Testimony of Mr. John Isley
Chairman, Association of American Publishers, Higher Education Committee
Executive Vice President, Publishing, Planning and Business Development
Pearson Higher Education and Professional Publishing

U.S. House of Representatives
Committee on Education and the Workforce
Subcommittee on 21st Century Competitiveness

 Hearing on
"Are College Textbooks Priced Fairly?"

July 20, 2004

Chairman McKeon, Ranking Member Kildee and members of the subcommittee, thank you for inviting me here today to discuss the role of the publisher in textbook development and distribution.

I am John Isley, Executive Vice President of the Pearson Higher Education, International and Professional Group. I appear today representing the Association of American Publishers in my role as Chairman of the AAP Higher Education Executive Committee.

The Association of American Publishers is the national trade association of the U.S. book publishing industry. AAP's members include most of the major commercial book publishers in the United States, as well as smaller and medium-sized houses, not-for-profit publishers, university presses, and scholarly societies.

There have been significant changes in higher education over the last decade and we appreciate the invitation to share these developments with you, as well as address the questions you raise. Today's students, and the faculty that teach them, have new expectations from their higher education. These expectations are driven by many factors, including demographics, employment requirements for knowledge workers, the significant lifetime wage benefits of a college degree, and a student population that is multi-tasking the demands of school, work, and home.

These market conditions have created the need for publishers to personalize higher education, employing technology, instructional tools, and a new, vast array of materials that address individual learning and teaching styles. Higher education publishers offer a continuum of price points for the textbooks and digital products we offer, from low-cost editions to fully-loaded textbooks and instructional packages, with a variety of options to integrate the components which may include customized editions, and electronic, abridged and brief editions.

Publishers offer faculty and students ancillary materials customized to the way individual faculty members prefer to teach and enriched and prescriptive learning resources that ensure all our students have an equal opportunity to be successful.

Allow me to address some of the key issues relating to postsecondary textbooks that have been raised by you and others:

The decision-maker in selecting instructional materials for course use is the individual professor or, in some cases, a committee of the instructors responsible for teaching a specific course. The selected textbooks are then typically ordered from the publisher and/or wholesalers by the campus bookstore or other resellers and purchased directly by the student from that retailer.

Professors and instructors independently choose instructional materials in the context of their course needs, their perceptions of their students’ needs and abilities, and any guidelines given by their department or institution. A wide array of materials from a variety of publishers is generally available for each course at the college level. Since the market is freely competitive, there are typically materials available from both AAP member and non-member publishers, including multiple versions or customized offerings from individual publishers in various formats and at significantly different price points.

Faculty members have the difficult job – which we believe they do conscientiously and well – of making selections among the offerings based on their judgments about which are the best materials that meet their standards to recommend or require students to buy. Their judgments are based on a variety of factors but it is clear that price and value offered by the materials are increasingly important in their considerations.

As noted above, textbooks are available from publishers at a variety of price points, and there is price pressure on college textbooks as a result of several factors that will be discussed below. In general, however, we don’t believe students are paying significantly more for course materials today, either on an inflation-adjusted basis or as a percentage of overall education expenses. To be more specific:

• Student Monitor, LLC, an independent market research firm which studies a broad range of student lifestyle and purchasing patterns, consistently measures what students spend each semester on new and used textbooks. Their data says students of four-year colleges spent $623 in the 2003-2004 academic year and that increases in student spending have averaged 2.5%. By our figuring this increase is 0.2% faster than inflation. (See Appendix for Student Monitor’s view of textbook spending.) We realize there are other measures that tell a different story, though there are also those – including one cited by CalPIRG for the U. of California system that says student spending increased 3.4% over the last seven years – which present similar data. Perhaps the GAO study can help sort out a more precise number here but it is certainly our view that in recent years student spending on course materials has not increased much faster than inflation.
• Textbooks have always been expensive relative to general interest publications since the potential market for any individual title is limited to the students who would enroll in a college class on the topic.
• Publishers often support the basic text with an increasingly large and complex array of print, web, and other media supplements and services to both instructors and students. Instructors value these complementary products and additional instructional support but the costs of creating, maintaining and servicing these assets are not insignificant.
• Production values in the texts themselves have increased significantly from the days of one-color, lightly illustrated books. Today, many of the books are in oversized formats and in full color. This shift is in response to customer demand.
• The majority of costs involved in creating textbooks are in the intellectual capital and labor of the authors and knowledge workers who create them, costs that aren’t easily reduced. These sorts of cost pressures present, of course, a challenge in all facets of higher education.
• A significant amount – we estimate 50% -- of the revenues from student purchases of authors' and publishers materials goes to the distribution and re-distribution chain. (See Appendix for a graphic representation of where student purchasing dollars go.) To be sure, some of this money goes back to students who choose to sell their books at the completion of a term for resale on the used book market.

In the most typical cases, textbook authors are college instructors. There are, however, many, many different sources of authors of successful textbooks and, since the market is freely competitive, people with non-traditional backgrounds or unaffiliated with academic institutions can succeed.

In the most typical case, however, authors are college instructors who are great teachers, write well, are entirely up-to-date on certain areas in the field or in pedagogical techniques, and smart enough to know to ask for and accept help in areas where they are less talented or up-to-date. Some potential authors contact publishers directly, others are discovered by a member of a publisher’s staff who hears them talk about their classes and students, believes they are talented, and encourages them to give textbook writing a try.

Successful, proven authors, or even new authors with a terrific proposal or samples, can be highly sought after and competed for by various publishers. We each have our stars. However, the norm for results, as is probably true in most of the creative businesses and is certainly true in other parts of the publishing business, is that most new titles do not sell as well as their author’s or publishers’ initial expectations. In these instances, the royalties earned, in an economic sense, in no way justify the time and energy spent on the project, though few regret having written their books.

