The massive disruptions in education caused by Covid-19 would seem to add to the challenges already faced by many publishers in the K–12 and higher education markets. With most still uncomfortably straddling print and digital distribution, confronting business model disruptions from textbook rentals and open educational resources, and serving economically fragile markets, leading players were struggling financially before the pandemic; debt-heavy McGraw-Hill Education and Cengage received significant credit downgrades earlier this year, following the collapse of their planned merger.
As in other areas, though, the pandemic has accelerated some positive trends in both education and educational publishing. Educational institutions are widely considered ripe for reforms and innovations that education technology is poised to facilitate—and educational publishers’ years of investment in digital solutions are being rewarded.
Few sectors of the economy have been more thoroughly impacted by Covid than education. Both the K–12 and higher ed sectors have seen wrenching shifts to their modes of operation. Both face potentially drastic cuts: K–12 from impacts on state and local government resources, and higher ed from students’ reluctance to pay full tuition fees for virtualized educational experiences, deferred enrollments, likely reduced support to public institutions, and reduced numbers of (full-fee-paying) international students.
And these new problems—likely to continue even after the distribution of vaccines—bring new urgency to a litany of legacy challenges. A pre-pandemic report by the UN’s Education Commission found that 90% of children in low-income countries fail to master basic secondary-level skills, as do 50% in middle-income countries and 30% in high-income countries. Higher ed, too, was already facing significant challenges from rising costs and student debt, skill gaps for graduates entering the modern workplace, and serious concerns about postgraduation unemployment and underemployment. The conditions for change in educational models clearly are in place.
While digital solutions and hybrid models of classroom and online learning have been gaining ground in schools and higher ed institutions, the pandemic’s forced experiment with online instruction has lowered the psychological barriers to change among parents, students, faculty, and education leaders. What if building and maintaining bricks-and-mortar schools could be partly substituted by investments in digital infrastructure and training (and taxpayer relief)? What if demand grows for the choice of in-person vs. online learning? What if costly residential-learning degrees could be supplemented with a hybrid certificate that is accessible to more students, and facilitated by a digital ledger allowing students to certify their range of educational credentials to colleges, employers, recruiters, and others?
As if to anticipate these new forces of change in their markets, educational publishers, particularly in the higher ed market, had already begun a transformational shift away from sales of textbook titles toward all-inclusive subscription content bundles and cloud-based services. Covid has simply accelerated the digital trajectory.
Pearson, which in 2019 announced that all future updates to 1,500 textbook titles would occur digitally, has been the most aggressive. While it saw an overall sales decline of 14% in the first nine months of 2020, it recorded year-over-year growth of 14% in its Global Online Learning segment, and 41% enrollment growth in Virtual Schools.
Higher ed competitor Cengage, with its strategic focus on digital, affordability, and service, saw digital fiscal first-half sales growth of 7% on a unit increase of 16%, more than compensating for print declines, and a 19% increase in subscriptions to its all-in-one Cengage Unlimited offering.
Sales of McGraw-Hill’s Inclusive Access subscription model grew 43% year over year in its fiscal second quarter, helping drive double-digit increases in overall digital billing that also more than offset print declines.
And K–12-focused Houghton Mifflin Harcourt saw 12-month billing for its cloud-based services up 147%, to $110 million, with its Ed platform up 388%. The company also announced its intention to exit consumer publishing to become a pure-play education technology provider.
Overall, the Covid era has seen almost across-the-board improvements in net income and balance sheets in educational publishing. In addition, education technology ventures saw strong investment in the first half of 2020: $803 million invested across 61 deals, according to an EdSurge database of publicly disclosed funding deals.
As education publishing tilts more decisively toward digital solutions, we can expect to see more strategic deals in this area. And the ongoing transformation will provide a case study in digital change that other sectors of publishing—including trade publishing, with its own dramatic structural changes underway—would do well to observe.
Editor's note: After this story was filed, Cengage received an upgrade from Moody's, which moved its rating to stable from negative. Part of the reason for the upgrade was higher digital adoptions.
Steve Sieck is president of SKS Advisors, a consulting firm serving publishers and information services providers, and a partner in Publishing Technology Partners.