The New McGraw-Hill: Where is Education Textbook Publishing Headed?

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Last week McGraw-Hill and Cengage announced a merger which would combine the two businesses into a $3.1Billion provider of education textbooks and materials.  Assuming this merger proceeds through competitive review, as is likely, then McGraw Hill – as the new company will be known, will be second only to Pearson, plc ($5.5Billion) in size and reach.  The new McGraw-Hill will be run by current Cengage CEO Michael Hansen.  While broad trends in education indicate a widening of the education and training marketplace as employers and employees see the need for full career based training, traditional education companies such as Cengage, Pearson, Macmillan, John Wiley and McGraw Hill have struggled to protect their legacy print businesses and address new market and product opportunities.

Financial reporting across the industry suggests that publishers are losing the battle of the textbook whic

 

h is one reason this merger was inevitable.  The question is how the remaining textbook publishers such as Macmillan, John Wiley, Wolters Kluwer and others will react: I expect some additional M&A activity and partnerships in this space.   With revenues declining at a steady rate, unless alternative sources of revenues – whether new products or substitutions – are found then all publishers face an inevitable decline in scale benefits.  Having faced steady declines in revenue over the past ten years, some of these publishers have infrastructures which can support larger businesses and thus combining with one or two other publishers can ‘top-up’ this scale gap.   It is no surprise that new McGraw-Hill anticipates $300MM in efficiency savings and I would not be surprised if they have privately targeted a much larger number.

But what about revenue growth?  This is a very dull story if it is only about cost and scale improvements and CEO Michael Hansen hinted at a more appealing story line.  He disagreed with a question about market concentration: Rather than the combined company having 45% market share he suggested that both companies have a market share in the teens

 

.  His perspective is that students have many options when they visit a bookstore and a variety of business models to chose from (including buy, borrow and steal).  Additionally, the target student is being redefined to include ‘professionals’ and career focused students.  If you agree to both these points then, in effect, the market in which the new McGraw-Hill competes is larger than that presented by the legacy textbook market.  Cengage’s aggressive move to address this new market has been their all access subscription pricing model which in less than twelve months has grown to over 1MM subscribers and over $60MM in revenue.  (See the PND articles below on these points).

It is my expectation that this deal will proceed without significant deliberation and McGraw-Hill will argue successfully that the education market is now much bigger than the legacy t

 

extbook market.  Other publishers may find themselves a step behind McGraw-Hill and Pearson which will result in further market consolidation and/or combinations.  We are now on the cusp of changes like those the journals business went through over twenty years ago.  What is interesting to contemplate is whether what is happening today in journal publishing vis-à-vis open access content is in some way a predictor of what may happen to textbook content.   Journal publishers have moved to services and analytics and we may see a similar move in education.  Just not in twenty years.

(Company) and (Investor Call Recording)

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Michael Cairns is a business strategy consultant and executive.  He can be reached at michael.cairns@infomediapartners.com or (908) 938 4889 for project work or executive roles.

Thomson Reuters in the Clouds

Almost 10 years ago, Thomson Reuters embarked on the development of their Elektron Data Platform and sold it as a mechanism to get faster as a data provider and closer to their customers.  As part of this effort they built data centers around the world to support their objectives and the efforts were highly successful.  That said, the rapidity by which technology advances is now encouraging the company to place their financial data into the cloud supported not by their own technology but by Amazon and the AWS products.

Financial data is highly transacted and Thomson Reuters counts as clients most financial companies of any consequence.   As a result of this implementation to AWS, their clients will gain increased flexibility in how they use data and how clients can develop new products based on this data.   Not only do clients not have to build and maintain their own data centers (obviously they can if they want) but they can build their own applications on AWS which in turn will allow them to be more flexible in how they service their customers.  The model Thomson Reuters is establishing could be revolutionary in the manner in which users manage financial data and service customers.

“The enhancement to the Elektron Data Platform will initially provide access to real-time data on the secure and scalable Amazon Web Service (AWS) Cloud in North America, with plans to expand to Europe and Asia later this year. With the cloud API, data can be consumed natively on AWS, directed to applications based in other cloud environments, or to an on-premise environment.

As a simplified, conflated real-time service, the real-time in the cloud service can power up to three client applications at three updates per second across 50,000 instruments at the same time, which can be selected from the full universe of over 70 million instruments covered by the Elektron Data Platform.”

