The Great Unbundling of Textbook Publishers

When we hear the phrase “unbundling” in education, it usually refers to one of two things. Either it’s about unbundling the university into component parts like separating courses from certification or it’s about unbundling content from textbooks or courses into discrete learning objects. On the spectrum from “figment of the imagination” to “the one and only future,” both of these types of unbundling fall closer to the figment side into some version of “real in some significant sense but highly overrated.” But there is a different kind of unbundling that is beginning to happen that I feel confident is going to be very real: The unbundling of textbook publishers from content.

For most of their existence, the center of the universe for textbook publishers has understandibly been the book. Selling textbooks was a very profitable business for a very long time. Everything else that a publisher produced was called an “ancillary.” Slides? Flash cards? Digital resources? All ancillary to the dead tree product. Even when publishers figured out that they could charge money for some related products and services, they typically thought about them in terms of enhancing their book business. Homework platforms were “aligned” with particular textbooks. “Custom” publishing, where the publisher cobbles together different book sections and other resources for an individual instructor, department or institution, was seen as a means of selling more content to people who wouldn’t select the company’s book off-the-shelf.

All of that is changing. In fact, it has been changing slowly for a while now. Homework platforms have been big business since Pearson scored major success with MyMathLab. As the homework market matured, publishers have, through long process of trial and error, finally begun to hit on general-purpose digital products for disciplines that aren’t heavy in traditional homework. These products move up the value chain, solving both class management and genuine teaching problems that paper textbooks can’t. And publishers are starting to see real business success with them. For example, McGraw-Hill Education announced this year that their unit sales of digital products have overtaken print products. Cengage told IHE in the spring that they are “on track this fiscal year to see digital sales surpass print sales, both in terms of unit sales and revenue.”

Meanwhile, publishers have also begun to discover that there is real money in some services. They started in Online Program Management (OPM), helping schools develop online degree and certificate programs. These services often include course design, which you can think of as a few steps beyond the custom publishing business into actual instructional design, and they also often include services that are more oriented to the business and management aspects of online programs, from marketing to managing registrations. They even include financing in many cases. Just like General Electric started its own bank so that it could help customers buy appliances on credit, many of the OPMs, whether or not they are associated with textbook publishers, pay for a lot of the up-front costs of program development in return for a share of the program revenues. This is all big business. Pearson spent $650 million to acquire OPM company EmbanetCompass in 2012. And while they probably overpaid, that’s still a big chunk of change. That same year, Wiley only paid a paltrey $220 million for OPM company Deltak.

So the textbook publishers have been diversifying out of print in higher education for some time, even though it has been a slow process and even though many of them are still pretty book-centric in their thinking. But that process is going to accelerate because we are reaching an inflection point in the commodification of content. Students are getting better and better all the time at avoiding buying the textbook. Meanwhile, market options proliferate and improve. Textbook rental companies are getting four or five semesters of rental out of one book, which is four or five semesters’ worth of sales that publishers are missing. Publishers have responded by offering their own rental services and low-priced options, but these are all defensive actions.

The straw that breaks the camel’s back may turn out to be OER. One recent survey found that 5.3% of courses are using open textbooks, while another found nearly identical results. That may not sound like much, but as profit margins for the print business continue to come under pressure, every sale matters more. If OER adoption were to reach double digits—which seems plausible—it could put publishers’ print business into a financial crisis.

Keep in mind, too, that “print” is really a misnomer given that straight ebook conversions of textbooks have never sold very well. What we’re really talking about is not analog versus digital but flat content versus interactive educational support.

If current trends continue, then textbook publishers will soon find that it no longer makes sense for them to be selling products based on the value of the content. The real money will be in a few areas:

• High-end digital products that directly or indirectly improve student outcomes
• Related services that help colleges improve student outcomes
• Services that help colleges improve the unsexy but critical aspects staying viable, from marketing to administration
• Loans to schools looking to make changes that will (theoretically) make them more sustainable in the long run but require significant up-front investment—preferably in the products and services of the company offering the loan

While good content will be necessary for some of these offerings, it will no longer be the primary value of the thing being bought. Meanwhile, the use of pure content (in either paper or digital form) will continue to be substantial. But it will no longer be profitable enough for the textbook publishers given the margins that they and their shareholders have grown accustomed to. These companies won’t be able to afford to just kill off their content businesses because they will still account for a very significant portion of their revenues. But they won’t be able to afford the expense of maintaining them either. They will have to find ways of unloading large portions of their catalogs through sales or licensing deals.

How this ultimately works is anybody’s guess. It will be tricky for the publishers, both because they can’t afford to have those revenues collapse until their transition to other business models is complete and because they can’t afford to lose all control over the content that they need for their high-end digital products. But something along these lines is going to have to happen in the next few years. And OER development and adoption will likely accelerate as a result. Once publishers exit the steel-making industry and enter the automobile-making industry, their interest will switch from wanting steel prices to be high to wanting steel prices to be low.