost of textbooks, publishers are finding it difficult to be profitable. BARGAINING POWER OF BUYERS Students Professors School Boards
- 33. INDUSTRY RIVALRY Publishing Companies THREAT OF SUBSTITUTES Rentals Used OER Digital THREAT OF NEW ENTRANTS Edtech Developers Non-profits Schools States & Feds BARGAINING POWER OF BUYERS Students Professors School Boards BARGAINING POWER OF SUPPLIERS Authors THREATS OF NEW ENTRANTS AND SUBSTITUTES
- 34. THE FADING TEXTBOOK MODEL 1. Author creates content. 2. Publisher contracts with author on a royalty or work-for-hire basis. 3. Publisher produces a print book. 4. Publisher’s sales force promotes book to instructors. 5. Instructors select a book. 6. Campus bookstore orders books from publisher. 7. Students purchase books from bookstore.
- 35. DISRUPTORS CHANGE THE MODEL
- 36. USED BOOKS 34% USED 36% NEW 2015 25% SAVINGS BUY USED SELL BACK
- 37. PUBLISHER RESPONSE TO USED BOOKS • Used books cut into new book revenues. • Publishers might have proactively repurchased used books and resold them (and perhaps give authors a cut of the profits). • Instead they wrung their hands and hoped shortening the new edition cycle would limit the damage. • That lapse opened the floodgates.
- 38. MISLEADING STATISTIC FUEL A REVOLT
- 40. DIGITAL ADVANTAGES No used books. Every students pays. Publisher and author earn on every sale. Potential to improve learning. Accessible.
- 41. STUDENT PREFERENCES FOR READING TEXTBOOKS
- 42. 74% 74% 74% 77% 60% 46% 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2010 2011 2012 2013 2014 2015 2016 Prefer printed textbook
- 43. INSTRUCTOR OPINIONS ABOUT DIGITAL Digital materials are less costly than print and save students money. Materials in their courses will be primarily digital by Fall 2018. Digital textbooks and supplemental materials are important or very important. Digital course materials are more effective than print. “Never” expect to be using primarily digital course material. 79% 50% 40% 35% 24%
- 44. STUDENT OPINIONS ABOUT DIGITAL
- 45. @ PDF HTML KINDLE LOTS OF COMMERCIAL FORMATS
- 46. EVEN MORE PUBLISHER PROPRIETARY FORMATS
- 47. ONE RING TO RULE THEM ALL?
- 48. IS DIGITAL ACTUALLY CHEAPER?
- 49. IS DIGITAL ACTUALLY CHEAPER?
- 50. DIGITAL AFFECTS AUTHORS Digital products may have a lower NET price, which means less income for authors from royalties. The concept of a “book” begins to diminish because publishers can slice and dice content in various ways. New distribution methods, including courses, adaptive courseware, and customization, make it difficult to track royalties. Some publishers are replacing royalty contracts with work-for-hire contracts.
- 51. WORK FOR HIRE Payments. As full compensation for the timely, complete and satisfactory performance of the Services and assignment of all rights in and to the Work and Work Product by You to the Publisher, the Publisher shall pay to You, upon final written acceptance compensation as set forth in the Scope of Work. This Agreement and/or any Scope of Work may be terminated by the Publisher without cause upon fifteen (15) days written notice to You. At any time after completion and acceptance of the Work as provided herein, You agree to revise the Work if the publisher so requests...Should the Publisher, in its discretion, select a third party to create the revision, You shall receive no fee, royalty or other payment with respect to that or any other future revision or edition of the Work. You agree that during the term of this contract, and for three (3) years following first publication of the Work, You shall not, without the Publisher’s prior written consent, participate in the preparation or publication of, or otherwise be interested in or connected with, or allow Your name to be used in connection with, any work on the same subject matter that may, in the Publisher’s judgment, conflict or compete with the sale of the Work.
- 52. DIGITAL IS NOT A LONG-TERM DISRUPTOR Publishers will still control the distribution.
- 53. DIGITAL MAY ENABLE TRUE DISRUPTORS DISTRIBUTION MODELS THAT PUBLISHERS NO LONGER CONTROL.
- 54. Course materials that are public domain or licensed to allow free use.
