The FTSE 100 firm, breaking with the model of what it said was “lengthy and expensive print revisions” of textbooks that have dominated the market since the 1970s, will now release updates to its 1,500 active US titles on a “digital first” basis.
John Fallon, Pearson’s chief executive, said that with “nearly 90%” of learners using digital education tools, students were demanding access to more accessible and cheaper higher education materials.
This shift in the company’s business model, he said, would provide customers with “affordable, convenient and personalised digital materials” while also having the added side effect of increasing revenues over time.
He added that the move would also provide a more predictable, visible revenue stream with a better quality of earnings for the group.
Under the new digital structure, students can be expected to pay an average of US$40 for an electronic textbook or US$79 for a full suite of digital learning tools. However, students who still desire a print copy will be able to rent one for around US$60.
The new model may also come as a boon for US college students, who currently have to contend with eye-watering costs that can see them forking out as much as US$1,200 each year for books and course materials.
Pearson has been pushing to restructure and better digitise its US textbook business to stem a decline that has already contributed to a series of profit warnings.
Evidence of the turnaround’s benefits began to appear in the first quarter of 2019, with the North American business reporting a 2% rise in sales compared to a 1% decline the year before.
Investors gave the news a good grade in mid-morning trading, with Pearson shares rising 3% at 889.8p.
Broker expects revenue “dip” for first two years
However, analysts at Liberum remained unimpressed by the digitisation plans and reiterated their ‘sell’ rating and 550p target price on Pearson’s stock.
The broker said in a note that the shift was an “implicit admission” that the age of sky-high textbook prices was over, although 45% of its US higher education revenues were still derived from print textbooks and that this legacy area would need to be managed as it would also incur “legacy print costs”.
Liberum added that while the shift could bring through long-term benefits, they expected to see “a dip in revenues” over the first two years at least as prices dropped.