Monday, February 29, 2016

Where are all the e-Textbook Users?

A whiff of great expectations and inevitability trails behind any discussion of digital textbooks like the scent of Grey Flannel from a middle-aged man. But it’s time to clear the air of both, and face the fact that the highly anticipated digital revolution just isn’t happening.  

I’ve been as guilty as anyone, speculating about the demise of print in the classroom. But a combination of institutional resistance, vested interest and simple disinterest have ultimately conspired to position digital textbooks on the slow train to never.  In fact, in a recent survey conducted by Campus Computing on behalf of the National Association of College Stores (NACS), “never” was the answer over 24% of respondents gave when asked when content in the classroom will be primarily digital.  [Correction: The survey was sponsored by the Independent College Stores Association, not NACS - sorry]

Surveying faculty and students on the adoption of and/or readiness for academic digital content has become a competitive sport, resulting in regular reports presented by associations, trade groups and retailers.   You don’t need to look at many of these to spot the themes consistent to all:  Students prefer print, textbook cost is an issue and faculty isn’t inclined to experiment.

In spring 2015, NACS announced the findings from their Student Watch™ survey and admitted that digital course materials were growing steadily, but only at a rate of approximately 3% per year.  Hardly fuel for a revolution.  They went on to make the following statement regarding the future of educational content in the classroom:
But one thing is certain: Every institution will need to consider a multidimensional and boundary-spanning learning content strategy if the transition to digital learning content and courseware is to proceed smoothly. Failure to do so likely will fragment the student experience as decisions to adopt learning content vary from course to course and as untested courseware and digital academic services are adopted and discarded. Unmanaged, the gap between courseware’s capabilities and the faculty's use of them will frustrate students and lead to substantial underutilization of the institution’s investments.
My response to that is . . . why?  If the growth of digital is slow and its value to students and teachers questionable, why does NACS believe that doing the above has become such an imperative?

Is it a justification for the big investments made by the largest educational publishers, who have bought companies and built content creation and delivery platforms to facilitate digital delivery?   Perhaps these investments, which looked so strategic and important to the industry (myself included), were premature or even misguided.  Recent financial results for some of the largest educational publishers have been soft and maybe the slow take-up in digital, coupled with heavy up-front investment, is partly to blame.  The most important question to ask now may be “Is there a digital future for educational content at all?

There are certainly many boosters who would answer “yes”.  Several years ago, Education Secretary Arne Duncan announced that the US educational market needed to move, as quickly as possible, away from print to digital, primarily to compete with other countries already making serious advances in this area. 

“Over the next few years, textbooks should be obsolete," he declared, going on to say that students in other countries are leaving their American counterparts in the dust because of those countries’ more enlightened education policy.   Duncan noted that South Korea “has set a goal to go fully digital with its textbooks by 2015.”   But, in 2016, our government appears to have done little to support the expansion and development of the infrastructure required to support digital content delivery in colleges--particularly community colleges, across the US.   

While the number of community college faculty surveyed by the recent NACS study was small relative to that of four-year institutions, the concerns over accessibility were clear.  Most students attending community colleges can’t afford digital devices and their lifestyles – balancing academic, work and home life – make using anything other than a print textbook difficult.   These problems are pretty basic but they don’t have easy solutions – and may not until the tablet is as affordable and ubiquitous as the Slimline phone.

To my mind, there are other challenges which may be even more intractable, and these concern institutional resistance and vested interests.   Publishers, colleges and faculty, retailers and others are dis-incentivized to move away from print content to digital.  I’m not at all saying they operate unethically or outside the best interests of their constituents; however, the current print-based world does afford important benefits to many of those who participate in the business model. Consequently, the desire to press for change might be somewhat muted.

The survey conducted by Campus Computing sampled approximately 3,000 faculty members at 29 two- and four-year colleges and summarized the findings:
  • The majority of faculty agreed that digital materials generally cost less money.
  • Less than half believed that digital content added value to their courses.
  • 55 percent said that students prefer print textbooks to digital.
  • 39 percent reported they had never heard of open educational resources (OER).

