The choice of Pearson
Pearson, the world's largest publisher by turnover, has sold the family jewels in the last two years. In fact, it has sold, with a good profit, its stake in the Financial Times (to the Japanese of Nikkei), in the Economist (to the Agnelli family), in Penguin Random House (to the Germans of Bertelsmann) and in the Wall Street English Institute (to a Chinese private equity). The former CEO of Pearson, the Texan Marjorie Scardino had declared that to get rid of these jewels they had to "pass over her corpse". Why, then, did John Fallon, Scardino's successor since 2013, decide to get rid of these jewels of great journalism and book publishing? He did it to raise cash in order to find the resources to focus Pearson's business on educational publishing.
In this regard, Fallon declared "Pearson cannot invest according to need in two sectors undergoing profound transformation such as information and education, he must choose which one to focus on". And Pearson chose school, because with the advent of digital technology, school will become the territory of an enormous global business into which the BRICS will also massively enter with their 3 and a half billion inhabitants and with their young generations thirsty for education and training. Then there will be Africa with its billion souls.
For now, however, this choice has shown how difficult the path of the London group is which in 2017, after five consecutive profit warnings, posted a record loss and announced a reduction in personnel of 3000 units. Textbook business in the US, the largest market accounting for 2016% of Pearson's revenues, fell 40% in the last quarter of 30 before stabilizing in 2017 to give management and shareholders some breathing room . As Fallon explained, students and families are abandoning the purchase of textbooks in favor of cheaper alternatives such as renting, lending or counterfeiting. Furthermore, new enrollments in colleges are declining, proving that even traditional educational models and institutions are undergoing a profound action of disruption.
It's not like Pearson has been sitting idly by: It's made $2010 billion in acquisitions since 2,8, an investment equal to the value of the aforementioned divestments. Taken as a whole. however, these acquisitions did not bring the desired results in the short term, so much so that Fallon had to promise shareholders to put an end to this purchasing frenzy to focus on the internal development of new products and digital solutions. It's not that Pearson lacks good will and planning skills, it's that the school business has become terribly complicated compared to just 10 years ago when the textbook was king and the industry was a stagnant lake.
A terribly complicated business
Now that the textbook is being questioned as an adequate teaching tool and also for its onerousness, a viable alternative is being sought which everyone identifies as being in the new digital technologies, but nobody knows how to indicate an alternative model. The scenario is also complicated by other factors that are activated when the status quo is touched in the school. Strategic decisions and investments in education are determined not only by content and service producers and consumers, as in many other media sectors with strong development potential, but also by governments, with the volatility that accompanies them, families, a very unpredictable economic subject, and a collective intellectual like the strongly unionized and resilient to change teaching staff.
Until now, the strategy of large school publishing groups, with small differences in emphasis, has been to preside over the textbook in its classic form albeit with the necessary revisions (online expanded book, accompanying digital products, apps, etc.) and to develop ambitious platforms for managing a digital classroom where operators could find the educational, relational and even managerial tools to relate to students, families and higher-level educational institutions.
What has happened is that the purchase of the classic textbook is undergoing an irreversible erosion due to its perceived exorbitant cost. Platforms, for their part, have proven to be a painful waste of resources and also a depressing failure in relation to the expectations and commitment required. From what we have seen so far, these platforms are scarcely used and also little in themselves: they are very often built with logics far from those to which digital users are accustomed with the native social platforms of the Internet. The problem is that their focal point is not the user but the promotion of the publisher's business. This way you go nowhere. Furthermore, they are difficult to navigate, they are unnecessarily complex, they lack social activities, there are entry and sharing barriers that make the most willing users impatient. Furthermore, it is not easy to convince schools, many of which are publicly controlled, to bind themselves to a platform owned by any private publishing group.
While in other sectors there has been a flowering of start-ups, initiatives, ideas that have raised substantial capital to develop, very little has been seen in schools. The large Internet groups, which highly value this sector in the development of their business, have kept to the sidelines, while none of the new initiatives, apart from perhaps the extraordinary and imperfect phenomenon of MOOCS, has reached a point of development that can be taken as a reference as a possible new business model. And the latter is the central point of the whole question. And this is where Cengage comes into action, the third-largest school group in the United States after Pearson and McGraw-Hill Education. With a courageous decision, the Boston group has decided that its digital business model will be streaming.
Blindness Learning and the challenge of streaming
Cengage, with revenues of $1,5 billion, half of which is digital, is operating at a loss due to slumps in textbook sales in all of its markets. It is above all the cost of the textbook, coupled with the increase in tuition fees and the growing debt of university students, that is the main cause of this crisis. It is not that new technologies have attacked this sector as has happened in other areas. All the statistics tell us that students still prefer to study on books rather than relying on their digital substitutes. Is that the direct purchase of recommended books prefer to resort to mixed forms. The purchase is combined with other less expensive forms of consumption such as renting, lending or downloading unauthorized copies from peer-to-peer sites. In the United States, 78% of the students interviewed, as part of a research commissioned by the National Association of College Stores (NACS), declare that they resort to alternative forms to purchase to obtain a part of their study texts, even if a good 86 % declares to continue to buy them.
Here the management of Cengage has decided to take the issue by the horns, relying on a very popular solution among young people, streaming. For $119 a semester, you can subscribe to access all of the educational materials produced by the publisher. There are 99 ebooks covering 20 teaching areas. Cengage has announced that by 675, more than 2020% of its releases will be on its streaming platform. It's less than $90 a month to consult an entire library and not just a large portion of it, as hitherto has been the case with textbook streaming, also practiced by Pearson. There is a similar experience in the United Kingdom where a platform called Perlego makes 20 textbooks and publications by publishers such as Pearson, Bloomsbury and Oxford University Press available for 160 euros a month. These are multi-brand texts unlike Cengage's solution.
Pros and cons of choosing Blindness Learning
In any case, Cengage's proposal is very interesting and also advantageous given that, according to the NACS, a student in the year 2016-2017 spent an average of 579 dollars to get the texts he needs. Also according to the NACS the average price of a new textbook in the United States is $80 and $51 if used. Already the purchase of two books almost covers the cost of the Cengage streaming subscription.
Michael Hansen, CEO of Cengage, commented on the choice of streaming as a possible effective business model with these words: “The more professors adopt Cengage's material, the more they will save their students. The latter and the schools have made it clear that convenience is their greatest concern and their most important driver”.
There are many questions regarding this business model, effective in itself, but not easy to put into practice and to affirm. The first of these concerns the possibility of establishing a single-brand proprietary platform. The recommended and adopted books are published by a plethora of publishers and it is hard to see how the teacher could accept a student studying on material other than that recommended. This founding principle of teaching must be questioned in order to leave students the possibility of studying on the materials of their choice. Maybe we can get there sooner than you think, but in the meantime it's a considerable barrier.
With Disney's decision to pull the plug on Netflix and move towards a proprietary platform, like HBONow already is, the whole streaming thing has entered a new uncertain phase of development, but it is certain that this will be the business model of the future for content.
It will probably also be that of school publishing. May the unnecessarily complicated proprietary platforms developed by large publishing groups rest in peace forever. The future is paved with ebooks, streaming, Moocs apps and open source software for the relational and administrative management of schools.
