Books, Business Models, Commerce, Economics, Education, Historical

Why Are College Textbooks So Expensive?

When I wrote a post about e-book piracy recently, I was surprised to see an argument break out in the comments about the pricing of e-books for higher education. Even putting aside the most extreme remarks (that college texts should be free because the variable costs are zero — which, by the way, is not true) and wishful thinking (no reputable publisher would introduce a revised edition simply to cut off the sale of used books), the comments revealed a lack of understanding of how this market works. There is no other book market like it, and it is its very structure that makes college texts so expensive.

Before I continue, I want to share an anecdote. One of my first publishing jobs was as the college paperback editor for New American Library, which is now part of Penguin. NAL had a long list of Signet Classics, which included classroom versions of public domain classics — Dickens, Thackeray, Austen, et al. These books were solidly profitable, but we noticed that the sales of our Signet Shakespeare series had begun to flatten out in the face of new competition. So we made the decision to revise the books: new introductions and bibliographies, new covers, and in some instances changes to the texts in light of modern scholarship.

And that’s when I learned how college publishing worked. The head of our college marketing group came to me to say she loved the idea behind the new editions, but we had to be careful not to change the page numbers. How’s that again? It seems that many instructors used the same lecture notes year after year, sometimes for decades, and if you changed the page numbers, the notes would have to be revised. This could prompt some professors to switch to competitors’ editions.

The point here is that although college texts are created for students, it is the interests and sometimes the whims of the faculty that have first priority.

With that anecdote serving as background, let’s see why college textbooks are so expensive. To answer this, once again we have to jump into the time machine. We go back 20 years to a strange world populated not by dragons or telepaths or sea monsters but by a now-vanished set of accounting policies for the amortization of capital expenditures in the publishing industry. At that time, publishers of textbooks generally estimated that the useful life of an edition was about five years. There were different ways to get to that number for accounting purposes. Some publishers took the cost of developing a book and spread — amortized — those costs in equal amounts over each of five years. Other publishers estimated the number of copies they expected to sell and then charged their profit-and-loss statement on a pro rata basis each time they shipped a book. There were and are many variations on how to do this, and no two publishers had the exact same rules, and sometimes the rules even within a publishing house would vary discipline by discipline or even title by title. But you get the idea — take the cost of developing a book and spread the cost in some logical manner over the lifetime of the book.

Why spread the costs? Why not simply take the hit all at once at the date of publication? This is how many trade publishers operate —  they charge their P&Ls with a book’s plant cost (the one-time cost to create the first copy) on the date of publication. They do this in part because a trade book sells so many copies at the time of publication that the plant cost can easily be absorbed, and in part because you never really know how many copies a trade book will eventually sell. But college publishing is different — few titles sell in the quantities of trade books, the plant cost of a college text is much higher than in the trade, and college texts don’t have the bulk of their sales at the date of publication. So college publishers spread those costs to pair them with the useful life of a book.

We are not talking peanuts here. A widely used industry estimate for the average investment to create the master copy of a college textbook is $750,000. This is much much higher than in the trade, where only superstar authors drive the cost up to that figure and beyond. If you think you can sell 25,000 copies of that book, that gives you a per-unit charge of $30 — and that does not include paper, printing, and binding. This is one of the reasons college texts cost so much.

But why spend so much money developing a textbook? Has calculus changed that much over the years? The high cost of development grows out of the peculiar way instructors select books. Let’s not forget that instructors do not pay for the books themselves; students pick up the tab. So Professor Jones reviews a selection of new books on economics; which one does he choose for his class? He likes the idea of online tutorials (more expense), he likes the integration with a suite of reference tools (more expense), he likes the simulations of the world’s economies (more expense) — and he wants the very best for his students, so spare no expense. You could argue that a publisher could hold the line and decline to add all this expensive baggage, but then Professor Jones will simply adopt the more expensive and fully featured text from the competition. The crucial point is that Jones is invited to make choices (called adoptions) that other people have to pay for. This is another, the principal, reason college texts cost so much.

