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Unformatted text preview: SPIN, EXPLANATIONS, BLAME AND QUICK FIXES: AN ETHNOGRAPHIC LOOK AT TEXTBOOK PRICING BRENT D. BEAL Department of Management Lowry Mays College and Graduate School of Business Texas A&M University College Station, TX 77843-4221 Phone: 409-845-4839 Fax: 409-845-9641 e-mail: Brent-Beal@tamu.edu (Submitted to Journal of Management Inquiry, Nontraditional Research, March 29, 1999) ABSTRACT This paper is an ethnographic examination of the way the issue of textbook pricing is perceived, explained and justified within the textbook publishing industry. Industry participants at all levels are aware and, to varying degrees, are self-conscious about the increasing cost of college textbooks. In-depth interviews reveal that participants deal with the high cost of textbooks in a number of different ways: 1) they attempt to justify the cost of textbooks in terms of ultimate value to the student, 2) they attempt to justify their contribution to the cost of textbooks by drawing attention to local market complexities and their own added-value, 3) they blame other industry participants, and 4) they recur to economic rationales and attribute the high cost of textbooks to the workings of the market mechanism. I conclude that no one sector of the industry is contributing more than another to the high cost of textbooks, but that the structural characteristics of the college textbook industry create a situation in which the market price mechanism cannot function properly and in which individual industry participants, in their pursuit of profit, collectively drive up the price of textbooks. 2 The U.S. textbook industry represents an interesting and somewhat controversial confluence of history, culture, vocation and greed. The coming together of such disparate influences and motives makes the textbook market an ideal setting in which to explore individual-level perceptions, motivation, and behavior. Although my objective is to describe current textbook pricing practices from an ethnographic perspective, the long history of publishing demands a few comments of an historical nature. The bookshop, in largely the same form that we know it today had become a familiar fixture in American colonial life by the end of the 17th century (Tebbel, 1975). Noah Webster, who lived from 1758-1843, was perhaps the first textbook salesman—he traveled throughout New England and eventually through the South extolling the virtues of his spelling and grammar texts to the booksellers of the day. Many of today’s major publishing houses were founded before the mid-nineteenth century, including Wiley & Sons, Houghton Mifflin, and Little, Brown. Although this research does not focus on the historical development of the publishing industry, history is nonetheless an important factor that often exerts a palpable influence on the way people inside the industry think and behave. As an owner of an independent bookstore explained, Publishing is not rooted in profit maximization—it is rooted in religion and education, in monasteries and universities. It wasn’t something that was done to make money, it was a calling, a service to society. Basically, publishing is rooted in the non-profit sector, and in many ways publishers are still learning how to function in a business environment that is now almost exclusively focused on making money. Although some may argue that the publishing industry has become too rationalized and profit-driven, it remains unique, and in many respects, irrational in a strict economic sense. In a business world in which any deviation from marginal cost decision-making is a punishable offense, publishing remains an industry in which mixed motives are still a virtue and in which a leading editor-in-chief, as quoted in Coser, Kadushin, and Powell (1982), can openly state without fear of reprisal that: 4 I don’t think we ever turn something of real quality down because it is going to lose money. We know that half of our books are not going to make money. . . . If at the end of the year enough books have made themselves felt and heard, and we have come out ahead financially, everything is fine. How I got there is my business (1982: 15). In publishing there remains a kind of reverence for the industry’s economic output (i.e. books) that does not exist in other industries. Publishing still grapples with many of the moral issues and ethical dilemmas that most industries successfully banished either during or shortly after the Industrial Revolution. Tradition, artistic integrity and vocation are still taken seriously, for example, and even for-profit publishing houses regularly print “conscience” books they know will not be profitable. As a specialized area of the industry, textbook publishing still exhibits many of these idiosyncrasies. In many respects the college textbook market remains wedded to its history. On the other hand, the push for increased rationalization, greater efficiency and higher profits is forcing industry participants to constantly re-evaluate their competitive positions and to make difficult tradeoffs. The issue of textbook pricing has brought the college publishing industry under increasing scrutiny (Nicklin, 1996) and has contributed to a growing sense of self-consciousness and concern on behalf of industry participants. This study explores the issue of textbook pricing from an ethnographic perspective in order to gain a better understanding of how the rising cost of textbooks is perceived, explained and justified within the college textbook industry. METHODOLOGY The portrait of the textbook industry that follows is constructed from nearly 40 hours of interviews with individuals that make their living in the textbook industry. Represented in these interviews are bookstore managers and owners, used book buyers, publisher’s representatives, high-ranking executives at leading contract management companies, textbook wholesalers and publishing houses, high-ranking educational administrators, industry association representatives, students and successful textbook 5 authors. In most cases I contacted potential interviewees directly with no prior introduction. In these cases I chose individuals that I believed possessed relevant information based on their title and/or position. Of the individuals that I contacted in this manner, only one refused to grant an interview. On several occasions, I acted on recommendations from interviewees—in all of these instances I was granted an interview. The majority of the interviews I conducted were concentrated in one geographic area—the host community of one of the largest public universities in the country. My first objective in these interviews was to understand and describe the local market from the perspective of local participants. There were many opportunities, however, to compare and contrast the local situation with other situations in other similar communities. It also became apparent that many aspects of the local textbook market could not be adequately understood independent of the national or global textbook market. This study, therefore, describes a local textbook market as embedded in a larger or national market. I approached each interview with a succinct list of 3 or 4 open-ended questions that varied depending on the expertise of the individual and the accumulated content of prior interviews. I attempted, to the greatest extent possible, to cross-check and verify responses across multiple individuals. I also made an effort to collect as many documents from interviewees as possible. This resulted in a substantial collection of various items related to both the local and national textbook market, including exemplars of author-publisher contracts, internal university memos dealing with the outside management of the campus bookstore, a copy of the contract entered into by the university and an outside management company, various NACS newsletters and other materials, copies of internal