Cars...and College Textbooks

Please, esteemed reader, bear with me. What follows is not an apology for textbook publishers: good, bad, or otherwise, students, faculty, and publishers all share various parts of the pain of the broken business model for college textbooks. Rather, what follows is an effort to explain why the business model is broken.

Last month Chrysler announced the end of the PT Cruiser. Launched in 1999 for the 2000 model year, the Cruiser was once Chrysler’s most popular car. During its ten-year production run, Chrysler sold some 1.3 million Cruisers.

The demise of the PT Cruiser reminded me of a conversation, more than a decade ago, with a senior executive in the college publishing industry. He talked about cars and college textbooks, how the two products and markets were in some ways surprisingly similar, and in other ways very different. It was a very interesting and informative conversation.

The exec began by talking about product development. At the time (the early/mid 1990s), Chrysler was the most efficient of the major American auto manufacturers: the smallest of the traditional “Big 3” American car companies could go from concept to showroom in three years; in contrast, Ford and General Motors needed 42-48 months to move a car from a concept into a product for sales in a dealer’s showroom. Once the car reached the showroom, Chrysler, Ford and General Motors could expect to amortize development and production costs over several years of new car sales.

And then he described the development cycle for a new textbook, for my (hypothetical) new textbook – Green, An Introduction to Widgets, first edition (1e). This would be a big book – maybe 600 pages. In contrast to Chrysler, which could move from concept to car in 36 months, it would probably take most textbook publishers 42-48 months to bring my new Widgets textbook to market and get the title on the shelves in college bookstores. And unlike Chrysler, which would amortize production and development costs over several years, my publisher could expect to sell significant numbers of Green 1e for only one year: used copies of the forthcoming Green/Widgets tome would probably fill the 85-90 percent of the demand for Green 1e for the second and subsequent years.

Because used books would quickly supplant the demand for new books, and because my publisher (and I) would earn money only on the sale of new books, it was clear that we would have to begin work on Green/Widgets 2e shortly after the release of what would be my presumably well-reviewed and ultimately much-beloved first edition. Indeed, my book contract would obligate me to do so, as most textbook contracts now involve a multi-year/multi-edition commitment. Were I to tire of updating Widgets, my publisher would have the contractual option to bring in second author who would do the updates required to sustain the Green/Widgets franchise.

Although I would write Widgets – draft the text, identify supporting graphics and supplemental materials, perhaps prepare the review questions at the end of each chapter, etc. – the development costs for Green 1e would include not only my manuscript (for which I would receive an advance payment against actual sales), but also the supporting (and essential) ancillaries: an instructor’s guide, presentation graphics for professors and teaching assistants, web resources for students, perhaps customized/co-branded web sites for departments that adopt my book, exam questions, and more.

The ancillaries would be essential, and development costs for the ancillaries would be significant. But the industry exec reminded me that there was no money associated with any of these ancillaries: absent a separate workbook for students, the only revenue associated for Widgets 1e and the accompanying ancillaries came from the sale of my textbook to students. And the only time the publisher would realize any significant revenue from the sales of Green/Widgets would be during the first year of the new edition.

This, he explained, was the conundrum confronting the publishing industry: The ancillaries are essential part of the total package for the any textbook. Yet the ancillaries generally generate no revenue. However, the book editors and sales reps have to promote the ancillaries as part of the pitch to the professors who make the selection decisions about the books they want their bookstore to order for their classes.

This is also the conundrum that confronts the students who buy my Widgets tome: students ultimately pay for the ancillaries. Moreover, the students who buy new copies of my tome during the first year of the production run actually pay for the ancillaries students (and faculty!) will use in subsequent years.

The widely cited 2005 GAO report on college textbooks acknowledges these issues. From the executive summary we learn that “while many factors affect textbook pricing, the increasing costs associated with developing products designed to accompany textbooks, such as CDROMs and other instructional supplements, best explain price increases in recent years. Publishers say they have increased investments in developing supplements in response to demand from instructors” (p. 3).

The GEO report also provides some support for educational publishers who:

say the investments they are making in product development are largely in response to changes in higher education that have resulted in publishers playing a more central role in facilitating instruction and learning. For example, publishers have always provided no-cost instructional supplements to help faculty teach their courses, but these offerings have intensified in recent years. In particular, publishers told us that the increased demand for instructional technology applications has resulted in high development costs. They say that since the advent of the Internet, postsecondary institutions have made substantial investments in technology and increased their expectations for instructors to make use of technology in the classroom. In response to this demand, publishers have invested millions of dollars in developing content that can be delivered via technological applications, such as Web sites and CD-ROMs, to accompany their textbooks. Some of these applications are designed to help instructors be more effective in the classroom, while others are intended for student use to enhance their learning of the material (p. 14-15).

But it is the current revenue model – essentially one year of new textbook sales that have to cover almost all the publisher’s costs – that contributes to rising prices and plays havoc with student book budgets.

The current revenue model also creates angst and animosity elsewhere, including in the US Congress and in many state legislatures where growing numbers of elected officials bemoan the rising cost of textbooks and want to “do something” (or be seen as doing something) to help contain textbook prices. One example of the legislative effort to “do something” about rising textbook prices is found in the 2008 Higher Education Opportunity Act (HEOA): Section 112 seeks to “ensure that students have access to affordable course materials by decreasing costs to students and enhancing transparency and disclosure with respect to the selection, purchase, sale, and use of course materials.” A key element of the HOEA textbook legislation, effective as of July 1st, requires college bookstores to provide the ISBN information that would make it easier for students purchase books from non-campus resellers.

Like their counterparts in the music industry, college textbook publishers confront a business model that is broken. The challenge for the recording industry is “how do you complete with free – i.e., illegally downloaded – content.” For the textbook industry, the challenge is how to complete with used books that draw on the ancillaries used by students and faculty but generate no revenue for the publishers, and consequently contribute to rising prices.

As noted in the August 15th Digital Tweed post on eBooks, “electronic content is not yet the solution. At present, eTextbooks often cost the same as (or sometimes more than) than used books. Moreover, because is no resale market for eTextbooks the “net use” price – what it costs a student to use a textbook– is actually higher for an eBook than for a used book. “

Solutions, anyone? Are there alternative business models that would better serve students, faculty, and publishers?

Plan B, already deployed by some publishers for some products, brings the traditional a lab-fee model to course content. Rather shipping books to college stores to sell to students, publishers license course content and supporting resources to campuses and departments. Institutions then charge students for these materials, similar to the lab fees that students routinely pay for various science courses. The lab fee model might provide significant savings to students (a student fee of $30-40 vs. $60-70 or more for a used book), while providing a revenue annuity for the publisher.

Plan C, also in the early exploration/deployment phase, involves “open source” or “open access” instructional content. In an IHE commentary published in June, Steven J. Bell, the associate university librarian at Temple University, offered an informative overview of options and opportunities for open access instructional content. A major challenge with open access models is the inference among providers and users is that the content is free. Yet as is sometimes said about open source computer code, the appropriate metaphor is probably free puppy, rather than free beer. Infrastructure costs shift under open source/open access; they do not vanish.

Students, faculty, institutions, and publishers all participate in the pain created by the dated business model for college textbooks. Successful new business models for textbooks and other instructional content will have remove the pain, reduce the prices, and provide gains for all involved. Bell’s closing comment is worth repeating: “It’s up to everyone in higher education to bring new order to the production and distribution of traditional textbook content.”