• December 20, 2014

Publisher's Bankruptcy Filing Comes as Market for Print Textbooks Shrinks

Cengage Learning Inc., one of the nation's largest publishers of textbooks and other educational content, filed for bankruptcy protection on Tuesday, seeking relief under Chapter 11 of the Bankruptcy Code for what it said was about $5.8-billion in outstanding debt. The move will not only reduce that debt but allow Cengage to restructure to support its "long-term business strategy of transitioning from traditional print models to digital educational and research materials," the company said in a written statement.

A partnership led by a private-equity group, Apax Partners LLP, bought Cengage in 2007 from Thomson Reuters for approximately $7.75-billion. That turned out to be too high a price, Michael E. Hansen, the company's chief executive officer, said in an interview.

"They simply overpaid for the business," which overburdened it with debt, Mr. Hansen said. "Then what happened recently was the market came under pressure on the print side."

Print textbooks have increasingly given way to what he calls "core solution products," customizable packages of digital content that include not only textbook materials but learning-assessment aids and other features. Cengage and other major publishers have been investing heavily in such materials. "We are focusing on those products that we believe are very competitive in the marketplace right now," Mr. Hansen said.

The print side of the operation "has seen a pretty steep drop in terms of unit sales," Mr. Hansen said. That has depressed overall performance, and he expects it will be another two or three years before sales of digital products offset that. "Digital growth is strong, but it's off a small base," he said.

Although digital content is gaining ground, many students and faculty members still like print textbooks. The shift toward digital doesn't spell the end of print, according to Mr. Hansen.

"I don't believe the print textbook is dying or dead," he said. "It will have a rightful place in the market. But it is pretty clear that the growth has to be on the digital side."

'Vast Changes' in Textbook Market

That's a sensible assessment, according to Steve Paxhia, president of Beacon Hill Strategic Solutions, a consultant and publishing analyst. With the traditional textbook on the decline, "Cengage is now engaging aggressively in new digital products," he said. "That transition is difficult, but the new strategy should be successful."

Charles Schmidt, director of public relations for the National Association of College Stores, noted how much the market had shifted lately. "The course-materials market has been in a state of flux for several years, with affordability and effectiveness being key," Mr. Schmidt said by e-mail.

In the past three years, he said, college bookstores have "have moved heavily into rental and digital, as well as offering custom print jobs. This results in a variety of formats at a variety of price points, helping them retain market share while keeping course materials as affordable for students as possible."

A bankruptcy filing carries a certain drama with it, and Cengage has been carrying a notable amount of debt, but the pressures and changes that partly drove it to file for Chapter 11 protection are being felt throughout the industry.

Garrett P. Kiely, director of the University of Chicago Press, called Cengage's move "indicative to a certain degree of the vast changes that have occurred in the textbook market."

Those changes include a rise in textbook rentals and "the open-source materials that are being pushed by large states like California," he said. "Some of the trends that caused this are putting pressure on all publishers who publish for an academic audience."

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