Of all segments of publishing, the college textbook business has seemed for some time now to be the most likely to be disrupted. There are many reasons for this, but the principal one is the spiraling cost of many texts, which has elicited a strong and angry reaction, including legislative action and the creation of rival materials that draw on many of the precepts of the Open Access movement (usually called OER for open educational resources).
And it’s true: college texts are indeed being disrupted, but the disruptors are mostly the incumbent publishers themselves, which serves to prove the point that new technology is not in itself necessarily disruptive and that even old-line companies are capable of innovation. This is hardly a romantic perspective, but it puts me in mind of a poster a friend of mine used to have on his wall: life is so tragic—you are here today and you are here tomorrow. We may see the dinosaur college publishers continue to stalk the earth for another million years.
As I have noted on the Kitchen before, the high cost of college texts is a direct outgrowth of the structure of the market itself, where the people (instructors) making the decisions about what books to use in the classroom are not the ones who actually pay for the books (students). Professors naturally want their students to have the best stuff (a higher price) and they want a lot of stuff (higher price again) and they want supplements (higher yet) and, heck, why not some more supplements (aargh!)? One expects a student to have the text for the course, and that student thus represents something of a captive audience. How captive is another matter (these are after all 18-year-olds), but the business has persisted for decades using precisely this model. The right content for the right course wins, with price being at best a secondary condition.
Since you can’t stop kids from drinking, taking drugs, and engaging in behavior that outrages us all until we recollect our own wanton youth, it’s no surprise that many students have over the years looked for a way to get around the high cost of textbooks. This gave rise to the soaring growth of the used book market (20-35% of the business today, depending on who’s talking), which in turn prompted publishers to revise texts more often (at considerable expense) in order to render used books obsolete. But in recent years many students have gone one step further and simply declined to purchase the books at all. This is not good for either the publishers or the students themselves, who get by on lecture notes, a smattering of photocopies, and perhaps the occasional digitized text pirated over the Internet.
The publishers brought some of this on themselves. So confident were they that docile students would heed their professors’ instructions that the publishers created business plans that called for even more price increases. The kids were stuck and had to buy the books, right? To which I say: Don’t any of these publishers have kids themselves? When you send a check to your college kid, do you really think the money will be spent on textbooks when there are so many more compelling ways for a young person to put that money to use? It appears that Cengage, which is now flirting with bankruptcy, bet heavily on such price increases. I hope no publisher makes the “price to the sky” mistake again.
As an aside, I should mention that Cengage made a serious mistake that may soon be replicated in other segments of the publishing industry. The business aphorism is: Let the business drive the balance sheet; don’t let the balance sheet drive the business. I know this is gobbledygook for the many people involved with scholarly communications who are not trained in business, but it is also a bit of wisdom that gets lost in the world of commercial mergers and acquisitions.
So, for example, Cengage was purchased at a terribly high price by a private equity group, which borrowed heavily to make the acquisition. That meant that a big chunk of Cengage’s cash flow had to go to service the debt. The company then realized that it had to raise prices to increase that cash flow. In other words, the balance sheet’s requirement for more cash forced the marketing department to alter its plans. It really should be the other way around: come up with a good idea to improve the business and then move heaven and earth to find the capital to put that plan into practice. (I would like to see this outlook be adopted by my friends in the university press world.) Now that Springer has just been acquired for an enormous amount of money by yet another private equity firm, we should look to see if the Cengage error plays out in the world of STM publishing.
Returning to the world of college texts, the combination of used books, students who don’t buy books, and piracy leads us to the college publishers’ predicament, and that is that a class with 30 students may yield sales of only 10 copies (the percentage varies by course and text). All that marketing effort–fielding a sales force, calling on every instructor, sampling thousands of copies–still cannot influence the decisions of a stubborn group of customers, who have inconveniently forgot what their role is in this economic system.
The many critics of college textbook publishers have pointed to this situation and gleefully announced that the textbook business is doomed. The publishers, looking at the same information, have had some important insights:
The retail channel takes a big piece of the sale of every book, somewhere between 20% and 50% of the total price. For example, a student pays $150 for an introduction to anthropology, the bookstore takes $50, and the publisher gets $100 before expenses.
Although the biggest cost in college publishing is in development (that is, all the work that goes into the creation of the first or master copy), the variable costs are not inconsiderable. Whack yourself on the head with a chemistry textbook and you will see why. The cost of paper, printing, and binding–not to mention warehousing, shipping, and the processing of returns–adds up to big bucks. Digital editions might save the publisher $20 or more per copy.
The cost of approaching every single instructor demands a large sales force. This, by the way, is the principal reason that 5 publishers carve up perhaps 85% of the market, because smaller publishers cannot compete on the sales and marketing side. On the other hand, if you could adapt the K-12 textbook business, where the sales call is not to the individual teacher but at the level of the school district, you could save a lot of money.
A sale on the institutional level would mean that 30 out of 30 students would get the digital textbook, bringing back into the marketplace fully two-thirds of the prospective customers. You can lower your price on individual units if you can make it up in volume.
Students of the history of the personal computer will note that Bill Gates built his fortune with many of the same insights. Gates’s problem was piracy. When Microsoft first started out, the company was selling computer languages and compilers. The problem was that the hobbyists and hackers of the time copied the software and gave it to friends. So Gates could sell a few copies, but most users were the beneficiaries of what can generously be called “an economy of sharing.” Gates’s problem, in other words, was that he could only sell 10 copies to a group of 30 people, precisely the pickle textbook publishers find themselves in. Gates’s response to this–which ultimately put a computer in every office, a computer in every home–was to approach the equipment manufacturers directly and have them bundle Microsoft software with each machine, a method known as OEM sales, short for “original equipment manufacturer.” There is no piracy when the software comes pre-installed. This is a highly disruptive marketing strategy.
To have textbooks come pre-installed, college publishers now approach institutions directly, not through the individual instructor. Not all institutions can or will play this game; I think it unlikely that elite institutions will insist that instructors use an approved text. But this model has already become the norm in commercial schools and is climbing up the tree, stopping at community colleges and financially-constrained state colleges, and slowly getting attention at some universities. Over time this marketing method will transform college publishing.
The benefits to this method are many. First, these sales are made directly to institutions, which finance the purchases in various ways, increases to student fees among them. This cuts out the bookstore, saving 20%-50% of the selling price. Second, the books are digital, which saves more money. And then–bonanza!–the colleges make the books available to all enrolled students, ending the trend of students working without texts. This strategy effectively puts an end to the used-book market.
Publishers naturally would like to keep all the benefits for themselves, but institutions attempt to drive hard bargains for these broad digital licenses. I am familiar with one instance where an institution is getting a 70% discount from the retail price, which is quite a boon to students, at least to those who would have purchased the texts in any event. On the other side of this arrangement, however, is the intriguing fact that the publisher is probably making more money with that 70% discount than it was selling books at full price. Direct institutional sales has many economic benefits and beneficiaries.
All disruptions hurt someone or something, however, and in this case the cost is a whittling away at the prerogatives of individual instructors. That’s who is being disrupted, the faculty. This will not happen rapidly and it won’t happen completely; even now instructors are offered choices of whether to use the institution’s approved texts or those of their choosing. But a pattern is emerging, that of the diminished latitude of the academic professional. Add to this such things as institutional mandates for faculty to deposit copies of papers into institutional repositories, a clear infringement of their intellectual property rights, and it is not hard to envision a time when faculty has the same status within a university as an employee has in a corporation.