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Cengage/Mcgraw-Hill Merger Would Make Students Pay Even More for Textbooks

August 20, 2019

Almost a year ago today I unpacked my bags, put up my last poster in my dorm room, and prepared for my first day as a college student. One of the first items on my to-do list — apart from figuring out where my classes were — was buying the textbooks I would need for my classes. As I opened my laptop and looked up the titles I was shocked at what I was seeing. A mix of required readings that individually cost more than the concert ticket I had been saving up for. Apart from traditional print titles, I was equally amazed that some classes required books that were solely online — none of which I would own, but rather would have access to for a limited amount of time.

The shock I experienced is not unique. Millions of students across the U.S. face a textbook market that is ever changing with prices that are exponentially rising. According to Bureau of Labor Statistics data, textbooks prices have risen 1,041% (three times faster than inflation) since 1977. According to the College Board, a student at a public, in-state university is expected to spend about $11,140 during their college career on books and supplies with the cost being even higher for out-of-state and private university students. These prices have led to 65% of students not purchasing required materials despite 94% of them being aware that it would hurt their grades.

Despite these dismal conditions, Cengage and Mcgraw-Hill — the second and third largest publishers in the college textbook marketplace — have announced their plans to merge. Should this merger go through, it would lead to increased prices for students, the further consolidation of an already heavily saturated market, and a decreased market for the purchasing of new educational materials. In light of this, Public Knowledge joined a plethora of advocacy organization and advocates in sending a letter to the Department of Justice urging the department to block the merger.

Historically the textbook industry was a market full of a wide array of competing publishers. Today, that is not the case. The top five companies — Pearson, Cengage, Mcgraw-Hill, Mcmillan, and Wiley — together control 80% of the market for new college textbooks. Should the Cengage-Mcgraw-Hill merger go through, the combined entity would control 41% of the market. A Cengage-Mcgraw-Hill merger would lead to even higher prices, and fewer options for consumers. It would also give the new company additional power to prevent students from buying used textbooks.

Many college students have turned to the secondary market to acquire affordable, second-hand textbooks. Textbook publishing companies have seen this resale market as a threat and have used various tactics to restrict it. Cengage CEO Micheal Hansen has said that the used textbook market is “a market that should fall by the wayside if we do our job the right way.” Traditionally, publishing companies have turned towards issuing frequent new editions in order to help eliminate the secondary market. These new editions are characterized by miniscule changes, such as a re-order of chapters or the addition of a few sentences. Though there are no significant changes between editions, students feel inclined to purchase the latest book.

With the advancement of technology, textbook companies have evolved to employ new ways to diminish the secondary market. Cengage and McGraw-Hill have both pledged to transform themselves from textbook publishers to software companies, providing access to online platforms for homework, e-textbooks, exams, and more. Students access these platforms by purchasing an access code, which provides a semester-long login to the platform. Once accessed, the platforms provide students with access to an e-textbook, resources such as practice exams, and possibly even homework assignments from their professor. Since some classes require the completion of work through some of these platforms (such as an online quiz that must be taken through the platform), students are forced to spend more — on top of tuition — simply to advance through their class. At the end of the semester students lose access to the platform and must buy another access code to gain limited access again, meaning that even though students are paying textbook-level prices for an access code, they do not own the textbook nor the various other resources. This has allowed for textbook companies to further attack the secondary market since students would no longer have a “textbook” they could subsequently sell to recuperate part of what they paid in the first place.

Such an odd non-ownership of textbooks is possible through the companies’ definition of the transaction taking place. Under copyright law, when a person purchases a copyrighted item they are acquiring ownership of that copy. For example, when you buy a book you are purchasing a copy of the copyrighted work. You can read the book as many times as you’d like without needing a license, and you can resell it or give it away. However, increasingly, instead of giving consumers ownership of a copy, publishing companies sell consumers a short-term license to access the copyrighted work online, and claim that they never sold a “copy” at all. (Or, they try to make a physical textbook less useful without access to certain online resources.) This means that consumers must abide by the companies’ terms (such as paying subscription fees) in order to continuously access the textbook.

By bundling textbooks, assignments, tests, and other resources into an online platform, publishing companies only further entrench universities and professors into their system — heightening switching costs thus making it harder to choose another book or platform. Even labeling this sort of transaction “a purchase” is misleading. A combined Cengage-McGraw-Hill would only aggravate this problematic trend.

The merger would not only affect students’ wallets. Through their digital learning products, Cengage and McGraw-Hill collect student data on class performance. They justify this by arguing that the collection would allow universities to better serve their students. With fewer publishers in the marketplace, companies would have less incentive to create fair data usage policies. Similarly, this collection of personal student data is highly vulnerable to cyber-attacks, or may simply be sold to data brokers, harms which are exacerbated by the data being concentrated in the hands of a few publishers.

If we hope to have a competitive college textbook market, the Cengage-McGraw-Hill merger should be blocked. Under Section 7 of the Clayton Antitrust Act, mergers or acquisitions “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition or tend to create a monopoly” are forbidden. The merger of Cengage and McGraw has shown to be one that would be detrimental to competition, and would worsen an already flawed market.

To be sure, blocking this merger alone will not be enough to weed out all the unfair practices of  textbook publishers. These practices are enabled by questionable interpretations of copyright law in which sales are designated as “licenses” and may by themselves violate competition and consumer protection law. Addressing these issues may require further action by competition authorities or Congress. However, further consolidation in an already-concentrated market would further entrench these practices and reduce the likelihood of a publisher choosing to compete by offering more student-friendly options.