The courseware and textbook industry continues to face a much more difficult market than scholarly journals. McGraw-Hill Education reported in its 2019 annual report that the US higher education market declined by about 12% from $3.2 billion to $2.8 billion. This decline is reflected in the higher education revenue decline for the three largest publishers: Pearson reported a 12% decline, McGraw-Hill Education a 7.7% decline and Cengage (which operates on an April 1st to March 31st calendar) projects a 5% decline in higher education revenues for FY 2020, which will actually include three quarters of calendar year 2019.
This decline is driven by the collapse of print revenues. In 2019, Pearson reported that print sales declined by almost 30%, McGraw-Hill Education by 32% and Cengage (looking at the first three quarters of FY 2020) which comprise the period April–December 2019) by 14%.
To a certain extent, the decline of print reflects more than a change of preferences among students: the three major publishers have all adopted digital strategies that are leading them to accelerate this transition. The publishers have good reasons to encourage this decline. Fewer print books mean fewer second-hand books competing with new book sales. Digital courseware can lead to signing up virtually all the students enrolling in a course, since students often have no practical alternatives available. Finally, the deployment of digital courseware allows publishers to collect vast amounts of data, which feeds data analytics tools. These tools – regardless of the drawbacks for students and faculty – are marketed as a means to increase graduation rates, as well as provide other attractive benefits designed to appeal to institutional leaders.
Pearson represents perhaps the highest-profile case of this strategy. In July 2019, the company announced that it would move to prioritizing the digital editions for most of the roughly 1,500 titles it offers in the US. The new economic model is based on rental for a semester of a digital edition of the titles, which will be constantly updated over time. Print editions will still be offered, but only on a rental base, and only 100 titles will be updated. This strategy obviously undermines any residual market for second-hand books, and also discourages students from renting increasingly obsolete print editions.
Can digital revenues return the courseware business to growth? For the time being, this has not been the case: digital courseware has been available on a large scale for the past decade, but in none of these years has the growth of digital revenues offset the decline of print. As average revenues per enrolled student decline, the time when digital sales can substitute print sales is, of course, coming closer.
However, the leading publishers may be satisfied even earlier than that. The courseware business is likely to become even more concentrated when the transition to digital is completed. Smaller publishers are likely to struggle to match the technology investments of the market leaders, and pricing models like Cengage Unlimited (an all-you-can- eat scheme) can only make sense for publishers with significant market share. The failure of the McGraw-Hill/Cengage merger will slow down for a while the trend toward concentration, and these publishers will need to review their asset portfolios and rethink their cost structures. However, the investments required to support the transition to digital continue to be beyond the reach of smaller companies. Should McGraw-Hill and/ or Cengage pursue a merger with companies from complementary areas of activity (for example, from the consumer fintech sector), smaller publishers will again face the issue of competing against a small number of formidable, large companies.