1. The educational publishing and EdTech market is huge and growing, projected to increase from $1.6 trillion in 2015 to $2 trillion in 2020 in the US alone. 2. Major publishers like Pearson, Cengage, and McGraw-Hill are reporting increasing revenues from digital products but digital revenues have not been sufficient to offset losses from print sales, resulting in overall profit declines. 3. Publishers are facing disruption from options like used books, rentals, free/open educational resources, and digital courseware that bundles etextbooks with online homework and assessments, the latter trend increasing costs for students.

1. The 2017 Book
Report
Educational Publishing and
EdTech
June Jamrich Parsons
Presented at the Text and Academic Authors
Association annual conference June 10, 2017

2. The Market

3. 1According GSV Advisors via the McGraw-Hill Annual report
Fast facts
 U.S. spending for educational services in 2015 = $1.6 trillion
 Projected to increase to $2 trillion in 20201
 U.S. higher ed market for “instructional solutions” about $3.4 billion in 2016
(excluding used and rentals)
 U.S. K-12 “instructional solutions” market $6.9 billion annually1
 Global spending for educational services in 2015 $4.9 trillion
 Forecast = $6.3 trillion in 20201
 College enrollments have declined by about 1 million students since hitting a
peak in 2011. Enrollments are estimated to again increase in 2018. [National
Center for Education Statistics]
 K-12 enrollment was about 55 million in 2014 and is fairly stable. The end to
the 2009 recession is freeing local money for courseware purchases.1
 Until 2000, relatively few “players”

4. The Market: Takeaway
The market for educational
products and services is huge
and growing.
This market is a huge target for
disruptors.

5. Industry Profitability

6. Pearson
 “Pearson is the world’s learning company, with expertise in
educational courseware and assessment, and a range of
teaching and learning services powered by technology.”
 Headquartered in London
 36,000 employees
 Core markets: U.S., Canada, South Africa, India, China, Brazil
 K-12, Higher ed, vocational, corporate training

8. Jan18, 2017
May 5, 2017
May 5, 2017
Feb 24, 2017

9. Pearson
In FY 2016...
 $5.9 billion sales (+2%)
 $819 million profit (-12%)
 $903 million investment in “digital transformation”
Platform consolidation
Personalized learning
Partnership with IBM virtual tutor
 50% of revenues from digital [est 75% by 2020]
 $350 million “cost savings” from workforce reduction 4,600
Pearson Annual Report and Accounts 2016, March 14, 2017

10. Pearson
In Pearson’s North American Market:
 $3.8 billion sales
 $540 million profit
 40% U.S. higher ed courseware markeshare
 10% decline in revenue from school courseware
 18% decline in revenue from higher ed courseware
 2% growth in digital registrations
MyLab
Skill Builder Adaptive Practice
 148 direct digital access adoptions
Pearson Annual Report and Accounts 2016, March 14, 2017

11. Cengage
 “A leading education and technology company built for
learners.”
 Headquarters: Boston, MA
 4,750 employees
 Corporate segments:
Learning: Primarily Higher ed
Gale: research content and platforms
International: ELT and localized content

12. Cengage
 Revenue for fiscal year ending March 2017 $1.46 billion (-10%)
 Adjusted profit (EBITDA) $288 million (-25%)
 Higher ed revenue $978 million (-15%)
Cengage Annual Report for Fiscal Year Ended March 31, 2016

13. 0
100
200
2015 2016 2017
Net Loss (millions)
Cengage
 Digital activations: 3.8 million students (+14%)
 MindTap activations 1.3 million students (+54%)
 MindTap sales $194 million (+38%)
Cengage Annual Report for Fiscal Year Ended March 31, 2016

14. • CFO John Leahy will step down at the end of the year
• Service outages at Cengage for a couple of weeks during
the fall semester of 2016 prompted complaints from students
and instructors. Cengage claimed the outage lasted onluy 24
hours and handed out $50 coupons to its online store.
• Service outages and security breaches can be expected with
increasing frequency. Publishers who run their own platforms
will need to invest in redundant systems and enhanced
security measures, which will increase operating expenses
and may further increase the cost of digital courseware.
Cengage