- 55. WHAT’S THE BUSINESS MODEL FOR FREE? GRANTS: FROM FOUNDATIONS, GOV, SCHOOLS PAY FOR PRINT: UNSUCCESSFUL ADVERTISING: ADVERTISERS PAY FOR PLACEMENT STUDENTS PAY TO ELIMINATE ADS
- 57. WILL OER AFFECT PUBLISHERS? • Publishers appear to becoming reluctant to publish in areas in which extensive OER materials are becoming available. • Competing with free materials will be increasingly difficult for publishers as OER courses become more complete, more professional, and more familiar to instructors.
- 58. WILL OER AFFECT AUTHORS? Authors may have opportunities to write OER materials. Grant-based contracts may be available. Because the Work is distributed free, contract terms must be considered carefully. • Hewlett Foundation • Next Generation Learning Challenges • CK-12 Foundation
- 59. WILL OER AFFECT AUTHORS? • Many OER efforts are initiated by the federal government, state college systems, and state departments of education. • Initiatives typically involve faculty members as authors. • Faculty may be granted released time to write OER textbooks.
- 60. WILL OER AFFECT AUTHORS? • There is the possibility that textbook authoring will take a course similar to Kindle Direct Publishing, where thousands of indie writers post their work. • Several sites encourage authors to post self- published textbooks. • The problem of finding quality material on KDP may also become a problem with finding quality course materials on OER sites.
- 61. CONCLUSIONS • 2016 promises to be a year of continued disruption. Models that have been tried in the past will be tried again. • The education market is searching for the “killer app,” equivalent to Lotus 1-2-3, cable television, and Uber. • Publishers must find a way to maintain service and quality while reducing prices in order to compete with OER. • Given enough impetus for OER, authors may be required to rethink their roles. • As with all disruption, there is opportunity for those who keep pace with change.
Hinweis der Redaktion
- The educational publishing industry is in a state of disruption. Old models of development and distribution are being challenged, not just by digital innovations, but by a constellation of forces based on current economic factors and technology developments.
- Author income depends upon the prosperity of the publishing / edtech industry. Educational publishers have transitioned in this century into profit-driven corporations now in a struggle to survive through investment and re-invention. So let’s begin with an overview of this industry in transition.
- In past Book Reports, we’ve used Michael Porter’s Five Forces model as the scaffolding for examining the forces that affect the educational publishing industry. Last year, the focus was on the bargaining power of suppliers—authors who provide educational content for textbooks. This year the emphasis is on disruption arising from three factors: Bargaining Power of Buyers Threat of Substitute Services Threat of new entrants But let’s begin in the middle of the model and look at the current status of the publishing companies in the center of all the disruption.
- In 2015, educational publishing revenues topped $ 7.3 billion. Of that revenue, $4.1 billion came from higher ed, a figure down 7% from the previous year. That decline was far steeper than enrollments, which dipped 1.7% between 2014 and 2015. Source: https://www.fitchratings.com/site/fitch-home/pressrelease?id=1001704
- Four publishers account for more than 80% of the U.S. educational market.
- Cengage reported a loss of 72 million for the fiscal year ending in March of 2016. Revenues were down about 2% from the previous year. The actual decline may be larger, but is obscured by something called "fresh start accounting" based on cash flow projections. Source: Cengage Learning Holdings II, Inc. Annual Report for Fiscal Year Ended March 31, 2016: http://www.cengage.com/investor/pdf/Annual_Report_FY2016_FINAL_5_18_16.pdf
- Cengage trades as CNGO. The following chart illustrates its stock value in 2015-2016, after the company emerged from bankruptcy. The trend line is downwards, indicating declining investor confidence. Source: http://www.marketwatch.com/investing/stock/cngo. Retrieved June 2, 2016
- Since 2012, the company has turned over 40 percent of its 5,500-person workforce through a mix of layoffs, retirements, and resignations. A significant shuffle occurred in April 2016 when 100 editorial employees were laid off and replaced by 150 tech jobs. That event underlined Cengage’s affort to restyle itself from a publishing company into an educational technology company. Source: http://bostinno.streetwise.co/2016/04/07/cengage-learning-lays-off-100-plans-to-hire-150/
- Cengage Learning reported that in 2016, digital unit sales outpaced print textbook sales for the first time, denoting a significant milestone for the Company. For the 12 months ending March 31, 2016, Cengage Learning activated 3.5 million digital experiences, up 12% from the prior year. "Digital experiences" should not be equated with textbook sales, however, because many of these experiences are registrations for auxiliary online materials. Source: http://news.cengage.com/corporate/cengage-learning-achieves-milestone-of-more-digital-units-sold-than-print-textbooks/
- Pearson is a British company that also owns Addison-Wesley, Peachpit, Prentice Hall, Longman, and other imprints, such as Allyn & Bacon and Heinemann. It is the world's largest educational publishing company. Approximately 66% of Pearson sales are in North America.
