Cengage ‘will honor all contractual obligations’ with authors under Unlimited model
Cengage’s Chief Product Officer Fernando Bleichmar said the company will continue to honor its contractual obligations with authors under the Cengage Unlimited model, but that the contract they have with authors generally grants them the discretion to publish the work in the way they think best helps drive the sales of those titles.
“We have spent significant time with our internal teams making sure the contracts allow us to do the Unlimited model,” he said. “The contracts are established in a way in which the publishers have the discretion of evolving the model that benefits both the authors and the publisher, and our contracts allow the creation of different models. We are going through all the details in the contracts, having those conversations with our authors to make sure they are comfortable with the Unlimited model as we move forward.”
Bleichmar said that they see the Cengage Unlimited service as a “bundle”, and royalty payments associated with the service will work very similar to those of other products the company has created around bundled materials. “The student will choose a series of titles over the duration of the subscription,” he said. “Those titles in essence constitute a bundle that the students use for which they pay a certain amount. The details of how that bundled application will work is the part we are making sure we are taking the time to get right. Not just that it is structurally sound, but so that all the infrastructure and systems are in place to give confidence to our authors for how we are handling payments.”
The company will also be offering free print textbook rentals to students as part of the subscription, and Bleichmar said they consider the rental part of the bundle and included in the price. “It works similar to a ‘standalone’ bundle,” he said. “The way it works today is that it has a price as a standalone clause, which is usually in $15, $20, or $30 increments, and the royalty is calculated on the standalone and then a royalty is calculated on the print. So it [the free textbook rental under Cengage Unlimited] will work exactly the same way.”
Bleichmar says they will be working through exactly how they will honor authors’ contractual obligations through “deliberate, one-on-one relationships and conversations” with their authors over the next several months: “Since we are planning to launch Unlimited in August 2018, the first time that we will pay author royalties on Unlimited will be in February or March of the next year. We are starting conversations with authors very quickly, but at the same time, we want to make sure that we take the time to get it right and to talk to them about why we are doing it, which I think is very important, and remember most of our authors are also faculty so they understand what we are trying to do, and they understand the pressure students have on affordability, so the ‘why’ is very important, and that’s the beginning of the conversation.”
Because they are trying to make the service as valuable as possible for the student, said Bleichmar, their intention is to have all Cengage titles included in the subscription while still honoring their contractual obligations with authors. “We will be working with each of our authors and in cases where there are certain reasons it is better not to include those titles, we will do so.”
Stephen Gillen, an intellectual property attorney with Wood, Herron & Evans, and a member of the TAA Council, said that for the most part, Cengage has the right in its contracts to make this change in how it offers the works it publishes: “The contract templates that they use certainly give them this right. That said, there may be individual authors out there who have in their contracts specially negotiated approval rights for this sort of change and I think they will have to be vigilant if they want to enforce these rights because I suspect Cengage is not able to track all of its contract variations with 100% confidence.”
Juli Saitz, senior managing director of Ankura, and also a member of the TAA Council, said she agrees with Gillen that many of the contracts she has seen allow Cengage to distribute author’s works in all forms, however very few contracts address how to calculate royalties under this new model: “The contracts I have seen are very old and talk about royalties on sales of copies of the book. Many contracts do not even address royalties on derivative works (i.e. Cengage courseware) or electronic products. As an auditor, I would take a very hard look at their methodology for calculating royalties on a case by case basis.”
Cengage authors were not directly informed of the company’s plan to launch an unlimited service until two days after the public announcement, and many could not reach their editors or product managers for more information. Those product managers who were reached could not provide any details on how authors would be compensated. Bleichmar said this was done deliberately to maintain the company’s competitive advantage, and because they felt they had the time to have those conversations with their authors.
“We obviously launched very very recently,” he said. “The product management organization, the leadership of the legal organization, and the management of the systems organization have been working on this for a while. The individual product managers have been informed very recently and now that the whole communication plan is being put in place, it is natural that there will be a little bit of lag and while we know that creates a little bit of uncertainty, again if you think there is a year and a half before the first [royalty] payments, and there is nine months until the service is actually sold, that’s why we feel comfortable taking two or three weeks to make sure that all the communication is taking place. And those communications are starting as we speak.”
“Over the first quarter of next year, they [product managers] will begin to have more active conversations,” he said. “We are taking our time to make sure that we do it absolutely right, that the systems are perfectly in place, that we have clarity to our authors about how we are going to do it, and that they have confidence in the systems we are going to put in place for how we are going to measure it.”
TAA President and Cengage author Mike Kennamer said that he reached out to the Cengage Senior Product Manager who handles his titles as soon as he received the email and has not yet heard back from her. “I trust that Cengage will honor both the letter and the spirit of their contracts with authors,” said Kennamer. “TAA will, on behalf of its members, continue to monitor the situation and advocate for its members as circumstances dictate.”
Cengage Unlimited is a new subscription service with plans to offer students unlimited access to its 20,000 titles for a $120 subscription fee starting in August 2018. Under the Unlimited model, students will have access to all ebooks throughout their subscription, said Bleichmar, but will need a course link for courseware such as MindTap, WebAssign, and other digital solutions that identifies their enrollment in a particular course. They are still working through all the ways a student’s subscription usage can be tracked, he says, but “current systems exist in place so that we can look at which ebooks were accessed. On the digital courseware, [tracking] is pretty straightforward. We have all of the information from what we call an ‘activiation’, which is when the student goes into the system and logs in. With ebooks we obviously have mechanisms to track when a student opens and looks at an ebook, both through our proprietary software and through third party usage.” They are also still working through the level of detail they will track, he said: “It won’t be by just adding it to the library.”
Bleichmar said Cengage hopes that this new subscription service will reverse the decline in revenue that both the company and its authors have experienced over the last couple of years – much of it attributed to used and counterfeit products – and drive more incremental growth. “We expect to do this through volume because we are expecting a significant increase in volume, and because our volume is fairly concentrated in key titles, we actually don’t expect there will be that much variability between different titles,” he said. “We do see a situation where the volume will be significantly incremental and tentative, but that will not be for the majority of authors. Because this is a process, we will be working through in detail and explaining it to our authors over the coming months.”
“What drives significant value for Cengage and for the author is winning market share obviously, but also bringing back to the traditional purchasing model the millions of students who have had to choose alternative content, copyright-infringed, or other ways of substitution, because they couldn’t afford the old model at the price point that existed,” he said. “And I think that is the important change we are making and that’s what will create a win-win for authors and for Cengage.”
Saitz said Cengage’s overall royalty expense as a percent of revenue should stay constant, but each author will likely get a much smaller cut in the near term. “If they can force the market to change and adopt more Cengage books and really win on volume, perhaps authors will be closer to where they are presently,” she said.
Gillen said he believes Cengage when they say that they are trying to drive their top line revenue up by increasing market share and by reducing competition from used books and piracy, “and to the extent they are successful at this, authors stand to benefit – in theory, a portion of every $1 that Cengage adds to its top line goes to authors in the form of royalties. But I do think the devil is in the details here and it will be very interesting to see how Cengage captures and tracks the allocation of sales dollars over the array of available titles, what rates it applies to those allocated dollars, and just how transparent the total process is.”
Gillen added: “Neither Cengage, nor any other higher ed publisher I know, has done a particularly good job in recent decades of providing clear and complete royalty accounting information and reports to its authors.”
Said Bleichmar: “At the end of the day, the way we are looking at Cengage Unlimited is that our interests and the interests of our authors are completely aligned. We are ultimately doing this because we expect an economic advantage for Cengage, which would also translate into a better economic advantage for authors.”
TAA’s Publishing Practices Committee is collecting information to help TAA members formulate discussion points. Send inquiries to Info@TAAonline.net.
For more information on the Cengage Unlimited subscription service, and early reaction from authors, see “Authors express concern about new Cengage Unlimited Model”.