15. Houghton Mifflin Harcourt
 K-12 education (88%) and trade publishing (12%) corporate and
other
 Headquarters: Boston, MA
 Jack Lynch, former CEO of Renaissance Learning, CEO as of Feb
2017
 Approx. 4,500 employees (non-union)
 Ranks 10th worst place to work in America in 2016 [Glassdoor]

16. Houghton Mifflin Harcourt
 1.2 billion net sales in education segment (-3.5%)
 $225 thousand profit (EBITDA) education segment (-16.2%)
 $182 thousand operating loss education segment(doubled from
previous year)
 Affected by state and local funding (spending up since 2011)
 Affected by complex K-12 adoption process
2016 Annual Report. Houghton Mifflin Harcourt

17. Houghton Mifflin Harcourt

18. Elsevier
 “Elsevier provides information and analytics that help
institutions and professional progress science, advance
healthcare and improve performance.”
 Headquarters: Amsterdam, The Netherlands
 Journals, databases, research tools, healthcare education
 7,500 employees worldwide
 35,000 ebook titles
 64 new journals in 2016

19. Elsevier
 $3 billion revenue for 2016 (+2%)
 34% revenue from Scientific, Technical & Medical division
 Print books are a small subset (10%) of operations
Annual Reports and Financial Statements 2016, RELX Group

21. Wiley
 “The company is transforming portions of its business from a
traditional publishing model to being a global provider of content-
enabled solutions with a focus on digital products and services.”
 Headquarters: Hoboken, NJ
 4,900 employees
 $1.7 billion revenue 2016
 21% of company revenue from Education segment
 83% of Education segment revenue from Americas
 $35 million profit (-23%)
Annual Report John Wiley & Sons, Inc for the fiscal year ended April 30, 2015

22. Wiley
Annual Report John Wiley & Sons, Inc for the fiscal year ended April 30, 2015

24. McGraw-Hill
 A 125-year-old company renowned for delivering fantastic high
quality education ...inside of that traditional publisher we’ve
now created a brand new business, a business that applies
learning science to changing lives.“ David Levin Prsident and
CEO McGraw-Hill
 Headquarters: New York, NY
 Partners with 14,000 authors and educators
 Interesting fact: McGraw-Hill has more than 9 petabytes of
proprietary content

25. McGraw-Hill
 $1.75 billion revenue 2016 (-4%)
 $116 million operating loss
 Higher ed 42% of total revenue; 21% market share in U.S.
 $733 million revenue (-9%)
 $233 million EBITDA(-21%)
 $410 million (56%) from digital learning solutions (Connect/LearnSmart +11%)
 K-12 35% of total revenue; 25% market share in U.S.
 18% from digital solutions
 International 16% of total revenue; Professional 7% of total revenue
 Planned an IPO for 2016, but by October those plans were put on indefinite
hold
McGraw-Hill Education, Inc. Annual Report as of December 31, 2016

26. Industry Profitability:
Takeaway
 Publishers report increasing revenues
from digital products.
 Digital revenues have not been sufficient
to offset loss of revenue from print sales.
 Profits are also down.
 Profitability is affected by:
 Economy
 Enrollments
 Student buying habits (driven by
perceptions)
 Substitute products from third parties
(used books, rentals, free content,
discounted Amazon, etc.)

27. Industry Disruptors
DIGITALRENTALS
USED BOOKS
OER
COUNTERFEIT
PRINT BOOKS

28. Counterfeit Print Books
 Number of counterfeit print textbooks spiked since 2014
 Cengage estimates piracy costs the company $70-100 million
annually
 In a review of materials for sale by online textbook retailers,
portions of the inventory were found to be more than 75%
counterfeit.
Straumsheim, Carl. “Look for the Seal” Inside Higher Ed, June 6, 2017

