Will a new business model accelerate the digital revolution in course materials?
GUEST COLUMN | by Ryan Petersen and Jared Pearlman
For nearly two decades, industry commentators have heralded the impending death of the physical textbook. The prediction is rooted in common sense assumptions. Digital materials should be both more immersive and personalized than their physical counterparts, leading to better learning outcomes. Meanwhile, supply chain efficiencies achieved by digital distribution should result in lower prices for students. With the promise of a better product at a lower price point, prognosticators suggest, the digital revolution must be right around the corner.
And yet, as we near the end of 2016, the evidence for revolution is mixed. According to the major academic publishers, digital products have secured a commanding market position. Pearson reports that digital revenues now account for more than 50 percent of total sales, while McGraw-Hill announced that digital unit sales overtook print unit sales in its U.S. Higher Education Group in 2015. But anonymous student purchasing data, gathered from millions of users across hundreds of campus bookstore price comparison-shopping sites, tells a different story. When users were presented with new, used, rental, and digital offerings from top retailers, digital units comprised only 2.9 percent of all units purchased.
In order for digital to fulfill the promise of lower cost course materials and gain more widespread adoption, the economics of the textbook market must change.
There’s room for reconciliation between these figures. One culprit for the disparity is the way each data set categorizes physical textbooks that include online access to digital courseware like testing suites and homework solutions. Publishers often account for these “bundles” as digital sales, whereas the comparison-shopping data categorizes them as new physical units. Moreover, many students buy used or rent textbooks that lack online access, leading them to purchase access directly from the publisher at a later date. Outside of required courseware, the evidence that students find compelling value in garden-variety digital textbooks, or e-texts, is scarce.
Of course, one critical component of value is price. While publishers have been willing to discount digital below physical new pricing, the savings are often less than students can achieve by renting, or by purchasing a used copy and reselling it at buyback. A 2015 analysis of the above price comparison data revealed that, on four out of every five titles, the online e-book rental price was higher than the comparable online physical rental.
As publishers explain it, the move to digital distribution alone has limited impact on price, as physical distribution costs pale in comparison to the overall cost of content creation. But another significant “cost” for publishers has been baked into the textbook market for nearly a century: publishers only make money when a new copy is sold or rented, while wholesalers and rental providers earn revenue from every used copy purchased or rented. Thus, e-texts are currently at a particularly awkward price point: lower than the physical new copies from which publishers derive revenue, but still too high to regain market share from competing used and rental units. All of this suggests that, in order for digital to fulfill the promise of lower cost course materials and gain more widespread adoption, the economics of the textbook market must change.
That change may now be afoot. Campus stores and technology providers have begun working more closely with publishers to advocate for and implement a new business model, which has gained traction under the name Inclusive Access. After enrolling in a participating course, students automatically receive digital access to required course materials on the first day of class, and a charge is placed directly on their student account. The auto-enrollment feature of the program secures a much larger share of the market for publishers, allowing them to offer larger discounts to students.
The appeal of Inclusive Access stems from the efficiency with which it addresses two interrelated crises: the cost of course materials continues to outpace inflation and, as prices climb, more students are bypassing required course materials. Student PIRGs reports that 65 percent of surveyed students forewent required materials due to cost; among those, 94 percent feared not having the materials would harm their performance. Driven by this two-pronged focus on affordability and learning outcomes, dozens of traditional institutions have begun piloting Inclusive Access programs, and publishers, digital distributors, and campus store leaders are working together to expand the pool.
The model remains in its infancy at traditional institutions, and early adopters have encountered challenges. For one, instructors are skeptical of the digital value proposition, with the Campus Computing Project reporting less than half of surveyed faculty agreed that “digital course materials provide significant added value content not available in print.” Elsewhere in the institution, campus IT and bookstore staff are grappling with new technical requirements, including more detailed enrollment tracking and applying new fees to student accounts.
Finally, the Department of Education has issued a series of regulations around the model, requiring that students be able to opt-out of the program, and that participating course materials be priced “below competitive market rates.” These requirements, which provide admirable consumer protections under the new model, also introduce additional complexities that have given some schools pause.
Still, the momentum behind the new model is palpable, and solutions to help institutions streamline Inclusive Access are already emerging. Moreover, campus stores have entered the scene to provide much needed course materials expertise, working with publishers to ensure pricing represents significant savings to students and facilitating the Department of Education’s opt-out provisions. With the right combination of market incentives and strategic partnerships in place, Inclusive Access looks to have a promising future.
It’s a well-worn observation that popular demand for digital music and news media precipitated new business models. The course materials market may soon reverse the polarity, with a new business model finally facilitating the digital revolution.
Ryan Petersen and Jared Pearlman are co-founders of Verba, helping campus stores to fulfill their mission to provide students the best possible college retail experience. They started as a Harvard student government project; their goal was to tackle textbook affordability through radical transparency. Since 2010, they’ve found campus stores to be their best allies in this fight. Contact them here.
When publishers indicate that digital revenue account for 50%, they take the value that digital revenue represent from both a print and digital say (book plus digital license) and count that as digital revenue. They are still selling a book with that bundle—which is what most students are buying.