Posted on October 14, 2013 in Archive

Cengage filed for bankruptcy – what now?

14Oct

In July of this year, Cengage Learning Inc. filed under Chapter 11 of the Bankruptcy Code in the U.S. state of New York. It’s understood that they were seeking to relieve themselves of about $5.8 billion in unresolved debt. Wow. If these are the big guys, then this should be a big wake up call to all the smaller independent publishers out there. 

According to various news articles, Cengage lists more than $1 billion in assets, and claims to be the second-largest publishers of college course material in the United States today. The company accumulated debt through the initial buyout of Thomson Learning in 2007 and consequent acquisitions such as HighBeam Research, PAL Publications and Houghton Mifflin College Division.

Considering some of the above companies, Cengage obviously had a fairly steady hold on the college and university textbook market in the U.S. up until recently, but something isn’t right if they declared bankruptcy. If they want to continue operating, it might be time for a change.

If I might be allowed to digress from this topic for a moment – in general, the exorbitant prices of textbooks would be the first thing I would change. In the U.S. alone, tertiary level education textbook prices have risen 812% since 1978.  Often publishers will annually release a “revised edition” that costs more than the previous edition, but the information inside is basically the same. Justifiably, some titles require more specialized information than others and that means higher development costs, and that’s fair enough – but an 812% cost rise in 35 years? That’s more than double the inflation on the house market in the same time.

According to the written statement released on the Cengage website, filing for bankruptcy means that they can now restructure their business in order to support their “long term business strategy of transitioning from traditional print models to digital educational and research materials”. So basically, they are cutting their losses with print and fully investing in digital content and textbooks as the way of the future.

Liquid State - Cengage - stack of books

With technology advancing in the classroom, students are more likely to present their teacher with an Apple Mac than a fruity apple.

Many university and educational publishing houses seem to be heading this way – I’m not referring to the bankruptcy, but the digital content part. Massive open online courses (which I talked about in a previous blog) are dropping the involvement of textbook publishers altogether in favour of online content such as videos and online exercises.

Other publishers are now opening up to the concept of renting textbooks, both physical and ebook forms. Adaptive ebooks are also gaining some notice from the publishing community. This article provides some interesting alternatives, if you’d like to learn more.

“Core solution products” are the way to go, according to Cengage CEO Michael Hansen. This term refers to customizable digital content packages that have a multitude of features – textbook material and learning assessment aids, to name a few.

Even with the above description, that’s still a very vague mission statement, one that probably gives the company some wiggle room in case the current textbook market changes any time soon.

Publishers are increasingly being turned into technology companies, especially educational publishers aiming to keep up with the rise of technology in the classroom and in the study habit of the average student. That’s not to say that the print book will disappear altogether from the market of college and university level textbooks, but Cengage should be held up as an example of how most publishers need to get up and rethink their current business strategy – lest they find themselves in billions of dollars in debt, too.