Friday, May 31, 2013

An Exquisitely Dumb Move from Cengage

After Wiley lost its recent case in the US Supreme Court on the issue of 'first sale' and re-importation (I blogged about it below) it was always possible, however remotely, that a major US higher education publisher would panic and indulge in some sort of extraordinarily silly and defensive behaviour.

Cengage has done it. It has just announced a new 'global pricing' initiative:

Cengage announces global price structure for US-based higher ed print titles
Cengage Learning will adopt a new global pricing structure for US-originated higher education print titles in July, with around a third of the US-originated titles distributed by Cengage Australia to be affected.
Paul Petrulis, vice president of Higher Education and Gale for Cengage Learning Australia, told Books+Publishing that ‘with the new pricing structure, prices will increase for many of the titles, however, for a smaller cohort, prices will decrease’.
Petrulis said the new structure is a response to the recent Kirtsaeng v Wiley case in the US, in which the US Supreme Court ruled that the doctrine of first sale, which allows for ‘legally acquired copyrighted works to be resold by their owners’, applies to works made overseas. Petrulis said that the ruling widened the definition of the first sale doctine, ‘allowing re-importation of US products originally created in the US from lower priced markets’. 
The new prices will apply to US-originated higher education print titles published from 2012 onwards, and will come into effect on 31 July. Petrulis said that this means the majority of Cengage Australia’s products will not be affected, including: all digital products; all locally authored, adapted and produced titles; all custom print and digital products; all Gale reference digital products; all Nelson Secondary and Primary schools products; and all English Language Teaching and National Geographic products.
While Petrulis said that Cengage is the first US education publisher to respond to the Kirtsaeng v Wiley case in this way, he said it is ‘an industry-wide issue and it is highly likely other publishers are also looking to how they respond’.
‘Publishers of higher education texts from the US have often substantially lowered and varied pricing of their print texts for international markets within Asia, Europe and Australia,’ said Petrulis. ‘Over the years, publishers’ ability to do this has eroded as the distributors in lower-priced markets have sourced texts at a lower price and re-imported them back into the US at a much higher price, and made a handy profit. The books that are re-imported from lower priced markets compete with local US distributors and ultimately lessen the value of the publishers’ product.’
‘In addition, the development of large-scale online retail across the globe, combined with favourable shipping rates and delivery times, has accelerated this process,’ said Petrulis, who added that the Kirtsaeng v Wiley case ‘has effectively eliminated one of the last legal protections US publishers had to combat re-importation, often referred to as “leakage” or “arbitrage”’.
However, Petrulis said that there is an upside for the Australian market in introducing a global pricing structure, with Cengage Australia ‘actively pursuing ... greater emphasis and opportunities for more local authors to adapt and create content’. He said there will also be ‘advantages for local booksellers as this change creates a global price floor’, which will allow ‘local Australian booksellers with online facilities [to] effectively compete on price with international retailers such as Amazon or the Book Depository’. ‘Digital versions of US print products, which will be generally priced lower, are also likely to get an additional uptake as students take advantage of the digital format,’ said Petrulis.

The point about this is that it's not really a global pricing policy at all. It's a US first policy where the rest of the world is told to go suck.

Differentiated, territorial pricing around the globe is age old in book publishing, and makes all sorts of strategic and financial sense. This is particularly so in higher education. Less developed countries in Asia, the Middle East and Africa have for decades enjoyed lower prices on US-originated textbooks to reflect market conditions, namely the students' ability to pay. Publishers, universally, have produced lower cost paperback editions or priced their hardback US editions at far lower prices than those charged US students. (Australia and the UK have benefited from this policy over the years too, though with far less justification).

A decade or so ago, because the internet made international price comparisons easy, US students became increasingly aware of these price differentials and leakage back to the US began. Mr Kirtsaeng saw a commercial opportunity, prompting Wiley's litigation.

An important point here is that the Supreme Court's decision against Wiley was hardly surprising. Nothing really new happened. The understood status quo was confirmed. No 'expansion' of the first sale doctrine took place. The copies were 'lawfully made' in an overseas country, that is, they weren't pirate copies.

Cengage's panicky, over the top reaction is entirely unjustified. Asian and African markets will see huge price rises (at least double or triple), all done to protect the revenues and profits of the huge US market. Sales outside the US will collapse and piracy will get a huge boost. Cengage's name will be mud. They should also expect governmental pressure of some sort. In the end there's no way they can win. They would have been better advised to join with their industry colleagues and lobby Congress to toughen the law on re-importation.

If global pricing were to make any strategic sense at all it would be accompanied by significant price reductions in the US - in the order of 25 to 30%. But this is a far too bitter pill to swallow, so don't hold your breath.

No other major US higher ed company will follow this move. They are well on the way to the digital future where tailored, contractual pricing is the norm across the globe. 'Global pricing' of printed textbooks is the last gasp of the dying analogue age. And, ironically, perhaps the last gasp of a soon to be bankrupt Cengage.