- Pearson reported $6.44 billion in sales in 2015 down from 6.545 in 2014. That is about a 2% decline for 2015, after a similar decline in 2014. Profits are down 16% from 2010. Source: Pearson Annual Report and Accounts 2015. https://www.pearson.com/ar2015.html
- In January 2016, Pearson cut 4,000 jobs; about 10% of its global workforce. The move was designed to cut costs and help to meet the challenge of “cyclical and policy related headwinds.” http://www.marketwatch.com/investing/Stock/PSO?countrycode=US https://www.pearson.com/content/dam/corporate/global/pearson-dot-com/files/annual-reports/ar2015/Pearson_AR2015.pdf
- Pearson trades on the London Stock Exchange as PSON, and on the NYSE as PSO. The chart for the stock price on the NYSE for the twelve months ending June 2016 illustrates a steady decline. http://www.marketwatch.com/investing/Stock/PSO?countrycode=US
- McGraw Hill Education was purchased by a private equity firm Apollo Global Management LLC in 2013 for $2.4 billion. McGraw-Hill Education is not the same company as McGraw-Hill Financial. When examining financial data, take care not to conflate the two. Apollo specializes in leveraged buyout transactions involving so-called distressed securities that may require corporate restructuring or industry consolidations. Control by a private equity firm places McGraw-Hill in circumstances similar to Cengage, in that the companies face immense pressure to improve profits, which may come at the expense of quality. Private equity firms do not seem to be healthy partners for educational publishers. Source: http://www.bloomberg.com/news/articles/2016-01-26/apollo-s-mcgraw-hill-education-said-to-target-ipo-in-second-half
- McGraw-Hill reported $1.24 billion in earnings with a profit of $36,000, and a $1.5 billion debt. Source: http://s21.q4cdn.com/895506043/files/doc_financials/quarterly-reports/33585825.pdf
- The company lists authors as a competitive strength: “Our success depends, in part, on our ability to continue to attract and retain key authors and talented management, creative, editorial, technology, sales and other personnel. We operate in a number of highly visible industry segments where there is intense competition for successful authors and other experienced, highly effective individuals. Our successful operations in these segments may increase the market visibility of our authors and personnel and result in their recruitment by other businesses. There can be no assurance that we can continue to attract and retain key authors and talented personnel and, if we fail to do so, it could adversely affect our business.” Source: http://s21.q4cdn.com/895506043/files/doc_financials/quarterly-reports/33585825.pdf
- Houghton Mifflin was the publishing company that infamously rejected Julia Child's Mastering the Art of French Cooking, but became a publicly traded company on the NYST in 1962. After a series of acquisitions, and mergers, which included a merger with Harcourt, the company had in 2009 accumulated $7.3 billion in debt. After several rounds of restructuring, Houghton Mifflin Harcourt emerged from bankruptcy and went public.
- According to the Houghton Mifflin Harcourt Annual Report 2015, the company’s revenues and profit have remained relatively stable for the past three years. http://s2.q4cdn.com/146118091/files/doc_financials/annual/2015/Annual-Report-Bookmarked-PDF.pdf
- After an IPO in 2013, Houghton Mifflin stock surged 89% in two years reaching a high of $27.11 when the company purchased Scholastic—including its Harry Potter franchise—for $574 million. Stock prices tumbled to a value in mid-2016 that was well below $20.
- Textbook buyers include students, professors, and school boards. These buyers are an increasingly dissatisfied customer base. Widely disseminated information about the price of textbooks has fueled a student revolt, and as a result, textbooks have become deprecated and devalued.
- The National Survey of Student Engagement (NSSE) found that approximately 30% of seniors and 25% of first-year students said that they did not purchase books. Students who do acquire required materials seek the least expensive options, purchasing used books, rentals, or even dirt-cheap old editions. A small but significant number of students turn to pirated textbooks on file-sharing sites, or other forms of copyright infringement. Source: http://nsse.indiana.edu/nsse_2012_results/pdf/nsse_2012_annual_results.pdf
- The following table illustrates options available to students whose instructors require the textbook New Perspectives on Computer Concepts Introductory. The table also shows author earnings for each option, assuming a 12% royalty rate based on the NET price. The “first sale” doctrine means that publishers and authors receive income only on the first sale of a textbook. They receive no income from sales of used books or third-party rentals. Publishers and authors DO, however, receive income from rentals directly from the publisher’s ecommerce site. Author royalties for these formats of new print, used print, rent, digital, and ebook are best-case scenarios. Publisher "deals" such as bulk purchases may further reduce the NET price with a corresponding decrease in royalties.
- Today’s students may not have a grasp on the cost or price of textbooks. Many students have never purchased a textbook, either receiving textbooks free in K-12, or from accessing free information from the Internet. Because of the extent of free information available on the Internet, today’s students view the value of information at about $0. A big segment of the student population believes that the cost of textbooks is excessive. Source: Student Monitor LIfeStyle and Media Report – Spring 2015
- This widely circulated graph from 2013 showed that the change in textbook prices soared more than 800% since 1978; a rate higher than for college tuition, healthcare, or housing. The graph and the figures it represents are commonly referenced in news articles, TED talks, and legislation. The data was even more widely disseminated by a report titled Fixing the Broken Textbook Market, published in 2014 by an organization with a liberal agenda called U.S PIRG (United States Public Interest Group). The graph can easily be misinterpreted to mean that the actual COST of textbooks is higher than medical services and home loan payments. http://www.huffingtonpost.com/2013/01/04/college-textbook-prices-increase_n_2409153.html; http://www.theatlantic.com/education/archive/2015/03/the-death-of-textbooks/387055/; http://www.usnews.com/news/articles/2014/01/28/report-high-textbook-prices-have-college-students-struggling; http://www.nbcnews.com/business/business-news/students-are-still-saddled-soaring-textbook-costs-report-says-n516011 Â http://www.uspirg.org/sites/pirg/files/reports/NATIONAL%20Fixing%20Broken%20Textbooks%20Report1.pdf http://trends.collegeboard.org/college-pricing/figures-tables/average-estimated-undergraduate-budgets-2015-16
- Articles that deprecate the cost of textbooks universally claim that students spend an average of $1200 a year on textbooks. The $1200 figure is derived from this chart from the College Board. The chart shows that along with transportation, textbook/supplies have been students’ smallest expense. One might ask why students are not in revolt against the high cost of tuition or room and board. This $1200 statistic may be misleading. The note at the bottom of the chart indicates the amounts--$1,328 for public 2 year school students and $1225 for public four year students are estimates of what students might spend and include supplies as well as books. It is likely this figure represents the cost of purchasing textbooks new and at a full retail price: 10 textbooks per year at $120 average. Students do not, however, purchase textbooks at full retail price.
- The Student Monitor, a market research company, interviewed a group of college students and found their textbook expenditures to be about $331 per semester in 2015. They typically needed five textbooks per semester, which calculates to an average cost of $66. per book. Unfortunately the negative publicity about textbooks rarely mentions that figure and instead dwells on the cost of “outliers” that retail for $400. Source: Source: Student Monitor LIfeStyle and Media Report – Spring 2015
- The value proposition for textbooks is much better than that for classroom instruction. Whereas a students at a public four-year college pays an average of $21.63 per hour of classroom instruction, time spent studying with a textbook costs only $2.88 per hour. The calculations are as follow: Public 4-year school tuition averages = $9000 One credit hour = 13 hours of instruction 32 credit hours = 416 hours Price per hour of instruction = $21.63 Â Â ($9000 divided by 416) Expected student outside work per credit hour = 26 hours Suppose half of that time is spent with textbooks, so 13 hours per credit For 32 credit hours, students spend 416 hours with textbooks (same amount of time as in class) Cost per hour spent with textbooks is only about $2.88 Â (1200 divided by 416)
- Textbooks are expensive, but compared to what? Are they prohibitively expensive, or is this perception misguided by the faulty notion that publishers are evil corporations raking in obscene profits?
- So how does the educational publishing industry respond to the intense pressure applied by buyers who are revolting against the cost of today’s textbooks? To answer that question, we turn to an analysis of threats.
- There once was a model for developing and distributing textbooks that seemed to work. Publishers were able to produce a diverse array of high-quality subject-specific textbooks that provided instructors with choices that suited their curricular needs, and provided students with structured materials aimed at producing positive learning outcomes.
- That model has become increasing disrupted through alternative business practices and technology innovations.
- Used books were the first to erode the traditional textbook economic model. In the US, the “first sale” doctrine limits the distribution rights of copyright holders to the first sale; neither publisher or author receive payment for resells. In 2015 34% of textbooks acquired by students were used; 36% were new print books. Students save about 25% by buying a used book and by selling their books back to the book dealer. Source: http://www4.ncsu.edu/~cwarren/faq_usedbooks.pdf
- Publishers were slow to respond to the threat of used books.
- An insight that is somewhat hidden in this graph illustrates the effect of used books on textbook prices. The trend line for textbook price increases diverges from the Consumer Price Index at two point: first in 1985, then later in 2000. The first diversion is small and represents the time at which used books moved out from the local bookstore buy-back-sell model to a model in which used book consolidators purchased used books for distribution nationwide. The second diversion illustrates the point at which used books became widely available on the Internet. Â The deltas reflect a cycle that continues into the present: Publisher sales decline because they do not derive revenues from used books, so publishers raise prices. As prices rise, more students seek alternatives to purchasing new books and publishers respond to this further decline by again raising prices.
- Textbook rentals, which became popular in 2011, added further downward pressure on publisher revenues. The “first sale” doctrine allowed third parties to purchase one copy of a textbook, often at a bulk discount rate, then rent it multiple times. As with used books publishers and authors realized no revenue from third party rentals. As a defensive move, publishers established their own rental markets, but price pressure from third-party renters made rentals much less profitable than sales. Rentals give students hefty savings, averaging about 75% less. Of the print textbooks in use during 2015, about 20% were rentals.
- Digital distribution is often considered one of the major disruptors in educational publishing. It has motivated publishers to rethink their distribution models. Certainly, digital has advantages for publishers, authors, and students.
- Industry watchers and publishers have been dismayed by a perceived resistance to digital textbooks. As of 2015, nearly 40% of students expressed a strong preference for reading their assigned textbooks in print. Source: Student Monitor LifeStyle and Media Report -- 2015
- But the preference for print textbooks is on a steady decline, falling from 77% to 40% in three years. Interpolating the trend line, one might expect universal acceptance of digital reading by 2020. A detailed exposition on print vs. digital is in Naomi Baron’s book, Words Onscreeen: The Fate of Reading in a Digital World. Source: National Association of College Stores Student Watch 2010, 2011, 2012, 2014, 2015, 2016
- Whereas students are somewhat willing to embrace digital textbooks, instructors are less enthusiastic. The Fall2015/Winter2016 study sponsored by the Independent College Bookstore Association revealed that a majority of instructors anticipate using digital materials, but currently 24% of instructors never expect to be using primarily digital materials. One additional factor of importance: The top reason for using digital course materials is an expectation that they will be less expensive than print.
- Student opinions about digital indicate that, like instructors, cost is the top reason for seeking digital course materials, followed by convenience and availability. The fact that digital may have environmental advantages is surprisingly low priority for millennial students who are generally characterized as staunch environmentalists. Student Monitor Fall 2015
- With the variety of commercially available and standardized platforms, there was an expectation that one of these platforms would eventually win the hearts and minds of students and instructors. But students had a universally negative reaction to flat PDFs. Dedicated epub readers did not catch on with students, either, perhaps because they are not generally avid readers. HTML in its native state is open and the intellectual property it contains is difficult to protect unless it is behind a paywall.
- Publishers are producing their own platforms, based on HTML. But this means students who may be using a Pearson book for one course and a Cenage book for another course, are forced to use two different platforms. Instructors face the same inconvenience. Schools depend on their learning management systems to offer some degree of homogeneity for student access to digital course materials. It is possible, though not trivial, to link these platforms together.