While the majority of faculty members professed concern over high textbook prices, there were some inconsistencies in the responses that may not entirely bear that out.  For example, faculty members believe themselves to be the final arbiters of textbook selection and, certainly, the price of the textbook is a known variable they can take into account during the selection process.  Even more telling is the finding that very few faculty members know about, are aware of, or would select open-source content for their course material.  If selected, this courseware would be free to the student!   As summarized in Campus Computing:
Two-fifths (39 percent) of the survey participants indicated that they had never heard of OER, while just over a third (36 percent) indicated that they knew a little about OER but had not used or reviewed OER materials. A tenth (10 percent) had reviewed but decided not to use OER materials for their classes, while another tenth (11 percent) were using OER materials and 4 percent were currently using OER in their classes and also making their own course materials available as OER.
The results were similar with respect to digital content: While respondents believe it to be cheaper than traditional print textbook content, a disappointing proportion of faculty are willing to select digital content for their students.  Despite their apparent unwillingness to experiment with the selection of digital course materials, the faculty surveyed are more than willing to judge the quality of digital course materials as inferior to traditional textbooks.  It’s hard to understand how the ‘quality’ of digital content can be questioned when it’s seldom selected!

These and other contradictions may be a result of the survey methodology itself (i.e., how the questions were asked), but what is patently clear is that digital transformation of content in higher education is going to be progressive, not revolutionary as predicted.  This doesn’t make sense when you consider all of the great advantages perceived in providing digital content to students.  But obstacles remain and may be difficult to overcome--especially since they are, in a sense, “protected” by incumbent publishers, administrators and suppliers.  In the meantime, Arne Duncan’s fear that the US is losing the education race to countries at the digital vanguard becomes more and more real.

Friday, February 26, 2016

Pearson Annual Results: Revenue and profit off 2%. Profit growth expected '17, '18

From their press release:

Pearson, the world's learning company, is announcing its preliminary full year results for 2015 which builds on its 21 January trading statement.  Key headlines include:

·   2015 results in line with guidance:
o  Sales of £4,468m declined 2% in underlying terms. Good growth in Pearson VUE, Connections Education and Wall Street English in China was more than offset by declines in US Higher Education, UK Qualifications and South Africa.
o   Deferred revenues grew 8% in underlying terms.
o   Adjusted operating profit of £723m was down 2% in underlying terms due to revenue mix and an operating loss in our Growth segment partly offset by Penguin Random House.
o   Adjusted earnings per share grew 5% to 70.3p reflecting lower interest and a lower tax rate of 15.5%, due to the agreement of historical tax positions and the associated release of accrued interest on tax provisions.
o   Operating cash flow decreased 33% as a result of challenging trading, disposals and increased US higher education textbook returns partly offset by an increased dividend payment from Penguin Random House.

·   2015 statutory results: Statutory profit for the year of £823m was affected by two significant items: pre-tax gains on the disposal of the Financial Times, The Economist Group and PowerSchool of £1,214m; and an impairment of goodwill and intangibles of £849m, primarily reflecting challenging market conditions in our Growth and North American businesses.

·   Simplification and growth: As announced in January, we are taking further action to simplify our business, reduce our costs and position ourselves for growth in our major markets. We will complete the majority of these actions by mid-year and incur implementation costs of approximately £320m in 2016 and expect to generate annualised savings of approximately £350m, with approximately £250m of these savings in 2016 and a further £100m of these savings in 2017. We have already implemented a number of associated actions since the announcement of the programme in January. 

·   2018 goals: With the full benefits of our restructuring programme, the launch of new products, and stability returning to US college enrolments and the UK qualifications market by the end of 2017, we expect adjusted operating profit to be at or above £800m in 2018.

·   Sustaining the dividend: We are proposing a final dividend of 34p, level with last year, resulting in a 2% increase in the overall 2015 dividend to 52p.  Pearson plans to hold its dividend at this 2015 level while it rebuilds cover, reflecting the Board's confidence in the medium term outlook. 

·   2016 outlook: In 2016, we expect to report adjusted operating profit and adjusted earnings per share before the costs of restructuring of between £580m and £620m and between 50p and 55p, respectively, with the in-year benefits from restructuring offset by the loss of operating profit from disposals made in 2015, ongoing challenging conditions in our largest markets, the reinstatement of the employee incentive pool and other operational factors. We are excluding the one-off cost of this major restructuring to better reflect the underlying earnings potential of the business. Operating profit after restructuring charges is expected to be in the £260m to £300m range.

·   Strategy: We have world-class capabilities in educational courseware and assessment, based on a strong portfolio of products and services, powered by learning technology. Our strategy of combining these core capabilities with related services that enable our partners to scale online, reaching more people and ensuring better learning outcomes, will provide Pearson with a larger market opportunity, a sharper focus on the fastest-growing education markets and stronger financial returns.

Monday, February 15, 2016

Predictions for 2016: Education, China, Platforms and Blockchain. As I see it.

For many years now I’ve been putting my thoughts about the future of the media and publishing in writing.  Here are my thoughts on the coming year.

