Pearson has reported that in 2016 the North American higher education courseware market was much weaker than expected and that their net revenues fell 30% in the final quarter resulting in an unprecedented 18% decline for the year.
They estimate that 2% of this decline was driven by lower enrollment, particularly in Community College and amongst older students; 3 to 4% was the result of accelerated impact from rental and secondary market and approximately 12% was due to an inventory correction reflecting the cumulative impact of these factors in prior years.
In 2017 Pearson expects further enrollment declines in the North American courseware market and continued downward pressures. Enrollment at American colleges peaked at 21 million in 2010 and has been dropping ever since. Enrollment was
down 3.8% by 2014 the latest year that government statistics are available.
To counteract the anticipated decline Pearson expects to:
1- Accelerate their shift from print to digital. Currently, the company controls about 50% of digital courseware market. They expect to grow that to 75% by 2020,
2- Reduce eBook rental prices by up to 50% across 2,000 titles making digital rental the best option for price-conscious students, and
3- Launch their own print rental program.
Higher Education Courseware represents 27.2% of the company’s business, the largest single share, and generates roughly 45% of the firm’s total profits. About half of this business is tied to print textbooks and the other half to digital.
For photographers and stock agencies trying to sell images for educational use this will probably mean fewer sales at lower prices. Customers tend to pay much lower prices for digital use than print use. In addition, when licensing an image for digital use it has become pretty standard that the single license fee covers unlimited future uses.
Pearson has predicted years of gloom in the U.S. market and cut its profit forecast. On January 20th Pearson announced a freeze on its 2016 dividend after 24 straight years of increasing the dividend above the rate of inflation. The company stock dropped 28% on the announcement.
Analysts question whether Pearson executives are capable of handling the structural shifts in higher education: fewer older students enrolling, community college admissions dropping and more students renting textbooks all while new entrants like Amazon.com pose a major threat.
Neil Campling of Northern Trust Securities said, “The North American higher-education courseware market essentially collapsed in the critical fourth-quarter back-to-school season.”
Education needs to become much more accessible and cost-effective for people, two negatives for the future profitability of a company such as Pearson.