Our time machine is working its way forward and comes to a time when a group of companies figure out how to ship used college texts around the country relatively inexpensively. They build databases of all the courses taught at every college and the books used in those courses. They then approach college bookstores and say, You can make more money selling students used books than you can selling new books. And it’s true —  there is often more margin to the retailer on the used book at $70 than for the new book at $125. So college bookstores begin stocking more and more used books and  highlighting them to students, eroding the college textbook market.  By some estimates the market share of used books is now about one-third of the total market.

So we have the publisher — that crook, that snake in the grass — who has invested $750,000 against the expectation that they would sell 25,000 copies, but now the sale has dropped to 15,000. The used books, in other words, are the economic equivalent of book piracy — legal, but economically challenging. Now the per-copy charge for development is up to $50. This is another reason college texts cost so much.

Now our time machine has returned to the present day and we find that the old policy of amortizing books over five years has been changed to three years as a means to recoup that $750,000 investment — because the used book market is now a very real competitive threat. So the per-unit cost of development rises again.  This is another reason college texts cost so much.

It will be apparent to everyone that the higher and higher the costs and prices go, the greater the opportunity to sell used books, as they can easily undercut new books on price. It’s a vicious circle.

The high cost of college texts would be lowered in a minute if college instructors had any financial responsibility for the cost of textbooks. Of course some instructors are very diligent about watching prices, and some institutions have made it a goal to lower textbook costs. But the average instructor? In the battle between moral imperatives and economic incentives, follow the money.

This is why college textbooks cost so much. It is not the way college texts will be marketed forever (there are chinks in the wall opening up now), but it is an expensive way to present baseline information to undergraduates. And, gosh, ain’t those publishers positively satanic?

Enhanced by Zemanta

About Joseph Esposito

I am a management consultant working primarily in the world of digital media, software, and publishing. My clients include both for-profits and not-for-profits. A good deal of my activity concerns research publishing, especially when the matter at issue has to do with the migration to digital services from a print background. Prior to setting up my consulting business, I served as CEO of three companies (Encyclopaedia Britannica, Tribal Voice, and SRI Consulting), all of which I led to successful exits. Typically I work on strategy issues, advising CEOs and Boards of Directors on direction; I also have managed a number of sticky turnarounds. Among other things, I have been the recipient of grants from the Mellon, MacArthur, and Hewlett Foundations, all concerning research into new aspects of publishing.

Discussion

24 thoughts on “Why Are College Textbooks So Expensive?

  1. If I understand this correctly, the publishers are effectively bidding for the endorsement of the scholar(s) as they have already produced the textbook in question? Presumably they’ve done this development work using either the same set of scholars or a different set, in order to come up with the specification of the textbook. Surely your point about leaving out functionality only holds if the publisher hasn’t already produced the textbook? Or is this actually a two stage process where the cost is incurred getting a set of suitably heavyweight scholars on board as part of the creation process, followed by the beauty parade of textbooks for others to pick from?

    Posted by David Smith | Oct 10, 2012, 6:17 am
    • Publishers typically do not sign college textbook authors AFTER all of the developments is done by the potential author. It is the other way around. Publishers typically seek out potential authors, ask for sample writing and then help the author develop the materials. Development includes procurin photos, figures, and images, developing instructor and student support materials, finding reviewers to make sure the materials are marketable, etc. A potential author may approach a publisher, but usually only provide a manuscript, and almost never have images unless they have photos, graphs, or tables they have developed on their own (this is rare). Rarely is their material peer reviewed before they approach a publisher.

      Posted by liveabetterlifeblog | Oct 10, 2012, 4:24 pm
  2. But college textbooks are not ‘so expensive’ if you know where to source them, as the recent kirtsaeng vs john wiley sons inc case illustrates.

    Does that mean Wiley are offering the book below cost in emerging markets?

