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Pearson bets on direct-to-student subscription shift

Pearson PLC updates

Pearson, the educational publisher which has faced pressure for years over the rising cost of college textbooks, is today launching an app offering US students access to all 1,500 of its titles for a monthly subscription of $14.99.

The launch, which came as it announced a better than expected rebound in profits in its half-year results, marks the next step in a strategic shift under Andy Bird, who became Pearson’s chief executive last October.

Bird has described Pearson as an “institutionalised” company focused on sales to schools and colleges and pledged to transform it into a direct-to-consumer brand.

The former chair of Walt Disney International hopes the all-you-can-eat app will create a relationship with students, establishing Pearson as the go-to brand for life-long learning from childhood to the workforce.

But after years of disappointing digital investments, Pearson must face down scepticism about its consumer appeal and competition from innovators as it attempts what in other sectors has been a painful shift to subscription models.

Pearson’s half-year results, published on Friday, showed early signs of Bird’s strategy paying off, with a significant recovery from last year. Headline sales increased 7 per cent to £1.6bn, and adjusted operating profit recorded at £127m following a loss of £23m.

In an interview before Friday’s results, Bird likened Pearson’s consumer pivot to music and film industry’s move to streaming content that gave platforms deep insight into individual consumer tastes. 

“Essentially we’re going to move from the ownership to the access model, just as the music industry moved from the ownership of a song to Spotify and iTunes,” he told the Financial Times. 

Whereas Disney once released films to an audience with which it had no direct connection, he added, “with [streaming service] Disney+ they know everyone who watched Black Widow and they start to create that relationship”. 

Users of the Pearson+ mobile app will have the option of paying $9.99 a month to access a single textbook for a minimum of four months, or paying $14.99 a month for the entire Pearson library.

Both prices represent a stark discount to the current list prices for Pearson’s textbooks. A hardback edition of Campbell Biology, for example, is listed for sale on Pearson’s website at $223.99. 

Decades of inflation in the price of college textbooks have expanded the US course materials market to $3bn but brought growing hostility to its leading publishers. Pearson was last month one of several accused of conspiring to eliminate competition and raise prices, in an antitrust lawsuit dismissed by a US judge.

Rocketing prices have also seeded a thriving market for second-hand textbooks, and innovators have sought to connect that demand to new products targeting students.

Chegg, which found early success as a textbook rental service, now offers sometimes controversial student services such as answers to course questions for $14.95 a month. Founded in 2005, it now has a bigger market value than 177-year-old Pearson.

Publisher Cengage in 2017 launched a subscription to its textbook library for $69.99 a semester and $199.99 with additional homework help.

Bird said there were “very interesting” opportunities to bundle access to the Pearson+ app into other services used by the 10m college students Pearson reaches each year, much as streaming platforms have struck deals to offer services like Spotify or Netflix for no extra cost.

The app’s rollout on US college campuses this autumn also hopes to build relationships with student consumers who will return to Pearson as they “reskill” and “upskill” during their working lives.

Thomas Singlehurst, an analyst at Citi, said the clearest benefit of the app could lie in building a customer base and a digital storefront for these potentially much more lucrative lifelong learning products.

“What they’ve clearly tagged on to is companies like [online course provider] Coursera building these big databases of registered learners, and the value that has further down the line,” he said.

But he remained cautious about Pearson’s ability to become a Netflix of education. While the plan could work if students required only Pearson products, it jarred with the reality that most were prescribed materials from many publishers, he said.

“The point with Netflix is it offers really tremendous value for money for a huge choice . . . That’s not the purpose of college textbooks — you need specific texts for each course.” 

Some college administrators are also suspicious of models that give privileged access to one publisher.

Eddie Watson, associate vice-president of pedagogical innovation at the Association of American Colleges and Universities, said some lecturers would push back in favour of open access models, including a range of publishers.

“Maybe the access agreement, or pressure from students with subscriptions, means faculty are compelled to go for a textbook which isn’t necessarily the best for the course,” he said. “The risk is it precludes other options, that might be more open and more affordable.”

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