2016 Predictions:

Education publishing may well see a lot of turmoil during 2016.   At Houghton Mifflin, CEO Linda Zecher has continued to make changes to her organizational and executive team, while at Cengage Michael Hansen‘s team is now well bedded in.  In both cases, the companies are focused in investing in digital products and distribution, which they couldn’t do doing while their businesses were under considerable financial constraints prior to refinancing.   Where change will really be evident is at Pearson, Wiley, Scholastic and Macmillan.   Given the share slides of both Wiley and Pearson, I expect some restructuring is inevitable at both companies.   Pearson has already announced significant headcount reductions and has sold off most of its ‘non-core’ operations.  Pearson’s share price is at a ten-year low and any long-term shareholder must be wondering what happened to the ROI from the asset sales and education company purchases made during the past 10 years.   At the current price, the company must be a target for private equity.  Perhaps even Bertelsmann will take a close look at the company in collaboration with a PE company.

Similarly, at Wiley there is an argument that their educational division is not big enough to be a “real” player against the bigger companies.   That may have been fine when the business as a whole was running well; however, the business is fighting a general market slow-down and internal operational issues, all of which are reflected in their operational results.   Look for some announcement in 2016 that Wiley is looking at ‘strategic options’ for parts of its business.   It is also possible that Scholastic may consider similar options for its education business and perhaps Macmillan could look to pick up more assets to grow the scale of their education textbook business.

The expansion of China.  In years past I’ve predicted that a Chinese publisher would make a significant purchase in the US/Europe of an academic/professional publisher, but that has yet to happen.  Still, there have been small, modest investments by Chinese publishers over the past few years and the Chinese publishing industry has begun to expose itself internationally at BookExpo, LBF, etc.  I think this shows increasing confidence (which may have been lacking five years ago) and that makes expansion into western markets a probability.  In addition, there is a recognition that the domestic Chinese publishing market is significant, both in size and reputation, and this presents international expansion opportunities for Chinese publishers which were not appreciated five years ago.  This developing strength will also help propel Chinese publishers towards global expansion.

And, just this week, a Chinese consortium announced it was bidding for Opera, a web browser design company based in Norway.  While this deal is not directly in our market, it is indicative of the intention of Chinese investors to expand into the media market in a big way.  (Opera actually has a larger role in content distribution than may be obviously apparent).

Platforms purposely open will become a strategic imperative for all CTOs looking for new content management options in the coming years.  The launch of Facebook, Apple News and other large distribution networks will actually convince more content owners that their content repositories and distribution networks need to be built with open-source, non-proprietary tools, and retain open APIs so that linking and third-party application development can be encouraged and fostered.   While the entry of the larger players is important, it will not diminish the need for individual publishers (and/or aggregators) to maintain their own market presence.  What becomes more important is that the platforms on which these are built are true platforms which can be upgraded frequently, without disruption or added cost by the developer.  In addition, development and third-party app “tiers” sit on top of this base platform to enable extensions and ‘bespoke’ applications.  These latter elements can be built by the software provider, the client publisher or third-party developers.  The third-party development capability will become a marketplace for applications similar to the manner in which has established their developer community.   These product criteria will become critical entry points for any technology provider presenting their solution to education, academic and scholarly publishers from this point forward (if it isn’t already).

The growth of corporate communication platforms is another prediction I’ve made in years past.  It hasn’t yet become prevalent; however, I believe virtually all corporations and businesses are becoming publishers to some degree.   Accelerating this is the availability of the tools needed as well as the business imperative for companies to manage their own internal and external content in more effective ways.   I recently met an ex-colleague who has developed a content tool that enables a company to host its HR and policies and procedures manuals in a central service.  This content platform offers edit features so, not only is the content updated daily, but employees are empowered to offer input to improve procedures and safety practices, which can then be immediately rolled out to other offices.  A global retailer is now testing this tool across its business.   Similarly, communication with external constituencies can be improved significantly for many businesses by adopting many of the same practices which publishers have employed with their subscribers, like content platforms and access and control features.

Growth of licensing revenues:  CCC has been on an accelerated expansion of overseas activities which underscores the opportunities for publishers outside the US marketplace.   Most publishers are still focused on the form of their content but, increasingly form will be less and less important (the aforementioned Facebook and AppleNews sites are instructive on this point).  This will mean publishers providing flexible content and making it available to as many sources as possible will increasingly drive their revenues.   Licensing fees are becoming a very important source of revenue for publishers and if your revenues in this area haven’t increased more than 20% over the past three years you may want to re-think your policies.   Undoubtedly, licensed content will become one of a publisher’s main sources of revenue in the coming years.  This will have implications across businesses, especially for systems and accounting processes.