marketing studies conducted by local campus bookstore and other independent bookstores in the area, various accounting reports produced by the campus bookstore, various copies of the College Store Executive and The CollegeStore, names and brief biographies of members 6 of an internal university bookstore advisory committee, newspaper clippings, promotional materials for various industry associations, and other miscellaneous items. I also relied on additional background research on major industry players (from various sources including databases such as Global Researcher and company web sites) and on the industry itself (from such sources as Publishers Weekly and Book Industry Trends) and a limited number of scholarly articles on textbook publishing from various journals (such as Curriculum and Teaching, American Sociologist, Journal of Communication and Science Communication). The diversity of sources made it possible to cross-check and validate many of the perceptions and claims of the interviewees and vice versa. Taken together, the information gathered from these sources provides a detailed picture of the textbook industry as experienced by a local group of industry participants. BACKGROUND: THE COLLEGE MARKET I was initially surprised by the inability of local market participants to talk about the national college market in concrete terms. A bookstore owner, for example, was candid in his response that he “just didn’t have room in his head for that kind of information.” Although generally unable to rattle off industry statistics, managers had no trouble directing me to the information. In one case, after a couple of minutes digging around in a cluttered office, a bookstore owner located a thick folder of general industry information—none of the information was current, however. Perusal of the various sources suggested by local bookstore managers indicated that total higher education enrollment in the U.S. is approximately 15 million and that there are approximately 3700 institutions (including both 2-year and 4-year public and private schools). Total publisher revenue from new texts was approximately $2.7 billion in 1997, and according to NACS, total college store sales in 1997 was around $8 billion. 7 It became clear almost immediately that college bookstores are divided into two categories: institutional or campus stores and independent stores. Campus stores, as indicated by the category name, are generally located on the college or university campus and until relatively recently were almost always operated or managed by the institution itself. There is now wide variety in campus store ownership and operation—although the majority remain institutional, outside management firms now operate approximately 25%, while cooperatives and student associations run another 5%. Independent for-profit stores make up about 20% of the overall number of college stores and are generally located in close proximity to college or university campuses. These stores are for-profit entities not associated with the university that provide most of the same services to students as institutional bookstores. In the community in which this study was conducted, there is one central campus bookstore and 12 independent store locations owned by three different organizations. There was little deviation in the way in which individuals conceptualized the national textbook market. First, there are the wholesalers, which include MBS Textbook Exchange (formerly, Missouri Book Services), Follett Corp., Nebraska Book Company, Inc. (NBC), and Wallace’s Bookstores, Inc. Other companies were mentioned, but there was a consensus that MBS, Follett and Nebraska represented the leading national wholesalers, with Wallace's, as the smallest of the four, sometimes included in the list. These companies serve several functions. They purchase used texts that local college stores purchase from students that are no longer required in courses offered by the local college or university but that still have value as used texts in other markets. They serve as a valuable source of used texts that college stores can purchase (generally at 50% of retail) and then resell to students. They also provide valuable databases, software and technical assistance, and they offer various types of consulting services. These companies serve as central clearinghouses that facilitate the efficient flow of used texts between disparate geographical areas and are integral to the used textbook market. 8 Overall, individual assessments of the different characteristics and relative strengths and weaknesses of these companies was in line with information derived from secondary sources. For example, Follett and Nebraska are viewed as older and more conservative organizations than MBS, which is generally characterized as younger, more innovative, and more reliant on new technology. Follett was founded in Wheaton, Illinois in 1873 and is still controlled by descendants of the original founder, C. M. Barnes. Nebraska was founded in 1915 as a bookstore and evolved into a wholesaler of used text during World War II. MBS, however, recently underwent a management buyout (it is now controlled by Barnes & Noble CEO Leonard Riggio) and prides itself on its relative youth. As the head of textbook operations at MBS put it, We’ve got the most comprehensive database out there and we’re now the largest in terms of used texts. We haven’t been around forever like some of the other industry players—we’ve been here 25 years and we’re the largest. That really says something about the company. Local market participants are aware of the fact that the major wholesalers, with the exception of MBS, are also active in the market for contract management. Follett is considered to be by far the biggest player, with Barnes and Noble College Bookstores a distant second. Actual contract counts corroborate this view—as of 1997, Follett managed 518 institutional college stores and Barnes and Noble College managed 305. The closest competitor behind these two firms was Wallace’s with 59—Nebraska had 41. It was not uncommon for bookstore managers to deal to some degree with all of the major wholesalers, although all three of the organizations that operate independent bookstores in this study’s focal area used the MBS database and software and generally sought to both sell and acquire used textbooks from MBS before doing business with other wholesalers. It was common knowledge that MBS was somehow affiliated with Barnes and Noble, and it was generally thought that Barnes & Noble managed the local campus 9 bookstore. On this account, the general view was not entirely accurate. Barnes & Noble College Bookstores (B&N College), not Barnes & Noble, Inc. (B&N), operates the local campus bookstore. I checked with various sources and was informed the B&N College was a subsidiary of B&N, Inc. Around this same time, however, I noticed that B&N and B&N College were treated as separate legal entities in the notes to B&N’s fiscal 1997 financial statements (see note 12). It wasn’t until I spoke with a vice president at B&N College that the apparent contradiction was resolved. B&N College is 90% owned by Leonard Riggio, the CEO of B&N, Inc. and there is no legal tie between the two entities. MBS is also controlled by Riggio, the CEO of B&N. In reality, however, B&N College and MBS function, for all practical purposes, as subsidiaries of B&N and the general perception that B&N controls both organizations is essentially correct. As the vice president I contacted at B&N College informed me, “if you think that whether or not B&N legally owns B&N College makes any difference in how things run around here, then you don’t understand the industry.” When I commented that I thought the legal distinction was important on some level, he responded that I’d “successfully isolated a distinction without a difference.” This episode serves to highlight that fact that functional arrangements in the textbook industry, perhaps to greater