[LIBRARYDIR] FW: [SPARC] Bookstores oppose Cengage/McGraw-Hill merger

[Boyoung Chae]

FYI.

[sbctc logo]Boyoung Chae, Ph.D.
Policy Associate, Educational Technology & Open Education
Washington State Board for Community and Technical Colleges
Openwa.org<openwa.org> | OER & Low-Cost Label<https://www.sbctc.edu/colleges-staff/programs-services/educational-technology-open-education/oer-low-cost-label-implementation.aspx>
bchae at sbctc.edu<mailto:bchae at sbctc.edu> |360-628-3549
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From: Nicole Allen <nicole at sparcopen.org>
Sent: Wednesday, December 4, 2019 8:46 AM
To: SPARC Members <sparc-members at sparcopen.org>
Subject: [SPARC] Bookstores oppose Cengage/McGraw-Hill merger

Dear SPARC members,

Yesterday, the National Association of College Stores (NACS), a trade association representing college bookstores, became the latest major group to come out in opposition to the Cengage/McGraw-Hill merger<https://sparcopen.org/our-work/oppose-cengage-mcgraw-hill-merger/>. NACS joins a chorus of stakeholders, including student governments, consumer groups, APLU, and SPARC's own extensive work on behalf of the library community.

The news is covered in Inside Higher Ed here<https://www.insidehighered.com/digital-learning/article/2019/12/04/college-bookstores-group-opposes-cengage-mcgraw-merger#.XefDtZhe5-5.twitter> and NACS's letter opposing the merger is here<https://library.thecapitolforum.com/docs/3k76ytd12d14?vtt=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJzY29wZSI6InZpZXdUaW1lIiwiaWF0IjoxNTc1MzI5NjIxLCJleHAiOjE1NzU1MDYwMjEsInN1YiI6IjNrNzdrMDAyM2sxMSIsImp0aSI6IjNrNzduMm1hZjI4ZiJ9.VWTF6vr46AKNTvdPFA1emx4bVXkXdZOVbBVjsmjewZE&u=241f9n266qgj>.

NACS was originally neutral on the merger, but reversed their position this week in response to a change in Cengage's pricing for access codes. According to NACS, Cengage plans to cease providing standalone "access codes" at wholesale prices, forcing bookstores to either sell the access codes at higher prices or sell the items at-cost (which NACS argues is effectively a subsidy that gets reallocated to other products). This change is problematic because students often pair standalone access codes with cheaper used, rental, or borrowed books to save money, and the pricing change would make that cost-saving strategy harder for those who rely on financial aid to purchase their materials at the campus store. Cengage will continue offering wholesale pricing for Unlimited subscriptions and bundled access codes, which places the burden of this change on those students who rely most on affordable options, and it may also have the effect of pushing students into Cengage Unlimited subscriptions—which feeds into longer term concerns about Cengage capturing vast amounts of student data.

Why Cengage would decide to make such a significant change at this time is hard to guess. While they claim that other publishers already engage in this type of pricing scheme, it's typical for companies undergoing antitrust review to try and avoid any actions that could draw attention to their market power. One possible factor is Cengage's poor performance in the last quarter, which may put pressure on the company to boost profits to appease investors. It is also consistent with their efforts to shut down avenues for students to purchase used and rental books on the secondary market, which we laid out in our DOJ filing<https://osf.io/preprints/lissa/e3r6f/download>.

As far as we know, the merger is still an open case at DOJ, so NACS's oposition could add a meaningful data point to their analysis. While public opposition itself does not necessarily carry sway, this situation clearly illustrates the kind of anticompetitive practices that we documented in our filing. If Cengage has the power to unilaterally dictate pricing now, it's going to be even worse if they are allowed to double in size by merging with a main competitor. SPARC has plans to reach back out to DOJ and our contacts on Capitol Hill to reinforce this point.

The timeline of the merger review is still unknown, and we remain realistic about the chances of stopping any merger in the current environment. However, the fact that the review has passed the six (and now seven) month mark suggest that at the very least, the decision is not clear cut. The companies have reiterated that they expect to close the merger transaction in early 2020, so while no news is not necessarily good news, it is at the very least not bad news.

We will continue to keep you up to date as the merger process continues. If this news comes up at all on campus, we'd be very interested to hear from you.

Cheers,
Nicole





Nicole Starr Allen
SPARC<http://www.sparcopen.org/> | Director of Open Education
21 Dupont Circle NW, Suite 800
Washington, DC 20036 USA
+1 (202) 750-1637
nicole at sparcopen.org<mailto:nicole at sparcopen.org>
@txtbks<http://twitter.com/txtbks>

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