Textbook Rentals or Cheap Stunt?

August 14, 2009

College students, tired of the high cost of new textbooks, may have finally gotten some relief as two of the top three college textbook publishers announced plans to get into the textbook rental business. The question for students, though, is whether this heralds a beginning of cheaper textbook prices or is it just another pricing stunt.

For years, the business model for college textbook publishers has remained fairly straightforward. Of all the revenues the publisher gets for a new edition, the lion’s share comes in the first semester; the remaining revenues dribble in over the next few semesters as competition and used books chew up an increasing amount of the market share. In this scenario, publishers charge high prices for the books so they can be sure to recoup their expenses. From a student’s perspective, the average cost of that textbook is similar — almost all copies that first semester cost full retail price, with cheaper used books making up more of the volume in subsequent semesters. Used book dealers make their money after the first semester assuming they bet correctly on the books still being in demand.

In a textbook rental scenario, things change for everyone:

  • Publishers get less money that first semester (reflecting the 40-70% of retail price floated by Cengage), but continue to get similar revenue levels in subsequent semesters because there are few if any used books. Their revenue curve, which before was extremely front-loaded, is now more level. In fact, the ongoing revenue potential could in some cases extend the hyper-accelerated revision cycle leaving the same edition in play for longer (further raising the profitability of that edition.) Sounds like a win for the publisher.
  • Students get to spend less that first semester for their textbook, but in subsequent semesters can end up paying more since there are no more cheap used books. (This is especially true in cases where the student wants to keep the textbook, since in the absence of used books they are forced to purchase at full price.) Sounds like a loss for the student unless they’re in that first semester.
  • Used book dealers really get screwed on this one, since their supply and market both dry up entirely. A resounding LOSS for them.

For years the publishers have been trying to figure out ways to thwart the impact used books have had on their revenues. For a while they had some success with bundling the textbook with consumables like workbooks or media products like CDs/DVDs, knowing that bookstores wouldn’t buy those back and forcing them to replenish their stocks from the publisher (at full price). Now, with rentals, it appears that they’ve hit on another tactic that could solve their problem.

How about the student’s problem of higher textbook costs, though? It doesn’t seem like their expenses are getting a reduction… #FAIL

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