degree than in other industries, are the product of history and precedent rather than formal legal ties or the lack thereof. When asked to name the major publishing houses, several managers commented that it was a much easier task now than 10 years ago, given that the industry was now much more concentrated that it used be. The five publishers named most often were ITP (International Thomson family of Publishers), McGraw-Hill, Harcourt Brace, Houghton Mifflin and Pearson PLC (UK’s largest publisher). John Wiley & Sons, Inc. was also mentioned, not because of its size, but because it had successfully managed to remain independent. Wiley is, in fact, the oldest independent publisher in North America. It was 10 not uncommon for individuals to name publishing houses that no longer exist as separate legal entities—in these cases I simply credited the parent company with a mention. When asked to comment on general trends in the publishing industry, the most frequent observations addressed what was perceived to be the increasing concentration of the publishing industry. As in the case of the general textbook market, local interviewees were generally unable to provide specific details regarding who had acquired whom and when. Keeping track of legal ownership relationships is complicated by fact that acquired firms often continue to publish under their own imprint. For example, in 1969 Time Inc. acquired Little, Brown and a few years later, Scott Foresman. Time Inc. combined the college publishing divisions of these two firms and then sold the combination to HarperCollins, which subsequently sold its entire educational division to Pearson, PLC. More recently, Pearson PLC announced that it would buy Simon & Schuster’s educational publishing division—if successful Pearson PLC will become the largest publisher of educational textbooks in the US (Selingo, 1998). Keeping track of acquisition chains such as this one can be a daunting task. It was common for interviewees to attribute this consolidation trend to publishers’ poor financial performance and the increasingly competitive textbook market. A number of individuals specifically identified the used textbook market as the principle factor behind this trend. This tendency is particularly interesting given that textbook publishing, at least within the publishing community, has generally been considered one of the most profitable of the various types of publishing. Rapid increases in college enrollments during the 1960s and 1970s translated into ballooning demand for textbooks. “In textbook publishing in the 1960s, there was little you could do that didn’t make money,” according to Thomas Williamson, editor in chief of the college division at Harcourt Brace Jovanovich, as quoted in Coser, Kadushin, & Powell (1982: 55). More recently, Suarez has noted that the textbook market is characterized by a number idiosyncrasies that work in favor of the publisher and ultimately yield one of the highest 11 profit margins in book publishing. Linden and Reese observe that with the exception of the rapidly expanding market for romance novels, college textbook publishing have consistently been the most profitable sector for publishers (1992). It is true, however, that after enjoying often double-digit growth for decades, annual textbook revenues have only increased by about 2% a year from 1990-1995. Interestingly enough, the number of books sold per year actually declined during this same period, but publishers were able to raise prices enough to more than offset the decline in unit sales (Nicklin, 1996). The poor-profitability explanation of industry consolidation is further called into question by the comments of other individuals with a broader range of experience in the publishing industry. Once representative of a major publisher put it this way: There are different challenges depending on the area of publishing that you’re talking about. College publishing, at least in a relative sense, has been more steady and more predictable. That’s just the nature of that particular market. There are other challenges that you face with textbooks that you don’t face in other areas. . . . As far as profitability, I think it’s always been one of the most profitable areas, although I think things have gotten more difficult in the last few years. Another company representative said this: Education publishing has made a lot of money for the company. Usually, elhi (the elementary and high school market) is separated out, and if you look just at the college market, then the numbers look even better. This is not an appropriate venue for an in-depth analysis of the factors that have lead to the current levels of publisher concentration. With that said, however, it does seem interesting that people associated with the textbook market but not directly involved in the publishing industry tend to attribute the most recent string of acquisitions and mergers to poor financial performance. Although it does appear that textbook publishing is becoming a more difficult market, by almost any standard, it remains in fairly good health. SPIN, EXPLANATIONS, BLAME, AND QUICK FIXES 12 I didn’t have to ferret out the issue of textbook pricing—it hit me like a 50 mph headwind. Nearly all the individuals that I contacted for interviews were very aware of what others, both in and outside the industry, thought of them and their contribution to the high price of textbooks. Textbooks authors, for example, often talked at length about what they thought students thought of them, about what they thought students’ parents thought of them, about what publishers thought of them, about what other faculty members thought of them, and so on. A good portion of what college store owners talked about followed the following format: “Students think that . . ., but . . . .” or “Everyone thinks that . . ., but . . . .” Used book buyers--in many respects the most self-conscious group--engaged in the same type of general arguments. Publishers and wholesalers were no exception. The only group that didn’t seem to care how they were perceived were college students, who almost universally complained about the cost of textbooks and what they perceived to be unfair textbook buyback policies. In many instances, I sensed that I was initially perceived by a number of the individuals that I contacted for an interview as zealous student, possibly associated with the student newspaper, that wanted to make somebody pay, lexically speaking, for all the expensive textbooks I’d purchased over the course of my college career. In a number of cases I explicitly stated prior to requesting an interview that I was not interested in “just getting the dirt” on textbook pricing. Had I not done this, I don’t feel that I would have been granted the same consideration that I ultimately received. In other cases, it was clear that the individual I interviewed expected me to ask specifically about the cost of textbooks and had prepared in advance for a somewhat adversarial interview. In nearly all interviews, the cost of textbooks was ultimately discussed. After analyzing the interviews, I classified all the material related to the costs of textbooks into one of four categories: spin, explanations, blame, and quick fixes. The general pattern of discussion often flowed through all four of these categories. Individuals would first explain why textbooks shouldn’t be considered all 13 that expensive (spin). Next would come an in-depth description of the challenges faced by the group to which the individual belonged—often coupled with assurances that his or her group was not making much money or was not taking advantage of students (explanations). Generally this lead to an assessment of who, in their view, was making a lot of money or who was taking advantage of students (blame). Finally, the conversation often ended in a number of case with a few suggestions about how the inequities of the textbook market could be rectified (quick fixes). Of course