There is an even larger group of members of the academic community, generally instructors, who serve as authors of supplementary materials or developers of electronic materials or reviewers of draft manuscripts, who greatly aid in the creation of a publisher’s learning materials.

Finally, and increasingly, many publishers engage, generally through instructors, students who "class test" portions of draft manuscripts or beta versions of electronic materials for their efficacy.

When print or media supplements are packaged with textbooks that offer is generally the result of the instructor’s specific selection of that combination of materials. In may cases, the combination of materials enable the publisher to offer the learning package at a discount relative to the aggregated cost of the items if purchased separately. That noted, the items in the package typically can be purchased separately, or a student could combine buying a used book with new supplementary print or electronic materials.

In the college market new editions are usually published, on average, every three years. In some disciplines or markets the cycle could range from two to four or fives years but three years is a typical normal cycle across most disciplines.

Students and professors generally want the most up-to-date information available and instructors have historically been unwilling to adopt textbooks that are three and four years old. New editions are done to update content, improve the instruction, issue new sets of problems and practice tests that aren’t in general circulation, offer electronic resources that are compatible with current software systems and infrastructure, and enable publishers to attempt to make sales and gain new adoptions by instructors who have not previously used the title. Once a new edition is published, publishers generally do not continue to stock the old edition for any extended period of time. There is nothing, however, to prevent campus bookstores or other resellers from maintaining a stock of an old edition.

It is still early to fully understand how the Internet will change the delivery of instruction in higher education and, as a consequence, change the higher education publishing business.

Most higher education publishers do, indeed, have many of their textbooks available online, either in downloadable form or readable-online. There are several initiatives to this effect currently ongoing, with some offering substantial discounts to students. That noted, e-textbooks have been available for a few years but sales have been minimal so far. The costs of e-textbooks are additional to the costs of producing and maintaining the print content. On an industry-wide basis our customers are still heavily favoring print content in their purchasing despite oft stated demand for digital delivery. To meet marketplace demands, I suspect publishers will choose to maintain a dual inventory for some time to come.

We welcome the challenges of digital delivery and we look forward to opportunities to improve instruction through digital delivery of content. All publishers are currently providing a variety of digital content for use by instructors and students in assessment, homework, or for other instructional purposes, very often in a variety of electronic formats as specified by an instructor or individual campus. That noted, I expect the migration to digital delivery to be very gradual, and I expect that the need to maintain and increase investment in both print and digital delivery will be with the sector for some time to come.

However, as previously noted, on an industry wide basis the largest costs in producing quality instructional content and tools lie in the creative inputs—the work of authors, editors, artists, and reviewers—not in the sheer manufacturing and delivery of that content.

By any measure, American higher education is the world’s best and we believe American course materials are part of that excellence. The rest of the world agrees. American books, written primarily by American authors, particularly in business, science, engineering, and computer science, enjoy strong demand outside the U.S.

Each publisher has its own individual policies and practices about pricing around the world but it is fair to say that most titles intended for purchase in areas such as Asia, India and Latin America are sold at prices that reflect local market conditions. To set pricing, each publisher, usually through their local management, examines the factors that influence that market, such as local income, costs, competition, standard of living variances, and local regulatory and trade issues.

Selling into foreign markets helps publishers spread their costs of development over more copies and keep prices lower for U.S. students.

One reason that most publishers have chosen to make desirable U.S. textbooks available at prices that reflect local market conditions is that price is often used as an excuse for copyright infringement. According to a conservative estimate by the International Intellectual Property Alliance, piracy cost U.S. publishers $500 million in 2003. While piracy of American textbooks is a worldwide phenomenon, AAP believes book piracy and commercial photocopying of American texts are most rampant in Asia due to the high demand for English language materials in that region. United States government officials encourage publishers to price their materials to the local markets. The U.S. Government has also requests publishers to commit their own resources to monitoring piracy and they are, both through the AAP and individually.

Rental programs have existed at certain institutions for a number of years so there is likely good data on their efficacy. As publishers, we have the view that many of our learning resources have lasting value for students in their educational and professional careers, and we would hope they would keep them. A system of "rental" presupposes that books are primarily for borrowing, not keeping, and we struggle to agree with that view.

In addition, although this is not really an issue for publishers, there are economic considerations for colleges and universities. We believe on campus bookstores are generally profit centers for these schools.

There are also practical concerns. As more of publishers’ resources for students become electronic, measure individual student performance and, thus, are consumable, it is not clear to us how the rental model can effectively respond to that usage.

It isn’t hard to imagine that publishers weren’t too keen on a report entitled "RipOff 101" that attacked our industry. There is much we object to in its methodology, tone, data and conclusions. Perhaps the GAO report will help clarify the survey methodology and data. One small point: AAP was aware of the report while it was in preparation and offered to participate, but we were not invited. On the other hand, there are points in the report that accurately reflect student frustration with course materials purchasing and some suggested directions that some industry members already are pursuing.

The report is inaccurate in its description of packaging. Most packages of learning materials, including those cited in the CALPIRG report (as reported by the California Association of College Stores), represent a considerable savings to the purchaser over purchasing the items separately. Where packages go wrong is when a student is asked to buy something that isn’t helpful or doesn’t get used.

The misunderstanding around why publishers introduce new editions, discussed previously, is also pervasive.

Finally, though the report suggests electronic delivery of course materials might save students money, so far this has not been the case as most e-book offerings have met with customer indifference. Still, some AAP member publishers are currently pursuing this avenue and offering significant savings to student customers.

Mr. Chairman, that concludes my testimony and I am happy to answer any questions you and the Members of the Subcommittee may have.