A lost battle for digital- Why Cengage and other textbook publishers are doomed
Cengage and other textbook publisher are moving to full digital content and signing their own death warrant
Some of the biggest losers of the digital age are college textbook publishers and specifically Cengage, which filed for chapter 11 in 2013. Cengage is certainly not the lone loser in the industry- John Wiley & Sons, Macmillan Higher Education, McGraw-Hill Education and Pearson – which along with Cengage form the five major publishers that control about half of the textbook market, have all been forced to reorganize in recent years as print book sales have dwindled. Digital innovation downsized the college textbook market significantly – the average spend by a college student on textbooks has gone down to $600 from over a $1000 a decade ago.
The first blow to the industry came from pure play online retailers, such as Amazon and Chegg, which enabled secondary markets for used and rental books, placing downward pressure on textbook prices and grabbing a significant chunk of the publishers’ share. The second blow came from traditional powerhouse textbook retailers Barnes& Noble and Follett, which control over 50% of college campus bookstores. These brick and mortar retailers had to react to the online markets by also offering used and rental books in their physical campus stores. This move dealt an even stronger blow to Cengage and other publishers, since it came from their main channel partners.
Not willing to go out without a fight, Cengage and other publishers reacted with a smart move from the digital play book – substituting the physical CD that comes with a textbook, with a user specific license key. The license grants access to additional online course materials and exercises assigned by the instructor, and cannot be passed in the rental and used marketplaces. A student renting or buying a used book would have to pay separately for the license, which in turn created nice margins for the publishers.
Riding the wave of their “digital success”, Cengage, like other publishers, is going “all in” into digital, investing in more and more digital products. Their reasoning is that licensed digital content cannot be rented or re sold as used, therefore increasing their share of the pie. Digital products also increase margins, by eliminating costs associated with physical books (printing, logistics, inventory, etc.). However, a further push to digital will result in the publishers signing their own death warrants.
If we look back at the digitization of other content industries, such as television, music and media, incumbent publishers have rarely survived the shift to pure digital business models. Once content goes digital, many users find their way to free sources, and this will be especially true with the high textbook prices (prices have increased at a higher rate than health care). Not all courses have additional online assignments, and certainly some creative college students will find ways to get pirated versions of their textbooks. There can also be free and legal options in the digital age- the cry for college affordability has led to projects like the open textbook library which can finally scale in the digital world.
The shift to fully digital models will not kill the textbook publishing companies entirely, but publishers will capture a smaller share of value in the market. They will still play the vital role of marketing in the industry, by convincing professors to adopt certain course materials. However, in a digital business model, there is no need for their distribution services, which will increase the leveraging power of the content creators – the textbook authors- who will receive a larger share of each book sold. The elimination of physical distribution lowers barriers to entry, increasing competition and reducing prices.#Loser
It seems like publishers are also looking for additional digital content and avenues into other parts of the education environment outside of e-books. In the lecture capture market, specifically, there have been several partnerships and acquisitions, with Cengage partnering with Echo360, Macmillan partnering with Panopto, and McGraw-Hill acquiring Tegrity. I’m guessing we’ll see more similar moves in other education segments as publishers attempt to maintain relevance and market-share.
Thank you for your blog post. It is true that the publishing industry definitely suffers from a huge blow from the digital wave (I recalled how I used to use paper textbooks in most of my college classes. And now it seems like we have a nice variety of materials such as videos, online news articles or academic papers etc. that textbook is no longer a must). However, I wonder whether there is ways that these publishing players could innovate their way out of the situation.
You talked about having a licensing model to protect its materials. I think it could be continually a good way to generate revenue as long as they enforce stronger protection in IP and make meaningful upgrades to the materials. There is of course a world out there that you might be able to download those materials for free (think how amazon sell kindle books but sometimes there are illegal versions available to download in other websites, although for older books), but if customers have a hard time getting those pirated copies, and also they believe the product they are getting through the official channel has more value, it is not impossible that they are willing to pay for the licensing fee.
This then raised a question on ‘what does it mean by better quality on materials’. I think with the buzz word in education talking about ‘active learning’, digital can play a big role by making the textbook contents more interactive. Functions that creates social interactive, regular quizzes and performance tracking etc. could potentially help students learn better. It could potentially be a way for these losers to recover their grounds.