not all individuals followed this precise pattern, but as a generalization, it describes remarkably well the flow of the many discussions I had regarding the costs of textbooks over the course of my interviews. Spin To quote from a NACS publication, “while we understand that students are concerned about the price of textbooks, the real issue is not price, but value (Shapiro, 1998). The paragraph from which this quote is taken goes on to discuss in greater detail how the value of a textbook might be assessed. For example, textbooks “supplement and enhance” classroom instruction, they constitute a common “intellectual platform” that facilitates classroom learning, they serve as reference tools, they provide additional perspectives that might not otherwise be presented and they are “excellent review tools” (Shapiro, 1998: 2). By focusing on value, the critical issue becomes whether or not the student derives sufficient benefit from textbooks to justify their cost. When framed this way, it is not unreasonable to argue that textbooks represent a “good buy” for students. If textbooks, even at current prices, represent a good value for students, then why do students think prices are too high? Approached from this angle, the problem becomes one of changing student perceptions. This can be done, according to the same NACS publication cited above, by doing two things. First, students often suffer from sticker shock. As manager of an independent college store explained: College students just haven’t had very much experience buying books— maybe they bought a $10 novel in an airport once, but that’s about it. In 14 the US they don’t have to buy textbooks until they get to college, and they just don’t have any idea what these kind of books cost. Second, it is important that instructors create the impression in the classroom that the textbook is an integral and essential part of the course. NACS suggests that there are several ways of doing this, including providing an explanation of why a particular textbook was selected, choosing the least expensive edition of a particular book, and making good use of the textbook in the classroom. Comparisons are also often used to aid in justifying the cost of textbooks. A common strategy is to compare the increase in the cost of tuition and fees with the increase in the costs of textbooks over a certain time period. Given the steep increases in the former over the last decade or so, this type of comparison usually favors the latter. A commissioned study of the textbook market in New Mexico, for example, explicitly exerts that “it is crucial to look at how textbook prices compare to total cost-ofattendance” (New Mexico Commission on Higher Education, 1995). Another common argument often employed to justify the cost of textbooks is that prices reflect “real costs and a reasonable return on investment for authors, publishers, distributors, and college stores” (Shapiro, 1998: 2). To this end various charts and graphs have been produced and disseminated by various groups illustrating the fact that no one group can be singled out as contributing any more than anyone else to the average cost of textbooks. The most popular of these illustrations shows a dollar bill sliced into different categories, with the size of each slice proportional to the percentage of the cost of an average textbook that can be attributed to members of that category (see Fig. 1). For example, author income in this dollar-bill illustration accounts for 11.4% of the cost of an average textbook, while 13.8% of the cost is chalked up to publisher marketing costs. -----------------------------Insert Fig. 1 about here ------------------------------ By and large, the owners and managers of college bookstores were the most likely to employ the above arguments. There are two explanations for why this is the case. 15 First, college bookstores interact directly with students and often bear the brunt of student dissatisfaction. Students often feel that college bookstores abuse their market position by overcharging for books that they know the student is required to purchase. When asked to comment on what he thought could be done about the high price of textbooks, one student stated: I’ll tell you what I’d like to do. You pay tuition and then you come over here and it’s the same thing all over again. See this book (he held up what looked like an introductory biology text)—it’s $92. Somebody’s making a lot of money and it’s my money. . . . I’ll tell you what I’d like to do, I’d like to find whoever owns this store and shove this book up his ass. . . . In fairness, this same student repeated this same desire in reference to the authors of the text later in the conversation. The point is that college stores represent an accessible and tangible target when students choose to vent their frustrations. It is understandable that college stores attempt to diffuse this situation by disseminating information and attempting to alter student perceptions of textbook value. The second reason I believe college bookstores were the quickest to advance these types of arguments stems from the fact that college stores feel they have little control over textbook prices. Margins on new and used textbooks are surprisingly standardized across stores and owners and managers are reluctant to deviate in either direction from established industry norms. In many respects, therefore, college stores have no other option but to attempt to change student perception. Explanations No one that I interviewed completely believed the arguments presented in the previous section. There was a general consensus that textbooks were indeed expensive, but there was very little agreement on exactly why that was the case or on exactly who was to blame. Everyone had a ready explanation, however, of why their actions or the actions of the group to which they belonged weren’t part of the problem. Most of these explanations turned on what I refer to as “local complexities.” For example, owners and 16 managers of college bookstores, as a group, were forceful in their assertion that individuals outside retail sales do not understand the unique challenges of their business. Likewise, publishers seem to feel that external critics of textbook pricing do not take into account many of the factors that contribute to the high cost of textbooks. Authors, wholesalers and faculty book buys feel equally misunderstood. College Stores Owners and Managers. College bookstore owners and managers talked about a wide range of issues they felt were not adequately understood by the general public. First, many of the owners and managers felt that university students were unique customers in several different respects. One owner explained it like this: Students, at least generally, are not spending their own money. They’re spending their parents’ money or loan money, or who knows who’s money. They complain about prices but they won’t walk down the street to save $5 on a textbook. It’s not like that in other businesses. I could mark a few books down--you know, just to get people in the store—but it wouldn’t make any difference. It not like more students are going to come through the door just because I’m selling a geography book for $5 less than the next guy. Other store owners and managers also made similar observations. Students, although they may complain about the overall cost of textbooks, are not generally considered to be the most discriminating shoppers. Students were also accused of being fairly unpredictable in their buying patterns. Even when class enrollments are accurately determined, the number of textbooks that will be sold for that course is generally considered to be anyone’s guess. A contributing factor to this uncertainty is that a greater number of students are attempting to get through classes without buying the required text. According to a representative from NACS, for example, 20 years ago nearly 90% of students purchased required textbooks—now that number