The struggle against textbook prices

It is no surprise that the price of college tuition has increased dramatically over the last few years. With the Great Recession, many public colleges suffered from a severe cut in funding from their respective states. Prices were hiked, followed quickly by a rise in tuition in private colleges. Unfortunately, however, tuition prices are just the first thing that students have to worry about. Other college related expenses – housing, food, and transportation for example – have also seen drastic increases in prices. What is most alarming, however, is the dramatic increase in textbook prices.

Technological advancements in the last decade have allowed for new ways for students to obtain textbooks such as the advent of e-books, online retailers, textbook rental services, and free textbook databases. Furthermore, there have been initiatives taken by the government on both the state and federal level to combat textbook prices such as the American Recovery and Reinvestment Act. Despite all of this, however, textbook prices continue to rise. What is the main cause for increasing textbook prices? What sort of disruptions – if any – is the textbook industry seeing, and how is that affecting them?

BRIEF OVERVIEW OF THE TEXTBOOK INDUSTRY

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Historically, textbooks in the US have been high – and prices of textbooks have only risen over the last 30 years. According to a study conducted by The American Enterprise Institute’s Mark Perry, the prices of college textbooks in 2013 have increased 812% since 1977. (In comparison, the Consumer Price Index – a standard measure for inflation – has increased by 250%). In fact, the rate at which textbook prices have increased is higher than all other expenses related to college – including college tuition. The Bureau of Labour Statistics reported that from 2006 to 2011, the cost of textbooks increased by 38.6% while the cost of tuition had increased by 32.2%.

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Rising textbook prices – along with rising tuition costs – have long been a concern. According to the National Association of College Stores (NACS), students spent an average of $370 on course materials during the fall 2013 term. Furthermore, “40.6% of students said they usually pay for course materials with grants, scholarships and student loans during the fall 2013 term. Financial assistance covered, on average, 57% of the costs of the course materials for those students.”

However, in a survey conducted by the U.S. Public Interest Research Group, “7/10 students stated that they had not purchased a textbook at least once because the price was too high.” A significant percentage of students receive financial aid or student loans – however it is evident that this aid is not nearly adequate enough to cover the full cost of college – both tuition and textbooks. The gap between the cost of textbooks and the amount of aid a student receives and subsequently, their ability to afford the textbooks is steadily increasing.

BREAKDOWN OF A COLLEGE TEXTBOOK: WHERE IS YOUR MONEY GOING?

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There are several reasons that help explain the expensive nature of textbooks. First of all, printing and publishing any book is a hugely expensive process. Textbooks require many additional costs compared to a novel, for example. Textbooks deal with highly specialized material. The content of any textbook is often the result of extensive academic research that also needs to be constantly updated in subsequent editions. Furthermore, many textbooks have multiple authors – all of whom the publisher needs to pay a copyright fee to. This fee is increased exponentially in textbooks like literature anthologies which contain the works of dozens of different authors.

Textbooks also often come with supplementary materials – online-access codes, DVDs, or subscriptions – the costs of which are bundled in the cost of the book itself. Furthermore, traditional brick-and-mortar bookstores (such as the ever-present college bookstore) can be expensive to run. Rent, utilities, shipping in the supplies and salaries are just a few of the costs that bookstore owners have to worry about. It is no surprise that these costs often trickle down for the consumer to pay in the form of a more expensive textbook.

NACS reported that, on average, new textbooks in college bookstores are sold with a margin of 21.1% (the average difference between the cost price and the retail price of a textbook) After all expenses have been paid, “a college store makes less than 4 cents on every dollar’s worth of new textbooks sold.” For the majority of cases, this money goes back to the school in order to pay for financial aid, scholarships, and student programs.

If the profit margins for college bookstores are so small, then it clearly must be the publishers or the authors who are reaping the benefits of soaring textbook prices. The textbook industry is highly oligopolistic in nature. As mentioned previously, the subject material in textbooks are highly specialized and require extensive research; as a result, there are substantially fewer options when choosing a textbook in a specific field of study as opposed to a novel of a particular genre. Furthermore, there are often no alternatives offered to a textbook which is assigned for a class – the student may opt out of buying a book but at the cost of their grades: Nicole Allen, program director for the Scholarly Publishing Academic Resources Coalition, an alliance of academic libraries noted that “Publishers have been able to drive up textbook prices because students “have to buy whatever textbook they’ve been assigned.” As is the case with any other scarce good, when demand exceeds supply, the prices of the good increases.

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The actual textbook industry is dominated heavily by just a few players. According to a report conducted by the Council of Economic Advisers at the Whitehouse, there are just three companies which almost completely control the textbook publishing industry: Pearson, McGraw Hill, and Houghton-Mifflin. Between the three companies (including smaller companies that they own), they control over 85% of the textbook market. In 2013, for example, Pearson reported £5,690 million in sales and £736 million in adjusted operating profits. The North American Education division was responsible for the vast majority of these figures. In sales, the North American Education division reported £2,779 million, and in profits £406 million – accounting for 55% of Pearson’s overall profits. In addition, McGraw-Hill’s profit margin was 25% in 2012.

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Despite these impressive figures, these companies are actually showing some struggles in maintaining – let alone improving – profits in the educational sector. In February 2014, The Wall Street Journal reported that Pearson “issued a profit warning amid continuing weakness in its core U.S. education business.” The metric for North American education “fell 24%.”

According to Chief Executive John Fallon, “Our biggest business, North America, is facing the most difficult trading conditions in a decade.” The company blamed the tumultuous education sector in the U.S. as well as the “short but difficult transition” its business faced as it transitioned from print to digital.

