Publishers to use digital textbooks to kill resale market

More details are emerging about Apple’s education announcement on Thursday at the Guggenheim in New York City.

The Wall Street Journal reported that Apple “is expected to unveil textbooks optimized for the iPad and that feature ways to interact with the content, as well as partnerships with publishers.”

WSJ specifically mentions that McGraw-Hill, Pearson and Houghton Mifflin Harcourt are among the education-publishing companies most likely affected by an Apple textbook announcement but stopped short of linking the titans of textbook publishing to Thursday’s announcement. WSJ claims via “a person familiar with the matter” that McGraw-Hill has been working with Apple on its announcement since June.

The announcement is a no-brainer. It’s the modernization of textbook publishing and distribution — j ust like Apple did for music, TV shows, music, books and magazines.

Rinse. Lather. Repeat.

It’s quite simple really: publishers will use the iPad as the delivery vehicle and the Apple Store as the cash register.

Publishers I’ve talked to unofficially are anxious to embrace the new technology. The benefits to digital tomes are obvious, including the ability to add interactive features (think instructional video and tests/quizzes), real-time updates, and all the benefits of Internet access.

Textbook publishers are oligopolies with only five firms representing about 80 percent of all college textbooks published: Thomson, McGraw-Hill, Wiley, Houghton Mifflin Harcourt and Pearson. And they’re looking to digital textbooks to increase profit margins and boost the bottom line.

The economies of scale of digital publishing are evident. Publishers are able to distribute textbooks at a fraction of the cost of the dead tree edition because they don’t require expensive resources (paper and ink) and because they cost orders of magnitude less to distribute (the average physics textbook weighs 4.8 pounds).

The appeal of digital textbooks to the consumer is also obvious: they’ll cost less than their paper counterparts and you can carry an almost unlimited number of digital texts in a single 1.33 lb (600 g) iPad.

There’s one part of the digital business model that especially appeals to publishers: lack of resale.

Each semester after a student finishes a class, they can sell their textbook back to the bookstore (often for a fraction of what they paid). The bookstore then slaps a “used” sticker on it and sells it again to another student. That student sells it back, then the bookstore sells it again. In fact, the same textbook can be resold numerous times — cutting the publisher out of the profit entirely.

The cost of developing a new textbook can top $1 million and fifty percent (or more) of its sales occur in the first year after publication. After that, sales drop precipitously as most students move to (cheaper) used textbooks, again eliminating the publisher.

The appeal of etextbooks to publishers is that they can’t be resold. DRM simply prevents it. This means that each semester, each new class of students will be forced, in effect, to purchase new textbooks — which is music to the ears of publishers.

Textbooks publishers are eager to go digital and won’t bat an eyelash at Apple’s 30 percent commission.

Related:

• An Economic Analyis Of Textbook Pricing (PDF, 2005) by Dr. James V. Koch for the U.S. Department of Education is an excellent read.