# And So It Begins…

According to Reuters:

Houghton Mifflin Harcourt Publishers Inc has reached a deal with more than 70 percent of its creditors to cut $3.1 billion in debt as it faces a lagging textbook market due to drops in educational funding. The publisher said it plans to restructure through a pre-packaged, court-supervised Chapter 11 bankruptcy. The HMH bankruptcy is not just about decreases in education funding, of course. We must give some credit to Kaleidoscope, Open Course Library, the Utah Open Textbook Project, Flat World Knowledge, and others around the world for showing that freely available OER and open textbooks can completely replace breathtakingly overpriced publisher textbooks – and that students learn the same amount regardless. If you could get the same grade using a$175 commercial textbook or a free online (and \$30 or less to print) textbook, which would you choose?

Why are we surprised this bankruptcy is happening? Anyone who’s been paying attention isn’t. The shake up in educational publishing we’ve long anticipated is beginning… and students will be the benefactors.

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• jmartin28

I don’t know that this is even just about textbooks. As more and more GOOD information becomes available for free, I think that a new skill that will emerge as a vital and critical component for any student, will be searching, selection, evaluating, and organising what is freely available. This hasn’t been necessary in the past, because that has been an integral component of the world of  Information Scarcity. I do believe that more and more people are waking up and realising that this isn’t Kansas anymore. HMH has just realised this in a very painful manner.

I think that the idea of producing textbooks online is a lame attempt to keep the educational world the same as it has always been, and simply reproduce what we have always done in a digital format (how about the proliferation of university lectures online). It is time to start considering new models of learning and education

Jesse Martin (Thoughts about Higher Education)

• Leah

And professional writers and editors will be working at Walmart….

Believe me, I know the criticisms. But I’d like some recognition that results like these drastically affect people’s lives.

• Douglas Stein

In textbook publishing there are two models – “polish the author” and “assemble the team”. The former, used in upper-division higher ed and K-12 supplementals seeks an expert with a unique and/or effective approach and then uses editorial resources to polish the work. The latter (used for the big introductory courses and K-12 basals) assembles a team that is sometimes anchored by a “named author or two”. Such a team hacks out the content which is then laden with artwork and gewgaws to make a “pretty” book. Such books often resemble the “technicolor yawn” that results from too much beer at a frat party.

The big basals and intro textbooks also pass through an expensive and exhaustive process whereby permissions are secured for every media element not generated as work-for-hire, ancillaries are farmed out to piecework contracts, and lots of “book production” work is done. The finished goods are stocked for distribution in a warehouse and the publisher waits for the orders to arrive so they can ship out the materials.

The upshot is that this takes lots of capital and incurs lots of risk. Winners subsidize losers and any successful textbook is burdened not only with fixed setup costs, but the costs of books that failed. Hollywood handles the latter by setting up limited partnerships that shield much of the costs (and part of the profits) from the studio. Textbook publishers generally don’t do this and are fully exposed to the costs.

So, what changes in the new regime? Many things. First of all, moving to a distribute-then-print model removes a lot of the warehouse and preprinting costs that the older print-then-distribute model incurs. Next, the production pathways for online materials are far more tolerant to minor errors and changes. You can update materials and therefore don’t have to strain every last nit before releasing a title. The costs tend to rise exponentially as you attempt to drive the defect rate towards zero. Paper publishers have to reach that since they can’t afford to reprint tens of thousands of books. Online publishers can slip an erratum into the text as needed. This isn’t an invitation to be sloppy, but an opportunity to release the text early (and often) to ensure it is effective in helping students learn.

Third, and perhaps most important, experts can write what they know (or know how to teach) best. There isnt’ a burden to build complete texts covering all aspects of a subject. An expert can spend less time writing towards their passion and a good professorm teacher (or even student) can select materials that are edited by peer groups (lightweight and/or social reviews) rather than by heavyweight cost-burdened corporations. DIsaggrgation and reassembly of materials by customers or other intermediaries is the great fear of publishers. They saw how the music industry lost most of its easy profits when they weren’t needed to capitalize the batch production of “albums” (composed of a few hits and a lot of dross). There are a few products where the whole is truly more than the sum of the parts, but those are in the minority.

At any rate, it’s no surprise that HMH burdened by costs from “goodwill”, a failed acquisition by Vivendi, a leveraged buyout by a hedge-fund manager, and a shift in underlying market structure and demand needs to hit CTRL-ALT-DELETE on its balance sheet. It’s certainly possible that this is the moment when they reinvent themselves and redeploy their considerable content assets and expertise through a different business model with a different revenue and cost model. I wish them well. As for the writers and editors, those that add value will also need to reinvent themselves – moving from cogs in the machine to craftspeople. Some can become expert professional development folks helping professors and teachers select and fuse materials and processes into effective teaching. Others can try their hand at authors. In the music business it used to be the case that you toured to promote the album. Now it’s more common to sell or give the tracks to promote the concert. The packaged music become a calling card to introduce new listeners to the music. I expect to see more of an “indie author” market the industry created new ways to discover and preview materials. This is what leads to focused and effective books.

BTW, the first reaction to the post’s title I had was the phrase, “And so it begins… there’s a hole in your balance sheet.” (apologies to the Babylon 5 / Kosh fans out there).

Doug Stein
MemeSpark LLC

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