    Posted by Callum Anderson | Oct 10, 2012, 6:19 am
    • Not really. The amortized costs that Joe discusses above are generally not applied to emerging markets. The primary market bears those costs, and sales elsewhere need only support ongoing production costs (per volume royalties, paper, printing, shipping, etc.). Therefore, books sold in emerging markets have a lower “cost” in the same way that books sold after the 3-5 year amortization period have a lower cost. Pragmatically, publishers can’t count on emerging markets to bear their fair share of plant costs, just as they can’t count on a sales life of greater than 3-5 years for a title.

      Posted by Darby Orcutt | Oct 10, 2012, 10:21 am
    • No, because the editions produced overseas use lower-quality paper, etc., and are cheaper to produce.

      Posted by Sandy Thatcher | Oct 10, 2012, 10:51 am
  3. And if faculty had a substantial interest in the subscription cost of the journals where they published their research, journal costs would also fall dramatically. In fact just the opposite occurs. Faculty are encouraged by the promotion process to accept the offer of editorship and to encourage their colleagues to publish in yet another journal, subscription costs be damned. Maybe institutions should institute a journal tax and divide part of the cost of a subscription among the researchers publishing in that journal. If someone is the only author publishing in a very expensive journal, they will have a strong incentive to publish their next paper elsewhere.

    Posted by David States | Oct 10, 2012, 8:33 am
  4. What I’ve observed —

    1. Textbook catalogs typically do not include prices, so profs don’t usually compare. (As with health care, we don’t know the cost beforehand.) 2. In some fields (mine is English) new editions come out regularly without any apparent necessity, probably because the used book market has become so robust, and the publishers need to keep the machine running. 3. When I’ve thought of alternatives (cheap paperback editions of texts, course paks), I’ve been warned off: Although the initial cost is less, students lose later because the book store won’t buy them back (i.e., these texts can’t go into the robust used book market).

    Posted by Thomas Lawrence Long | Oct 10, 2012, 9:28 am
  5. the cost of textbooks is an amusing distraction from the real crisis in academia. the cost of higher education in the united states which has sextupled since 1985, driving unsustainable levels of debt. this is the next bubble to burst, to be sure,

    http://economix.blogs.nytimes.com/2012/03/02/why-tuition-has-skyrocketed-at-state-schools/

    Posted by Meg White | Oct 10, 2012, 9:34 am
  6. Sorry. I’m not buying it. You write “…no reputable publisher would introduce a revised edition simply to cut off the sale of used books…” but later state “In the battle between moral imperatives and economic incentives, follow the money.” So publishers are paragons of morality, but instructors highly corruptible?

    Posted by Forrest Link | Oct 10, 2012, 9:57 am
    • You should read more slowly. I said the idea that no reputable publisher would introduce new editions to ward off the sale of used books was wishful thinking.

      Posted by Joseph Esposito | Oct 10, 2012, 10:21 am
      • I read this the same way as Forrest; I think actually you’re unclear in your writing.

        It reads to me like “no reputable publisher…” is you making a statement not you quoting the position of someone else that you disagree with (as your follow-up comments indicates that you intend).

        Posted by Joel T. Luber | Oct 10, 2012, 10:30 am
        • Ah! Sorry about that. Everyone in the ecosystem pursues his or her economic interests. As you would expect.

          Posted by Joseph Esposito | Oct 10, 2012, 12:10 pm
  7. Observe two delightful ironies of the used book market: (1) availability of used books drives down the number of sales of new books and thus increases the per copy cost; (2) the student buying a book is happiest buying the book that can be sold back to the bookstore, which is the one for which there is the greatest demand therefore the highest price.

