Kno moves into K-12 market: Expansion or act of desperation?

AllThingsD reports that Kno, a college eTextbook rental company, has struck a deal with Houghton Mifflin Harcourt to distribute its eTextbooks to the K-12 market. The titles will be rented for a one-year period for $9.99 or less, and will work on iPads and the web. Kno plans to release eReaders for Android and Microsoft Windows 7 (and presumably 8) later this year. The company is negotiating with McGraw-Hill and Pearson to distribute their K-12 eTextbooks.

The obvious hole in this strategy is that most K-12 schools directly supply textbooks to students (either at no cost or in exchange for a small activity fee,) so convincing parents to rent eTextbooks, and school districts to switch to renting eTextbooks instead of buying print, is going to take a lot of work. In addition, moving into the K-12 market indicates some desperation on Kno's part. It suggests that Kno isn't meeting its sales objectives, and needs to find new sources of revenue.

Update, August 8, 2012: Kno has launched its K-12 eTextbook rental program on its website. The biggest reason why parents should rent eTextbooks when they get them for free from their school is...wait for it...print textbooks are too heavy! Why, did you know that carrying a 12-pound backpack during a school year puts a cumulative load of over 20,000 pounds on your child's body--the equivalent of six mid-sized cars? And, given the epidemic of obese children and Type 2 diabetes starting in childhood, along with cutbacks in physical education programs, there's absolutely no reason for children to get exercise. Let's protect their delicate backs.

Print textbooks are too heavy? Seriously? 

McGraw-Hill puts its Education division up for sale

First, McGraw-Hill released details of its plan to spin its education division off as a publicly-traded company, and now, the New York Post is reporting that the company has hired Evercore Partners and Goldman Sachs to run an auction of McGraw-Hill Education. The big question, which the article doesn't answer, is why McGraw-Hill is trying to sell off the division. It's possible that the company doesn't think that it would get enough for it in an IPO, but given private equity's poor track record with educational publishing and distribution companies (Houghton Mifflin Harcourt and Nebraska Book Company being two examples,) it's unlikely that McGraw-Hill could raise much more through an outright sale.

Amazon Publishing's getting around bookseller objections by selling eBooks through HMH

Publishers Lunch Deluxe reports that at least two Amazon Publishing eBooks, including Oliver Pötzsch's The Dark Monk: A Hangman's Daughter Tale, the follow-up to his bestseller The Hangman's Daughter, are being sold by Barnes & Noble, Apple and Kobo. The eBooks are being sold to the retailers by Houghton Mifflin Harcourt under the New Harvest imprint. Previously, Amazon Publishing had licensed HMH only print rights to selected titles, and Amazon exclusively sold its own eBooks.

According to the article, Amazon has informally said from the beginning that it intended to make eBook versions of all Amazon Publishing New York titles available for sale outside of the Kindle Store. This new arrangement will enable the resellers that refused to sell Amazon Publishing titles in their stores unless they could also sell the eBook versions to lift their ban, at least on titles sold through HMH.

Apple's eTextbook announcements: Far from a slam dunk

This morning, Apple announced:

• A new version of iBooks that supports eTextbooks.
• Distribution agreements with five textbook publishers (Pearson, McGraw-Hill, Houghton Mifflin Harcourt, DK and the E.O. Wilson foundation) covering 90% of the high school market.
• eTextbooks priced at $14.99 (U.S.) or less.
• A free eTextbook editing application for OS X called iBooks Author.
• A revamped version of iTunes U for higher education, with a dedicated iOS app.

Apple's announcements could be very important, but the company has a long way to go, for several reasons:

• Apple's focusing on the high school market, not colleges and universities, and it's trying to convince parents and students to purchase eTextbooks directly from Apple. In most U.S. schools and districts, students get their textbooks from the school, either at no charge or as part of an activities fee. Why would parents who don't have to pay for textbooks now or get them automatically start paying for them? Thus, Apple's plan only impacts those parents and students who have to pay for their textbooks now.
• Parents also have to be willing to buy an iPad for their child. That cuts out low-income and many middle-income families.
• There are currently only eight titles in Apple's eTextbook collection--not even enough to be called a good start.
• Although iBooks Author creates eBooks that are based on EPUB 2.0, it uses Apple's proprietary extensions for supporting multimedia, animation and JavaScript-based new features. Thus, titles created with iBooks Author can only be used in iBooks. (This might change in the future, when Apple fully implements EPUB 3 in both iBooks and iBooks Author.)
• If you use iBooks Author and create eBooks that you intend to sell, according to the EULA for the software, you are prohibited from selling the eBooks anywhere except through Apple.

Apple's decision to focus on high school textbooks before going after the college market is questionable: College students pay far more for textbooks than do high schoolers, and parents are far more likely to purchase a tablet for a new college student than for a high school student. However, that's not the most important reason why I believe that Apple will have an uphill battle. When Apple launched the iBookstore initially, with the support of five of the "Big 6" trade publishers and the agency pricing model to eliminate Amazon's price advantage, it looked as though Apple would eventually become as dominant in eBooks as it already was in music. The results, however, have been far from what Apple and its boosters expected.

Even today, Apple has a minuscule share of the U.S. eBook market, far below those of Amazon and Barnes & Noble. Apple's eBooks can only be used on Apple's devices, while Amazon's and Barnes & Noble's eBooks can be be used on those companies' popular eReaders and tablets, as well as with software eReaders on PCs, tablets and smartphones. Amazon in particular has set up an effective self-publishing program for authors, while Apple is just taking the first tentative steps today.

In short, Apple's new eTextbook initiative could make a big difference eventually, but it's far from a slam dunk.

It's Book Publishing Businesses, not Business

This morning, NPR did a news story about Apple's new iPad. I was half-awake when I heard the story, so I went to the NPR site to get the transcription. Near the top of the story, the reporter, Lynn Neary, said "At the iPad's unveiling Wednesday, Steve Jobs announced that five publishers — Simon & Schuster, Hachette Book Group, HarperCollins Publishers, Penguin, and Macmillan — had signed on to provide books to Apple's venture, with more to come." No problem there, but near the end of the story, she said the following: "Random House, the only major publisher that did not make a deal with Apple, issued a statement saying it is continuing conversations with the company about how they might best work together."

Put those two sentences together, and she's saying that the six publishers mentioned are the only "major" publishers. To be sure, they're the biggest trade publishers in the U.S. and European markets; they print the most popular fiction, biography, self-help and similar consumer-oriented titles. However, there are many other "major" publishers. The definition of a "major" publisher is determined largely by market segment. In technical and computer books, Pearson, Wiley and O'Reilly are among the dominant publishers. In textbooks, Cengage, Pearson, Houghton Mifflin Harcourt, McGraw-Hill and Wiley are powerhouses. In children's books, Scholastic and Houghton Mifflin Harcourt are among the biggest players, along with several of the big trade publishers. Heck, Pearson actually owns Penguin.

My point is that there is no single book publishing business and no single group of "major" publishers. Apple reproduced the strategy with eBooks that it followed when it launched iTunes, signing up the top five recording companies: Warner, Universal, EMI, Sony and BMG (Sony has since acquired BMG). Once it secured rights to the market leaders' catalogs, it went after smaller recording companies. It did the same thing with the iBookstore, going after the trade (consumer) publishing leaders first. But unlike the music business, where a handful of companies dominate every major category, each book category has its own group of dominant publishers. Getting the five publishers that Apple signed up gets them all but nothing in many of the major categories. They have a lot of negotiations ahead of them to get a range of eBooks comparable to what they already have in music.