College Books Move Online – Pearson Makes 300 Texts Available On the Web at Half the Price

Faced with mounting criticism that the cost of new textbooks is too high, and vexed by students who buy cheaper used texts, Pearson PLC http://www.pearson.com/ is making 300 of its most popular U.S. college textbooks available in a Web-based format for half the price of the print versions.

By CHARLES GOLDSMITH and JEFFREY A. TRACHTENBERG
Staff Reporters of THE WALL STREET JOURNAL

http://www.online.wsj.com

Beginning this autumn, specialized texts such as "Educational Research" and "Social Psychology," which normally retail in hardback for about $100, can for the first time be bought online for about $50.

"A lot of students have affordability problems," says Will Ethridge, president of Pearson’s college-text unit.

Such price resistance poses a threat to the $3.4 billion-a-year U.S. college-textbook industry — as students either buy used versions, seek cut-rate deals through foreign Web sites or do without.

Pearson’s new strategy, if successful, will transform the college-textbook industry, which has been under attack from parents and students stunned by the rising cost of higher education. Complaints about high prices have become so bad that at a recent annual meeting, the American Association of Publishers handed out a pamphlet justifying the industry’s prices, and the issue has become a heated topic at educational conferences.

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A NEW CHAPTER

A look at Safari Books Online, a Web service provided by Pearson and O’Reilly Media that is set to launch this summer

• Students can choose to purchase either a print-edition textbook or subscribe to the same textbook content online

• Provides an Internet-enhanced digital edition. Students can search the entire text for key concepts. Available anywhere there is an Internet connection.

• Saves students as much as 50% off the print-edition suggested list price

•Offers search, bookmark and note-taking tools, and the ability to print pages easily

Source: the company

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The prospect of online textbooks would seem to raise piracy concerns, but Pearson, which is based in the United Kingdom, is confident that the system is secure.

"There is a sophisticated security protocol developed two years ago that protects the intellectual content from file sharing or access by unauthorized subscribers," says Wendy Spiegel, a spokeswoman for Pearson Education, based in New York. "This is not downloadable. It is a Web-based book with the full function of the Web. You can print it section by section, but not at one sitting. It won’t continuously print for you. We envision that students will print out the parts of the chapter that they need that day. If you are a crook, you could duplicate a printed book much easier."

Those who have seen early prototypes of the online texts describe them as attractive and intriguing, and note that publishers have a significant incentive to see that Web-formatted books go mainstream. The traditional four-color hardcover book already is loaded up with related CD-ROMs and links to additional Web sites — thus boosting costs.

Web-based books may well provide the solution. By transferring content to the Internet, publishers will be able to slash inventory costs, eliminate returns, reduce shipping expenses, and perhaps put a significant dent in the used-textbook business. Further, if they are able to pass along those savings, they should be able to lure back budget-minded students.

Pearson last year generated 19% of its revenue and 30% of its operating profit from college publishing. But executives have expressed concern that price resistance poses a future pothole. By the company’s research, about a third of students say they don’t buy all of their required texts, while half say they are likely to buy a lower-cost version online assuming a savings of at least $25.

Although textbook prices have been rising 2% to 3% a year, well below college-tuition increases, texts are a conspicuous billboard of college inflation, given that students pay for them directly. According to the College Board, the average tuition and fees at a four-year private U.S. college was $19,710 in the 2003-2004 school year, up 6% from the previous year.

A spokeswoman for the National Association of College Stores, representing more than 3,000 college retailers, says the group didn’t expect online versions to rapidly displace print editions. "Most students in higher education still prefer a physical textbook" given that they grew up on such texts since childhood, she says.

One book retailer suggests that interactive books won’t represent a significant price break for students, who usually sell their books at the end of the semester.

Mark Oppegard, chief executive of closely held Nebraska Book Co., which sells used and new college textbooks, notes that a student who bought a $100 new textbook could sell it back for $50 at the end of the semester. A student who bought a used book for $75 could get $37.50 for it. "The interactive books don’t represent a real savings," he says. "Let’s see how well they are received."

Publishing-industry officials say educational publishers typically make between $15 and $20 profit from a book with a retail list price of $100, after subtracting costs for author royalties, printing, distribution and retailers’ take. In a goodwill gesture to college bookstores, Pearson said it would offer retailers a cut of revenue from online sales if stores direct students to the publisher’s Web site.

The online versions are being sold through a program called Safari Books Online, a joint venture between Pearson and O’Reilly Media Inc. Unlike some other electronic-books, the online textbooks will allow students to take notes in what amounts to the margins and to search for specific topics or pages.

"Students who step in front of us in class are multimedia types of people," says Robert Christopherson, professor emeritus at American River College in Sacramento, Calif., whose fourth edition of "Elemental Geosystems" is one of the Pearson texts going online. "In my class, I used a multimedia approach, and my textbooks need to be multimedia as well."

Yet analysts say Pearson’s new strategy could put pressure on margins, given the profitability of college publishing, and maintain that any Web-based strategy carries piracy risks despite the protections. The biggest challenge may well be the academic community, which has always guarded its turf jealously. Making textbooks available online won’t have an impact if professors refuse to use them.

"The publishers are going to have to work closely with the academic community," warns Kosmo Kalliarekos, senior partner in Parthenon Group, a consulting group based in Boston. "There will be early adapters, and there will be laggards. The question economically is if publishers can support two competing business models" — one based on the Internet, another that relies on warehouses, printing presses and a national distribution system.

Some publishers already have introduced Web-based interactive textbooks. Judy Fowler, president of Holt, Rinehart & Winston, part of the Harcourt Education Group owned by Anglo-Dutch publisher Reed Elsevier, says she currently has 344 books available online. The books, for grades six through 12, all are interactive to varying degrees, and Ms. Fowler says publishers may underestimate the costs associated with a fully operational interactive business.

"It’s expensive to maintain systems in all time zones," she says, and there are also investments in compression technology and buying digital rights. "We’re talking about a hefty amount of money."

Write to Charles Goldsmith at [email protected] and Jeffrey A. Trachtenberg at [email protected]

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