    Posted by Jim O'Donnell | Oct 10, 2012, 11:28 am
  8. Interesting article. I agree with your description of the publisher’s motivations but not professor Jones’ motivation. Personally I have never requested a new bell, whistle, or holographic display module for a textbook. I have never asked for a more frequent update to a textbook, directly or indirectly. In fact I’ve often picked older, less expensive textbooks in part due to pressure from students. But I’m just one person, you say? Try this thought experiment. Everyone teaching in a certain discipline conspire to universally make no requests for an update to any textbook in their field. Will the publisher revert back to a longer schedule for revisions? I doubt it. You portrayed professor Jones as deciding between a fancy new text and an old dusty one. But it appears that all publishers have switched to an accelerated revision schedule and the choice individual instructors make is between different publishers that are all offering new editions.

    I’m especially not buying this argument: “The high cost of college texts would be lowered in a minute if college instructors had any financial responsibility for the cost of textbooks. Of course some instructors are very diligent about watching prices, and some institutions have made it a goal to lower textbook costs. But the average instructor? In the battle between moral imperatives and economic incentives, follow the money.” Follow what money? What economic incentive is there for an instructor to adopt a more recently revised textbook?

    In regards to the behavior of instructors I think your original anecdote is more telling. Keeping everything the same, down to the page numbers, is in the best interest of an instructor. I do agree that the disconnect between the consumer and purchaser exacerbates the problem. But I don’t think instructors can fix this. And I don’t think they are to blame.

    Posted by Scott | Oct 10, 2012, 2:44 pm
  9. For what it’s worth, as those still in the biz know only too well, the efficiency of the used textbook market can and does approach 100% when talking about basic texts for major introductory courses, e.g. American Government, Calculus, Principles of Accounting, etc. Nor is this a terribly recent phenomenon. In 1971, as a novice college text sales rep, I landed the biggest single course adoption in my Omaha, Nebraska based sales territory, a course that enrolled approximately 1,800 students annually with enrollments divided more or less evenly between the fall and spring semester. There were two major bookstores on campus at that time. Between the two of them, they ordered approximately 1,100 copies for the fall semester. In January, they likewise returned approximately 150 unsold copies. While the book in question remained in use for the next 5 semesters, neither campus store placed another order for a single new copy. All of the copies sold for this course over the next two and one-half years were used books, which, in the end, captured 83% of the total market (5 out of 6 semesters worth of business). The publisher’s sales revenues from this adoption after semester one were zero. Ditto the author’s royalties. Meaning that, if all campus used book markets were equally efficient, the publisher would have had to recover all costs from a single semester’s worth of sales. Fortunately for the publisher, not all campus bookstores were as efficient as this in the early 1970’s, and I’ve been out of the college text business for a long time. But my guess is many of them are this efficient now. Another reason why college textbooks cost so much, and why the prices have been rising for a very long time.

    Posted by Irving Rockwood | Oct 10, 2012, 2:56 pm
  10. For public institutions, the fed should mandate that institutions put a cap on the total cost of textbooks the prof is requiring that his students purchase. It should be based on the list price provided by the publisher. If you go over, you pay a penalty to the institution (via payroll) and that money should be used to provide need-based scholarships for textbook purchases. Would you sacrifice a little academic freedom if it meant we could reduce the financial burden of today’s students? You have to hit them where it hurts, their pocketbook. Another major issue that wasn’t pointed out is that professors operate under the mindset that “it never hurts to have too much” or “students can use this as a reference” to help justify these exorbitant costs. Any major publisher will disaggregate their content and resell it in a custom book, reducing the cost dramatically. There are even companies (AcademicPub) that are taking content from multiple publishing houses, and allowing professors to create custom coursepacks on the fly via web browser. In no way is $250 for an intermediate algebra even close to reasonable. Or you can license the content and host it in the institution’s LMS. There are many options, too many to name, to lower costs but professors get paid to sit and think, not research cost-savings solutions. In my opinion that is typically why professors just opt for the textbook. It’s quick, easy, comprehensive and it gets the bookstore off your back asking for the adoption.