- There is not yet “one ring to rule them all” for educational platforms. Perhaps that is the missing link to a smooth digital transition: a standard open-source platform onto which publishers could upload and distribute proprietary educational materials. Rather than funding individual efforts to create digital textbooks, foundations and government agencies might make a more substantive contribution by funding a consortium to develop such a platform.
- The concept that digital means cheaper may be a red herring. About 55% of a textbook’s price goes to publisher expenses, such as copy editing, indexing, product management, and corporate overhead.
- The concept that digital means cheaper may be a red herring. About 55% of a textbook’s price goes to publisher expenses, such as copy editing, indexing, product management, and corporate overhead.
- Digital distribution can affect authors in many ways. One of the more disturbing trends is that publishers are seeking to obtain content under work-for-hire contracts, rather than royalty-based contracts. The reason is basic: In the digital world, content is sliced and diced to provide customized, personalized, and adaptive learning experiences for students. Publishers have an increasingly difficult job to determine where each piece of content originates and what percentage of the content should be credited to a specific author’s royalties.
- Work-for-contracts bear careful scrutiny by authors. In particular, non-compete clauses may not be favorable to authors. With a work-for-hire, an author creates content at the direction of the publisher and is paid for the work, theoretically with no obligation on either side. Why then should a work-for-hire author be subject to a multi-year non-compete period in which he or she cannot use their subject knowledge and authoring skills to create similar works?
- Digital may not become a long-term disruption because it can be implemented and leave the current industry players in control.
- However, digital may enable true disruptors, that eventually remove control from top-tier publishers, such as Pearson and Cengage.
- One of the biggest potential disruptors is open educational resources (OER). These resources are in the public domain or under licenses that allow free distribution, copying, and modifications. For a definition of OER see here: http://www.openaccesstextbooks.org/model/appendixA.html Several commercial models for distributing free materials have appeared since the Internet made digital distribution possible. Bookboon, founded in 2005, remains the most viable commercial company providing free textbooks because its free model is supported by advertising inserted within the pages of textbooks. Flat World Knowledge was established in 2007, with a free-for-digital-pay-for-print model, which has since been discontinued. On the non-profit side of free textbooks are organizations such as the OER Commons and OpenStax College, the latter funded by high-profile organizations such as the Bill and Melinda Gates Foundation, the William and Flora Hewlett Foundation, and the 20 Million Minds Fund.
- The business model for free textbooks by and large depends on foundation and public money for content creation and distribution. Whether that model is scalable and sustainable through multiple revision cycles, remains to be seen. Without income from books sales, funding for content creation and site hosting rely on continuing, rather than one-time funds. Alternative sources of revenue could include advertising. Disadvantages: 1. Ads are distracting for students; 2. they might introduce bias to core educational content; 3. Model could devolve into one similar to cable television where consumers pay monthly fee to access content uninterrupted by advertising.
- Most instructors have not yet experimented with OER materials, but forces are at work to encourage instructors to seek out and use OER.
- Publishers are already wary of OER.
- Authors may have an opportunity to write under grants and contracts. Authors who have a sense of community service may volunteer their authoring skills to various OER projects. Disgruntled authors whose work has been cut from a publisher’s list or who feel that their work is not being suitably marketed may transfer their work to the OER camp.
- The so-called “democratization” of culture, based on free-flowing creation unfettered by gatekeepers, is taking place in literature and other media. Tracing the path in those domains may help us anticipate how this process could affect educational publishing. On the positive side, one sees flourishing creativity and a marked uptick in variety and sheer volume. For example, 300 hours of video are uploaded to YouTube every minute. Amazon lists more than one million books for sale on Kindle, with more than 40% of units sold from self-published authors. A dizzying number of other online sites offer even more options. But navigating these huge depositories of content and evaluating their quality is not easy—ask anyone who is an avid reader. Educational publishers and their sales forces provide services that help instructors select just the right materials for their courses, and in general, publishers can be depended on to provide high-quality materials designed by reputable authors and subject-mater experts, backed by an experienced editorial team. Whether publishers can maintain those services and quality will be a factor in their survival against the OER onslaught.
- The struggle between commercial and free resources could have a profound effect on the quality of the U.S. educational system. The outcome is impossible to predict, but the outcome will be wrong if stakeholders focus on money rather than learning outcomes. As authors, we continue to fulfill our role with dedication to quality products, but we must take care that the projects in which we participate maintain scalable and sustainable quality in the long term.