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Pearson Is Selling Its US K-12 Business—Despite Posting a Profit and Digital Growth

By Tony Wan     Feb 26, 2018

Pearson CEO John Fallon

Last May, major textbook publisher Pearson indicated it was mulling a sale of the U.S. portion of its K-12 business, which includes print and digital curriculum and instructional materials. In its latest earnings update, the company confirmed that it is indeed moving ahead with such plans.

In Pearson’s 2017 full-year results report, the publisher stated that “we have concluded the strategic review of our US K12 courseware business and have classified the business as held for sale.” It is currently “in discussions with potential buyers regarding a disposal of the business,” though no potential names have surfaced.

If concluded, the sale would mark yet another major asset that Pearson has shed since John Fallon took over as CEO in 2013. The publisher sold The Financial Times and its stake in The Economist in 2015. In July 2017, it sold a 22 percent stake in Penguin Random House for about $1 billion. (It still retains a 25 percent holding.) In November, it also divested its language-learning business, Wall Street English, for $100 million.

The U.S. K-12 courseware business made up 9 percent of Pearson’s overall revenue of £4.5 billion (approximately US $6.3 billion) in 2017.

“It is one of the least profitable parts of the business, it is textbook led and much less advanced than other parts of Pearson,” Fallon told The Evening Standard. “It does not fit with in with our digital transformation strategy.”

Under his tenure, Pearson has embarked on a rocky transition to refocus Pearson as a digital-focused education company. Along with the businesses it has sold, it also axed thousands of employees. But those moves may finally be bearing fruit, as the company reported a 2017 adjusted operating profit of £576 million (approximately US $804 million), one year after posting a $3.3 billion loss in 2016.

Specifically, 32 percent of its sales came from digital offerings. Another 27 percent came from what it calls “digitally enabled” services, such as computer-based tests in physical locations. The rest came from non-digital offerings.

In a video, Fallon said that “our first strategic priority is to grow market share through our digital transformation in U.S. higher-education courseware and in-school assessment in the U.S. and the U.K.” The company’s revenue from U.S. higher-ed digital courseware grew by 9 percent in 2017 over the previous year.

Speaking on CNBC, Fallon quipped that the “biggest competitor in higher education is second-hand sales of our own textbooks.” He added: “The Spotify generation—they want to rent, not own. They’re much more comfortable with access, not ownership model.”

Pearson reported that its revenues from e-book rentals have grown by 22 percent, after reducing the rental price for 2,000 titles in fall 2017.

While the growth may be welcome news for the company’s shareholders, Fallon warned that the company is not out of the woods yet. He projects that the North American business could decline by another 5 percent.

Pearson’s digital textbook transformation will likely face stiff competition. Earlier this month, McGraw-Hill, Barnes & Noble Education and Chegg teamed up for a new digital textbook rental program that the trio claims can help students save as much as 70 percent from buying print copies. In August, Cengage will launch a buffet-style offering where students pay $119.99 a semester to access all of the company’s digital higher-ed materials.

Pearson also remains just as much a testing company as a publisher, providing assessments for the K-12 market and professional certifications. In the K-12 market, it delivered 25.3 million online standardized tests to students in 2017 (up 7 percent from the previous year), and extended its contracts in seven states along with Puerto Rico and the National Assessment of Educational Progress.

The report also teased at Pearson’s plans to begin publishing efficacy reports in March. In 2013 the company embarked on efforts to create an efficacy framework that it would use to evaluate its own products.

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