    Posted by William S. | Oct 11, 2012, 10:36 am
  11. Your time machine seems to have stopped a few years short of the present. It’s very clear to me that many publishers are actively trying to shut down the used textbook market, particularly the third-party sales of textbooks among students or by stores other than the official college bookstore.
    As a college prof and a parent of two current college students, I have been appalled at two recent trends in marketing textbooks.
    First, each semester I am approached by publisher reps who suggest that I should order a custom printing of a textbook by omitting chapters, mixing chapters from different texts, or mixing chapters from one textbook with printed versions of my own notes. The price of these custom texts may even be slightly lower than the original text if I’ve removed chapter that I don’t plan on using anyway. Sounds great. But the result is a book clearly labeled as “for use at University X”. It’s not going to be available from other stores. And there are NEVER any used copies to be resold by the bookstore. The publisher bumps up the “edition number” every year, regardless of whether the content has changed or not. So students are leery of buying copies from other students who took the class in the prior year.
    Second, those websites with the nice online tutorials and exercises that used to be a free perk of selecting a text – They now require a key/password. The key is packaged with each new text. If students buy used copies of the text (or buy new from an online bookseller or other store), they have to purchase the key separately. And the same key that’s packaged “at no extra cost” with a new text will run anywhere from 33% to 75% of the cost of a new text when purchased separately.

    Posted by Steve Z | Oct 11, 2012, 11:21 am
    • I think my time machine reached the period you describe. As I said in the post, for a publisher the sale of a used book is the economic equivalent of piracy. Used books lower sales forecasts, which accelerates amortization schedules, which increases prices, which broadens the market for used books, and so on. Things can and will change, but as long as books are adopted by instructors and purchased by students, book prices will remain high.

      Posted by Joseph Esposito | Oct 11, 2012, 11:35 am
  12. Editors explain that it is very expensive to make the textbooks. Dropping over a hundred dollars for a textbook think a lot when you are used to spending $ 10 or $ 25 for a novel, but the textbooks are not made in the same budget. The National Association of College Stores has said that about 33 cents of every dollar textbook will this type of production costs, other 11.8 cents of every dollar spent on copyright royalties, so we can say that to make a textbook is not cheap.

    Posted by Sarrah | Dec 5, 2012, 7:33 am
  13. So how are these books stored before they are printed? I would assume some sort of electronic format, which would allow them to be easily edited. So you would have a large lump sum creating the book.

    So the publisher should rise the cost of the book until the point where that large lump sum is covered, then decrease it to just the cost of the raw materials plus 5 or 10 dollars.

    Editing the electronic copy shouldn’t increase the price of the book, since most of the work has already been done.

    Posted by Cameron | Jan 15, 2013, 5:40 pm

Trackbacks/Pingbacks

  1. Pingback: Links 10/13/12 | Mike the Mad Biologist - Oct 13, 2012

  2. Pingback: Weekly List Bookmarks (weekly) | Eccentric Eclectica @ ToddSuomela.com - Dec 8, 2012

  3. Pingback: 美国等西方国家学术出版物(包括教材和专著)的价格如此高,是自由市场竞争造成的,还是政策干预或者寡头垄断/行业联盟等外部因素导致的?这是否对学术和文化的繁荣产生了不良影响? - Jan 10, 2013

Side Dishes by Stewart Wills

Find Posts by Category

Find Posts by Date

October 2012
S M T W T F S
« Sep   Nov »
 123456
78910111213
14151617181920
21222324252627
28293031  

The Scholarly Kitchen on Twitter

SSP_LOGO
The mission of the Society for Scholarly Publishing (SSP) is "[t]o advance scholarly publishing and communication, and the professional development of its members through education, collaboration, and networking." SSP established The Scholarly Kitchen blog in February 2008 to keep SSP members and interested parties aware of new developments in publishing.
......................................
The Scholarly Kitchen is a moderated and independent blog. Opinions on The Scholarly Kitchen are those of the authors. They are not necessarily those held by the Society for Scholarly Publishing nor by their respective employers.
Follow

Get every new post delivered to your Inbox.

Join 15,454 other followers

%d bloggers like this: