Cengage and McGraw-Hill call it quits

pen left sitting on documentOn Monday, May 4, McGraw-Hill and Cengage separately made public the termination of their merger agreement that was announced just a year ago on May 1, 2019.

Both releases state that the decision to terminate was mutually reached, and both noted that the two publishers will part ways without financial liability to one another. McGraw-Hill CEO Simon Allen cited as the main reason for the termination that “…required divestitures would have made the merger uneconomical.” The Cengage announcement reflects that rationale and further asserts that the termination came about “due to a prolonged regulatory review process and the inability to agree to a divestitures package with the U.S. Department of Justice.”

During a conference call following the announcement, Cengage CEO Michael Hansen and other senior executives reiterated the main points about the termination of the merger, sought to refocus attention on the company’s plans to move forward with its current strategies, and discussed how the current pandemic crisis may be expected to impact the educational resources market. Given the many uncertainties of the current situation, they were careful to emphasize that their remarks could not be considered ‘guidance’ for investors on expected financial performance of the company. There was considerable focus on how they have sought to shore up the liquidity position of the company, primarily through staff furloughs and compensation reductions, with some production cost reductions and government-provided tax deferrals as well.

The Cengage leadership also asserted that their pre-merger introduction of Cengage Unlimited will remain a cornerstone pricing approach for the company as it moves forward. They believe the aggregated database of textbooks—made available to students for a flat fee per semester—will succeed both in lowering the costs of textbooks for students and increasing Cengage’s market share. The online product positions them well to take advantage of an educational marketplace that may be moving quickly towards greater use of online learning resources. They also noted that during the COVID-19 pandemic, Cengage Unlimited has been made available for free, and some 300,000 students have accessed the product since mid-March. McGraw-Hill has also made some of its online products free during the crisis.

Turning to the TAA community for reactions, what quickly becomes apparent is the invisibility of authors in these very important considerations of market consolidation, dissolution of mergers previously announced with fanfare, and approaches to content delivery and access pricing. ‘To merge or not to merge’ is not the question that seems to be on top of authors’ minds.

June Parsons, chair of TAA’s Publishing Practices Committee and Cengage author, recognizes that Cengage may be “well positioned for digital, remote instruction,” but also notes that the organization has experienced a dramatic shift in focus from the merger to the COVID-19 pandemic. She speculates that “because Cengage anticipates a drop in enrollments north of 20%, revenues will be affected and the company, its employees and its authors may have some challenging times ahead in 2020 and 2021.” Parsons also observes that authors are rarely mentioned in Cengage discussions or press releases about strategy.

Longtime McGraw-Hill author and veteran TAA member Jay Coakley is similarly concerned for the well-being of the publisher, yet hopeful that increases in online instruction might offer a way through the present financial challenges of textbook publishing. He writes:

I’m happy for the employees who may not lose jobs at both publishers unless sales plummet. If the shift to more online courses boosts sales of digital texts, it will move the big publishers closer to achieving their long-term goals–no more messy inventory and shipping problems or used book sales and a move toward print-on-demand as the only hard copy product.

The pandemic has arrested the attention of publishers, authors, and institutions alike, causing all of us to begin reevaluating the future landscape for education and educational resources. What seems clear is that the merger or non-merger of two important publishing entities in our environment is not the most pressing question before us. At least from authors’ perspectives, many of their concerns and questions remain the same: Will my publisher thrive or fail as it grapples with new business models and content offerings? Are publishers signing new authors and planning for new editions of existing books? Will they continue to focus on high-quality texts with proven pedagogical value? Do their business models support fair compensation and independent authorship?

Let us hear from you with your views and questions about the state of textbook publishing and authorship, and how you expect educational resources to evolve as institutions grapple with post-pandemic education.

Links:

Original Cengage/McGraw-Hill merger announcement from May 2019

May 4, 2020 Cengage merger dissolution press release

May 4, 2020 McGraw-Hill merger dissolution press release


Michael SpinellaMichael Spinella is Executive Director of the Textbook & Academic Authors Association (TAA). He can be reached at Michael.Spinella@TAAonline.net.