Application of Blockchain: And, speaking of copyright, expect to see the application of Blockchain to intellectual property rights.  As you know, Blockchain is the underlying foundation for BitCoin and, as such, its application to the protection and distribution of intellectual property will be another very interesting use.   Each step in a Blockchain transaction is protected by a tamper-proof encryption technology which supports BitCoin as a legitimate financial transaction service.   The use of Blockchain is being considered in several other applications, and media is one of them.

Blockchain can be used to facilitate the transfer of intellectual property from one owner to another.  Bitcoins are ‘tokens’ that represent money and are exchanged on the Blockchain network.  But there is no reason why a ‘token’ couldn’t represent some other specific item of value, such as a book or an article or a business case.  Once a transaction occurs, the user is supplied with a unique key for accessing the content.  If the user subsequently wants to sell or lend the item, they pass their unique key to the next person for their use.  This process eliminates the ‘residual’ copy issue which arises when someone tries to sell a second-hand e-file.

Ultimately, a network of “bitRights” ™ could represent a universal content repository or bazaar/market where rights and content could be exchanged or bought, traded and sold.  In addition, this aggregation would also generate significant user data and analytics to inform future pricing, content/topic areas, distribution models and a host of other benefits which currently get lost in the very inefficient rights and copyright clearance process we have today.   Recently, Ascribe received $2mm in seed capital to establish a Blockchain product for artwork.

Open Access for federal funded research will clear Congress in 2016.   In recent years, the Fair Access to Science & Technology Research Act (FASTR) bill has failed to pass Congress due to opposition from publishers and others.  FASTR will require any federal agency which provides more than $100million in grants (which, let’s face it, is a huge hurdle) to adopt an open-access policy.   Coupled with this will be more excitement and activity around the Obama Administration’s open data initiative.  Either way, there will be much more to happening in 2016 with open access to government information.   App developers and non-profit foundations are working together to drive better access to this type of information, and I recently saw a demo from CivicHall, which is doing just that for several cities already.

As always, I expect the coming year will be another exciting year with, I hope, the above trends occurring but almost certainly many other new and interesting things as well.

Michael Cairns has served as CEO and President of several technology and content-centric business supporting global media publishers, retailers and service provider.  He can be reached at and is interested in discussing new business opportunities for executive management and/or board and advisory positions.

Tuesday, February 02, 2016

The Giant List of Publishing Predictions for 2016

Here is a listing of some interesting predictions for 2016 across the publishing and media sector:

Trade and Self-Publishing

Mark Coker from Smashwords provides a comprehensive exploration of trends for 2016 with particular focus on the Amazon subscription model and its impact on traditional publishers.  His post also includes extensive follow-up and comments: 2016 Book Publishing Industry Predictions: Myriad Opportunities amid a Slow Growth Environment

Jonathon Sturgeon as flavorwire suggests "Books by Committee, Self-Published Books by Computers" may be something we need to watch out for during 2016: From Adult Relaxation to Prole Erotica: Book Publishing Predictions for 2016

Blogsite Bookworks presents: 2016 Predictions for the Self-Publishing Industry

Digital Book World asked Tom Chalmers for his 10 Industry Predictions for 2016

Jane Friedman has 5 Industry Issues for Authors to Watch in 2016

Publisher'sWeekly: What Does 2016 Hold for Digital Publishing?

Academic and Scholarly Publishing

From Publishing Perspectives five predictions for open access academic publishing

From Scholarly Kitchen: Ask The Chefs: What Do You See On The Horizon For Scholarly Publishing In 2016?

General and Digital Media:

From Talking New Media Five digital publishing predictions from Arazoo Nadir

From Publishing Executive magazine:  2016: The Year Ahead for Publishing in 12 Words

From MediaShift:  VR Heats Up, Publishers Wise Up to Fraud and 10 Predictions for Media Metrics

Techcrunch: Predictions on the future of Digital Media

What's new in publishing: Digital Publishing Predictions for 2016 

Fred Wilson: 2016 Predictions

Top Indian publishers predict digital publishing trends for 2016


Reuters Institute for the Study of Journalism, released a new report: Media, Journalism and Technology Predictions 2016. 

At Forbes and short set of suggestions: Who Will Win The Publishing Battle In 2016? Early Predictions For What's Next

There's more than enough here to keep anyone busy well into 2016.  For my predictions from years past click on this link to list all of them.