GOING BY THE BOOKS
Carleton finance and marketing grad Brad Doran has capitalized on the growing resentment of cash-strapped university students who are tired of getting fleeced by publishers for expensive textbooks, writes Claire Brownell.
As a student in the late 2000s, Brad Doran would go to whatever lengths he could to save a few bucks on textbooks. He would scour the Internet trying to hunt down international editions of the thick tomes on his Carleton University course reading lists, which could sometimes be found — and shipped — for a bit cheaper than the stock at the campus bookstore. He hunted down older students who had finished the same courses, hoping they still had their course materials that he could buy used, at a discount.
“I would be messaging students who were in the course prior and arranging meetups, doing all this really painful stuff just to save $20 on a book,” said Doran, 31. “And, at the end of the year, I’d try to sell it back and get very little money for it.”
As it happens, Doran was studying finance and marketing. But even for students who aren’t enrolled in business, though they may not realize it, the peculiar structure of the academic textbook market is typically their first introduction to economics — and specifically the effects of anti-competitive market barriers.
Depending on what they’re studying, students might pay more than $1,000 a year on textbooks alone. But in some cases, that won’t even cover a single book: A visual arts student unlucky enough to get assigned Stephen Herbert’s 1,300-page “A History of Film,” for example, is looking at $1,200 for a new copy.
With the price of school textbooks and supplies rising 30 per cent over the past 10 years in Canada, compared with 20 per cent for the overall consumer price index, the smartest students learn to become shrewd bargain-hunters.
But as recently as five years ago, when Doran was studying finance and marketing at Carleton in Ottawa, reaping those rewards was a lot of work. Amazon was already around to help Doran make price comparisons, but there were no Canadian sites dedicated to renting and buying used course material.
So, in the spirit of other Internet companies like Uber Technologies Inc. and Netflix Inc. that have turned previously profitable old business models on their heads, once he graduated, Doran decided to put his newly acquired business knowledge to work.
In 2010, he launched BookMob, which essentially rents textbooks to students: They pay as little as 1020 per cent of the cost of buying the books new — as long as they agree to mail them back at the end of their rental term. It was modelled after similar successful sites in the U.S. In the process, he helps Canadian students keep their money in their pockets, not stacked on Ikea bookshelves, where the text books are destined after a few months to merely gather dust.
In the spring of 2014, BookMob merged with TextbookRental.ca, a similar service that launched around the same time. Doran is now chief executive of CourseBox Inc., which owns both sites.
Doran said CourseBox has been doubling or tripling its revenues each year since it launched, but the Canadian online textbook rental market still has a lot of catching up to do. In the U.S., the post-secondary textbook market is being rapidly dismantled: Less than half the American students surveyed last spring by the Book Industry Study Group, a trade association, said they purchased a current print textbook for their course. About 20 per cent opted to rent through services similar to Doran’s, and about 12 per cent tracked down a used copy. There are no comparable statistics for Canadian students, but Doran estimated fewer than 10 per cent are using an online service to rent or buy used textbooks.
While consumer book prices have been decimated by Amazon and Apple — who price books as close to wholesale as possible (while squeezing publishers), driving U.S. revenues for printed books down roughly eight per cent between 2008 and 2013, according to the Association of American Publishers — textbook publishers have come up with ways to keep a lock on their captive market. In a bid to hold onto revenue, they have come up with inventive techniques that keep students buying, including access codes for online material only available to students who pay full price.
And those things have worked, to a point. But not even the cleverest old media businesses can protect themselves entirely from the effects of the Internet’s crusade for free content. And with the Web helping students pay less by enabling comparison shopping and renting (or to pay nothing, if they’re willing to download pirated copies) the total amount students are spending on course materials keeps falling, even as textbooks get pricier. The average American student spent $563 US on textbooks during the 2014-15 academic year, according to the National Association of College Stores — a 20 per cent drop from the $701 US they spent in 2007-08.