Clearly, traditional textbook publishing companies are feeling pressure from the new technological age and various alternative methods of textbooks. But what are these alternate methods, and how popular are they among students and professors?

ALTERNATIVE METHODS

Surprisingly, the most disruptive force in the textbook industry is not the e-book, but the market for used textbooks and textbook rentals. This doesn’t mean that the digital market is not significant, however. According to Forbes, e-book sales make almost a quarter of all consumer book sales. Digital textbooks – especially in K-12 – have slowly become more accepted and more widely adopted by schools, with more than “20% of all schools saying they now use digital textbooks and another 37% saying they will within the next five years.”

Recognizing the gradual and inevitable shift to digital textbooks, in 2012, Pearson, McGraw-Hill and Houghton Mifflin Harcourt announced that they would be partnering with Apple to include textbooks in Apple’s ‘iBookstore.’ These e-books would not be merely digital versions of the analogue version; instead, the textbooks will be designed to be interactive and multimedia to utilise features that the iPad offers and create a different learning experience.

However, these statistics do not directly translate to college. According to a study conducted by the research firm Student Monitor, only “2% of college students surveyed said they bought all of their textbooks in digital form, and only 14% said that they had classes that required online texts.” The NACS reported that “e-textbooks made up only 2.8 percent of total U.S. textbook sales in 2010.” Furthermore, a study conducted by the non-profit arm of the Pearson Foundation showed that “55% of students still prefer print over digital textbooks.”

There are several factors which account for college students’ ambivalent feelings towards e-books. Many students who were surveyed stated that they preferred the hard-copy so that they could highlight passages and take notes in the margins (features which are available in many e-books.) Most importantly, however, was that e-books are not significantly cheaper than the print copy. Forbes investigated the differences in the prices of textbooks using the example of “Chemistry” published by Brooks/Cole. According to Forbes, “the new book costs $205. For a used copy you’ll pay somewhat less than $155, and be prepared to fork over $167 for the digital version.” Renting the book however, costs a mere $65.

The internet has been instrumental in facilitating the growth of the textbook rental industry. For one, the internet allows students to easily search and compare prices for textbooks. Several key players such as Amazon, Chegg, and TextbookRentals offer textbooks for rent at a substantially lower cost than buying digital or used versions of the books. NACS reported that students can expect to save between 35% – 55% when renting a textbook, and that about 3,000 campus bookstores now also offer this service (albeit at a higher cost) The vast amount of online retailers also enable students to easily sell and buy used textbooks from each other, further undermining the profits of the publishing companies.

The textbook rental industry is clearly growing. While they charge students a significantly lower price compared to buying a textbook outright, the cost still adds up. There are several initiatives that aim to absolutely minimize the cost to students and relieve some of their financial burden.

NON-PROFIT AND GOVERNMENT INITIATIVES

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Boundless, based in Boston, Massachusetts, is a company which creates both free and inexpensive textbooks and distributes them solely online. Boundless has online textbooks in over 20 college level subjects, and offers these books for free. Paying $19.99 will get you the premium service, which includes “interactive study materials for each subject, including flashcards, quizzes, and summarization to help students retain information. It will also give students access to enhanced content and the native mobile apps.”

They also recently released 18 textbooks under the Creative Commons Attribution-ShareAlike (the same license used by Wikipedia.) This will allow students and professors to use, change, and share the textbooks for free. Other similar initiatives include Flat World Knowledge, OpenStax College, and Bookboon.

The Michelson Twenty Million Minds Foundation supports “non-profit initiatives, for-profit start-ups, and policy thought leaders that utilize disruptive digital technologies to create a “higher education 3.0” system that can sustainably increase access, affordability, and student success.”” They provide free textbooks on a limited range of subjects, as well as a search engine to find the cheapest new, used, digital and rental textbooks online. Other non-profit organizations which fund similar initiatives include The Bill and Melinda Gates Foundation, The William and Flora Hewlett Foundation, and the Laura and John Arnold Foundation.

The idea of creating a database of free, open and high quality textbooks have also been supported by the government. In 2012, Gov. Jerry Brown signed legislation which would “fund the creation by California universities of 50 open textbooks targeted to lower-division courses.” The textbooks would be hosted by the California Digital open Source Library, with the California Open Education Resources Council overseeing the book approval process. The books would be free to download or a physical copy could be purchased for $20. Similar initiatives have been made in Utah, Florida, Main and Washington State.

In November, 2013, Senators Durbin and Franken introduced “The Affordable College Textbook Act.” This piece of legislation would “authorize the Secretary of Education to make grants to institutions of higher education to support pilot programs that expand the use of open textbooks in order to achieve savings for students.” The main goals of the act are to help “achieve the highest level of savings for students, expand the use of open textbooks at other IHEs, and produce open textbooks that are of the highest quality.” Unsurprisingly, such initiatives have been met with some resistance from the major publishing companies who claim that these actions interfere with the free market.

FUTURE OF THE TEXTBOOK INDUSTRY?

It is clear that textbooks will remain an integral part of a college education, despite the rising costs. Unfortunately, the mind-set of today that “everyone should have and deserves a college education” has justified these skyrocketing prices. However, the textbook industry is shifting. The initiatives to cut the costs of textbooks are still fairly recent, and its effects haven’t been fully realised yet. The continued rise of textbook prices suggests some sort of bubble; the intrinsic value of a textbook has not increased, so the prices must be a reflection on a tumultuous industry. It is possible that in the future, textbooks will be free or a minimal cost to a student’s education – or that textbooks will settle at a constant yet expensive price. In any case, if textbooks and indeed tuition continues to increase at the same rate at which it has over the last few years, it is not clear whether the investment in one’s education remains a sound and smart choice.

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