29. Counterfeit Print Books
 In 2017 Cengage instituted
an anti-piracy certification
seal: “scanning a QR code
on the book cover sends
readers to an authentication
Website where, by matching
the design of the book in
their hands to Cengage’s
catalog, they can confirm
that the book is legitimate. If
the design doesn’t match,
readers can report the
counterfeit.1”
 McGraw-Hill is planning to
introduce similar “prooftags.”
1 Straumsheim, Carl. “Look for the Seal” Inside Higher Ed, June 6, 2017

30. Digital
 The move to digital is proceeding.
 49% of students have purchased and used an etextbook1.
 33% of students still prefer printed textbooks. (Insignificant
change since 2015)1.
 At Bowling Green State University, the campus store no longer
carries textbooks. Students can order printed textbooks online
through the store’s Website. Books are trucked from the BGSU
warehouse to the store—one-day turnaround.
 According to publishers, digital revenues now outpace print
revenues.
1 Student Monitor, Spring 2017 Dataset

31. Ebook
Unlimited
3%
ebook
Limited
2%
Book
rated
2%
Rent
21%
Used
36%
New
36%
OER
0%
Spring 2015
Ebook
Unlimited
6%
ebook
Limited
5%
eBook Pirated
6%
Rent
21%
Used
31%
New
29%
OER
2%
Spring 2016
Ebook Unlimited
6%
ebook Limited
4%
eBook Pirated
5%
Rent
19%
Used
26%
New
35%
OER*
5%
Spring 2017
Student Monitor Data
Number of Textbooks Purchased

32. Digital
Reasons for using digital are changing.
0%
10%
20%
30%
40%
50%
60%
70%
Spring 2014 Spring 2015 Spring 2016 Spring 2017
Less expensive
Instant Access
More Convenient
Professor required
Student Monitor Data

33. Digital: How does it affect authors?
 Initial concern that lower prices for digital books would affect
royalty stream.
 The initial driver for digital was COST; students expected lower
prices.
 But the price of digital courseware is increasing.
 According to a 2016 study by the Student Public Interest
Research Group (SPIRG), the average cost of an access code
purchased at a college bookstore is $100.
 An access code bundled with a printed textbook costs an
average of $126.
 This trend may provide authors with a viable income stream, if
they receive royalties on the entire purchase, BUT...

34. Courseware
 Wiley: WileyPLUS
 McGraw-Hill: Connect, LearnSmart, SmartBook, ALEKS,
Create (instructor-curated), Campus (SSO), StudyWise(
adaptive)
 Cengage: MindTap
Digital books are only one component of an access code. Publishers
are increasingly bundling homework and assessment materials with
etextbooks.
These materials are typically supplied by proprietary platforms
developed by publishers, now styling themselves as edtech
companies.

35. In the last ten years, textbook prices increased 63 percent and are growing faster than all
other college costs, including tuition and fees. Textbook publishing is an oligopoly. Due to
the lack of competition, large companies completely control the prices of textbooks and
other mandatory services sold to students. Pearson, in particular, stands out a head
above the rest. Pearson monopolized standardized testing in K–12 and college textbooks,
and they are currently sinking their claws into homework.
It seems like something out of a weird, hyper-capitalist dystopian future, but that future is
happening now. Pearson and similar publishers sell homework to students through digital
learning systems, like Pearson’s MyLab and McGraw-Hill’s Connect. Essentially, these
companies expect and require students to pay for access to necessary coursework and
grade information. For the most part, this also includes an electronic copy of a textbook
that students cannot keep or resell, which undermines the used textbook industry.
I understand why instructors might outsource some of their work to these systems from
big publishers. However, it is not fair, in this author’s opinion, to ask students to pay for it.
If a professor created assignments of their own and asked students to pay to access the
assignment, how would the student body and university react? Why, then, are current
PSU students paying publishing companies for required coursework? Why does PSU
expect us to pay for it?
Nick Tool. “How much do you pay for homework?” Portland State University Vangard.
May 29, 2017.
Courseware: Student views

36. “Adaptive learning is based on educational theory and cognitive
science that emphasizes personalized delivery of concepts,
continuous assessment of gained and retained knowledge and
skills, and design of targeted and personalized study paths that
help students improve in their areas of weakness while retaining
competencies.”
Courseware: Adaptive
McGraw-Hill Education, Inc. Annual Report as of December 31, 2016

