I like books. Physical, paper books. I like going into bookstores and spending time choosing in the old-fashioned way — looking on shelves and browsing those that interest me. I do this very rarely however, as I have a Kindle, and buy 99% of by books digitally. I am, of course, not alone –- this trend away from paper to digital books is a long-commented-on trend.
But one area I have always thought physical books would have an advantage in has been what one would perhaps call the more academic type. One where colourful charts and graphics, perhaps even the layout of the content, is instrumental in this purpose of the book. In this view though, I may be alone.
Academic publisher Pearson (LSE: PSON) said last week that revenue form its US textbook business has fallen as sales to university students plunged 45% — the exact audience I would have thought still needed physical, paper books.
Bad news, good news
Pearson stated quite plainly that campus bookstores were buying fewer and fewer textbooks as students were increasingly switching to e-books and other digital media. This is of course a pain for Pearson’s traditional, core business, but it is also a trend it says it is now placed well to take advantage of.
Seeing the writing on the wall, Pearson has been investing in and establishing a vast digital learning arm, which by revenue, it claims is the largest in the world. The company said that this latest drop in revenues, particularly from its student sales, is the “bottom of the valley”. For a change we all knew was coming, things may be looking up from here on in.
Indeed outgoing CEO John Fallon said: “The ability for this to hurt us financially is now substantially less”. True, I suspect, though of course this doesn’t mean it will not be hurting it at all.
On the academic publishing side, established firms such as Pearson have another clear advantage – while it may be possible to replace a printed academic text with one on a Kindle or iPad, it is not possible to replace it by Wikipedia or Google.
In theory, the information may be out there, but as any student will tell you, the quality and reliability of an officially printed text is really the best way to research degree-level work. Pearson then, while suffering in its physical book sales, is in a prime position to make money in the digital field.
Time to invest?
The recent news dragged Pearson shares to an all-time low, which could offer a dip-buying opportunity, though I am still a little unsure. For one, while academic texts may only be replaceable by high-quality digital media, I suspect much of what Pearson currently publishes and produces will perhaps be more widely replaceable, if only by similar firms with a more established digital presence.
Even without this, I think it likely that Pearson will be seeing other such sales figures in the coming year that will still be hurting its share price. I will be on the look out for a bottom here, but as of yet, I do not think we are quite there.
