Interesting news a’bubbling in the business world this morning as media giant Thomson (NYSE: TOC) has let it be known that its Thomson Learning division is potential up for sale. That ringing a bell? Most likely, at least half of your college textbooks were published by this company, among other things: it’s expected to fetch about $5 billion in the sale.
But who might be interested in buying this division and who could afford it? Two companies immediately spring to mind for me, actually. Either the Mountain View giant Google (NASDAQ: GOOG) or Apollo Group (NASDAQ: APOL), though I admit that the latter company might be a bit hard pressed to acquire Thomson Learning for $5 bil when its market cap is only $6.5 billion.
The Wall Street Journal, as always, has a cogent article on Thomson Learning [sub required] that explains:
“Thomson Learning’s textbooks, testing and certification materials are used by colleges and distance-learning organizations, and include its Thomson Wadsworth, Thomson Gale and Thomson Delmar imprints. The unit also maintains a number of online learning courses and its own university, Universitas 21 Global, which issues graduate degrees through online instruction.
“Thomson Learning also maintains a unit called Prometric, which designs and processes tests used inside corporations, for the public sector and counts as clients the National Association of Securities Dealers and the National Board of Medical Examiners.”
If you’ve been following the painful evolution of publishing as printed material competes more and more with online and bootleg products, you might not have noticed that textbooks have proven relatively immune, so the immediate reaction of “buy a publishing house? Are you crazy?” is definitely wrong in this case.
Apollo Group, as you might recall, is the for-profit company that runs the University of Phoenix, and I can only imagine how they’d love the opportunity to merge and leverage the success that Thomson has had with its Universitas 21 Global. The synergies are obvious and the ability to jump into the Spanish speaking market would pay vast dividends over time as our demographics shift in the United States and as Apollo continues its push overseas.
Quoting the WSJ again:
“The Learning division’s revenue was $456 million, or 5% higher than in the same period a year earlier. The business growth was fueled by strong demand for some of the company’s publishing services and by textbooks for arts and sciences and for business and economics students. E-learning results, however, were weak, the company said.”
A perfect fit for the University of Phoenix owners, isn’t it?
Google still seems like a more likely buyer, however, even if Apollo is a bit more logical to my way of thinking. Google can definitely afford it and it gives them lots of interesting and valuable content that they can disseminate further. In particular, I believe that Prometric would be a fascinating partner product to the company’s existing efforts to get into the world of corporate IT as a vendor (think Google search appliance and its more recent Google hosted email, calendar, etc., for corporations and educational institutions).
Google is really focused on amassing and indexing the world’s information, however, and has already demonstrated a great amount of interest in the world of college textbooks, so being able to just swoop up an important textbook publisher would instantly give it a massive additional body of information.
Let’s try to stitch things together in a theoretical Google / Thomson Learning mashup…
Imagine you’re in college and Google’s powering the backend of your IT world. You have a Google co-branded custom home page with plug-in RSS modules that offer up your favorite sports scores, entertainment news, Google Talk buddy lists and IM, class discussion forums via Google Groups, your email via Google Mail, even videos via Google Video YouTube. You’ve pushed all the pieces together with the company’s rudimentary Web page design tool and can easily graft in class reading lists that are accessible directly online for a small fee.
Now we’re talking about something interesting. What if Google can crack the nut of selling textbooks by the chapter, rather than by the book? It has the delivery platform and the technology necessarily to gain the necessary visibility in the academic world, along with the critical ability to actually justify to textbook authors why it’s a good thing. Now academic education becomes more flexible — especially online — because instructors can assign one chapter from expensive textbook A, and another chapter from textbook B, and so on. Mix and match, education improves, courses become more flexible, and students only pay for what they actually consume. Hmmm…
Worth noting is that as with any acquisition, the buyer of Thomson Learning could easily strip off the groups that aren’t a good fit and sell them separately or launch them as separate standalone companies, so even if not everything inside Thomson Learning fit the Google model (or Apollo’s vision for the University of Phoenix, for that matter) that isn’t necessarily a red flag.
So what do you think? What companies are sniffing around Thomson this week trying to figure out whether Thomson Learning would be a smart acquisition for their team?
And I was just chatting with a friend about the YouTube purchase… they were baffeled that Google would expose itself to intellectual property issues. I felt that Google was try to position itself as the owners of the internet’s “Town Square”…no matter what the medium. Before YouTube I wouldn’t have thought text books would be part of their game plan. But now, yhea… I can see it.
