Cengage Defends Value of Digital Course Materials Amid Print Decline

Xconomy Boston — 

Textbook publishers are making progress on shifting their businesses from print to mostly digital products. Now comes the hard part: figuring out how to reverse revenue declines when your business is built on digital course offerings that are generally much cheaper than books.

Take Cengage, one of the largest education publishers. Digital products now comprise more than half of the Boston-based company’s total sales, and the same is also true within its higher education division, CEO Michael Hansen says in a recent interview at the company’s headquarters. However, Cengage’s total revenue is trending downward: the company reported about $1.47 billion in the fiscal year that ended in March, down from $1.63 billion in the previous year and $1.66 billion the year before that.

Other big publishers are dealing with similar challenges. For example, in 2016, digital products accounted for more than half the revenues in McGraw-Hill Education’s higher education and professional education businesses. At the same time, total companywide revenue declined in 2014, 2015, and 2016. (Meanwhile, education publisher Pearson saw its sales creep up by almost 2 percent from 2015 to 2016.)

“Our print revenues continue to decline, partly because we want them to decline because we’re substituting them with digital revenue,” Cengage’s Hansen says. Crossing that tipping point from mostly print to mostly digital revenues “is very important because at some point you’re going to get to that point where digital revenue outpaces the print decline.”

Hansen says he thinks Cengage can get there within two years, but we’ll see. The goal is to drive more volume—sell its digital products to more students than it has been able to convince to purchase textbooks.

“The exception has become that a student actually goes to a book store … and buys a new book,” Hansen says. Instead, many buy used books, share with classmates, or turn to other options—many of which don’t generate revenue for the publisher.

Now, Cengage’s pitch is that it will give students the same content in digital form, plus useful tools like online learning assessments, Hansen says.

“It’s much more than the book,” Hansen says, and “we’re giving it [to] them at a lower price point.”

There’s a larger, related trend at play here: Students are questioning the value of an expensive college degree itself, which means publishers must work even harder to demonstrate that their course materials are worth paying for, too, Hansen says.

“I think this has already become a big separation of the wheat from the chaff,” Hansen says. “We’re moving away from the automatic ‘if the professor adopts it, everybody has to buy it.’”

Cengage recently touted its efforts to make course materials more affordable, including launching a set of digital products that incorporate “open educational resources”—online materials that aren’t copyrighted and are free to use—and start at $25 per student per course.

Open educational resources are becoming more popular, but Hansen argues that the materials alone won’t suffice to fully instruct students. He says it’s important to package the freely available content with assessment questions, and someone must take care of updating the materials, such as when an election or other current events affect the teachings of a U.S. history course. Hansen’s comments are self-serving, of course, because Cengage does that work. It’s early though—Cengage’s products and services built around open educational resources make up less than 1 percent of the company’s total revenue, he says.

“We believe that open educational resources have a role in the ecosystem,” Hansen says. “But at the same time, we don’t believe that open educational resources are becoming the one and only way to teach students.”

As for artificial intelligence, virtual reality, blockchain, and other “avant-garde” technologies, as Hansen calls them, he thinks they’re “extremely powerful” and could impact education, but they’re not a focus for Cengage right now.

“Let’s just walk before we can run,” he says of the education industry overall. “Let’s just get basic innovation in the classroom.”

That’s where a big player like Cengage can play a role because it has long-established relationships with teachers and administrators, and the reach necessary to implement new technologies on a large scale, Hansen says. (In addition to developing software in-house, Cengage has acquired several edtech companies and digital products in recent years, including Learning Objects and Pathbrite’s Portfolio Learning Platform.)

The education industry has “got to innovate, but with a clear eye on what makes a difference for students, not innovation for innovation’s sake,” Hansen says. “Don’t give me, ‘Oh, everything is going to be driven by robots.’ No, no, right now we’ve got to make the adjunct faculty in Boise, ID, 10 percent more efficient in terms of what they teach. It’s much more pedestrian than revolutionary in that respect.”