Big Tech has become Public Enemy No. 1 these days in Washington. Legislators and regulators often set their sights on the likes of Facebook, Amazon, and Google out of concern about their market power.
Cengage isn’t quite a household name. But critics are lumping in the Boston textbook publisher with the giants. And that could spell trouble for its game-changing merger with a similarly sized rival, McGraw-Hill.
Case in point: The Scholarly Publishing and Academic Resources Coalition, a group funded by university libraries, sent a letter to the Department of Justice this week urging the agency’s antitrust division to block the merger.
The letter focuses on how much of the college textbook market the combined company will control once the merger is complete. (The company will be called McGraw Hill, the better-known name, but will drop the hyphen.) By SPARC’s estimates, the combined company will control 45 percent of the US market, compared to 40 percent for the current No. 1, Pearson — resulting in a textbook duopoly. That wouldn’t leave much room for smaller players.
SPARC also raises the specter of a “potentially enormous data empire,” because so much of the materials are digital now. The Facebook bogeyman rears its head.
The situation vexes Cengage chief executive Michael Hansen, whose company just moved into fancy new digs on the South Boston waterfront two months ago. Hansen, who would lead the combined company after the deal closes in early 2020, bills his merger-of-equals as a way to help make texts more accessible to students. The May 1 press release announcing the combination of the two private-equity-owned publishers is littered with references to affordability.
Although Hansen notes that per-student textbook spending has dropped in recent years, he knows texts remain out of reach for many students. That’s one reason, he says, why Cengage developed an all-you-can read plan for $120 a semester or $180 a year. Think of Cengage Unlimited like a Netflix for textbooks. Launched a year ago, more than 1 million students have signed up. The industry, he says, desperately needs more innovation, an easier accomplishment in a bigger company with beefed-up resources.
Hansen also says the market is “hugely fragmented” if secondhand sales, rentals, and digital options are considered. And he took umbrage with the data-mining critique: Cengage, he says, doesn’t sell data to third parties, and only uses the information it collects to help improve its products.
Still, the amount of student information in the hands of digital publishers has raised concerns in Congress. Earlier this week, US Senators Dick Durbin, Ed Markey, and Richard Blumenthal sent letters to dozens of “EdTech” businesses, including Cengage and McGraw-Hill, seeking more information about their data collection and protection practices.
The digital shift raises another concern: an increasing use of access codes to lock down digital versions of their products. The goal, critics say, is to prevent material from being resold on the secondary market, the way physical textbooks are now.
Robert Lande, a University of Baltimore law professor helping SPARC on a pro bono basis, says he doesn’t think Cengage and McGraw-Hill can divest enough book lines to satisfy antitrust concerns; the combined company would still be too powerful. If the merger isn’t stopped, he says, prices would inevitably go up, and choices would go down. The apocalyptic scenario he paints: Five years from now, we’re left with two huge companies, and essentially no used market for texts.
The merger announcement rang alarm bells at the U.S. PIRG’s offices. Kaitlyn Vitez, the activist group’s higher ed campaign director, says she worked with her legal team and the Open Markets Institute to craft a letter to the Department of Justice complaining about practices like automatic billing and access codes that expire. The textbook market is broken, she says, but this deal will make it worse. With PIRG’s help, student leaders at a few universities also called for the merger to be stopped.
Regardless of the outcome, the entire episode could provide a valuable lesson in antitrust laws and how they apply in a digital age — the kind of lesson that might make it into a textbook someday.