Last week, I briefed a visiting delegation of Chinese publishers on recent U.S. trends in K-12 and higher-education publishing. Sponsored by Pace University’s M.S. in Publishing program, my presentation confirmed how much the industry has shifted toward services in the last five years. It also provided a better understanding of why private-equity funding is supporting startups in this sector.
According to Bookstats, the overall size of the U.S. publishing market is shrinking slowly. In 2013, sales declined just 0.4%, but it marked the third consecutive year of modest declines. Unit sales last year were down 1.3%, with moderate price gains seen across several categories and formats.
The bigger changes in publishing are seen a level down from the totals. Sales of physical formats have dropped almost 24% since 2009, while revenues from digital (+201%) and bundled (+325%) formats have grown substantially. This isn’t just compounding growth off a small base: in 2013, physical sales accounted for 70% of revenues, but digital has grown to represent 20% and bundles sales the remaining 10% of the market.
Although a fair share of press coverage has offered (accurately) that trade book sales rebounded in 2012 and 2013, the same cannot be said of the K-12 publishing market. Overall sales have dropped 14% since 2009, with physical sales down by almost half (-48%). Digital and bundled formats are up significantly, but not enough to replace revenues lost in the falloff of physical sales.
The primary reason the K-12 market has declined: a drop in institutional (school) purchases of textbooks. According to the Bookstats database, 2010 sales of textbooks totaled $4.374 billion. By 2013, this total had fallen to $2.196 billion, a loss of nearly $2.2 billion in just four years.
Budget shortfalls in the wake of the 2008 recession have hurt states’ and municipalities’ ability to raise money for education, and clearly textbook purchases have been delayed while budgets got sorted out. But there is also a strong shift to digital formats, particularly internet products and digital course materials, which taken together represented $542 million in K-12 publishing revenues in 2013.
A similar story can be told about higher-education publishing, with a couple of twists. Overall higher-education sales have actually grown since 2009 – up 1.6% over five years, to a 2013 total of $4.341 billion.
Underneath the totals, we see the same strong movements away from physical formats. The decline (-41%) in physical sales since 2009 is entirely driven by a falloff in textbook purchases. Higher-education publishing remained flat over time largely because sales of digital and bundled formats have increased by $1.5 billion, replacing revenue lost in the sale of physical formats.
Of note in the higher-education publishing space: sales through college stores, long the primary channel for sales to students, has dropped 12.1% since 2011, falling to $2.94 billion in 2013. In the same period, online purchases grew 51.6%, passing the billion-dollar mark for the first in 2013. The shift is direct: every dollar lost at a physical outlet reappears in online sales, at least until now.
Although “digital” is sometimes conflated with “eBook” in talking about trade publishing, eBooks and audiobook downloads play only a minimal role in overall digital sales in education. In both K-12 and higher-education publishing, digital growth comes from the sales of what increasingly looks like services.
Last month, CB Insights published a summary of the work it is doing to track where funders are investing in the U.S. education marketplace. For funding organizations, investment priorities included:
- Mobile-language learning
- Teacher-student collaboration and communication
- Education data and analytics
- Coding, programming and computer literacy
- MOOCs, as well as paid online classrooms
All of these initiatives start with a digital base or platform. Potentially, they foster new competitors with different, lower cost structures. As well, the shift toward new formats opens the door for targeted services.
Movements away from institutional and “bricks and mortar” retail sales challenge the relationships that traditional publishers have used as a barrier to entry. As investment from outside the industry increases, so too does the possibility of disruptive change.
Incumbents in the education publishing space – companies like Pearson, McGraw-Hill Education, Scholastic, Cengage and Houghton Mifflin Harcourt – have been working hard over the last decade to adapt their offers in the education marketplace. They may yet prevail in a fight against privately funded publishing startups, although the struggles of highly leveraged firms like Cengage and Houghton Mifflin Harcourt call that possibility into question.
Still, investments in the education market may provide a useful lesson for trade, professional and academic publishers who feel their digital tsunamis have passed. A number of funders are betting that the future of education publishing is at least a blended model of products and services, with growth coming from services. That’s an opportunity relatively few incumbents in other categories are prepared to exploit.