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The growth of e-textbooks may finally spell the end of an extortion scheme that has infuriated college students (and their parents) forever: Sky-high prices on textbooks that students are forced to buy to avoid flunking out.
Widespread adoption of e-textbooks is still a ways off, because current e-reader technology leaves much to be desired when it comes to reading and studying textbooks.
However, significant discounts on e-textbooks by publishers should accelerate the use of e-textbooks on college campuses even before the perfect reader is built. This should save college students money, boost profit margins for textbook publishers, and hammer Barnes & Noble and other private companies that currently make a killing in the college bookstore racket.
Calls with publishers, universities, and surveys of textbooks in bookstores and e-commerce sites reveal that:
- Publishers, students, and universities are fed up with large markups by private college bookstores on print textbook sales.
- Publishers are especially unhappy since many students turn to used books that cannibalise profitable new edition sales.
- Large discounts on e-textbooks amount to big savings for students who are increasingly strapped for cash.
- Unlike trade publishers, textbook publishers can set their own e-book prices on Amazon
As a result, with the exception of college bookstores, all stakeholders in the sale of e-textbooks are aligned to keep prices low – from publishers to online distributors to consumers. This should lead to accelerated adoption of e-textbooks at universities.
TEXTBOOK PUBLISHERS UNHAPPY WITH BOOKSTORE PRICING – SETTING MUCH LOWER PRICES ON AMAZON
Textbook publishers have long been unhappy with large markups at college bookstores that in some cases can be as high as 100%. This is a big reason Wiley & Sons negotiated hard with Amazon to set its own prices in a deal struck during Q409.
Textbook publishers are equally upset that students and faculty blame them for the high prices when the stores determine the markup. The National Association of College stores estimates the average textbook profit margin at 22%, but it should be noted they represent the stores.
A review on Amazon indicates that e-textbooks cost anywhere from 10% to 40% less than print textbooks.
THE SHIFT TO E-TEXTBOOKS COULD ALSO LEAD TO HIGHER PROFIT MARGINS
Unlike trade publishers, textbook publishers aren’t overly concerned that lower e-book prices will cannibalise print sales and profits. This is because the used book market is cannibalising new-textbook print sales far more severely.
Used book sales account for anywhere from about 30% to 40% of overall textbook sales, according to data provided by the Book Industry Study Goup. This compares to only 5% to 10% for trade books according to research firm Ipsos.
New print textbooks have become so expensive that many students would prefer to buy a used, older version versus a new updated edition in order to save money. We’ve even heard of students sharing textbooks because they are so expensive. Publishers do not receive money from used book sales.
As a result, e-book profit margins could be higher than print profit margins for many textbook publishers since it’s likely they would sell more new editions at the lower prices.
MANY COLLEGE BOOKSTORES ARE PRIVATE, FOR-PROFIT COMPANIES
Many wonder why colleges don’t cut their students a break and set reasonable textbook prices. The answer is that many college bookstores are privately-run companies that are looking to boost profit margins.
For example, Follett Corp. operates 800 college bookstores in the US, and Barnes & Noble operates 600. Combined, this is about 30% of all college bookstores in the US. There are many smaller companies that also operate college bookstores under licensing agreements. We believe when these are taken into account privately-owned college bookstore penetration is likely over 50%.
Budget cuts are driving more colleges to licence the management of their bookstores to private companies, which should only increase the price of textbooks further in the coming years. We’ve found that college-owned stores do not mark-up the prices of their textbooks as much as privately-run stores.
For example, one university we spoke with with a student body of 20,000 needs to cut its budget by $15 million next year due to a pullback in state funding. The university was told that these cuts would be permanent. We believe many universities are facing similar budget cuts given the weak economy.
Cuts like these are causing colleges to enter into licensing agreements with private companies that eliminate the operating risk while returning a percentage of revenue. These deals typically give the university about 5% to 10% of gross revenue with a guaranteed minimum. This illustrates why:
- Colleges find privately-run bookstores a great risk-free alternative to operating their own store.
- Bookstores feel pressure to keep prices high in order to maintain profit levels.
eTEXTBOOKS PROVIDE HUGE SAVINGS FOR COLLEGE STUDENTS
We surveyed Amazon and a number of college bookstores and found that e-textbooks can cost anywhere from 10% to 40% less than print textbooks.
With about 18 million college students in the US spending about $300 per year on textbooks, this would represent anywhere from $30 to $150 in savings per student annually and between $500 million and $2 billion in savings across the country.
ONE MAJOR OBSTACLE TO ADOPTION RATES – RIGHT NOW STUDENTS HATE E-BOOKS
Students at universities we spoke with currently do not like e-books, primarily citing poor navigation features and only very basic functionality to take notes in margins and mark certain pages as you would when you fold over the corner of a print page.
However, if prices are low enough the potential savings may cause students to take another look. In addition, publishers are working to enhance the interactive features of e-textbooks. The next generation of e-readers could make e-textbooks as functional as print textbooks. And that, finally, would spell the demise of one of the extortion scheme known as textbook selling.
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