is thought to be closer to 70% (Nicklin, 1996). With respect to stocking uncertainties, one manager stated: If there is a pattern in the sell-through data, I can’t find it. You’d think that the percentages would be similar if you adjusted for things like class 17 level or subject or price, but they aren’t. Sometimes you’ll stock 50% of the enrollment and you’ll sell them all and have to put in a rush order for more. Sometimes you’ll stock 30%, you’ll sell 2, and then you’ve got to ship the rest back. There just doesn’t seem to be any pattern. This uncertainty results in additional costs to the retailer, given that the store is generally responsible for shipping costs both to and from the publisher. The number of different titles and the quantity of books that go through the store in short peak periods only complicates the process. Bookstore owners and managers feel that the services they provide to the academic community are rarely acknowledged. In their view, they serve a valuable function in procuring new textbooks for a large student body—without the advance preparation and effort of college bookstores, it would be difficult for students and/or professors to make arrangements for the timely acquisition of required texts. In addition, college stores serve as a central clearinghouse for used texts that will be used the following academic period. Every store in the focal market paid 50% of retail (the industry standard) for used texts in good condition that fell into this category. These same texts were subsequently sold back to students for 75% of retail (also the industry standard). A store owner stated the following: It seems like every few years a group of students tries to set up their own used textbook exchange. I think now there’s a group trying to do it online. What they don’t realize is that bringing two people together is more difficult than it seems. First you have to figure out who has the book you need, or who wants to buy your book, and then what? Do you mail it to them? Do you drive over to their apartment? And what happens if you drop the class a week later and want to return the book? Maybe all the buyers and sellers could meet somewhere on a Saturday morning? But what if you can’t make it that morning or you don’t know what books you need? Everyone knows where we are, we’re open long hours, we buy and sell used texts anytime—you can return the book later if you don’t need it. Sometimes people don’t value how convenient we make the whole process, so they drive all over town and waste an entire day so they can save $10 buying textbooks from their friends. 18 College stores also purchase used texts that are no longer required locally but may have value in other markets. National wholesalers (MBS, Follett, Nebraska) distribute pricing manuals that contain the price they are willing to pay for different used texts. Under the very best circumstances, the wholesale price for a text will be approximately 35% of its retail value. In most cases the student will receive less. College stores receive a fixed 20% commission on the used texts they purchase and ship to wholesalers. Given the relatively small commission bookstores receive and the fact that wholesale purchases are the most likely to anger students, several owners and managers stated that the process is often more trouble than it is worth. Finally college store owners often accuse those critical of their business practices of naiveté. As one manager put it: Our margins aren’t that large—25% on new texts and 33% on old. In retailing those are pretty low margins. We just don’t make that much money on textbooks. People don’t realize that almost everything else has a higher margin. I’d be surprised if there were any college stores anywhere that sold school supplies with less than a 40% margin. That’s how much you have to charge to stay in business. That’s how things work in retail. The NACS estimates that the average college store that applies a 25% gross margins to new texts actually achieves about a 3.9% before-tax profit. If this estimate is correct, then college bookstores may indeed have little room to maneuver. Publishers. Like the owners and managers of college stores, publishers also feel misunderstood by their critics. Publishers’ first line of defense is that textbooks are expensive to produce. Textbooks often go through years of development and must be published with teacher’s manuals, test banks, study guides and other ancillary materials. A report prepared in 1997 for the Academic Senate for the California Community Colleges on textbook pricing summarizes the principal factors the publishers must consider in pricing a new text: 1) payments to authors, freelance editors and other external individuals involved in the development of the text, 2) the cost of factor inputs, 19 such as paper, ink, and labor, or if the actual printing and binding of the textbook is outsourced, the cost of contracting for these services, 3) the cost of ancillary materials, such as teacher’s manuals, test banks, practice problems, or videotapes, and 4) the cost of review and desk copies. To this list can be added , according to Coser, Kadushin & Powell (1982), relatively high internal costs, such as the cost of comparably high editorial vigilance that are not present to the same degree in other areas of publishing. Publishers point to average profit margins—currently around 7.6% according to the Academic Senate study cited above—as evidence current textbook prices provide only a reasonable rate of return on investment. Publishers also point out that they are not in a position, given the realities of higher education in the US, to tailor textbooks to the desires or needs of students. Adoption decisions are made by faculty, faculty committees or other institutional bodies and publishers must therefore cater to their expectations. Although a 1994 NACS survey showed that students would prefer lower-priced, no-frills textbooks, this survey also showed that faculty do not share this same opinion. Faculty members ranked price eleventh on their list of considerations when selecting a textbook for adoption--visual appeal, layout and the availability of teaching aids, test banks, and multimedia packages were all considered more important than price. Finally, publishers argue that high initial costs must be recovered in the first few years of a book’s life if it is to be recovered at all. Sales of new texts, according to several sources, drop dramatically in the second and third year of publication due to the efficiency of the used textbook market. Neither authors nor publishers receive any money from the sale of used texts and therefore benefit very little from the continued use of the textbook beyond its initial year or so in the marketplace. A representative from one publisher stated: The first semester a book is out, assuming you’ve done a good job of marketing, is going to be about as good as it gets. If you consider sales 20 that first semester to be 100%, then second semester sales might be 110% or 115%. By the 3rd semester they’ll be down around 80%. You have to keep in mind that if it’s a good text, adoptions will probably still be going up, but you’ll be lucky to see 80% because you’ve got used texts in the system now. The 4th semester you’ll be lucky to get 40% and it just gets worse after that. An author stated the following: You only make any money the 1st and maybe the 2nd year. By the second year you’re down to half of what you made the first year and by the 3rd year you’re at 10%. Finally, several publishers also noted that authors are often very concerned with the production and marketing of the textbooks they’ve written. Although in a strict legal sense the completed work belongs to the publisher, authors still feel a sense of ownership and attachment. In many cases authors’ identities and reputations remain inextricably bound up with text. Authors, therefore, are often unwilling to let publishers make purely economic