37. Courseware: Adaptive
 A growing trend with lots of current marketing buzz.
 Adaptive materials are expensive to produce, even when
offshored.
 Effectiveness is questionable.
 Bill and Melinda Gates foundation funded a study carried out by
SRI involving more than 19,000 students during a three-semester
time period.
 Of the individual courseware impact estimates, 10 of 15 were
essentially zero, indicating that grades in the adaptive and
comparison versions of the course usually were equivalent. Of the
remaining five cases, four were significantly positive, and one was
significantly negative.
SRI Education. “Lessons Learned from Early Implementations of Adaptive Courseeware.” April 2016.

38. Courseware: Adaptive
How will author-generated content fit into the adaptive platforms?
Who will create the learning paths?
How will authors be compensated for use of their content?
Will publishers attempt to reduce royalties, based on the portion of the
courseware that is didactive text rather than interactive assessment and
homework?
How will publishers select the content that is loaded into adaptive
platforms?

39. Disruptors: The
Takeaway
 An increase in counterfeit print textbooks
contributes to decrease in revenues and
potentially in author royalties.
 Used book and third-party rentals may be
starting to decline.
 Digital products are evolving from digital
textbooks to digital courseware that
includes assessment and homework
helpers.
 “Adaptive” is one of the recent marketing
buzzwords.
 Digital courseware may be trending to a
similar price point as printed textbooks.
 Authors may not benefit unless royalties
are calculated on the NET sales for a
courseware suite, not just on the ebook
portion.

40. Consumers
Students
Instructors
Schools &
Governments

41. Another salvo arrived in June of 2016 with a California community
college initiative to make college more financially accessible by using
free materials.
“The annual costs of textbooks are about $1,300 per year for a full-time
community college student and amount to about a third of the cost of an
Associate’s degree.” FACT CHECK: FALSE
That cost information was picked up and quoted in more than 100
articles since it appeared, getting prominent coverage from The
Chronicle of Higher Education, the Washington Post, Forbes, and NBC
News among others,
An excellent discussion in Phil Hill’s e-Literate column
Reprise: How much do Community College Students Actually Pay for
Textbooks?
We have renewed life in the meme that textbooks—print or digital—are
too expensive.
“Textbooks are too expensive”

42. In January 2017 Pearson announced a two-step plan to reduce college
costs.
Reduced the price of 2000 ebook titles by up to 50%.
Initiated a rental model online and in 1500 campus stores, with a 60%
price reduction.
“Textbooks are too expensive”
Ravipati, Sri. Pearson to Lower Cost of E-Books, Textbooks. Camput Technology. January 18, 2017.

43. OER: Open Educational Resources
 The William and Flora Hewlett Foundation defines OER as
“teaching, learning, and research resources that reside in the
public domain or have been released under an intellectual
property license that permits their free use and re-purposing by
others. Open educational resources include full courses,
course materials, modules, textbooks, streaming videos, tests,
software, and any other tools, materials, or techniques used to
support access to knowledge.”
 David Wiley, who coined the term “open content” defines it:
Open content describes a copyrightable work that is licensed in
a way that provides users with free, perpetual permission to
retain, reuse, revise, remix, and redistribute (the 5Rs).

44. OER
 13% of students report using 1 or more OER textbooks during
Spring 2017
 47% of all students (82% of student who have used OER)
believe “using OER materials is more appealing than
purchasing or renting printed textbooks.”
 29% of all students (67% of student who have used OER)
believe the the quality of OER textbooks is just as good or
better than a printed textbook.
Student Monitor http://files.studentmonitor.com/s17/Deck.pdf

45. OER: Instructor opinions
 4% using OER as primary course materials
 75% have no direct experience with OER content
 36% view OER content as a viable alternative to commercial courseware
 39% have never heard of OER
 60% of instructors using OER are highly satisfied
 Quality of OER equivalent to commercial resources
 OER viewed as more current than traditional publisher’s resources
 Viewed as more cost-effective for students—touted as FREE
Student Monitor http://files.studentmonitor.com/s17/Deck.pdf

