The market for e-textbooks is small but growing quickly: It's up 44.3% from last year, according to publishing industry research firm Simba Information. That's just a drop in the bucket, when you consider that e-textbooks still account for less than 5% of total U.S. textbook sales.
In my previous article, "A Textbook Case of Digital Disruption" we looked at the state of play in the e-textbook space. Now let's cover where to look for investment potential going forward.
Right now, the major publishers -- Pearson [snip], McGraw-Hill [snip] , John Wiley & Sons [snip] , and Cengage -- have their fingers in almost every pie to one degree or another. These companies don't break out their revenues to the granularity I'd like, but here are some indicators:
- Pearson derives 14% of its global book sales from e-books (of which e-textbooks are a subset). E-book revenues doubled in 2011 compared to the previous year.
- McGraw-Hill noted in its fourth quarter 2011 earnings that "McGraw-Hill Education is benefiting from the rapid growth of digital products and sales that is transforming the education market." Keep in mind that McGraw-Hill intends to split into two companies -- McGraw-Hill Education and McGraw Hill Financial -- so if you wish to keep following this theme, stick with the former.
- Wiley reported that for 2011, digital book revenue increased 74% and now accounts for 16% of the relevant business unit's book sales.
Pearson and McGraw-Hill seem to be making more of a splash in e-textbooks than Wiley, which is probably more a reflection of Wiley's size than its innovative tendencies. Broadly, the publishers don't yet seem to have committed to a particular vision of the future in this space. McGraw-Hill and Pearson have both said that creating interactive books is a critical part of their strategies, and Wiley sees the huge opportunity before it. [snip].
Calling the odds
Ultimately, I think this game is still too close to call, but I expect it to heat up quickly. Keep watching, pay attention to the issues above, and you'll be ready to strike when the time is right. In the meantime, you can read my esteemed colleagues' writing on Pearson, McGraw-Hill, and Wiley. [snip]
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