Cengage: Time to Disengage?
March 25, 2013
Thomson Reuters in “Cengage Learning Hires Restructuring Advisers” reported that a former Thomson property is arranging a modest infusion of cash. “Modest” in this context is about $430 million, which is nothing when compared to the cost of a modern text book. (“See Textbook Prices Are Inflating Even Faster Than Tuition Prices: New Boston University Classifieds for Students Makes Buying Textbooks More Affordable.”)
Cengage used to be Thomson Learning, a sprawling collection of publishing companies. Some of the firms had traditional textbooks; others had combinations of traditional textbooks and electronic versions. My recollection is that the technical infrastructure of the original Thomson Learning was quite diverse. “Diverse” publishing infrastructures in the same organization add significantly to the costs of doing business. “Diverse” is also a stuck brake on innovation because repurposing content is time consuming and labor intensive. Prior to spinning off Thomson Learning to Apax Partners and Omers Capital Partners, Thomson’s senior management were focusing their considerable talents on cost efficiencies. . I assume that the technical infrastructure issues have been resolved.
Debt can be a burden as this illustration from Shape Home Loans suggests?i Does debt enhance agility or is it a financial play disconnected from structural changes such as those described in my “Gadzooks, It’s MOOCs: The Fuss over Open Source Learning” article?
One item in the Thomson Reuters news release caught my attention:
…the company said it had borrowed $430 million, almost all of its remaining credit facility to ensure its businesses have the cash they need. Stamford, Connecticut-based Cengage has a $1.5 billion term loan that matures next year and a total of $5.3 billion of debt as of Dec. 31.
Several observations:
First, this type of cash crunch in publishing is likely to become more common. I wrote a story for Online Searcher about the impact of online learning. There is also a chorus of “if you are smart, you can skip college” echoing around Kentucky. What if the online learning and the “you don’t have to go to college” blend? Companies depending upon the traditional purchasing patterns in education may find that new revenues are not sufficient to keep up with old revenue losses.
Second, the spillover from a Cengage-type of problem will have cascading effects. Examples which come to mind are revenues flowing to such organizations like Ebsco Electronic Publishing, ProQuest, and Wolters Kluwer. These companies are in the education food chain. If Cengage flu becomes contagious, these firms will face some additional financial challenges.
Third, the authors who provide content to the textbook giants have to be paid. With the shift to online courses, some of these authors may take their “fame” and their content and go a new direction. It is now possible for some textbook superstar authors to try to become celebrities. If Google needs knowledge, the company just hires the superstar. Won’t the same approach become possible in the online learning space? Maybe an existing textbook company will corner this market? I am not sure traditional textbook companies have the agility necessary to pull off a slam dunk.
Fourth, the online services like Thomson Reuters’ WestLaw and Reed Elsevier’s LexisNexis may also feel the impact of a shift. On one hand, these systems could gain new content from disaffected textbook publishers and, therefore, more revenue pulling information. On the other hand, traditional online services have been caught flatfooted by the surge in online educational content and may be too late to ride the new revenue train.
Net net: Is it time for customers of Cengage to disengage? A larger question is, “Will the professional publishing and professional online services be able to adjust to yet another sapping of their life blood?” Changes are coming. Many of these shifts will not be gentle, kind, or slow I fear.
Stephen E Arnold, March 25,2013
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God, I hope so.