Gilbane Conferences & Advisor

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Tag: textbooks

Thomson Learning– What’s next??

Earlier this year, I wrote that the announcement that Thomson Learning was for sale was an indictment of the current fundamentals of most learning market segments. From the perspective of Thomson senior management, the decision was to divest seems clear cut. Consider this comparative financial data:

Thomson Learning All Other Thomson Units

  • Organic Growth 4.0% 6.0%
  • Adj Ebitda 24.5% 29.2%
  • Operating Margin 12.9% 18.9%
  • Electronic Revenues 36.0% 80.0%
  • Recurring Revenues 24.0% 82.0%

(Source Thomson 4th Q Investor Presentation)

The percentages of electronic and recurring revenues are particularly at odds with CEO Harrington’s goal of integrating Thomson’s content with their customer’s work flows. After examining this data combined with declining unit volumes, growing price resistance, and increased government regulation, one wonders what motivated the private equity firms to pay the lofty multiples described in Thad McIlroy’s excellent post earlier this week.

Perhaps, they see the opportunity to create more new products that will blend content and technology to add value to the student’s learning experience. Vivid simulations and multimedia can help bring clarity to the explication of complex topics. Linking the appropriate content to solving problems improves student understanding while saving them lots of time and frustration. Making texts searchable and providing fresh links to appropriate Internet sites brings life and exploration opportunities to static textbook content.

Transitioning from a reliance on the sale of books and specific ancillary items to an intellectual property licensing model that is based upon usage metrics and attributes value to all aspects of course package (including the many package elements currently provided to faculty at no cost) would enable profound changes to the income statement. Revision cycles could be lengthened, sampling and selling costs reduced, and the percentage of recurring revenue increased substantially.

For several years, the potential of such changes have been obvious to industry executives and observers. Why then would the new owners be better able to institute these changes and transitions? The answer is simple, the short term costs of technology investments coupled with the transition to a recurring model would produce some “difficult quarters” for a publicly traded company. The opportunity to retool and restructure while private could create a company that would have excellent recurring revenues and better margins when reintroduced to public markets in a few years.

Should Thomson (and possibly Houghton-Mifflin) adopt this strategy, the impact on the rest of the industry could be profound. However, if these changes were to take place, authors, students, universities, and the publishing companies would eventually all be winners! Here’s hoping that this deal lends impetus to this industry transition.

A New eCollegey in Higher Ed Publishing??

Pearson made an interesting acquisition yesterday. Their acquisition of eCollege continues their corporate foray into Student Information Systems and Course Management. Last year, Pearson acquired PowerSchool and Chancery Software yielding a very strong position in Student Information Systems for the K-12 market. Clearly, they like these learning infrastructure markets for several good reasons.
1. At present, they seem to be solid businesses with only a few competitors that are poised to grow at rates exceeding their traditional textbook businesses.
2. The acquired customer base brings them many new customers and brings them closer to the students (and parents) who use their instructional products. The information about these students and the ability to reach them with additional product offerings is not to be underestimated in this digital world.
3. As the range of course materials such as content modules, learning software, simulations, educational websites, etc. continues to grow, the value of the course infrastructure technology will increase as well as provide a strategic advantage for integration with their broad range of course materials.
Last week at the Digital Book conference in New York, several speakers agreed that college textbook publishers will look more and more like software publishers over the next ten years. The reasons for this transition will center on using technology to: 1. deliver appropriate content to the student when it is needed to solve homework problems and prepare for tests; 2. integrate traditional material with innovative simulations and learning modules available from communities like MERLOT; 3. add life to static published content by enabling further exploration via web links and domain specific search engines and content repositories.
Pearson is wise to acquire successful software and technology companies to give them the pockets of technical expertise that would take many years to develop within the company. While there may be some culture clashes, this strategy should serve Pearson well and position them to maintain or expand their leadership position in educational publishing.