decisions regarding the design and printing of what they see as their creations. Authors, for example, often push publishers to use 4-color process printing, to include generous ancillary materials and to mail out large numbers of review copies. They want the publisher to do everything they feel might provide their text with a competitive edge in the marketplace. One author described it this way: I wanted a 4-color book and I told them that. They worked the numbers and then came back and said that they couldn’t do it. We went back and forth for awhile and finally I offered to give up a royalty point. We finally worked it out. Authors. As a group, authors didn’t seem nearly as self-conscious about textbook price as other groups—at least none felt the need to offer the same quantity of exculpatory explanations that both college stores and publishers felt compelled to put forward. For the most part they were matter-of-fact about the issue of monetary reward—nearly all the authors I interviewed acknowledged that textbook writing paid well. At the same time, many openly discussed the challenges and difficulties of writing 21 textbooks. Textbook writing requires a unique kind of stamina and commitment. As one author stated: I enjoy writing, but textbook writing isn’t enjoyable. It’s hard work. Publishers aren’t looking for you to display literary genius, they want something that’s going to be clear, that’s going to get information across, something that’s presented well. Sure, the writing needs to be interesting to the student, but it’s not like other types of writing that I find more enjoyable. Another author, when I asked about how long it takes to write a textbook, stated the following: If I’m focused, and by that I mean if I’ve arranged things so that I can spend almost all of my time writing, except for teaching and maybe a few other things that aren’t real time-intensive, I can get about a chapter a month done. Textbooks are peer reviewed, and these reviews, according to several authors, can cause a lot of pain and grief. Publishers will scrap projects that don’t look like they’re going to be accepted by the academic community, even after years of hard work. Numerous other sundry issues were mentioned by individual authors. Many of these comments took the form: “If you’re ever going to write a textbook, . . . .” They included discussion of the assignment of foreign publishing rights, the benefits of securing large advances, how to use the peer review process as a sort of clandestine marketing tool, how to negotiate a higher royalty percentage, how to protect yourself against being taken off a book, etc. Used Text Buyers and Wholesalers. In many ways, used textbook buyers are the most self-conscious of any group, although this self-consciousness is typically not related to the cost of new texts. Many individual members of the academic community feel that selling examination, review, or desk copies of a text is unethical and therefore resent the presence of these buyers. All of the faculty buyers in this study reported being verbally assaulted by indignant faculty members (generally authors) on more than one occasion 22 and were very sensitive to the fact that others viewed their activities as ethically gray, at best. One faculty book buyer stated: This market is like a black market in a lot of ways—I mean it operates in a gray ethical area, or at least a lot of people see it as a gray ethical issue. We all operate at this level in different areas of our lives. It’s like the IRS, the whole thing is set up so that it encourages people to be untruthful. Textbooks are like that. I don’t encourage professors to get textbooks so that they can sell them, but I don’t discourage them from selling them to me once they have them. Another faculty book buyer had this to say: A lot of people think that what we do is somehow unethical. It’s not. If you buy a book or someone sends it to you, it’s yours. You can do anything you want with it. We don’t make anyone sell books to us—we provide a service, we make it convenient. As a group, used book buyers were much more concerned with how others perceived the sale of textbooks by faculty members than with how their activities impacted the overall cost of new textbooks. There was also some concern about how others viewed the relatively low prices they often offered for used textbooks. As one buyer put it: Sometime I feel bad about telling somebody that this textbook, which retails for $80, is worth only $5 or $8. I can tell that they think I’m trying to take advantage. But that’s what the book is worth to the wholesalers— that’s all they’ll pay for it. You have to understand what’s going on here. The publishers do their best to put out new editions as often as possible and they don’t call up wholesalers and warn them. Once a new edition comes out, the old edition is worthless and I know that wholesalers get caught with thousands and thousands of books they just have to destroy. The price they offer is based on the probability that they can get that book sold to somebody before it becomes obsolete and sometimes the odds just aren’t very good. The larger wholesalers (MBS, Follett, Nebraska), rather than acting sheepish about what others often see as their role in driving up textbooks costs, unabashedly brag about the money that they save the student. They supply used texts to college stores that then sell these texts for around 75% of their retail price, thereby reducing textbook costs 23 to the student by 25%. I asked a high ranking school official if there had been any conflicts between textbook authors and the campus college store, which stocks large quantities of used texts. He stated that if there had been any conflicts, he wasn’t aware of it, and then added the following: We expect them (the campus store) to get all the used texts they can. It was my understanding that they were doing this. They’d better be doing it. Around here we’re very concerned with overall cost-of-attendance and every little bit helps. Wholesalers also provide an outlet for texts that students do not wish to retain, thereby further reducing the overall cost of textbooks to the student. In addition to saving students money, wholesalers are also credited with providing impetus within the publishing industry for the use of technology. Wholesalers were the first to develop large-scale textbook databases, for example, and they provide college stores with critical information technology and inventory management systems. As one store manager commented: The used book people really pushed us. They brought these systems to the stores and they showed how to use them—of course they wanted used textbooks in return, so it wasn’t out of the goodness of their hearts. But they got the technology out there and that really advanced things. I don’t think it would have happened nearly as quickly without them. Blame In many cases during interviews, the conversation would just naturally progress from the unique challenges and complexities of the particular group to which the interviewee belonged to the issue of blame. This seems logical—if they aren’t to blame for the high price of textbooks, them somebody else must be. Although the transition was rarely explicit, it was, in many cases, obvious in retrospect. Authors. Authors were the most likely to blame abstract market forces for the high costs of textbooks. Many stated that they believed publishers charged “what the market will bear” and implied that this business practice was both appropriate and 24 expected. Many also noted that the structural characteristics of the textbook market were peculiar in many respects, and probably contributed to current pricing practices. One author noted, for example, that: Textbooks are basically a bundled product. They’re considered part of the cost of education and I think that people, to a large degree, have just accepted that. Publishers charge a lot for textbooks because textbooks are not treated as just