When Format Falls Over: Cengage and McGraw-Hill Education
Systemic change in sectors of the data, information, and analytics economy — we’ve seen them before, and we’re seeing it play out in textbooks. Just like news before it, or the emergence of the rental model and the likes of Chegg, the profits of yesteryear are hard to replace. What’s that saying — print dollars evolving to digital dimes? It happened in news, is happening in scholarly communications, happened in encyclopedias and textbooks, and is happening again.
The announced merger of McGraw-Hill Education and Cengage seems to be a marriage of convenience as opposed to one made in heaven. The blended print/digital hybrid strategy isn’t playing out, and there’s no clearly delineated strategy for moving forward with digital alone. Getting users — students, buyers, or courseware-selecting teachers — to line up also isn’t playing out.
The Cengage all-you-can-eat model looks promising but is not yet proven, and it’s unclear whether anyone will ever get students to dictate or suggest courseware to teachers. This is not pharma marketing to consumers, with consumers bringing suggestions to doctors; it’s unlikely this model will translate into education. It’s slow moving: Teachers and professors rule the courseware roost, and it’s clear that if Cengage or McGraw-Hill Education had identified a breakout growth strategy, they wouldn’t have ended up at the altar. The profits of the businesses are decent, especially McGraw-Hill Education, and the brand is renowned. But it’s rumored both companies had cash constraints, and PE couldn’t seem to get their prized exit to public markets — or anywhere else — so here we are, with an announced merger.
The major players are being reduced to supplying courseware elements, digital infrastructure, and data services and solutions. These are all valuable but unable to create the models of the textbook “ka-ching, ka-ching” of yesteryear.
Last week, HMH announced missing its quarterly sales targets by 4% — more due to loss of share than print-to-digital transformation, according to our lead analyst for the sector, Kate Worlock. A decline is a decline, however, and owners don’t like them. It’s a shame that in this era of an insatiable thirst for learning, faster and faster knowledge obsolescence, and learning English being a necessity in emerging regions, that the major education companies cannot find growth. There’s something wrong with that picture and, if this merger is approved, what we’ll no doubt face in the next few years is cost-cutting of $300 million and some attempt to get “scale” into the business. That’s not a strategy, but it’s what’s going to be required.
Meanwhile, we still hear that the education system in America, in particular, is broken. It appears that part of its supply chain is as well. We aspire to learning and outcomes one student at a time, but as a friend of mine who’s in the middle of finding a public school for her twins (one with learning disabilities) said: “The system is so broken and it’s going to take an entire generation to repair. Meanwhile, we’re losing an entire generation of learners.” What a catastrophe that is.
Too many companies get glued to their formats. We saw it in the dismantling of encyclopedias and the news industry, and we saw it in the print-to-digital migration in B2B. The survivors are now thrivers. However, it’s unclear who will be thriving in the education solutions ecosystem any time soon.