As a businessman himself, Doran said he doesn’t resent the muchmaligned strategies used by the major textbook publishers to keep prices and profits high, such as cranking out new editions as often as possible, which has the effect of forcing students away from used options. But the publishers are alienating their customers in the process, he said.
From a business perspective, I definitely understand what the publishers are doing. It’s smart business. The students definitely don’t appreciate it, though. — Brad Doran, chief executive at CourseBox, an online textbook rental service
“From a business perspective, I definitely understand what the publishers are doing. It’s smart business,” Doran said. “The students definitely don’t appreciate it, though.”
But the textbook market isn’t a normal marketplace: It has more in common with the markets for prescription drugs and car repairs than it does with the consumer book trade, said James Koch, an economics professor at Old Dominion University in Norfolk, Va. These are what economists call “trust markets,” which tend to have prices that rise faster than the rate of inflation because the end consumer isn’t fully in charge of the purchase decision.
“The doctor says, ‘You need a prescription,’ so typically you and I go out and do that,” Koch said. “The consumers — in this case, students — really don’t have a good way to figure out whether this is something you need to do or not.”
Meanwhile, the industry is heavily consolidated to a near oligopoly. There are really only five major textbook publishers: Cengage, Pearson, McGraw-Hill, Worth and Wiley.
In 2006, Koch published a paper that suggested the cost of acquiring textbooks was likely to continue to rise quickly, despite the potentially disruptive effects of ebooks and the Internet. With college instructors having little incentive to choose low-cost options, and school-run bookstores having many incentives to keep student dollars coming in, Koch predicted the only way to rein in textbook costs would be to convince colleges and universities to implement their own textbook rental systems.
As it turns out, Koch was right about cheaper ebook versions having negligible impact: They are rented or purchased by less than 10 per cent of American students in an average course. Students apparently still put a premium on the ability to dog-ear and highlight actual paper books.
But what Koch didn’t see coming was the rapid growth of online services like BookMob, which have students now seeing textbooks as a cost that can be minimized, rather than a punishing inevitability.
The major publishers haven’t been sitting still in the face of this threat, pouring money into coming up with digital resources, educational games and customized books for particular courses to help recoup lost textbook sales. In 2008, print textbooks accounted for 81 per cent of McGraw-Hill Global Education Holdings’ business; by 2014, digital material, custom-printed content and traditional printed books accounted for onethird, each.
Michael Solomon, a marketing professor at Saint Joseph’s University in Philadelphia and author of several textbooks, said he has sympathy for students suffering from sticker shock at campus bookstores.
However, he takes issue with the notion that new editions and rising prices are just a cash grab. Whether students like it or not, frequent updates in subjects like business and marketing are important and quality fact-checking and copy editing is expensive, Solomon said.
“The only time a publisher or an author makes any money on the book is the first time it’s sold,” Solomon said. “It’s this really bad cycle, where the students are recycling the stuff. What that means is the publishers have to keep hiking up the prices because they have to amortize across the entire edition.”
Still, publishing remains a profitable industry, despite all the digital-aged pressures. While it’s true that sales of printed books have declined significantly since 2008, sales of books overall have increased by about 14 per cent once you include $3 billion US in ebook sales. Data compiled by the trade publication Publishers Lunch found the publishing industry’s profit margins were about 10 per cent in 2012, compared to 3.3 per cent in the transportation sector and 0.71 per cent in construction.
Numbers like that help explain the attitudes expressed by the students surveyed by the Book Industry Study Group who downloaded pirated textbooks online or illegally photocopied their friends’ books.
The survey found a significant proportion did it, at least partly, on principle, with about half believing new textbooks are too expensive and about one-quarter believing course materials should be free or very cheap.
In other words, many students see the rapidly rising prices of new textbooks and frequent releases of new editions as what they arguably are: efforts to cling to a dying business model by fleecing them out of their money. And if they don’t like it, Doran has a warehouse full of textbooks he’d be happy to rent them.