46. OER: Instructor opinions
 Instructors viewed traditional resources as superior in:
 Range of subjects
 Quantity of materials available per subject
 Mapping to learning outcomes
 Trusted quality
Student Monitor http://files.studentmonitor.com/s17/Deck.pdf

47. OER: Deterrents to adoption
 No comprehensive catalog, making it difficult to find
resources
 Not enough material to cover subject-area objectives
 Difficulty integrating into technology platforms
 Lack of assessment *Not mentioned!
Opening the Textbook, Babson Survey Research Group July 2016
https://www.onlinelearningsurvey.com/reports/openingthetextbook2016.pdf

48. OER: Threat to publishers
 2016 Cengage study (650 educators plus primary sources)
 Currently used as primary courseware in about 4% of college
courses
 Expected to grow to 12% in 5 years
Whitepaper: Open Educational Resources and the Evolving Higher Education Landscape
http://assets.cengage.com/pdf/wp_oer-evolving-higher-ed-landscape.pdf?utm_source=e-
Literate+Newsletter&utm_campaign=abdac9bbd3-
RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_deab6fbf84-abdac9bbd3-63829205

49. OER: Publisher response
 Expand beyond proprietary content
 Publisher as curator
 Add OER materials to digital platforms

50. OER: Publisher response
 Cengage announced a product called MindTap ACE, billed as “an
affordable OER-Based solution for higher education.”
 The digital product includes instructor’s manuals, slides, test
banks, tech support, and digital course support services.
 Price: $40
 Currently available for:
 Introduction to Psychology
 Introduction to Computing
 World History I
 Public Speaking
 Non-majors Biology

52. OER: Authors
 Publishers are hedging bets by establishing a presence in the
OER marketplace
 Will OER gain substantial traction, or is it a passing fad?
 Will publishers seek OER materials rather than contract with
authors for content?
 Are there emerging opportunities for authors who want to
curate OER content?

53. Inclusive Access
 Cost of textbook is included with course fee or automatically
billed to student account
 Digital materials are available on day one
 School has negotiated a steeply discounted price (30-40% of
retail price)
 Big step n ensuring that all students have access to course
materials at an affordable price
 Programs typically managed by college stores

54. Inclusive Access
 Also called:
 Day-one access
 Digital direct
 Academic content licensing
 Institutional sales
 Course-fee model
 Text with tuition
 U.C. Davis
 Indiana University
 Rowan-Cabarrus Community College

55. Inclusive Access
 Can publishers ultimately afford to support this model?
 Lower per-student price
 More even and predictable revenue stream
 Is this model really so different from the old “adoption” model when
schools negotiated discounted pricing on print books?
 How will it affect author royalties?
 Lower price means less $$ per book
 But eliminates used books and non-publisher sales
 Check contracts—publisher may try to classify these sales as bulk
discount for which you receive a lower royalty rate

56. Consumers: The
Takeaway
 Students and instructors believe that
textbooks are too expensive.
 Consumers are becoming disillusioned
about the price of digital.
 This situation opens the door for OER
products.
 Mainstream publishers are attempting to
get ahead of the OER trend.
 Authors should be wary. OER may
become a substitute for your work. The
compensation model for OER authoring
does not typically follow the traditional
model.
 Inclusive access is an alternative model
gaining traction that may ultimately be
less disruptive and most beneficial to all
parties.

57. +
Recap
Publishing company revenues and profits are down.
Publishers are remaking themselves into edTech
companies.
Rentals and used books are still a factor, though
perhaps trending down.
Digital efforts continue, with an emphasis on adaptive
and interactive platforms that include “homework”
and assessment.
OER is a potential disruptor—lifespan unknown.
Inclusive access is a model that should be on every
author’s radar.
Authors are responding incrementally to publisher
evolution.

58. End
June Jamrich Parsons
junejamrichparsons@gmail.com
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