textbooks, that’s not how the buying decision is made-they’re part of a college education and are evaluated differently. Another author commented that: Southwestern, that was the company that we originally had a contract with, was bought out by West, but then West was purchased by ITP so that’s who we deal with now. I think that ITP paid too high a premium for West and are looking for a way to recoup that investment. I think that plays a factor in how ITP is running West. When it came to blaming concrete entities rather than market forces and industry structural characteristics, authors almost unanimously targeted the used textbook market. In many cases authors made surprisingly emotional and vitriolic statements about what they perceived as the injustices of the used textbook market. The primary issue was the failure of the publisher (and indirectly, the author) to benefit from the buying and selling of their textbooks. In many instances it was surprising to see how strong the authorial sense of ownership remained, even after the copyright has been transferred to the publisher (a standard contract feature), the publisher had published the book and sold it to a retailer, and the retailer had sold it to a student. It was still their textbook. Of course, as openly acknowledge by most of authors I interviewed, there was also the more obvious issue of lost royalties, since every sale of a used textbook obviates the sale of a new one. In addition to the emotional dimension, authors also explicitly blamed the used market for driving up the costs of new texts. The rationale is simple and straightforward. Each new text involves a relatively fixed set of up-front costs. These costs must be recovered over the life of the textbook if the publishers is to make a profit, and since the 25 used textbook market effectively reduces this life span, publishers must charge more per unit in order to remain profitable. One author stated it this way: I have to separate out emotion from logic when I talk about the used market. It bothers me and I can’t help it. Rationally, I guess it makes business sense from their perspective, but I can’t help but wish that that sector of the industry would disappear. That would be the best way to bring textbook prices down. If students, as a group, wouldn’t sell their textbooks, textbooks wouldn’t cost what they do. Used Text Buyers and Wholesalers. Used text buyers and wholesalers are more indiscriminate in their assignment of blame. There is a tendency to see faculty and publishers as co-conspirators. The fact that textbooks are written by the same group of people that ultimately decide what educational materials the student is required to purchase is generally viewed as a fundamental conflict of interest. One representative from this group had this to say: Professors and faculty do a lot of mutual back-scratching—its like one hand washing the other. They (professors) benefit as much as publishers do and it’s the students that end up paying for it. Neither has any incentive to change what’s going on, so nothing gets changed. A vice president of the university also expressed some reservation about the inherent conflict of interest between students and faculty. He stated: Textbook writing is something we allow our faculty to do, but I’ll admit that it looks bad sometimes. When we have faculty that write a textbook, especially if it’s an introductory level course with a lot of students, then require that students purchase the text, and then even go so far as to own the publishing company that markets the book, it really does make me uneasy. There is a conflict of interest, I’m not going sit here and tell you there isn’t. One individual was particularly animated when it came to criticizing what he perceived as almost fraudulent activity on the part of textbook publishers. He stated: Take a look at the textbooks out there. They’re all the same, turn them upside down and you can’t tell them apart. Most of them aren’t worth the paper they’re written on. No wonder students sell them back, they didn’t want to buy them in first place. 26 Publishers were also faulted for what used textbook buyers and wholesalers perceived to be a cat-and-mouse game of “kitting” (selling a textbook bundled with other items, such as software), shorter edition cycles (in some cases as short at 2 years), loose leaf publishing, and other thinly veiled tactics to thwart the used book market. These tactics often serve to increase students’ overall textbook costs, either by insuring that few used textbooks will be available for students to purchase or by limiting that ability of the student to sell the text in the future. Publishers. Publishers, predictably, directed the most blame at the used textbook market. This criticism paralleled that of authors in almost all respects. Beyond these criticisms, publishers also noted that the structure of the industry produces a situation in which they have no other choice but to cater to faculty—they feel they have no alternative but to provide ancillary materials and other additional services if they want their textbooks to be competitive. Implicit in these comments is the suggestion that faculty should bear at least some responsibility for placing their own convenience above cost considerations. College Stores Owners and Managers. In the case of college store owners and managers, most criticism was reserved for each other. The independent stores were critical of the campus store, managed by Barnes & Noble College Bookstores (B&N College), and vice versa. The independent stores felt that B&N College, because of its relationship to the university, wasn’t forced to properly expense certain items. They felt the university store had an unfair location advantage and was in a position to control textbook adoption information. They felt that the university store was allowed to participate in unique promotions, such as being able to accept the university’s debit card, when these opportunities were not extended to the independent stores. Finally, they felt that the university store misrepresented itself by concealing that fact that it is managed by an outside firm and that nearly all profits over a fixed lease payment go to B&N College, 27 not the university. A vice president at the university didn’t disagree with these criticisms. He stated: When we brought B&N College in, we wanted them to be part of the academic community. We put them in charge of collecting adoption information from faculty and they’ve done a good job of setting that up and making sure that all the independent stores have the same access they do. We wanted them to do it and they did. Do they have a location advantage? Sure they do. You can’t change the realities of real estate. But they contribute to the university in ways that the independent stores don’t. The campus store, for its part, points out that the independent stores often freeride on their efforts. For example, campus store representative were instrumental in setting up an electronic system for reporting textbook adoptions that improved the process dramatically. Although the independent store didn’t participate in setting up the system, they feel entitled to the information. Representatives from the campus store pointed to a number of instances in which the campus store was expected to participate in certain university activities, some of which required financial commitments, while no such demands were made on independent stores. Other miscellaneous comments shed additional light on the allocation of blame within the industry. One individual wisely observed that by not reacting to student desire to buy and sell used textbooks, publishers allowed other companies to take over this function, and as a result, have lost control of their inventory. One student observed that “if all the stuff about high costs being because of small quantities is true, then why aren’t more popular textbooks, books that may sell 50,000 copies, less expensive than some of the