No less important from this announcement is that by using AWS, Thomson Reuters will be buying in to a set of standards and protocols which will encourage application development, experimentation and likely broader usage.  This will lower the barriers to entry for many existing and new customers.

As the sheer amount of data increases and complexity grows, Thomson Reuters have taken the view that making data accessible can reduce complexity and help companies focus more on the delivery of analytics, machine learning applications and other innovations.   Enabling this without a cumbersome back end technical architecture will be the strategy all data managers will begin to execute.

(Press Release)

Where Art Thou Growth?

A panel of experts provides some insight on how publishers can find growth opportunities to expand their businesses.

As one of the last session’s panelists at the Publisher’s Forum in Berlin stated, “it is easy to go mad if you allow yourself to be consumed by all the threats and opportunities to publishing and it is far better to focus on the opportunities.”  And, for these panelists speaking on the challenge growth poses, there are plenty of opportunities to contemplate.  The predominant theme of the conference’s discussions was that ‘change is here’ and publishers can no longer choose to ignore it.  This panel on Innovation and Growth was moderated by David Worlock with panelists Fionnuala Duggan from Informa plc, Joerg Rheinboldt from Axel Springer and Joseph Evans from Enders Analysis.

As publishers strategize their growth plans, Duggan noted they are beginning to experiment with new models and market-entry opportunities.  One company discussed at the forum was the education company Alison, which brought to the self-teaching learning and life-long education market a ‘freemium’ model.  Alison’s model requires great scale but it’s a global business and the company is going into areas where there are large populations of ambitious, underserved people such as Nigeria.   Cengage has also challenged the traditional pricing model for educational materials with the launch of their content subscription model which has upended the textbook pricing model and may well become an industry standard model.  In seeking growth, new business model innovation can have a profound impact on your business.

Read the entire post here.

Corporate Data Strategy and The Chief Data Officer

Are you managing your data as a corporate asset? Is data – customer, product, user/transaction – even acknowledged by senior management? Responsibility for data within an organization reflects its importance; so, who manages your data?

Few companies recognize the tangible value of the data their organizations produce and generate. Some data, such as product meta-data, are seen as problematic necessities that generally support the sale of the company’s products; but management of much of the other data (such as information generated as a customer passes through the operations of the business) is often ad-hoc and creates only operational headaches rather than usable business intelligence. Yet, a few data aware companies are starting to understand the value of the data generated by their companies and are creating specific business strategies to manage their internal data.

Establishing an environment in which a corporate data strategy can flourish is not an inconsequential task. It requires strong, active senior-level sponsorship, a financial commitment and adoption of change-management principles to rethink how business operations manage and control internal data.   Without CEO-level support, a uniform data-strategy program will never take off because inertia, internal politics and/or self-interest will conspire to undermine any effort. Which raises a question: “Why adopt a corporate data strategy program?”

In simple terms, more effectively managing proprietary data can help a company grow revenue, reduce expenses and improve operational activities (such as customer support.) In years past, company data may have been meaningless in so far that businesses did not or could not collect business information in an organized or coordinated manner. Corporate data warehouses, data stores and similar infrastructure improvements are now commonplace and, coupled with access to much more transaction information (from web traffic to consumer purchase data), these technological improvements have created environments where data benefits become tangible. In data-aware businesses, employees know where to look for the right data, are able to source and search it effectively and are often compensated for effectively managing it.

Recognizing the potential value in data represents a critical first-step in establishing a data strategy and an increasing number of companies are building on this to create a corporate data strategy function.

Businesses embarking on a data-asset program will only do so successfully if the CEO assigns responsibility and accountability to a Corporate Data Officer. This position is a new management role and not additive to an existing manager’s responsibilities (such as the head of marketing or information technology). In order to be successful, this position carries with it the responsibility for organizing, aggregating and managing the organization’s corporate data to better effect communications with supply chain partners, customers and internal data users.

Impediments to implementing a corporate data strategy might include internal politics, inertia and a lack of commitment, all of which must be overcome by unequivocal support from the CEO. Business fundamentals should drive the initiative so that its expected benefits are captured explicitly. Those metrics might include revenue goals, expense savings, return on investment and other, narrower measures. In addition, operating procedures that define data policies and responsibilities should be established early in the project so that corporate ‘behavior’ can be articulated without the chance for mis- and/or self-interpretation.

Formulating a three-year strategic plan in support of this initiative should be considered a basic requirement that will establish clear objectives and goals. In addition, managing expectations for what is likely to be a complex initiative will be vital. Planning and then delivering will enable the program to build on iterative successes. Included in this plan will be a cohesive communication program to ensure the organization is routinely made aware of objectives, timing and achievements.

In general terms, there are likely to be four significant elements to this plan: (1) the identification and description of the existing data sources within an organization; (2) the development of data models supporting both individual businesses and the corporate entity; (3) the sourcing of technology and tools needed to enact the program to best effect; and then, finally, (4) a progressive plan to consolidate data and responsibility into a single entity. Around this effort would also be the implementation of policies and procedures to govern how each stakeholder in the process interacts with others.

While this effort may appear to have more relevance for very large companies, all companies should be able to generate value from the data their businesses produce. At larger companies the problems will be more complex and challenging but, in smaller companies, the opportunities may be more immediate and the implementation challenges more manageable. Importantly, as more of our business relationships assume a data component, data becomes integral to the way business itself is conducted. Big or small, establishing a data strategy with CEO-level sponsorship should become an important element of corporate strategy.

The following are the next articles in the series:

  1.  Setting the Data Strategy Agenda
  2. Corporate Data Program: Where to Start?
  3. Strategically Managing Data for Long Term Benefit

Predictions for 2016: Education, China, Platforms and Blockchain.

For many years now I’ve been putting my thoughts about the future of the media and publishing in writing.  Here are my thoughts on the coming year.

2016 Predictions:

Education publishing may well see a lot of turmoil during 2016.   At Houghton Mifflin, CEO Linda Zecher has continued to make changes to her organizational and executive team, while at Cengage Michael Hansen‘s team is now well bedded in.  In both cases, the companies are focused in investing in digital products and distribution, which they couldn’t do doing while their businesses were under considerable financial constraints prior to refinancing.   Where change will really be evident is at Pearson, Wiley, Scholastic and Macmillan.   Given the share slides of both Wiley and Pearson, I expect some restructuring is inevitable at both companies.   Pearson has already announced significant headcount reductions and has sold off most of its ‘non-core’ operations.  Pearson’s share price is at a ten-year low and any long-term shareholder must be wondering what happened to the ROI from the asset sales and education company purchases made during the past 10 years.   At the current price, the company must be a target for private equity.  Perhaps even Bertelsmann will take a close look at the company in collaboration with a PE company.

Similarly, at Wiley there is an argument that their educational division is not big enough to be a “real” player against the bigger companies.   That may have been fine when the business as a whole was running well; however, the business is fighting a general market slow-down and internal operational issues, all of which are reflected in their operational results.   Look for some announcement in 2016 that Wiley is looking at ‘strategic options’ for parts of its business.   It is also possible that Scholastic may consider similar options for its education business and perhaps Macmillan could look to pick up more assets to grow the scale of their education textbook business.

The expansion of China.  In years past I’ve predicted that a Chinese publisher would make a significant purchase in the US/Europe of an academic/professional publisher, but that has yet to happen.  Still, there have been small, modest investments by Chinese publishers over the past few years and the Chinese publishing industry has begun to expose itself internationally at BookExpo, LBF, etc.  I think this shows increasing confidence (which may have been lacking five years ago) and that makes expansion into western markets a probability.  In addition, there is a recognition that the domestic Chinese publishing market is significant, both in size and reputation, and this presents international expansion opportunities for Chinese publishers which were not appreciated five years ago.  This developing strength will also help propel Chinese publishers towards global expansion.

And, just this week, a Chinese consortium announced it was bidding for Opera, a web browser design company based in Norway.  While this deal is not directly in our market, it is indicative of the intention of Chinese investors to expand into the media market in a big way.  (Opera actually has a larger role in content distribution than may be obviously apparent).

Platforms purposely open will become a strategic imperative for all CTOs looking for new content management options in the coming years.  The launch of Facebook, Apple News and other large distribution networks will actually convince more content owners that their content repositories and distribution networks need to be built with open-source, non-proprietary tools, and retain open APIs so that linking and third-party application development can be encouraged and fostered.   While the entry of the larger players is important, it will not diminish the need for individual publishers (and/or aggregators) to maintain their own market presence.  What becomes more important is that the platforms on which these are built are true platforms which can be upgraded frequently, without disruption or added cost by the developer.  In addition, development and third-party app “tiers” sit on top of this base platform to enable extensions and ‘bespoke’ applications.  These latter elements can be built by the software provider, the client publisher or third-party developers.  The third-party development capability will become a marketplace for applications similar to the manner in which salesforce.com has established their developer community.   These product criteria will become critical entry points for any technology provider presenting their solution to education, academic and scholarly publishers from this point forward (if it isn’t already).

The growth of corporate communication platforms is another prediction I’ve made in years past.  It hasn’t yet become prevalent; however, I believe virtually all corporations and businesses are becoming publishers to some degree.   Accelerating this is the availability of the tools needed as well as the business imperative for companies to manage their own internal and external content in more effective ways.   I recently met an ex-colleague who has developed a content tool that enables a company to host its HR and policies and procedures manuals in a central service.  This content platform offers edit features so, not only is the content updated daily, but employees are empowered to offer input to improve procedures and safety practices, which can then be immediately rolled out to other offices.  A global retailer is now testing this tool across its business.   Similarly, communication with external constituencies can be improved significantly for many businesses by adopting many of the same practices which publishers have employed with their subscribers, like content platforms and access and control features.

Growth of licensing revenues:  CCC has been on an accelerated expansion of overseas activities which underscores the opportunities for publishers outside the US marketplace.   Most publishers are still focused on the form of their content but, increasingly form will be less and less important (the aforementioned Facebook and AppleNews sites are instructive on this point).  This will mean publishers providing flexible content and making it available to as many sources as possible will increasingly drive their revenues.   Licensing fees are becoming a very important source of revenue for publishers and if your revenues in this area haven’t increased more than 20% over the past three years you may want to re-think your policies.   Undoubtedly, licensed content will become one of a publisher’s main sources of revenue in the coming years.  This will have implications across businesses, especially for systems and accounting processes.

Application of Blockchain: And, speaking of copyright, expect to see the application of Blockchain to intellectual property rights.  As you know, Blockchain is the underlying foundation for BitCoin and, as such, its application to the protection and distribution of intellectual property will be another very interesting use.   Each step in a Blockchain transaction is protected by a tamper-proof encryption technology which supports BitCoin as a legitimate financial transaction service.   The use of Blockchain is being considered in several other applications, and media is one of them.

Blockchain can be used to facilitate the transfer of intellectual property from one owner to another.  Bitcoins are ‘tokens’ that represent money and are exchanged on the Blockchain network.  But there is no reason why a ‘token’ couldn’t represent some other specific item of value, such as a book or an article or a business case.  Once a transaction occurs, the user is supplied with a unique key for accessing the content.  If the user subsequently wants to sell or lend the item, they pass their unique key to the next person for their use.  This process eliminates the ‘residual’ copy issue which arises when someone tries to sell a second-hand e-file.

Ultimately, a network of “bitRights” ™ could represent a universal content repository or bazaar/market where rights and content could be exchanged or bought, traded and sold.  In addition, this aggregation would also generate significant user data and analytics to inform future pricing, content/topic areas, distribution models and a host of other benefits which currently get lost in the very inefficient rights and copyright clearance process we have today.   Recently, Ascribe received $2mm in seed capital to establish a Blockchain product for artwork.

Open Access for federal funded research will clear Congress in 2016.   In recent years, the Fair Access to Science & Technology Research Act (FASTR) bill has failed to pass Congress due to opposition from publishers and others.  FASTR will require any federal agency which provides more than $100million in grants (which, let’s face it, is a huge hurdle) to adopt an open-access policy.   Coupled with this will be more excitement and activity around the Obama Administration’s open data initiative.  Either way, there will be much more to happening in 2016 with open access to government information.   App developers and non-profit foundations are working together to drive better access to this type of information, and I recently saw a demo from CivicHall, which is doing just that for several cities already.

As always, I expect the coming year will be another exciting year with, I hope, the above trends occurring but almost certainly many other new and interesting things as well.

Michael Cairns has served as CEO and President of several technology and content-centric business supporting global media publishers, retailers and service provider.  He can be reached at michael.cairns@outlook.com and is interested in discussing new business opportunities for executive management and/or board and advisory positions.