If Google sells textbooks chapter-by-chapter, you can bet it’s not because that will be a cheaper alternative for students.
Whole automobiles sell for less than the sum of *some* of their parts. The same would be true of textbooks.
So, even though “students only pay for what they actually consume,” they’ll probably end up spending more AND they won’t have anything to sell back to the campus used book store to offset the start-up costs. Nor can they share or swap physical textbooks with classmates or friends after the class has ended.
Skillsoft announced last night that they were acquiring NetG (the online/elearning division of Thomson). That would certainly take Google out of it… ya think?
Thomson already has a model that sells the book by chapters, iChapters. The problem is if the one chapter is purchased from a book and that chapter refers to another chapter within that same book then you would need to purchase that chapter as well. Thomson already has a “Thomson Custom” group that mixes chapters from different ISBN’s to create one book, professors can customize their own book for their specific course. They can also create their own chapters and add them to their book.
Google is an ad machine. They can support putting entire textbooks online at no cost to students via an ad-supported model. They can potentially implode the college textbook industry as we know it. What advertiser wouldn’t want to pursue this coveted demographic of 17-25 year olds? Once this intellectual property becomes commoditized, traditional college publishers may go the way of Encyclopedia Brittanica after the launch of Microsoft Encarta. Moreover for those who still want print versions: the technology to deliver custom books on demand exists today. Provide an intuitive interface and professors and students will follow. Publishers have worked out these solutions already. Google’s entry into the market will completely accelerate the process. As the holders of the intellectual property, publishers will survive. Bookstores may not be as lucky.
Thomson’s iChapters sell at a significant discount to the printed text. Purchasing the entire ebook version of a text is 50% off of the list cost of a new text in the bookstore, and individual chapters sell for as little as $1.99 per chapter. Individual chapter prices vary.
Don’t be impressed by the revenue growth. According to the Association of American Publishers, textbook prices have been increasing at a faster rate than revenues over the past several years. That means they’re selling fewer units at higher prices, and that’s how they’re making 4-5% growth. Not a recipe for viable long-term business model.
The Thomson Corporation is TOC on the NYSE. TMS is a digital video technology company: http://www.thomson.net
Fixed up that NYSE reference. Thanks. It’s hard to tell sometimes when there’s more than one company with the same name! 🙂
Will their database products be for sale? How about Thompson Dialog?
Highly unlikely. While some of Thomson Learning’s content might be attractive to Google, they are more likely to either license that content at a later date, or have it created for them, which would be far cheaper then the estimated $5bn that Thomson Learning would sell for.
From purely economic terms, buying a $6bn company with so many legacy issues and relatively low profits would hurt GOOG a lot.
From the practical perspective, Google would inherit a large and cumbersome organization which would not be easily retooled to match Google. In theory they could buy and then sell of parts, but buyers would be slim because of regulatory issues and costs, so Google would have to eat as much as half of the purchase price just to get the parts that make sense.
Google cant do any big job in this . Thomson Learning lot of good titles & IR suppout .Google is an ad machine. They can support putting entire text online at no cost to students .but students will only go for print tex which goole cant do it at all .
The cultural mismatch would be a little too distracting.
Rudy: “That means they’re selling fewer units at higher prices, and that’s how they’re making 4-5% growth.”
Yes, and don’t forget the other “cost-efficiency” measures Thomson has taken in the past few years, which includes (a) drastically laying off staff (some with 20+ years with the company) and closing offices; (b) not giving any remaining employees raises for the last 3+ years; (c) demanding product without as many editorial checks and balances (too expensive to have two copyedits); (d) outsourcing typesetting, production, and as much else as possible to Hong Kong and other fly-by-night outfits. Yes, I’m a disgruntled former employee, but it doesn’t make any of it less true. Stick THAT in your book and market it.
This is like the NBA free agency. Who wants who..something like it.. If thompson learning is still a potential profit gainer, anyone would love to get it.
But as for google, it’s is one of the most powerful search engines. they dominate the internet. If they are going to do this to gain profits, they sure would. But there’s a lot of consideration to make. Students would always go for something affordable. And so, how do you think can google can gain much profit from it? They’re more into ads.
@ashok: yes! definitely! students would still go for print text. Something they could carry all along for study.
@konnie: i like your factual information. Business should be both win-win situation for the company, employees, and customers. based on what you said, it seemed like they are really into their personal gain.