obscure graduate books?” Another student from Korea brought me a couple of Korean textbooks and made the argument that fairly strong resistance to expensive textbooks has lead to the publishing of functional, although less flashy books that cost significantly less than their US counterparts. The Korean books that I observed were adequate, but contained no color pictures and didn’t appear to be printed on as high 28 quality of paper as most US textbooks. Another individual maintained that publishers have yet to get in touch with their end customer—the student—and that this is going to come back to haunt them. Finally, one individual argued that the textbook distribution systems has yet to be “Wal-Mart-ized,” but that when this happens, books will be sold by businesses operating on much less than a 25% margin. The advent of businesses like VarsityBooks.com may portend just such a change. VarsityBooks.com is an online business that allows students to order books over the Internet. Their strategy is to underprice college stores by operating on a slimmer margin. Quick Fixes Several proposed solutions hinged on introducing more price competition into the textbook industry. For example, faculty were encouraged to be more price conscious in their adoption decisions. Student were encouraged to be more discriminating in their textbook buying practices. These changes might force publishers and retailers to find ways to reduce costs and either lower their net selling price or reduce their margins, respectively. Other solutions ranged from increasing the quality of textbooks—to the point that students would find them valuable outside the temporal confines of a given course—to setting an artificial ceiling on textbook prices, thereby forcing publishers to publish more economical texts without expensive color processing and other frills. OBSERVATIONS Many local participants in the textbook market employed economic terminology and engaged in economic reasoning in order to explain recent pricing trends in textbook prices. In many instances, theories and models derived from economics, particularly institutional economics (Milgrom & Roberts, 1992; Williamson, 1985) do a very good job of explaining many of the idiosyncrasies of the textbook market. For example, authors often seek large advances from publishers as a kind of bond. A large advance insures the author that the publisher will abide by its commitment to actively market the 29 textbook once it is completed. When these economic models are applied to larger segments of the industry, however, they often fail to accurately describe observable phenomena or lead to nonsensical conclusions. One particular segment of an interview with a college store manager illustrates this point: Manager: Publishers are a lot more concerned about the bottom line than they used to be. All these mergers and acquisitions have really made things much more competitive—there are fewer firms but I think they compete more. Me: I’m just going to play devil’s advocate here. But we just talked about how the price of textbooks has gone up so dramatically. . . . Manager: I think price increases are a product of increased competition— everything is more profit driven now than it used to be. Me: I guess I think of competition differently. I think of a group of firms that supply a particular good and they compete with each other to produce the highest quality good at the lowest price—shouldn’t increased competition drive the cost of textbooks down? Manager: (laughing) I never said things made any sense in publishing. . . . Not only does competition drive prices up, but apparently economies of scale in the publishing industry also work in the opposite direction. Although I have no hard data to support this claim, several managers commented that they believed the price of the best selling textbooks had gone up more than the average. A memo written by the manager of the campus store to university faculty about the price of textbooks states, “bestsellers for a publishing house have increased in cost as much as 10% annually. This cost increase is usually greater when a book moves from one edition to the next.” The textbook market brings to mind an apocryphal story tale of an old Italian grandfather and successful restaurateur who explained the following to his grandson: When people come in together to eat, you explain that if they want the check to be divided among the party, it will be split evenly among all members. If there are ten people then each person will be expected to pay 1/10th of the bill. This makes things simpler for us and it makes people more likely to order coffee, drinks and dessert. 30 The grandson wasn’t convinced, however, and decided to put his grandfather’s wisdom to the test. He was surprised to find that when the bill was divided evenly, the group almost always spent more than when the bill was broken out by what each person had individually ordered. Although this outcome seemed confusing at first, it began to make sense when he imagined himself in the place of one his diners in a group in which the bill was to be divided evenly. If there were ten people, a $4 dessert would only increase his bill by $.40—at that price there wouldn’t be any reason not to indulge himself. And what if another member of the party were to order a dessert? Wouldn’t that only increase the probability that he would order one himself, given that he would be expected to pay for a portion of his friends dessert anyway? There are a number of similarities between the textbook market and the group of fictitious diners described above, with the exception that someone else is picking up the tab—the students. The problem is not that any one group is consuming more than another—it’s that all the groups involved, in the end, are making sure they receive what they consider to be their fair share. Of course, once everyone gets done defining what their fair share is, an introductory biology textbook costs $92. 31 REFERENCES Academic Senate for the California Community Colleges. 1997. Textbook pricing policies and student access background paper. Unpublished, available from the National Association of College Stores (NACS). Apple, M. W. 1986. The political economy of text publishing. Curriculum and Teaching, 1: 55-67. Coser, L. A., Kadushin, C., & Powell, W. W. 1982. Books: The culture and commerce of publishing. New York: Basic Books, Inc. Linden, D. W., Reese, M. 1992. I’m hungry. But not for food. Forbes, July: 70-74. McCauley, G. F. 1998. A chilly climate for college textbooks. Chronicle of Higher Education, 44 (31): B9. Mercer, J. 1997. Price-fixing probe focuses on 8 publishers. Chronicle of Higher Education, 43(33): A37. Milgrom, P., & Roberts, J. 1992. Economics, organization and management. Englewood Cliffs, NJ: Prentice Hall. New Mexico Commission on Higher Education. 1998. A study of textbook price inflation: A response to NM House memorial 89 and NM Seneate Memorial 53. Unpublished, available from the National Association of College Stores (NACS). Nicklin, J. L. 1996. The changing market for textbooks. Chronicle of Higher Education, 42(35): A43-A44. Nicklin, J. L. 1998. Addison Wesley changes textbook-pricing policy, resolving suit by college stores. Chronicle of Higher Education, 44(22): A38-A39. Shapiro, G. F. 1998. Frequently asked questions about textbooks. Information sheet distributed by the National Association of College Stores (NACS). Suarez, J. E. 1994. College Textbook Publishing: Patterns of corporate diversification and the rationalization of the publishing process. Science Communication, 16 (1): 58-89. Tebbel, J. 1975. A brief history of American bookselling. In C. B. Anderson (Ed.), Bookselling in America and the world: 3-25. New York: Quadrangle/The New York Times Book Co. Williamson, O. 1985. The economic institutions of capitalism: Firms, markets and relational contracting. New York: The Free Press. 32 Fig. 1 33 ...
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